Telesat Canada 20-F 2015 FY Annual report (foreign)

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 

FORM 20-F

 

(Mark One)
o	REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

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

For the fiscal year ended December 31, 2015

OR

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

OR

o	SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Date of Event Requiring This Shell Company Report         

For the transition period from             to            

Commission File Number 333-159793-01

 

TELESAT HOLDINGS INC.

(Exact Name of Registrant as Specified in Its Charter)

Not Applicable

(Translation of Registrant’s Name into English)

Canada

(Jurisdiction of Incorporation or Organization)

1601 Telesat Court, Ottawa, Ontario, Canada K1B 5P4

(Address of Principal Executive Offices)

Christopher S. DiFrancesco
Vice-President, General Counsel and Secretary
Telesat Holdings Inc.
1601 Telesat Court
Ottawa, Ontario, Canada K1B 5P4
Tel.: (613) 748-8700 ext. 2268
Fax: (613) 748-8712

(Name, Telephone, E-mail and/or Facsimile Number and Address of Company Contact Person)

 

Securities registered or to be registered pursuant to Section 12(b) of the Act.

Title of Each Class	Name of Each Exchange on Which Registered
None	None

Securities registered or to be registered pursuant to Section 12(g) of the Act.

None

(Title of Class)

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.

None

(Title of Class)

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report: Common Shares — 74,252,460; Director Voting Preferred Shares — 1,000; Non-Voting Participating Preferred Shares — 38,255,423; and Voting Participating Preferred Shares — 7,034,444.

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.Yeso Nox

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.Yesx Noo

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.Yeso Nox

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).Yeso Noo

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filero	Accelerated filero	Non-accelerated filerx

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

U.S. GAAPo	International Financial Reporting Standards as issued by the International Accounting Standards Boardx	Othero

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.o Item 17o Item 18

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).Yeso Nox

TELESAT HOLDINGS INC.
 
TABLE OF CONTENTS

	Page
PART I
Item 1. Identity of Directors, Senior Management and Advisers		1
Item 2. Offer Statistics and Expected Timetable		1
Item 3. Key Information		1
Item 4. Information on the Company		22
Item 4A. Unresolved Staff Comments		45
Item 5. Operating and Financial Review and Prospects		46
Item 6. Directors, Senior Management and Employees		66
Item 7. Major Shareholders and Related Party Transactions		73
Item 8. Financial Information		77
Item 9. The Offer and Listing		78
Item 10. Additional Information		78
Item 11. Quantitative and Qualitative Disclosures About Market Risk		82
Item 12. Description of Securities Other than Equity Securities		82
PART II
Item 13.   Defaults, Dividend Arrearages and Delinquencies		83
Item 14.   Material Modifications to the Rights of Security Holders and Use of Proceeds		83
Item 15.   Controls and Procedures		83
Item 16A.   Audit Committee Financial Expert		83
Item 16B.   Code of Ethics		84
Item 16C.   Principal Accountant Fees and Services		84
Item 16D.   Exemptions from the Listing Standards for Audit Committees		84
Item 16E.   Purchases of Equity Securities by the Issuer and Affiliated Purchasers		84
Item 16F.   Change in Registrant’s Certifying Accountant		85
Item 16G.   Corporate Governance		85
Item 16H.   Mine Safety Disclosure		85
PART III
Item 17. Financial Statements		86
Item 18. Financial Statements		86
Item 19. Exhibits		86
Index To Consolidated Financial Statements		F-1

i

Unless otherwise indicated or the context otherwise requires, references in this Annual Report to “Telesat,” “we,” “the Company,” “the combined company” and “our” mean Telesat Holdings Inc. and its subsidiaries, including Telesat Canada, its principal operating subsidiary. References to “Telesat Holdings” mean Telesat Holdings Inc., to the exclusion of its subsidiaries.

References to the “Senior Notes” mean the 6.0% Senior Notes due May 15, 2017 issued by Telesat Canada and Telesat LLC, as the Co-Issuer.

References to the “Senior Secured Credit Facilities” mean the four outstanding secured credit facilities comprising a Term Loan A and a revolving facility maturing in March 2017 and two Term Loan B facilities maturing in March 2019.

PRESENTATION OF FINANCIAL AND OTHER INFORMATION

Unless we indicate otherwise, financial information in this Annual Report has been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”). IFRS differs in some respects from United States generally accepted accounting principles, (“U.S. GAAP”) or (“United States GAAP”), and thus our financial statements may not be comparable to the financial statements of United States companies.

We present our historical financial statements in Canadian dollars, which is the presentation currency of the Company. All figures reported in this Annual Report are in Canadian dollars, except where we indicate otherwise, and are referenced as “CAD$,” “$” and “dollars”. This Annual Report contains a translation of some Canadian dollar amounts into United States dollars at specified exchange rates solely for your convenience. See “Exchange Rate Data” below for certain information about the rates of exchange between Canadian dollars and United States dollars.

EXCHANGE RATE DATA

The following table sets forth, for each year indicated, the low and high exchange rates for U.S. dollars expressed in Canadian dollar terms, the exchange rate at the end of such year and the average of such exchange rates on the last day of each month during such year, based on the closing rate as reported by Bloomberg. The exchange rates set forth below demonstrate trends in exchange rates, but the actual exchange rates used throughout this Annual Report may vary.

	2011		2012		2013		2014		2015
High		1.0547		1.0410		1.0706		1.1672		1.3959
Low		0.9433		0.9685		0.9832		1.0632		1.1611
Year End		1.0213		0.9921		1.0623		1.1621		1.3839
Average Rate		0.9869		0.9989		1.0351		1.1084		1.2899

The following table sets forth, for each of the last six months, the low and high exchange rates for U.S. dollars expressed in Canadian dollar terms and the exchange rate on the last day of each month based on the closing rate as reported by Bloomberg.

	Last Six Months
	August		September		October		November		December		January
High		1.3336		1.3422		1.3269		1.3371		1.3959		1.4579
Low		1.2977		1.3172		1.2864		1.3060		1.3343		1.3855
End of Month		1.3140		1.3313		1.3080		1.3362		1.3839		1.3976

On February 23, 2016, the closing rate as reported by Bloomberg was USD $1.00 = CAD $1.3793. Unless the context states or requires otherwise, for purposes of United States dollars and Canadian dollar conversions contained in this Annual Report, we have assumed the conversion rate of USD $1.00/CAD $1.3839, which is the closing rate on December 31, 2015 as reported on Bloomberg.

ii

MARKET, RANKINGS AND OTHER DATA

Unless otherwise indicated, we obtained the industry, market and competitive position data, and other statistical information, contained in this Annual Report from our own internal estimates and research as well as from industry and general publications and third party research, surveys and studies. Publications, research reports, studies and surveys generally state that they have obtained information from sources believed to be reliable, although they do not guarantee the accuracy or completeness of such information. While we believe that these publications, studies and surveys are reliable, we have not independently verified information obtained from third party sources. While we believe our internal company research and estimates are reliable, they have not been verified by an independent third party. As a result, you should be aware that industry, market, competitive position and other similar data and information set forth in this Annual Report, and estimates and beliefs based on such data and information, may not be reliable.

FORWARD-LOOKING STATEMENTS

We make statements in this Annual Report that are forward-looking. When used in this Annual Report, statements which are not historical in nature, or which contain the words “aim,” “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “possible,” “project,” “seek,” “should,” “target,” “would” or similar expressions, are forward-looking statements. Forward-looking statements appear in a number of places and include statements with respect to, among other things:

• our future growth and profitability;

• our competitive strengths; and

• our business strategy and the trends we anticipate in the industries and economies in which we operate.

These forward-looking statements are based on our current expectations and are subject to a number of risks, uncertainties and assumptions. These statements are not guarantees of future performance and are subject to risks, uncertainties and other factors, some of which are beyond our control, are difficult to predict, and could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements. Important factors that could cause actual results to differ materially from those in forward-looking statements include:

• Our in-orbit satellites may fail to operate as expected due to operational anomalies resulting in lost revenues, increased costs and/or termination of contracts.

• The actual orbital maneuver lives of our satellites may be shorter than we anticipate, and we may be required to reduce available capacity on our satellites prior to the end of their orbital maneuver lives.

• Our satellite launches may be delayed, we may suffer launch failures or our satellites may fail to reach their planned orbital locations. Any such issue could result in the loss of a satellite or cause significant delays in the deployment of the satellite which could have a material adverse effect on our results of operations, business prospects and financial condition.

• Our insurance will not protect us against all satellite-related losses. Further, we may not be able to renew insurance on our existing satellites or obtain insurance on future satellites on acceptable terms or at all and, for certain of our existing satellites, we have elected to forego obtaining insurance.

• Replacing a satellite upon the end of its service life will require us to make significant expenditures and may require us to obtain shareholder approval.

• We are subject to significant and intensifying competition within the satellite industry and from other providers of communications capacity. Our failure to compete effectively would result in a loss of revenues and a decline in profitability, which would adversely affect our results of operations, business prospects and financial condition.

• Fluctuations in available satellite capacity could adversely affect our results.

• Reductions in government spending could reduce demand for our services.

iii

• Changes in technology could have a material adverse effect on our results of operations, business prospects and financial condition.

• We derive a substantial amount of our revenues from only a few of our 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 our future revenues and contracted backlog.

• Changes in consumer demand for traditional television services and expansion of terrestrial networks have adversely impacted the growth in subscribers to DTH television services in North America which may adversely impact our future revenue.

• We operate in a highly regulated industry and government regulations may adversely affect our ability to sell our services, or increase the expense of such services or otherwise limit our ability to operate or grow our business.

• Our operations may be limited or precluded by ITU rules or processes, and we are required to coordinate our operations with those of other satellite operators.

• If we do not make use of our orbital spectrum rights by specified deadlines, or do not continue to use the orbital spectrum rights we currently use, these rights may become available for other satellite operators to use.

• Our business is capital intensive, and we may not be able to raise adequate capital to finance our business strategies, or we may be able to do so only on terms that significantly restrict our ability to operate our business.

• Market conditions may make it difficult to extend the maturity of or refinance our existing indebtedness and any failure to do so could have a material adverse effect on our business.

• Significant changes in exchange rates could have a material adverse effect on our financial results.

• Significant changes in exchange rates could materially increase our interest and other payment obligations under our financing arrangements.

• The soundness of financial institutions and counterparties could adversely affect us.

• We may experience a failure of ground operations infrastructure or interference with our satellite signals that impairs the commercial performance of, or the services delivered over, our satellites or the satellites of other operators for whom we provide ground services, which could result in a material loss of revenues.

• Interruption or failure of, or cyber-attacks on, our information technology and communications systems could hurt our ability to operate our business effectively, which could harm our business and operating results.

• Our dependence on outside contractors could result in delays related to the design, manufacture and launch of our new satellites, which could in turn adversely affect our operating results and prospects.

• A natural disaster could diminish our ability to provide communications service.

• Our future reported net income could be adversely affected by impairments of the value of certain intangible assets.

• We may pursue acquisitions, dispositions and strategic transactions which could result in the incurrence of additional costs, liabilities or expenses in connection with the implementation of such transactions.

• We could experience the departure of key employees or may be unable to recruit the employees needed for our success.

• The content of third-party transmissions over our satellites may affect us since we could be subject to sanctions by various governmental entities for the transmission of certain content.

iv

• Our failure to maintain or obtain authorizations under and comply with the U.S. export control and trade sanctions laws and regulations could have a material adverse effect on our results of operations, business prospects and financial condition.

• We are subject to risks associated with doing business internationally.

• Enforcement of civil liabilities against us may be more difficult because we are a Canadian corporation.

• Our substantial debt may adversely affect our cash flow and prevent us from fulfilling our obligations under our Senior Notes and our other outstanding indebtedness.

• Despite our current levels of debt, we and our subsidiaries may incur substantially more debt. This may further exacerbate the risks associated with our substantial debt as described herein and prevent us from fulfilling our obligations under our Senior Notes.

• Our Senior Notes are effectively subordinated to the co-issuers’ and the guarantors’ indebtedness under our Senior Secured Credit Facilities and any other future secured debt to the extent of the value of the assets securing such debt.

• The agreements governing our debt, including our Senior Notes and our Senior Secured Credit Facilities, contain various covenants that impose restrictions on us that may affect our ability to operate our business and to make payments on our Senior Notes.

• The limitations imposed by financing agreements on our ability to incur additional debt and to take other actions might significantly impair our ability to obtain other financing. To service our debt and to fund planned capital expenditures, we will require a significant amount of cash, which may not be available to us.

• We may not be able to generate sufficient cash to service all of our indebtedness, and may be forced to take other actions to satisfy our obligations under our indebtedness, which may not be successful.

• We may be unable to make a change of control offer required by the indenture governing our Senior Notes, which would cause defaults under the Indenture and our Senior Secured Credit Facilities.

• Holders of our Senior Notes may not be able to determine when a change of control giving rise to their right to have the Senior Notes repurchased has occurred following a sale of “substantially all” of our assets.

• Our variable rate indebtedness subjects us to interest rate risk, which could cause our debt service obligations to increase significantly.

• Because of the Telesat Canada Reorganization and Divestiture Act, a Canadian act uniquely applicable to Telesat Canada (but not the guarantors, our other subsidiaries or Telesat LLC), Telesat Canada may not have access to the usual protections from creditors and other rights available to insolvent persons, and creditors, including holders of our Notes, may not have recourse to the usual rights, remedies and protections under applicable bankruptcy and insolvency laws generally available to creditors of insolvent persons.

• The guarantees associated with our Senior Notes may not be enforceable because of fraudulent preference or conveyance laws.

• Because each guarantor’s liability under its guarantees may be reduced to zero, voided or released under certain circumstances, the holders of our Senior Notes may not receive any payments from some or all of the guarantors.

• The ability to transfer our Senior Notes may be limited by the absence of an active trading market for our Senior Notes.

• You should not rely on Telesat LLC in evaluating an investment in our Senior Notes.

• Our significant shareholders may have interests that conflict with the interests of bondholders.

v

We believe these forward-looking statements are reasonable; however, you should not place undue reliance on any forward-looking statements, which are based on current expectations. Furthermore, forward-looking statements speak only as of the date they are made. If any of these risks or uncertainties materialize, or if any of our underlying assumptions are incorrect, our actual results may differ significantly from the results that we express in, or imply by, any of our forward-looking statements. These and other risks are detailed in this Annual Report. We do not undertake any obligation to update or revise these forward-looking statements after the date of this Annual Report to reflect future events or circumstances. We qualify any and all of our forward-looking statements by these cautionary factors.

vi

PART I

Item 1. Identity of Directors, Senior Management and Advisers

Not applicable.

Item 2. Offer Statistics and Expected Timetable

Not applicable.

Item 3. Key Information

A. Selected financial data.

The following information is only selected information and should be read in conjunction with “Item 5. Operating and Financial Review and Prospects,” and Telesat’s audited consolidated financial statements and their notes included elsewhere in this Annual Report, as well as the other financial information included herein. Historical results from any prior period are not necessarily indicative of results to be expected for any future period.

The selected consolidated financial information is comprised of information of Telesat for the period of January 1, 2011 to December 31, 2015 under International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board. The selected consolidated statements of operations data and cash flows data for the years ended December 31, 2013 through December 31, 2015 have been derived from Telesat’s audited consolidated financial statements prepared in accordance with IFRS included elsewhere in this Annual Report. Certain statements of cash flows data for the years ended December 31, 2013 through December 31, 2014 have been restated as described in Note 3 of Telesat’s audited consolidated financial statements included elsewhere in this Annual Report. The selected balance sheet data for the years ended December 31, 2014 and December 31, 2015 have been derived from Telesat’s audited consolidated financial statements prepared in accordance with IFRS included elsewhere in this Annual Report. The selected balance sheet data for the years ended December 31, 2011 through December 2013 and the selected consolidated statements of operations data and cash flows data for the years ended December 31, 2011 through December 31, 2012 have also been derived from Telesat’s audited consolidated financial statements prepared under IFRS, but which are not included in this Annual Report.

1

Telesat Holdings Inc.
 
Selected Historical Consolidated Financial Information
(all amounts in millions of Canadian dollars)

	Year Ended December 31,
	2011			2012			2013			2014			2015
Statements of income (loss) data:
Operating revenues
Broadcast	$	436.7		$	439.4		$	471.0		$	468.2		$	492.6
Enterprise		341.9			380.5			402.4			430.2			434.6
Consulting and other		29.8			25.9			23.5			24.5			27.7
Total operating revenues		808.4			845.8			896.9			922.9			954.9
Operating expenses
Operating expenses		(188.1	)		(245.9	)		(201.1	)		(187.8	)		(184.3	)
Depreciation		(198.6	)		(208.7	)		(211.1	)		(216.5	)		(207.8	)
Amortization		(41.0	)		(36.0	)		(32.6	)		(30.8	)		(27.9	)
Other operating gains (losses), net		114.1			5.9			25.3			(0.3	)		—
Operating income		494.8			361.1			477.4			487.5			534.9
Other (expenses) income
Interest expense		(228.8	)		(245.4	)		(224.1	)		(206.9	)		(183.3	)
Interest and other income		1.6			1.4			11.7			3.0			4.7
Loss on financing		—			(77.3	)		(18.5	)		—			—
Gain (loss) on changes in fair value of financial instruments		98.6			(59.0	)		80.9			48.9			6.0
(Loss) gain on foreign exchange		(78.9	)		78.9			(194.9	)		(241.1	)		(540.5	)
Tax expense		(51.5	)		(35.3	)		(64.4	)		(78.2	)		(88.7	)
Net income (loss)	$	235.8		$	24.4		$	68.1		$	13.2		$	(266.9	)
Statements of cash flows data:
Net cash from operating activities	$	423.9		$	300.0		$	481.1		$	412.0		$	422.4
Net cash used in investing activities	$	(251.2	)	$	(170.3	)	$	(78.9	)	$	(95.2	)	$	(193.9	)
Net cash used in financing activities	$	(114.7	)	$	(220.9	)	$	(291.9	)	$	(136.8	)	$	(80.6	)
Balance sheets data (end of year):
Cash and cash equivalents	$	278.0		$	181.0		$	298.7		$	497.4		$	690.7
Total assets	$	5,996.4		$	5,806.7		$	5,718.3		$	5,737.8		$	6,004.6
Total debt (including current portion)	$	2,834.6		$	3,406.9		$	3,341.9		$	3,545.7		$	4,063.2
Total shareholders’ equity	$	1,690.2		$	1,026.7		$	1,122.0		$	1,131.2		$	918.1
Common shares	$	756.4		$	340.6		$	340.6		$	340.6		$	340.6
Preferred shares	$	541.8		$	315.8		$	316.1		$	316.3		$	316.3

2

B. Capitalization and indebtedness.

Not applicable.

C. Reasons for the offer and use of proceeds.

Not applicable.

D. Risk factors.

You should carefully consider the risk factors set forth below as well as the other information contained in this Annual Report. The risks described below are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial could have a material adverse effect on our results of operations, business prospects and financial condition. Any of the following risks could have a material adverse effect on our results of operations, business prospects and financial condition.

Risks related to our business

Our in-orbit satellites may fail to operate as expected due to operational anomalies resulting in lost revenues, increased costs and/or termination of contracts.

Satellites utilize highly complex technology and operate in the harsh environment of space and therefore are subject to significant operational risks while in orbit. The risks include in-orbit equipment failures, malfunctions and other kinds of problems commonly referred to as anomalies. Satellite anomalies include, for example, circuit failures, transponder failures, solar array failures, telemetry transmitter failures, battery cell and other power system failures, satellite control system failures and propulsion system failures. Some of our satellites have had malfunctions and other anomalies in the past. See “Item 4D. Property, plants and equipment — In-Orbit Satellites” for more information relating to our significant anomalies and their impact on the health of our satellites. Acts of war, terrorism, magnetic, electrostatic or solar storms, space debris, satellite conjunctions or micrometeoroids could also damage our satellites.

Despite working closely with satellite manufacturers to determine the causes of anomalies and mitigate them in new satellites and to provide for intrasatellite redundancies for certain critical components to minimize or eliminate service disruptions in the event of failure, anomalies are likely to be experienced in the future, whether due to the types of anomalies described above or arising from the failure of other systems or components, and intrasatellite redundancy may not be available upon the occurrence of such anomalies. We cannot assure you that, in these cases, it will be possible to restore normal operations. Where service cannot be restored, the failure could cause the satellite to have less capacity available for sale, to suffer performance degradation or to cease operating prematurely, either in whole or in part.

Any single anomaly or series of anomalies or other failure (whether full or partial) of any of our satellites could cause our revenues, cash flows and backlog to decline materially, could require us to repay prepayments made by customers of the affected satellite and could have a material adverse effect on our relationships with current customers and our ability to attract new customers for satellite services. A failure could result in a customer terminating its contract for service on the affected satellite. If we are unable to provide alternate capacity to an affected customer, the customer may decide to procure all or a portion of its future satellite services from an alternate supplier or the customer’s business may be so adversely affected by the satellite failure that it may not have the financial ability to procure future satellite services. It may also require that we expedite our planned replacement program, adversely affecting our profitability, increasing our financing needs and limiting the availability of funds for other business purposes. Finally, the occurrence of anomalies may adversely affect our ability to insure satellites at commercially reasonable premiums, if at all, and may cause insurers to demand additional exclusions in policies they issue.

The actual orbital maneuver lives of our satellites may be shorter than we anticipate, and we may be required to reduce available capacity on our satellites prior to the end of their orbital maneuver lives.

We anticipate that our satellites will have the end of orbital maneuver life dates described in “Item 4D. Property, plants and equipment — In-Orbit Satellites”. For all but one of our satellites, the expected end-of-orbital maneuver life date goes beyond the manufacturer’s end-of-service life date. A number of factors will affect the actual commercial service lives of our satellites, including:

3

• the amount of propellant used in maintaining the satellite’s orbital location or relocating the satellite to a new orbital location (and, for newly-launched satellites, the amount of propellant used during orbit raising following launch);

• the durability and quality of their construction;

• the performance of their components;

• conditions in space such as solar flares and space debris;

• operational considerations, including operational failures and other anomalies; and

• changes in technology which may make all or a portion of our satellite fleet obsolete.

We have been forced to remove satellites from service prematurely in the past due to an unexpected reduction in their previously anticipated end-of-orbital maneuver life. It is possible that the actual orbital maneuver lives of one or more of our existing satellites may also be shorter than originally anticipated. Further, on some of our satellites it is anticipated that the total available payload capacity may need to be reduced prior to the satellite reaching its end-of-orbital maneuver life.

We periodically review the expected orbital maneuver lives of each of our satellites using current engineering data. A reduction in the orbital maneuver life of any of our satellites could result in a reduction of the revenues generated by that satellite, the recognition of an impairment loss and an acceleration of capital expenditures. To the extent we are required to reduce the available payload capacity prior to the end of a satellite’s orbital maneuver life, our revenues from the satellite would be reduced.

Our satellite launches may be delayed, we may suffer launch failures or our satellites may fail to reach their planned orbital locations. Any such issue could result in the loss of a satellite or cause significant delays in the deployment of the satellite which could have a material adverse effect on our results of operations, business prospects and financial condition.

Delays in launching satellites and in the deployment of satellites are not uncommon and result from construction delays, the unavailability of reliable launch opportunities with suppliers, delays in obtaining required regulatory approvals and launch failures. If satellite construction schedules are not met, a launch opportunity may not be available at the time the satellite is ready to be launched. Satellites are also subject to certain risks related to failed launches. Launch vehicles may fail. Launch failures result in significant delays in the deployment of satellites because of the need to construct replacement satellites, which typically takes up to 30 months or longer, and to obtain another launch vehicle. A delay or perceived delay in launching a satellite, or replacing a satellite, may cause our current customers to move to another satellite provider if they determine that the delay may cause an interruption in continuous service. In addition, our contracts with customers who purchase or reserve satellite capacity may allow the customers to terminate their contracts in the event of a delay. Any such termination would require us to refund any prepayment we may have received, and would result in a reduction in our contracted backlog and would delay or prevent us from securing the commercial benefits of the new satellite. Launch vehicles may also underperform, in which case the satellite may be lost or, if it can be placed into service by using its onboard propulsion systems to reach the desired orbital location, will have a shorter useful life. Any launch failure, underperformance, delay or perceived delay could have a material adverse effect on our results of operations, business prospects and financial condition.

Our insurance will not protect us against all satellite-related losses. Further, we may not be able to renew insurance on our existing satellites or obtain insurance on future satellites on acceptable terms or at all, and, for certain of our existing satellites, we have elected to forego obtaining insurance.

Our current satellite insurance does not protect us against all satellite-related losses that we may experience, and we do not have in-orbit insurance coverage for all of the satellites in our fleet. As of December 31, 2015, the total net book value of our six in-orbit satellites for which we do not have insurance was approximately $56 million. Our insurance does not protect us against business interruption, loss of revenues or delay of revenues. In addition, we do not insure the net book value of performance incentives that may be payable to a satellite’s manufacturer as these are payable only to the extent that the satellite operates in accordance with contracted technical specifications. Our existing launch and in-orbit insurance policies

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include, and any future policies that we obtain can be expected to include, specified exclusions, deductibles and material change limitations. Typically, these insurance policies exclude coverage for damage or losses arising from acts of war, anti-satellite devices, electromagnetic or radio frequency interference and other similar potential risks for which exclusions are customary in the industry at the time the policy is written. In addition, they typically exclude coverage for satellite health-related problems affecting our satellites that are known at the time the policy is written or renewed. Any claims under existing policies are subject to settlement with the insurers and may, in some instances, be payable to our customers.

The price, terms and availability of satellite insurance has fluctuated significantly in recent years. These fluctuations may be affected by recent satellite launch or in-orbit failures and general conditions in the insurance industry. Launch and in-orbit policies on satellites may not continue to be available on commercially reasonable terms or at all. To the extent we experience a launch or in-orbit failure that is not fully insured, or for which insurance proceeds are delayed or disputed, we may not have sufficient resources to replace the affected satellite. In addition, higher premiums on insurance policies increase our costs, thereby reducing our profitability. In addition to higher premiums, insurance policies may provide for higher deductibles, shorter coverage periods, higher loss percentages required for constructive total loss claims and additional satellite health-related policy exclusions. There can be no assurance that, upon the expiration of an in-orbit insurance policy, which typically has a term of one year, we will be able to renew the policy on terms acceptable to us.

Subject to the requirements of our Senior Secured Credit Facilities and the indenture governing our Senior Notes, we may elect to reduce or eliminate insurance coverage for certain of our existing satellites, or elect not to obtain insurance policies for our future satellites, especially if exclusions make such policies ineffective, the costs of coverage make such insurance impractical or if self-insurance is deemed more cost effective.

Replacing a satellite upon the end of its service life will require us to make significant expenditures and may require us to obtain shareholder approval.

To ensure no disruption in our business and to prevent loss of customers, we will be required to commence construction of a replacement satellite approximately five years prior to the expected end of service life of the satellite then in orbit. Typically, it costs in the range of USD $250 million to USD $300 million to construct, launch and insure a satellite. There is no assurance that we will have sufficient cash, cash flow or be able to obtain third party or shareholder financing to fund such expenditures on favorable terms, if at all, or that we will obtain shareholder approval, where required, to procure replacement satellites. Certain of our satellites are nearing their expected end-of-orbital maneuver lives. See “Item 4D. Property, plants and equipment — In-Orbit Satellites” for more information on the expected end-of-orbital maneuver lives of our satellites. Should we not have sufficient funds available to replace those satellites or should we not receive approval from our shareholders, where required, to purchase replacement satellites, it could have a material adverse effect on our results of operations, business prospects and financial condition.

We are subject to significant and intensifying competition within the satellite industry and from other providers of communications capacity. Our failure to compete effectively would result in a loss of revenues and a decline in profitability, which would adversely affect our results of operations, business prospects and financial condition.

We provide point-to-point and point-to-multipoint services for voice, data and video communications and for high-speed internet access. A trend toward consolidation of major Fixed Satellite Services (“FSS”) providers has resulted in the creation of global competitors who are substantially larger than we are in terms of both the number of satellites they have in orbit as well as in terms of their revenues. Due to their larger sizes, these operators are able to take advantage of greater economies of scale, may be more attractive to customers, may (depending on the specific satellite and orbital location in question) have greater flexibility to restore service to their customers in the event of a partial or total satellite failure and may be able to offer expansion capacity for future requirements. We also compete against regional satellite operators who may enjoy competitive advantages in their local markets. As a result of the availability of export credit agency financing for projects that would not otherwise obtain financing from commercial lenders, new entrants, including governments that have traditionally purchased satellite capacity from established satellite operators,

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are acquiring their own satellites, which increases the amount of available satellite capacity in the marketplace and decreases the demand for our services.

As a condition of our licenses for certain satellites, we are required by the Department of Innovation, Science and Economic Development Canada (“DISED”), formerly Industry Canada, the governmental department overseeing Canadian investment, innovation and economic development, to invest in research and development related to satellite communication activities. See “Item 4B. Business overview — Research and Development”. Our global competitors may not face this additional financial burden.

We expect that a substantial portion of our ongoing business will continue to be in the Canadian domestic market. This market is characterized by increasing competition among satellite providers and rapid technological development. Historically, the Canadian regulatory framework has required the use of Canadian-licensed satellites for the delivery of Direct-To-Home video programming (“DTH”) in Canada. It is possible that this framework could change and allow non-Canadian satellite operators that have adequate service coverage in Canadian territory to compete for future business from our DTH customers.

Our business is also subject to competition from ground based forms of communications technology. For many point-to-point and other services, the offerings provided by terrestrial companies can be more competitive than the services offered via satellite. A number of companies are increasing their ability to transmit signals on existing terrestrial infrastructures, such as fiber optic cable, DSL (digital subscriber line) and terrestrial wireless transmitters often with funding and other incentives provided by government. See “Item 4B. Business overview — Competition.” The ability of any of these companies to increase their capacity and/or the reach of their network significantly would likely result in a decrease in the demand for our services. Increasing availability of capacity from other forms of communications technology can create an excess supply of telecommunications capacity, decreasing the prices we would be able to charge for our services under new service contracts and thereby negatively affecting our profitability. New technology could render satellite-based services less competitive by satisfying consumer demand in other ways. We also compete for local regulatory approval in places where more than one provider may want to operate, and with other satellite operators for scarce frequency assignments and a limited supply of orbital locations.

Our failure to compete effectively could result in a loss of revenues and a decline in profitability, a decrease in the value of our business and a downgrade of our credit rating, which would restrict our access to the capital markets.

Fluctuations in available satellite capacity could adversely affect our results.

The availability of satellite capacity has fluctuated over time, characterized by periods of undersupply of capacity, followed by periods of substantial new satellite construction which is, in turn, followed by an oversupply of available capacity. Given the number of new satellites launched over the past year and the number presently under construction, many of which contain high throughput payloads, unless we experience a corresponding increase in demand, the next several years may be characterized by an oversupply of capacity. To the extent we were to experience another period of oversupply of capacity, we may be forced to decrease the prices we charge for our services which would adversely affect our results.

Developments that we expect to support the growth in demand for satellite services, such as continued growth in corporate data and internet traffic, the continued proliferation of HDTV and economic growth in Latin America may fail to materialize or may not occur in the manner or to the extent we anticipate.

Reductions in government spending could reduce demand for our services.

Governments, in particular the U.S. government, purchase a substantial amount of satellite services from commercial satellite operators, including Telesat. To the extent these governments reduce spending on satellite services, as a result of the need to reduce overall spending during periods of fiscal restraint, to reduce budget deficits or otherwise, demand for our services could decrease which could adversely affect our revenue, the prices we are able to charge for our services and our results.

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Changes in technology could have a material adverse effect on our results of operations, business prospects and financial condition.

The implementation of new technologies that can provide increased capacity to end users at lower cost may reduce demand for our services. The introduction of first generation high throughput satellites (“HTS”), such as ViaSat-1, Jupiter 1 and the recently launched Intelsat 29e, the first of Intelsat’s “Epic” line of HTS, which are able to transmit substantially more content than pre-existing satellites, may decrease demand and/or prices for traditional satellite capacity. Additional HTS are currently under construction, including second generation HTS that purport to be capable of throughput that substantially exceeds the throughput of first generation HTS. While we own the high throughput Canadian payload on ViaSat-1, and have incorporated high throughput payloads on our Telstar 12 VANTAGE satellite and the Telstar 18 VANTAGE and Telstar 19 VANTAGE satellites currently under construction, the introduction of more, and more capable, HTS by other operators into the markets in which we participate could have a material adverse effect on our results of operations, business prospects and financial condition.

A number of global low earth orbit (“LEO”) satellite projects have recently been announced which, if implemented successfully, could have significant advantages over geostationary satellite systems, in particular for latency sensitive applications. In addition to new satellite technologies, new projects which could compete with traditional satellite services have recently been announced, including for the provision of telecommunications services using balloons or drones.

Improvements in existing technologies could adversely impact the demand for satellite services. For example, improvements in signal compression could allow our customers to transmit the same amount of data using a reduced amount of capacity.

We derive a substantial amount of our revenues from only a few of our 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 our future revenues and contracted backlog.

For the year ended December 31, 2015, our top five customers together accounted for approximately 52% of our revenues. At December 31, 2015, our top five backlog customers together accounted for approximately 81% of our backlog. If any of our major customers choose to not renew their contracts at the expiration of the existing terms or seek to negotiate concessions, particularly on price, it could have a material adverse effect on our results of operations, business prospects and financial condition. Our customers could experience a downturn in their business or find themselves in financial difficulties, which could result in their ceasing or reducing their use of our services (or becoming unable to pay for services they had contracted to buy). In addition, some of our customers’ industries are undergoing significant consolidation, and our customers may be acquired by each other or other companies, including by our competitors. Such acquisitions could adversely affect our ability to sell services to such customers and to any end-users whom they serve. Some customers have in the past defaulted, and our customers may in the future default, on their obligations to us due to bankruptcy, lack of liquidity, operational failure or other reasons. Such defaults could adversely affect our revenue, operating margins and cash flows. If our contracted revenue backlog is reduced due to the financial difficulties of our customers, our revenue, operating margins and cash flows would be further negatively impacted.

Changes in consumer demand for traditional television services and expansion of terrestrial networks have adversely impacted the growth in subscribers to DTH television services in North America which may adversely impact our future revenue.

A substantial amount of our revenue is earned from customers who use our services to provide DTH television services to the public in North America. We believe that DTH has certain cost, quality and efficiency advantages over terrestrial delivery systems, including fiber, for the consumption of linear television programming (i.e. traditional television viewing where the consumer receives a broad array of channels from their provider and views programming which is delivered at a scheduled time via a specified channel either live or at a later time using a recording device such as a personal video recorder (“PVR”)). However, for various reasons, the consumption of traditional linear television programming via DTH has recently been challenged in various regions, including North America.

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In many regions of the world, including North America, the terrestrial networks with which we compete continue to expand. Terrestrial networks have advantages over traditional DTH services for the delivery of two-way services, such as on demand video services. Moreover, one of our largest DTH customers also has a substantial fiber terrestrial broadcast distribution network that it is continuing to expand, which has led to certain of their own DTH customers migrating to their terrestrial network. The migration of DTH customers to terrestrial networks, in order to access improved two-way services or for other reasons, could decrease the demand for our services, adversely impacting our future revenue and financial performance.

The growth of “over-the-top” (“OTT”) video distribution (e.g., Netflix) may also have an adverse impact on our business. OTT distribution is a two-way (i.e. non-linear) platform that provides on demand delivery of broadcasting services to consumers through an internet service provider that may not be involved in the control or distribution of the content itself. The growth of OTT distribution may have a negative impact on the demand for the services of some of Telesat’s large DTH customers which could result in lower demand for our satellite capacity.

In Canada, the CRTC has mandated that broadcast distributors, including DTH operators, provide consumers with the option of “skinny basic” or “pick and pay” packages. These packages will allow consumers to choose both the number and the specific channels they wish to receive beyond the entry level service offering as compared to the traditional subscription model which required consumers to sign up and pay for a large basic service and encouraged them to subscribe for up to several hundred channels. If consumers only subscribe to an entry level package or significantly reduce their subscriptions it could reduce the revenue our customers receive for their DTH offerings. In turn, our customers may choose to reduce the number of channels they deliver to consumers which would reduce the amount of satellite capacity they consume, adversely impacting our revenue.

We operate in a highly regulated industry and government regulations may adversely affect our ability to sell our services, or increase the expense of such services or otherwise limit our ability to operate or grow our business.

As an operator of a global satellite system, we are regulated by government authorities in Canada, the United States and other countries in which we operate.

In Canada, our operations are subject to regulation and licensing by DISED pursuant to the Radiocommunication Act (Canada) and by the Canadian Radio-Television and Telecommunications Commission (“CRTC”), under the Telecommunications Act (Canada). DISED has the authority to issue licenses, establish standards, assign Canadian orbital locations, and plan the allocation and use of the radio frequency spectrum, including the radio frequencies upon which our satellites and earth stations depend. The Minister responsible for DISED has broad discretion in exercising this authority to issue licenses, fix and amend conditions of licenses, and to suspend or even revoke them. The CRTC has authority over the allocation (and reallocation) of satellite capacity to particular broadcasting undertakings. Some of our service agreements are subject to CRTC approval. We are required to pay different forms of “universal service” charges in Canada and have certain research and development obligations that do not apply to other satellite operators with which we compete. These rates and obligations could change at any time. In 2015, the CRTC conducted a regulatory proceeding to review the pricing of our C-band FSS services. The results of that proceeding may have an adverse impact on our ability to earn revenue from these services. In the United States, the Federal Communications Commission (“FCC”) regulates the provision of satellite services to, from or within the United States. Certain of our satellites are owned and operated through a U.S. subsidiary and are regulated by the FCC. In addition, to facilitate the provision of FSS satellite services in C-, Ku- and Ka-band frequencies in the United States market, foreign licensed operators can apply to have their satellites placed on the FCC’s Permitted Space Station List. Our Anik Fl, Anik FlR, Anik F2, Anik F3 and Telstar 14R/Estrela do Sul 2 satellites are currently on this list. The export from the United States of satellites and technical information related to satellites, earth station equipment and provision of services to certain countries are subject to State Department, Commerce Department and Treasury Department regulations, in particular the International Traffic in Arms Regulations (“ITAR”), which currently include satellites on the list of items requiring export permits. These ITAR provisions have constrained our access to technical information and have had a negative impact on our international consulting revenues. In addition, we and our satellite manufacturers may not be able to obtain and maintain necessary export authorizations, which could adversely

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affect our ability to procure new United States-manufactured satellites; control our existing satellites; acquire launch services; obtain insurance and pursue our rights under insurance policies; or conduct our satellite-related operations and consulting activities.

We also operate satellites through licenses granted by, and are subject to regulations in, countries other than Canada and the United States. For example, the Brazilian national telecommunications agency, ANATEL, has authorized us, through our subsidiary, Telesat Brasil Capacidade de Satélites Ltda. (“TBCS”), to operate Telstar 14R/Estrela do Sul 2, a Ku-band FSS satellite at 63° WL pursuant to a Concession Agreement. Telstar 18 operates at the 138° EL orbital location under an agreement with APT, which has been granted the right to use the 138° EL orbital location by The Kingdom of Tonga.

In addition to regulatory requirements governing the use of orbital locations, most countries regulate transmission of signals to and from their territory, and we are required to obtain and maintain authorizations to carry on business in the countries in which we operate.

If we fail to obtain or maintain particular authorizations on acceptable terms, such failure could delay or prevent us from offering some or all of our services and adversely affect our results of operations, business prospects and financial condition. In particular, we may not be able to obtain all of the required regulatory authorizations for the construction, launch and operation of any of our future satellites, for the orbital locations and spectrum for these satellites and for our ground infrastructure, on acceptable terms or at all. Even if we were able to obtain the necessary authorizations and orbital locations, the licenses we obtain may impose significant operational restrictions, or not protect us from interference that could affect the use of our satellites. Countries or their regulatory authorities may adopt new laws, policies or regulations, or change their interpretation of existing laws, policies or regulations, that could cause our existing authorizations to be changed or cancelled, require us to incur additional costs, impose or change existing pricing, or otherwise adversely affect our operations or revenues. As a result, any currently held regulatory authorizations are subject to rescission and renewal and may not remain sufficient or additional authorizations may be necessary that we may not be able to obtain on a timely basis or on terms that are not unduly costly or burdensome. Further, because the regulatory schemes vary by country, we may be subject to regulations in foreign countries of which we are not presently aware that we are not in compliance with, and as a result could be subject to sanctions by a foreign government. See Item 4B. “Business overview — Government Regulation.”

Our operations may be limited or precluded by ITU rules or processes, and we are required to coordinate our operations with those of other satellite operators.

The ITU, a specialized United Nations agency, regulates the global allocation of radio frequency spectrum and the registration of radio frequency assignments and any associated orbital location in the geostationary satellite orbit. We participate in the activities of the ITU. However, only national administrations have full standing as ITU members. Consequently, we must rely on the relevant government administrations to represent our interests.

The ITU establishes the Radio Regulations, an international treaty which contains the rules concerning frequency allocations and the priority to, coordination of, and use of, radio frequency assignments. The ITU Radio Regulations define the allocation of radio frequencies to specific uses. The ITU Radio Regulations are periodically reviewed and revised at World Radiocommunication Conferences (“WRC”), which take place typically every three to four years. As a result, we cannot guarantee that the ITU will not change its allocation decisions and rules in the future in a way that could limit or preclude our use of some or all of our existing or future orbital locations or spectrum.

The ITU Radio Regulations also establish operating procedures for satellite networks and prescribe detailed coordination, notification and recording procedures. With respect to the frequencies used by commercial satellites, the ITU Radio Regulations set forth a process for protecting earlier-registered satellite systems from interference from later-registered satellite systems. In order to comply with these rules, we must coordinate the operation of our satellites, including any replacement satellite that has performance characteristics that are different from those of the satellite it replaces, with other satellites. This process requires potentially lengthy and costly negotiations with parties who operate or intend to operate satellites that could affect or be affected by our satellites. For example, in the third quarter of 2015 the Russian Satellite Communications Company (“RSCC”) launched a satellite to operate at 14° WL, adjacent to our Telstar 12 at

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15° WL. Pursuant to our coordination agreement with RSCC, we were required to cease using certain frequencies on our Telstar 12 satellite as soon as RSCC’s new satellite commenced service, which required us to relocate some of our customers to alternate frequencies and reduced the available capacity on the satellite from which we were able to earn revenue. The coordination agreement with RSCC also limited the frequencies we were able to incorporate into our Telstar 12 VANTAGE satellite that was launched and entered into service in the fourth quarter of 2015, which may adversely affect our ability to attract customers for Telstar 12 VANTAGE.

In certain countries, a failure to resolve coordination issues is used by regulators as a justification to limit or condition market access by foreign satellite operators. In addition, while the ITU Radio Regulations require later-in-time systems to coordinate their operations with us, we cannot guarantee that other operators will conduct their operations so as to avoid transmitting any signals that would cause harmful interference to the signals that we, or our customers, transmit. This interference could require us to take steps, or pay or refund amounts to our customers, that could have a material adverse effect on our results of operations, business prospects and financial condition. The ITU’s Radio Regulations do not contain mandatory dispute resolution or enforcement regulations and neither the ITU specifically, nor international law generally, provides clear remedies if the ITU coordination process fails. Failure to coordinate our satellites’ frequencies successfully or to obtain or maintain other required regulatory approvals could have an adverse effect on our business operations, prospects and financial condition, as well as on the value of our business.

If we do not make use of our orbital spectrum rights by specified deadlines, or do not continue to use the orbital spectrum rights we currently use, these rights may become available for other satellite operators to use.

Our in-orbit satellites do not currently occupy all of the geostationary orbital (“GSO”) locations for which we have obtained regulatory authorizations. In some cases, the Telesat satellite that occupies an orbital location is not designed to use all of the frequency spectrum for which we have been authorized. Similarly, Telesat has been granted regulatory authorizations for certain spectrum in non-geostationary orbits (“NGSO”) that are not yet occupied.

In accordance with the ITU Radio Regulations, governments have rights to use certain GSO orbital locations and NGSO orbits and the associated radio frequencies. Certain of these governments have in turn authorized Telesat to use GSO orbital locations, NGSO orbits, and associated radio frequencies in addition to those used by our current satellites. Under the ITU Radio Regulations, we must bring into use (“BIU”) these orbital locations, orbits, and frequency assignments within a fixed period of time, or the governments in question would lose their international priority rights, and the GSO orbital location or NGSO orbits, and associated frequencies, likely would become available for use by another satellite operator. In addition to ITU requirements, the governments that have authorized us to use these orbital resources have generally conditioned such use on our meeting certain milestones, including making use of the orbital spectrum by a specified time.

If we are unable to place satellites into currently unused GSO orbital locations or NGSO orbits in a manner that satisfies the ITU Radio Regulations and national regulatory requirements, or if the ITU or national regulatory requirements were to change, or if we are unable to maintain satellites or make use of all of the spectrum for which we have been authorized at the GSO orbital locations that we currently use, we may lose our rights to use these orbital resources and they would become available for other satellite operators to use. The loss of one or more of our orbital resources could negatively affect our plans and our ability to implement our business strategy.

Our business is capital intensive, and we may not be able to raise adequate capital to finance our business strategies, or we may be able to do so only on terms that significantly restrict our ability to operate our business.

Implementation of our business strategy requires a substantial outlay of capital. As we pursue our business strategies and seek to respond to developments in our business and opportunities and trends in our industry, our actual capital expenditures may differ from our expected capital expenditures. There can be no assurance that we will be able to satisfy our capital requirements in the future. In addition, if one of our

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satellites failed unexpectedly, there is no assurance of insurance recovery or the timing thereof and we may need to exhaust or significantly draw upon our Revolving Credit Facility or obtain additional financing to replace the satellite. If we determine we need to obtain additional funds through external financing and are unable to do so, we may be prevented from fully implementing our business strategy.

The availability and cost to us of external financing depend on a number of factors, including our credit rating and financial performance and general market conditions. Our ability to obtain financing generally may be influenced by the supply and demand characteristics of the telecommunications sector in general and of the satellite services sector in particular. Declines in our expected future revenues under contracts with customers and challenging business conditions faced by our customers are among the other factors that may adversely affect our credit and access to the capital markets. Other factors that could impact our credit rating include the amount of debt in our current or future capital structure, activities associated with strategic initiatives, the health of our satellites, the success or failure of our planned launches, our expected future cash flows and the capital expenditures required to execute our business strategy. The overall impact on our financial condition of any transaction that we pursue may be negative or may be negatively perceived by the financial markets and rating agencies and may result in adverse rating agency actions with respect to our credit rating and access to the capital markets. Long-term disruptions in the capital or credit markets as a result of uncertainty or recession, changing or increased regulation or failures of significant financial institutions could adversely affect our access to capital. A credit rating downgrade or deterioration in our financial performance or general market conditions could limit our ability to obtain financing or could result in any such financing being available only at greater cost or on more restrictive terms than might otherwise be available and, in either case, could result in our deferring or reducing capital expenditures including on new or replacement satellites.

In certain circumstances, we are required to obtain the approval of our shareholders to incur additional indebtedness. There can be no assurances that we will receive such approval, if required.

Market conditions may make it difficult to extend the maturity of or refinance our existing indebtedness and any failure to do so could have a material adverse effect on our business.

As of December 31, 2015, we had outstanding Senior Secured Credit Facilities consisting of: a $375 million Term Loan A maturing in March 2017; a $136 million Term Loan B maturing in March 2019; and a USD $1,698 million Term Loan B maturing in March 2019. Together with our $140 million Revolving Credit Facility, the U.S. Term Loan B is subject to a springing maturity which will occur on February 13, 2017 if our Senior Notes are not refinanced by that date. We will need to refinance all or a portion of this indebtedness on or before maturity. Disruptions in the financial markets have occurred in the past and are likely to reoccur again in the future, which could make it more difficult to renew or extend the facilities at current commitment levels, on similar terms or at all. A reduced commitment from the lenders, increased borrowing costs or modification to the financial covenant would result in an increase in our financing costs and/or a decrease in our liquidity, which could adversely affect our growth, our financial condition, our results of operations and our ability to make payments on our debt, including repayments on our Senior Notes when they become due.

Significant changes in exchange rates could have a material adverse effect on our financial results.

Our main foreign currency exposures as at December 31, 2015 lie in our U.S. dollar denominated debt financing, cash and short-term investments. In addition, approximately 51% of our revenues, 42% of our operating expenses, 86% of our interest expense and the majority of our capital expenditures were denominated in U.S. dollars for the year ended December 31, 2015.

As a result of a significant decrease in the value of the Canadian dollar against the U.S. dollar at December 31, 2015 compared to December 31, 2014, we recorded a mainly non-cash foreign exchange loss of approximately $540 million. For the year ended December 31, 2015, a five percent increase (decrease) in the value of the U.S. dollar against the Canadian dollar would have increased (decreased) our indebtedness by $180 million, increased (decreased) our revenues by $24 million and increased (decreased) our operating expenses by $4 million. This analysis assumes that all other variables remain constant.

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A portion of our revenues come from contracts which are denominated in Brazilian Reais. Any decrease in the value of the Brazilian Reais against the Canadian dollar would reduce our revenues.

Significant changes in exchange rates could materially increase our interest and other payment obligations under our financing arrangements.

As at December 31, 2015, the Canadian dollar equivalent of our debt denominated in U.S. currency was $3,595 million. This U.S. dollar denominated debt consists of a USD $1,698 million Term Loan B facility and USD $900 million of Senior Notes.

As at December 31, 2014, the Canadian dollar equivalent of our debt denominated in U.S. currency was $3,039 million. The U.S. dollar denominated debt consisted of a USD $1,715 million Term Loan B facility and USD $900 million of Senior Notes. As a result of significant changes in exchange rates in 2015 the Canadian dollar equivalent of our U.S. dollar denominated debt increased by $556 million.

As at December 31, 2015, if the value of the Canadian dollar against the U.S. dollar increased (decreased) by $0.01, our indebtedness would have decreased (increased) by $26 million.

Changes in exchange rates impact the amount that we pay in interest, and may significantly increase the amount that we are required to pay in Canadian dollar terms to redeem our Senior Notes, either at maturity, or earlier if redemption rights are exercised or other events occur which require us to offer to purchase our Senior Notes prior to maturity, and to repay funds drawn under the portions of the Senior Secured Credit Facility denominated in U.S. dollars.

For the year ended December 31, 2015, approximately 49% of our revenues were received in currencies other than the U.S. currency, the majority of which were in Canadian currency. The revenues that we receive in U.S. currency may mitigate a portion of our exchange rate risk, but do not fully protect us from that risk. As at December 31, 2015, we had no forward currency contracts or other currency hedges in place.

The soundness of financial institutions and counterparties could adversely affect us.

We have exposure to many different financial institutions and counterparties (including those under our credit, financing and insurance arrangements), including brokers and dealers, commercial banks, investment banks, insurance providers and other institutions and industry participants. We are exposed to risk, including credit risk resulting from many of the transactions we execute in connection with our hedging activities, in the event that any of our lenders or counterparties, including our insurance providers, are unable to honor their commitments or otherwise default under an agreement with us.

We may experience a failure of ground operations infrastructure or interference with our satellite signals that impairs the commercial performance of, or the services delivered over, our satellites or the satellites of other operators for whom we provide ground services, which could result in a material loss of revenues.

We operate an extensive ground infrastructure including our satellite control centre in Ottawa, our main earth station and back up satellite control facility at Allan Park, nine earth stations throughout Canada, one teleport located in the United States and one in Brazil, and a telemetry, tracking and control (“TT&C”) facility in Perth, Australia. These ground facilities are used for controlling our satellites and/or for the provision of end-to-end services to our customers.

We may experience a partial or total loss of one or more of these facilities due to natural disasters (tornado, flood, hurricane or other such acts of God), fire, acts of war or terrorism or other catastrophic events. A failure at any of these facilities would cause a significant loss of service for our customers. Additionally, we may experience a failure in the necessary equipment at the satellite control centre, at the back-up facility, or in the communication links between these facilities and remote earth station facilities. A failure or operator error affecting tracking, telemetry and control operations might lead to a breakdown in the ability to communicate with one or more satellites or cause the transmission of incorrect instructions to the affected satellite(s), which could lead to a temporary or permanent degradation in satellite performance or to the loss of one or more satellites. Intentional or non-intentional electromagnetic or radio frequency interference could result in a failure of our ability to deliver satellite services to our customers. A failure at

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any of our facilities or in the communications links between our facilities or interference with our satellite signal could cause our revenues and backlog to decline materially and could adversely affect our ability to market our services and generate future revenues and profit.

We purchase equipment from third party suppliers and depend on those suppliers to deliver, maintain and support these products to the contracted specifications in order for us to meet our service commitments to our customers. We may experience difficulty if these suppliers do not meet their obligations to deliver and support this equipment. We may also experience difficulty or failure when implementing, operating and maintaining this equipment, or when providing services using this equipment. This difficulty or failure may lead to delays in implementing services, service interruptions or degradations in service, which could cause our revenues and backlog to decline materially and could adversely affect our ability to market our services and generate future revenues and profit.

Interruption or failure of, or cyber-attacks on, our information technology and communications systems could hurt our ability to operate our business effectively, which could harm our business and operating results.

Our ability to operate our business depends, in part, on the continuing operation of our information technology and communications systems, which are an integral part of our business. We rely on our information and communication systems, as well as on software applications developed internally and externally to effectively manage our accounting and financial functions, including maintaining our internal controls, operate our satellites and satellites for third parties, provide consulting services to customers, transmit our customer’s proprietary and/or confidential content and assist with other operations, among other things. Although we take steps to secure our information technology and communications systems, including our computer systems, intranet and internet sites, email and other telecommunications and data networks, the security measures we have implemented have not always been effective. While we continue to bolster our systems with additional security measures and, working with external experts, mitigate the risk of security breaches, our systems may be vulnerable to theft, loss, damage and interruption from a number of potential sources and events, including unauthorized access or security breaches, inclement weather, natural or man-made disasters, earthquakes, explosions, terrorist attacks, floods, fires, cyber-attacks, computer viruses, power loss, telecommunications or equipment failures, transportation interruptions, accidents or other disruptive events or attempts to harm our systems. In addition, our facilities are potentially vulnerable to break-ins, sabotage and intentional acts of vandalism. Our disaster recovery planning cannot account for all eventualities. Our business and operations could be adversely affected if, as a result of a significant cyber event or otherwise, our operations are disrupted or shutdown, confidential or proprietary information is stolen or disclosed, we lose customers, we incur costs or are required to pay fines in connection with confidential or export-controlled information that is disclosed, we must dedicate significant resources to system repairs or increase cyber security protection or we otherwise incur significant litigation or other costs as a result of any such event. While our insurance coverage could offset losses relating to some of these types of events, to the extent any such losses are not covered by insurance, a serious disruption to our systems could significantly limit our ability to manage and operate our business efficiently, which in turn could have a material adverse effect on our business, reputation, results of operations and financial condition.

Our dependence on outside contractors could result in delays related to the design, manufacture and launch of our new satellites, which could in turn adversely affect our operating results and prospects.

Any delays in the design, construction or launch of our satellites could have a material adverse effect on our business, financial condition and results of operations. There is a limited number of manufacturers that are able to design and build satellites according to the technical specifications and standards of quality we require, including Airbus Defence and Space, Thales Alenia Space, Boeing, Lockheed Martin, MELCO, Orbital and SS/L. There is also a limited number of suppliers able to launch such satellites, including International Launch Services, Arianespace, Mitsubishi Heavy Industries, SpaceX and Lockheed Martin. Should any of our suppliers’ businesses fail, it would reduce competition and could increase the cost of satellites and launch services. Adverse events with respect to any of our manufacturers or launch suppliers could also result in the delay of the design, construction or launch of our satellites. For example, many of our past launches were provided by International Launch Services, an entity owned by the Russian government. In response to the

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ongoing situation involving the Russian Federation in the Ukraine, various governments have implemented economic and other sanctions against Russia and its interests. U.S. law requires satellite manufacturers to obtain a license from the U.S. goverment for the exportation of certain prescribed U.S. technologies, if the exportation of the technology is to a Russian counterparty. Virtually all satellites manufactured outside of China contain prescribed U.S. technology. Should the U.S. implement sanctions which would have the effect of blocking the export of satellites containing prescribed U.S. technologies to Russian-controlled launch providers, it would lead to a reduction in launch alternatives and, as a result, could lead to increased launch costs in the future, which could have an adverse impact on our business.

General economic conditions may also affect the ability of our manufacturers and launch suppliers to provide services on commercially reasonable terms or to fulfill their obligations in terms of manufacturing schedules, launch dates, pricing or other items. Even where alternate suppliers for such services are available, we may have difficulty identifying them in a timely manner, we may incur significant additional expense in changing suppliers, and this could result in difficulties or delays in the design, construction or launch of our satellites.

A natural disaster could diminish our ability to provide communications service.

Natural disasters could damage or destroy our ground stations resulting in a disruption of service to our customers. We have in place certain operational procedures designed to protect our antennas and ground stations during natural disasters such as a hurricane, but these procedures may not be sufficient and the collateral effects of such disasters, such as flooding, may impair the functioning of our ground equipment and our ability to control our satellites. If a future natural disaster impairs or destroys any of our ground facilities, we may be unable to provide service to our customers in the affected area for a period of time.

Our future reported net income could be adversely affected by impairments of the value of certain intangible assets.

The assets listed on our consolidated balance sheets as of December 31, 2015 include goodwill valued at approximately $2,447 million and other intangible assets valued at approximately $811 million. A valuation of goodwill and other intangible assets (such as orbital locations) with indefinite useful lives is undertaken on an annual basis, or whenever events or changes in circumstances indicate that the carrying amount is likely to exceed their recoverable amount. We measure for impairment using a projected discounted cash flow method and confirm the assessment using other valuation methods. If the asset’s carrying value is more than its recoverable amount, the difference is recorded as a reduction in the amount of the asset on the balance sheet and an impairment charge in the statement of (loss) income. Testing for impairment requires significant judgment by management to determine the assumptions used in the impairment analysis. Any changes in the assumptions used could have a material impact on the impairment analysis and result in an impairment charge. We cannot predict whether an event that triggers impairment will occur, when it will occur or how it will affect the reported asset values. If our goodwill or other intangible assets are deemed to be impaired in whole or in part, we could be required to reduce or write-off such assets, which could have a material adverse effect on our financial condition.

We may pursue acquisitions, dispositions and strategic transactions which could result in the incurrence of additional costs, liabilities or expenses in connection with the implementation of such transactions.

In the future, we may pursue acquisitions, dispositions and strategic transactions, which may include joint ventures and strategic relations, as well as business combinations or the acquisition or disposition of assets. Acquisitions, dispositions and strategic transactions involve a number of risks, including:

• potential disruption of our ongoing business;

• distraction of management;

• may result in our being more leveraged;

• the anticipated benefits and cost savings of those transactions may not be realized fully or at all or may take longer to realize than expected;

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• increasing the scope and complexity of our operations; and

• loss or reduction of control over certain of our assets.

The presence of one or more material liabilities of an acquired company that are unknown to us at the time of acquisition could have a material adverse effect on our results of operations, business prospects and financial condition. A strategic transaction may result in a significant change in the nature of our business, operations and strategy. In addition, we may encounter unforeseen obstacles or costs in implementing a strategic transaction.

We continue to evaluate the performance of all of our businesses and may sell businesses or assets. Such a sale could include a strategic disposition of one or more of our satellites. In addition to the risks listed above that may occur with any acquisition, disposition or strategic transaction, a satellite divestiture could result in a loss of revenues or significant write-offs, including those related to goodwill and other intangible assets, which could have a material adverse effect on our financial condition, results of operations and cash flows. There can be no assurance that we will be successful in addressing these or any other significant risks encountered.

We could experience the departure of key employees or may be unable to recruit the employees needed for our success.

We rely on a number of key employees, including members of our management and certain other employees possessing unique experience in technical and commercial aspects of the satellite services business. If we are unable to retain these employees, it could be difficult to replace them. In addition, our business, with its constant technological developments, must continue to attract highly qualified and technically skilled employees. In the future, if we were unable to retain or replace these employees, or if we were unable to attract new highly qualified employees, this could have a material adverse effect on our results of operations, business prospects and financial condition.

The content of third-party transmissions over our satellites may affect us since we could be subject to sanctions by various governmental entities for the transmission of certain content.

We provide satellite capacity for transmissions by third parties. We do not decide what content is transmitted over our satellites, although our contracts generally provide us with rights to prohibit certain types of content or to cease transmission or permit us to require our customers to cease their transmissions under certain circumstances. A governmental body or other entity may object to some of the content carried over our satellites, such as “adult services” video channels or content deemed political in nature. Issues arising from the content of transmissions by these third parties over our satellites could affect our future revenues, operations or our relationship with certain governments or customers.

Our failure to maintain or obtain authorizations under and comply with the U.S. export control and trade sanctions laws and regulations could have a material adverse effect on our results of operations, business prospects and financial condition.

The export of satellites and technical data related to satellites, earth station equipment and provision of services are subject to U.S. export control and economic sanctions laws, implemented by U.S. State Department, Commerce Department and Treasury Department regulations. If we do not maintain our existing authorizations or obtain necessary future authorizations under the export control laws and regulations of the United States, we may be unable to export technical data or equipment to non-U.S. persons and companies, including to our own non-U.S. employees, as required to fulfill existing contracts. If we do not maintain our existing authorizations or obtain necessary future authorizations under and comply with the trade sanctions laws and regulations of the United States, we may not be able to provide satellite capacity and related administrative services to certain of our customers. Violations of these laws and regulations can also result in civil and criminal sanctions or penalties. Our ability to acquire new satellites, launch new satellites or operate our satellites could also be negatively affected if our suppliers do not obtain required U.S. export authorizations.

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We are subject to risks associated with doing business internationally.

Our operations internationally are subject to risks that are inherent in conducting business globally. We are subject to compliance with the United States Foreign Corrupt Practices Act (“FCPA”) and other similar anti-corruption laws, which generally prohibit companies and their intermediaries from making improper payments to foreign government officials for the purpose of obtaining or retaining business. While our employees and contractors are required to comply with these laws, we cannot be sure that our internal policies and procedures will always protect us from violations of these laws, despite our commitment to legal compliance and corporate ethics. Violations of these laws may result in severe criminal and civil sanctions as well as other penalties, and the SEC and U.S. Department of Justice have increased their enforcement activities with respect to the FCPA. The occurrence or allegation of these types of risks may adversely affect our business, performance, financial condition, and results of operations.

Enforcement of civil liabilities against us may be more difficult because we are a Canadian corporation.

Telesat Holdings, Telesat Canada and certain guarantors of our Senior Notes are formed under the laws of Canada. Several of the Co-Issuers’ directors and officers are residents of Canada, and a substantial portion of their assets as well as a substantial portion of the assets of Telesat and the guarantors of our Notes are located outside the United States. It may be difficult for holders of our Notes to effect service within the United States upon directors and officers who are not residents of the United States in order to institute actions in United States courts predicated upon civil liability under U.S. federal or state securities laws or other laws of the United States. There is some doubt as to the enforceability in Canada in original actions, or in actions for enforcement of judgments of U.S. courts, of civil liabilities predicated upon the U.S. federal securities laws. The courts of Canada may not: (a) enforce judgments of United States courts obtained in actions against such persons predicated upon civil liabilities under the federal securities laws of the United States or “blue sky” laws of any state within the United States; or (b) enforce, in original actions, liabilities against such persons predicated upon civil liabilities under the federal securities laws of the United States or “blue sky” laws of any state within the United States.

Risks related to our indebtedness and our Senior Notes

Our substantial debt may adversely affect our cash flow and prevent us from fulfilling our obligations under our Senior Notes and our other outstanding indebtedness.

We have a significant amount of debt. As of December 31, 2015, we had total debt of USD $2,967 million at an exchange rate of USD $1.00/$1.3839, the spot rate in effect as of December 31, 2015, as reported by Bloomberg. Our total debt by currency consists of $511 million and USD $2,598 million.

Our substantial amount of debt may have important consequences. For example, it may:

• make it more difficult for us to satisfy our obligations under our Senior Notes;

• increase our vulnerability to general adverse economic and industry conditions;

• require us to dedicate a substantial portion of our cash flow from operations to make interest and principal payments on our debt, thereby limiting the availability of our cash flow to fund future capital expenditures, working capital and other general corporate requirements;

• limit our flexibility in planning for, or reacting to, changes in our business and in the industries that we service;

• place us at a competitive disadvantage compared with competitors that have less debt; and

• limit our ability to borrow additional funds, even when necessary to maintain adequate liquidity.

In addition, a substantial portion of our available borrowings bear interest at variable rates. If market interest rates increase, variable-rate debt will create higher debt service requirements, which may adversely affect our cash flow. While we may enter into agreements limiting our exposure to higher interest rates, any such agreements may not offer adequate protection from this risk.

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Despite our current levels of debt, we and our subsidiaries may incur substantially more debt. This may further exacerbate the risks associated with our substantial debt as described herein and prevent us from fulfilling our obligations under our Senior Notes.

We may incur additional debt in the future. The terms of our Senior Secured Credit Facilities and the indenture governing our Senior Notes allow us to incur substantial amounts of additional debt, subject to certain limitations. If new debt is added to our current debt levels, the related risks discussed in this “Risk factors” section may be magnified.

Our Senior Notes are effectively subordinated to the co-issuers’ and the guarantors’ indebtedness under our Senior Secured Credit Facilities and any other future secured debt to the extent of the value of the assets securing such debt.

Our Senior Notes, and each guarantee of our Senior Notes, are unsecured and therefore are effectively subordinated to any secured debt that the co-issuers or the guarantors may incur to the extent of the value of the assets securing such debt. In the event of a bankruptcy or similar proceeding involving a co-issuer or guarantor, the assets which serve as collateral for any secured debt will be available to satisfy the obligations under the secured debt before any payments are made on our Senior Notes. At December 31, 2015, we had outstanding secured indebtedness of USD $2,067 million at an exchange rate of USD $1.00/CAD $1.3839 (total secured debt by currency consists of $511 million and USD $1,698 million and $140 million of unused available revolving capacity under our Senior Secured Credit Facilities, not giving effect to outstanding letters of credit). Our Senior Notes are effectively subordinated to any borrowings under our current or future senior credit facilties and our other secured debt to the extent of the value of the assets securing such debt.

The agreements governing our debt, including our Senior Notes and our Senior Secured Credit Facilities, contain various covenants that impose restrictions on us that may affect our ability to operate our business and to make payments on the Notes.

The agreements governing our debt, including our Senior Notes and our Senior Secured Credit Facilities, impose operating and financial restrictions on our activities. These restrictions require us, in the case of our Senior Secured Credit Facilities, to comply with a financial maintenance covenant whereby Telesat is not permitted to exceed a 5.25 to 1.00 senior secured leverage test. Agreements governing our existing debt, and future debt agreements, may also limit or prohibit our ability to, among other things:

• incur additional debt and issue disqualified stock and preferred shares;

• create liens;

• pay dividends, acquire shares of capital stock, make payments on subordinated debt or make investments;

• create or permit to exist specified restrictions on our ability to receive distributions from restricted subsidiaries;

• make certain investments;

• issue guarantees;

• issue or sell the capital stock of restricted subsidiaries;

• sell or exchange assets;

• modify or cancel our satellite insurance;

• enter into sale-leaseback transactions;

• enter into certain transactions with affiliates; and

• effect mergers.

These restrictions on our ability to operate our business could seriously harm our business by, among other things, limiting our ability to take advantage of financing, merger and acquisition and other corporate opportunities.

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Various risks, uncertainties and events beyond our control could affect our ability to comply with these covenants and maintain this financial ratio. Failure to comply with any of the covenants in our existing or future financing agreements could result in a default under those agreements and under other agreements containing cross-default provisions. A default would permit lenders to accelerate the maturity for the debt under these agreements and to foreclose upon any collateral securing the debt. Under these circumstances, we might not have sufficient funds or other resources to satisfy all of our obligations, including our obligations under the Notes.

The limitations imposed by financing agreements on our ability to incur additional debt and to take other actions might significantly impair our ability to obtain other financing. To service our debt and to fund planned capital expenditures, we will require a significant amount of cash, which may not be available to us.

Our ability to make payments on, or repay or refinance our debt, including our Senior Notes, and to fund planned capital expenditures will depend largely upon our future operating performance. Our future performance, to a certain extent, is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control. In addition, our ability to borrow funds in the future to make payments on our debt will depend on the satisfaction of the covenants in our Senior Secured Credit Facilities and in the indenture governing our Senior Notes and other agreements we may enter into in the future. Specifically, we need to maintain a certain senior secured leverage ratio under our Senior Secured Credit Facilities and failure to comply with this maintenance covenant will result in an event of default. The indenture governing our Senior Notes also contains limitations on our ability to incur additional debt. We cannot assure you that our business will generate sufficient cash flow from operations or that future borrowings will be available to us under our Senior Secured Credit Facilities or from other sources in an amount sufficient to enable us to pay our debt, including the Senior Notes, or to fund our other liquidity needs. As of December 31, 2015, we had $140 million of unused available revolving capacity under our senior credit facilities (not giving effect to outstanding letters of credit). In addition, our ability to raise additional capital to refinance our debt or to fund our operations is dependent on capital market conditions.

If our cash flows and capital resources are insufficient to service our indebtedness, we may be forced to reduce or delay capital expenditures, sell assets, seek additional capital or restructure or refinance our indebtedness, including the Senior Notes. These alternative measures may not be successful and may not permit us to meet our scheduled debt service obligations. Our ability to restructure or refinance our debt will depend on the condition of the capital markets and our financial condition at such time. Any refinancing of our debt could be at higher interest rates and may require us to comply with more onerous covenants, which could further restrict our business operations. In addition, the terms of existing or future debt agreements, including our Senior Secured Credit Facilities and the indenture governing our Senior Notes, may restrict us from adopting some of these alternatives. In the absence of such operating results and resources, we could face substantial liquidity problems and might be required to dispose of material assets or operations to meet our debt service and other obligations. We may not be able to consummate those dispositions for fair market value or at all. Furthermore, any proceeds that we could realize from any such dispositions may not be adequate to meet our debt service obligations then due.

We may not be able to generate sufficient cash to service all of our indebtedness, and may be forced to take other actions to satisfy our obligations under our indebtedness, which may not be successful.

Our ability to make scheduled payments on or refinance our debt obligations depends on our financial condition and operating performance, which are subject to prevailing economic, industry and competitive conditions and to certain financial, business, legislative, regulatory and other factors beyond our control (as well as and including those factors discussed under “Risks related to our business” above). We may be unable to maintain a level of cash flow from operating activities sufficient to permit us to pay the principal, premium, if any, and interest on our indebtedness, including the Senior Notes.

If our cash flow and capital resources are insufficient to fund our debt service obligations, we could face substantial liquidity problems and could be forced to reduce or delay investments and capital expenditures or to dispose of material assets or operations, seek additional debt or equity capital or restructure or refinance our indebtedness. We may not be able to effect any such alternative measures on commercially reasonable terms

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or at all and, even if successful, those alternative actions may not allow us to meet our scheduled debt service obligations. The credit agreement governing our Senior Secured Credit Facilities and the indenture governing our Senior Notes restrict our ability to dispose of assets and use the proceeds from those dispositions and may also restrict our ability to raise debt or equity capital to be used to repay other indebtedness when it becomes due. We may not be able to consummate those dispositions or to obtain proceeds in an amount sufficient to meet any debt service obligations then due.

We may be unable to make a change of control offer required by the indenture governing our Senior Notes, which would cause defaults under the Indenture and our Senior Secured Credit Facilities.

The terms of our Senior Notes require us to make an offer to purchase the Senior Notes upon the occurrence of a change of control at a purchase price equal to 101% of the principal amount of the Senior Notes, plus accrued interest to the date of the purchase. Additionally, under our Senior Secured Credit Facilities, a change of control (as defined therein) constitutes an event of default that permits the lenders to accelerate the maturity of all outstanding principal and interest and terminate their commitments to lend. In addition, our other financing arrangements may require repayment of amounts outstanding in the event of a change of control and may, therefore, limit our ability to fund the repurchase of our Senior Notes in certain circumstances. It is possible that we will not have sufficient funds at the time of the change of control to make the required repurchase of our Senior Notes or that restrictions in future financing agreements will not allow the repurchases.

Holders of our Senior Notes may not be able to determine when a change of control giving rise to their right to have the Senior Notes repurchased has occurred following a sale of “substantially all” of our assets.

The definition of change of control in the indenture governing our Senior Notes includes a phrase relating to the sale of “all or substantially all” of our assets. There is no precise established definition of the phrase “substantially all” under applicable law. Accordingly, the ability of a holder of our Senior Notes to require us to repurchase the Senior Notes as a result of a sale of less than all our assets to another person may be uncertain.

Our variable rate indebtedness subjects us to interest rate risk, which could cause our debt service obligations to increase significantly.

Borrowings under our Senior Secured Credit Facilities are at variable rates of interest and expose us to interest rate risk. Assuming all revolving loans are fully drawn, each quarter point change in interest rates would result in a $5 million change in annual interest expense on indebtedness under our Senior Secured Credit Facilities. We have entered into, and in the future we may enter into, interest rate swaps that involve the exchange of floating for fixed rate interest payments in order to reduce interest rate volatility. However, we may not maintain interest rate swaps with respect to all or any of our variable rate indebtedness, and any swaps we enter into may not fully mitigate our interest rate risk, may prove disadvantageous or may create additional risks, including risks discussed in “Risks related to our business” above.

Because of the Telesat Canada Reorganization and Divestiture Act, a Canadian act uniquely applicable to Telesat Canada (but not the guarantors, our other subsidiaries or Telesat LLC), Telesat Canada may not have access to the usual protections from creditors and other rights available to insolvent persons, and creditors, including holders of our Notes, may not have recourse to the usual rights, remedies and protections under applicable bankruptcy and insolvency laws generally available to creditors of insolvent persons.

Under the Telesat Canada Reorganization and Divestiture Act (“Telesat Divestiture Act”), Telesat Canada (as a corporate entity) is subject to certain special conditions and restrictions. The Telesat Divestiture Act provides that no legislation relating to the solvency or winding-up of a corporation applies to Telesat Canada and in no case shall the affairs of Telesat Canada be wound up unless authorized by an Act of the Parliament of Canada. As a result of such legislative provisions, Telesat Canada and its creditors, including creditors under our Senior Secured Credit Facilities, holders of our Senior Notes may not have recourse to the usual rights, remedies and protections under applicable bankruptcy and insolvency laws, including the imposition

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of a stay of proceedings, or a regulated and orderly process to settle or compromise claims and make distributions to creditors, or recourse to fraudulent preference or conveyance laws. The effect of the Telesat Divestiture Act upon an insolvency of Telesat Canada has not been considered by a Canadian court and, accordingly, the application of Canadian federal bankruptcy and insolvency laws and provincial receivership and fraudulent conveyance and assignment and preference laws, and the exercise by a Canadian court of any judicial discretion which could affect the enforcement of rights and remedies or other equitable relief against Telesat Canada in the context of an insolvency, is uncertain. To the extent bankruptcy and insolvency laws do not apply to Telesat Canada, its creditors may individually seek to pursue any available rights or remedies, as secured or unsecured creditors as the case may be, against Telesat Canada and its assets. The assets of Telesat Canada only (including its shares in its subsidiaries) are subject to the Telesat Divestiture Act, but the assets of the guarantors, including the subsidiary guarantors, are not. These restrictions may have a material impact on the sale of Telesat Canada or its assets in any bankruptcy or reorganization scenario.

The guarantees associated with our Senior Notes may not be enforceable because of fraudulent preference or conveyance laws.

Fraudulent conveyance laws in the United States and Canada have been enacted for the protection of creditors. Under these fraudulent preference or conveyance laws, a United States or Canadian court could subordinate the guarantees granted under the indenture governing our Notes to the guarantors’ present and future indebtedness and a United States or Canadian court could take other actions detrimental to your interests as a holder of our Senior Notes, including voiding the guarantees and payments made under the guarantees. The United States or Canadian courts could take that action if it found that at the time the guarantee was incurred, such guarantor:

• incurred this debt with the intent of hindering, delaying, defeating or defrauding current or future creditors;

• received less than reasonably equivalent value or fair consideration for incurring this debt and the guarantor;

• was insolvent or was rendered insolvent by reason of the related financing transactions;

• was engaged, or about to engage, in a business or transaction for which its remaining assets constituted unreasonably small capital to carry on its business; or

• intended to incur, or believed that it would incur, debts beyond its ability to pay these debts as they mature, as all of the foregoing terms are defined in or interpreted under the relevant fraudulent transfer or conveyance statutes.

The measure of insolvency for purposes of the foregoing considerations will vary depending upon the law of the jurisdiction that is being applied in any such proceeding. Generally, an entity would be considered insolvent if, at the time it incurred the debt or issued the guarantee:

• it could not pay its debts or contingent liabilities as they become due;

• the sum of its debts, including contingent liabilities, is greater than its assets, at fair valuation; or

• the present fair saleable value of its assets is less than the amount required to pay the probable liability on its total existing debts and liabilities, including contingent liabilities, as they become absolute and mature.

If a guarantee is voided as a fraudulent preference or conveyance or found to be unenforceable for any other reason, you will not have a claim against that guarantor and will only be our creditor or that of any guarantor whose obligation was not set aside or found to be unenforceable. In addition, the loss of certain guarantees will constitute a default under the applicable indenture, which default could cause all outstanding Senior Notes to become immediately due and payable and would likewise trigger a default under the Senior Secured Credit Facilities.

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We believe that, at the time the guarantors initially incurred the debt represented by the guarantees, the guarantors:

• did not have the intent of hindering, delaying or defrauding any creditors;

• did not receive less than reasonably equivalent value or fair consideration for incurring the debt;

• were not insolvent or rendered insolvent by the incurrence;

• had sufficient capital to run our or their businesses effectively;

• were able to pay obligations on our Senior Notes and the guarantees, together with their other debts, as they mature or become due; and

• did not incur the debt with a view to, nor did the incurrent have the effect of, giving a preference over any other creditors.

In reaching the foregoing conclusions we have relied upon our analyses of internal cash flow projections and estimated values of the assets and liabilities of the guarantors. In addition, we have relied on a limitation to be contained in the guarantors’ guarantees that limits each guarantee as necessary to prevent it from constituting a fraudulent conveyance under applicable law. However, a court passing on these questions might not reach the same conclusions. See also “Risks related to our indebtedness and our Senior Notes — Because of the Telesat Canada Reorganization and Divestiture Act, a Canadian act uniquely applicable to Telesat Canada (but not the guarantors, other subsidiaries or Telesat LLC), Telesat Canada may not have access to the usual protections from creditors and other rights available to insolvent persons, and creditors, including holders of our Senior Notes, may not have recourse to the usual rights, remedies and protections under applicable bankruptcy and insolvency laws generally available to creditors of insolvent persons.”

Because each guarantor’s liability under its guarantees may be reduced to zero, voided or released under certain circumstances, the holders of our Senior Notes may not receive any payments from some or all of the guarantors.

The holders of our Senior Notes have the benefit of the guarantees of the guarantors. However, the guarantees by the guarantors are limited to the maximum amount that the guarantors are permitted to guarantee under applicable law. As a result, a guarantor’s liability under its guarantee could be reduced to zero, depending on the amount of other obligations of such guarantor. In particular, in certain jurisdictions, a guarantee issued by a company that is not in the company’s interests, the burden of which exceeds the benefit to the company, or which is entered into within a certain period prior to insolvency or bankruptcy, may not be valid and enforceable. Further, under the circumstances discussed more fully above, a court under Federal or state fraudulent conveyance and transfer statutes or Canadian court under federal or provincial legislation relating to fraudulent conveyance or fraudulent preferences could void the obligations under a guarantee or further subordinate it to all other obligations of the guarantor. In addition, you will lose the benefit of a particular guarantee if it is released under certain circumstances.

The ability to transfer our Senior Notes may be limited by the absence of an active trading market for the Senior Notes.

An active market for our Senior Notes may not develop or, if developed, it may not continue. Historically, the market for non-investment-grade debt has been subject to disruptions that have caused substantial volatility in the prices of securities similar to our Senior Notes. The market, if any, for any of our Senior Notes may experience similar disruptions and any such disruptions may adversely affect the prices at which you may sell your Senior Notes. In addition, our Senior Notes may trade at a discount from their initial offering price, depending upon prevailing interest rates, the market for similar Senior Notes, our performance and other factors. The liquidity of the trading market in our Senior Notes, and the market price quoted for our Senior Notes, may be adversely affected by changes in the overall market for fixed income securities and by changes in our financial performance or prospects or in the prospects for companies in our industry in general. As a result, we cannot assure you that an active trading market will develop. If no active trading market develops, you may not be able to resell your Senior Notes at a favorable price or at all.

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You should not rely on Telesat LLC in evaluating an investment in our Senior Notes.

Telesat LLC was formed in connection with the initial funding of the Telesat Canada Acquisition in 2007 and for the issuance of notes and currently has no independent operations and no assets and generally will be prohibited from engaging in any material business activities, except in connection with the incurrence of indebtedness permitted under the indenture governing our Senior Notes, including guaranteeing or borrowing under our Senior Secured Credit Facilities, and activities incidental thereto. You should therefore not rely upon Telesat LLC in evaluating whether to invest in our Senior Notes.

Our significant shareholders may have interests that conflict with the interests of bondholders.

Loral owns 62.8% of the economic interest of Telesat Holdings, and PSP Investments owns 35.8%. We are controlled by our board of directors comprised of ten members, three nominated by Loral, three nominated by PSP Investments and four independent directors selected by a nominating committee comprised of one PSP Investments nominee, one Loral nominee and one of the independent directors then in office. Loral and PSP Investments together can effectively control any vote. Additionally, Loral has veto rights with respect to certain decisions pertaining to Telesat Holdings that require shareholder approval. Circumstances may occur in which the interests of these shareholders could be in conflict with the interests of the holders of our Senior Notes. In addition, these shareholders may have an interest in pursuing acquisitions, divestitures, additional financing activities or other transactions that, in their judgment, could enhance their equity investment, even though such transactions might involve risks to the holders of our Senior Notes if the transactions resulted in our acquiring more debt or significantly changed the nature of our business operations or strategy. In addition, if we encounter financial difficulties, or we are unable to pay our debts as they mature, the interests of our shareholders might conflict with those of the holders of our Senior Notes. In that situation, for example, the holders of our Senior Notes might want us to raise additional equity from existing shareholders or other investors to reduce our leverage and pay our debts, while existing shareholders might not want to increase their investment in us or have their ownership diluted and may instead choose to take other actions, such as selling our assets.

Various funds affiliated with MHR Fund Management (“MHR”) held, as of December 31, 2015, approximately 38.0% of Loral’s outstanding voting common stock and 57.1% of Loral’s total outstanding voting and non-voting common stock. Mark H. Rachesky, M.D., chairman of our board of directors and non-executive chairman of the board of directors of Loral, is the co-founder and president of MHR.

Item 4. Information on the Company

A. History and development of the Company.

Telesat Interco Inc. (“Telesat Interco”) was incorporated under the Canada Business Corporations Act (the “CBCA”) on November 6, 2006 in contemplation of an acquisition of Telesat Canada and the related transfer of Loral Skynet to Telesat Canada, which we refer to as “the Telesat Canada transaction”. Telesat Canada was originally formed in 1969 by the Telesat Canada Act, or the Telesat Act. In 1972, Telesat Canada launched the world’s first domestic commercial satellite in geostationary orbit and continued as a pioneer in technical and commercial innovation with the first commercial Ku-band satellite in 1978, Canada’s first DBS satellite in 1999 and the first consumer 2-way Ka-band broadband internet service via satellite in 2004. Since the mid-1970’s, Telesat has provided satellite services for voice, data and broadcast communications across Canada, including the far north, bringing to those isolated areas services similar to ones available in major centres. As part of its government divestiture, pursuant to the Telesat Divestiture Act, Telesat Canada was continued on March 27, 1992 under the CBCA, the Telesat Act was repealed and the government sold its shares in Telesat Canada to Alouette Telecommunications Inc. (“Alouette”), which subsequently became a wholly-owned subsidiary of BCE. Alouette was amalgamated with Telesat Canada on January 1, 2007 under the name “Telesat Canada”. On October 31, 2007, Telesat Canada amalgamated with 436320 Canada Inc., a wholly-owned subsidiary of Telesat Interco, to continue as Telesat Canada.

Loral Skynet, a Delaware corporation, was a wholly-owned subsidiary of Loral Space & Communications Holdings Corporation, a Delaware corporation (“LSC Holdings”). Through earlier mergers and acquisitions, Loral Skynet traces its history to two of the originating businesses in United States satellite communications with more than 40 years of experience: AT&T Skynet and Orion Satellite Corporation (“Orion”).

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AT&T Skynet and its predecessor organizations in AT&T Bell Laboratories launched the satellite industry by demonstrating the first trans-Atlantic satellite delivery of television on Telstar 1 in 1962. Through the 1970s, 1980s and 1990s, AT&T Skynet provided industry-leading telephone and television services in the United States for AT&T and leading television broadcasters and cable operators on the Comstar and Telstar series of satellites. In 1997, AT&T Skynet was acquired from AT&T by LSC Holdings, became Loral Skynet, and expanded from United States only to global satellite operations. Orion was formed in 1988 for the purpose of launching international VSAT services and expanding newly enabled “separate system” international services. In 1994, Orion launched Orion 1, which provided early trans-Atlantic VSAT services between the United States and Europe. Orion was the second United States licensed “separate system” authorized to compete directly with Intelsat for certain types of international satellite services. Orion was acquired by LSC Holdings in 1998 and merged operationally with Loral Skynet in 1999. In July 2003, Loral Space & Communications Ltd. (“Old Loral”) and its subsidiaries, including the predecessor business that constitutes Loral Skynet, sought protection under chapter 11 of the United States federal bankruptcy code. Loral and Loral Skynet succeeded to the business of Old Loral in connection with a chapter 11 plan of reorganization when Old Loral emerged from bankruptcy in November 2005.

The Telesat Canada Acquisition

On October 31, 2007, Telesat Interco, a Canadian company and wholly-owned subsidiary of Telesat Holdings, a Canadian company indirectly owned by PSP Investments and Loral, acquired 100% of the stock of Telesat Canada and certain other assets from BCE for $3.25 billion (approximately USD $3.42 billion at an October 31, 2007 exchange rate of USD $1.00/$0.9499) (the “Telesat Canada Acquisition”).

PSP Investments, through its wholly-owned subsidiary, Red Isle Private Investments Inc. (“Red Isle”), contributed to Telesat Holdings USD $525 million in cash in exchange for (a) shares of 7% fixed rate senior non-convertible PIK mandatorily redeemable preferred stock of Telesat Holdings, (b) common shares of Telesat Holdings representing approximately 30% of the participating equity of Telesat Holdings, and (c) voting participating preferred shares of Telesat Holdings representing approximately 6% of the participating equity of Telesat Holdings. The voting participating preferred shares are convertible into common shares on a one-for-one basis and have all of the rights of common shares, except that they do not have the right to vote for the election of directors of Telesat Holdings. The voting participating preferred shares do not have any liquidation preference or dividend rights above the common shares. In a related transaction, Red Isle transferred to Telesat Holdings $55,163,172, representing the market value of certain foreign exchange contracts entered into by Red Isle, in exchange for the issuance to Red Isle of a portion of the 36% equity shareholding acquired by Red Isle, in the form of voting participating preferred shares. We refer to these equity contributions as the “Equity Financing”.

The Skynet Transaction

On October 31, 2007, in connection with the Telesat Canada acquisition, Loral Skynet transferred substantially all of its assets (the “Loral Skynet Business”) to Telesat Holdings pursuant to an asset transfer agreement (the “Asset Transfer Agreement”). In exchange for the transfer of such assets, Telesat Holdings issued to a subsidiary of Loral common shares representing 33 1/3% of all voting and participating equity rights outstanding after such issuance and non-voting participating preferred shares representing 30 2/3% of all participating equity of Telesat Holdings outstanding after such issuance. The non-voting participating preferred shares of Telesat Holdings acquired by a subsidiary of Loral are convertible into common shares on a one-for-one basis if held by a shareholder that is “Canadian” for Canadian regulatory purposes. These non-voting participating preferred shares do not have any liquidation preference or dividend rights above common shares of Telesat Holdings.

In addition, on October 31, 2007, Skynet Satellite Corporation (“SSC”), a Delaware corporation which became an indirect wholly-owned subsidiary of Telesat Holdings as of the closing of the Asset Transfer Agreement, purchased from Loral Skynet certain other assets and assumed certain liabilities of Loral Skynet for the purchase price of USD $25,472,000 in marketable securities pursuant to the terms of an asset purchase agreement (the “Asset Purchase Agreement”). We refer to the transfer of the Loral Skynet Business to us pursuant to the Asset Transfer Agreement and the Asset Purchase Agreement as the Skynet Transaction.

Telesat Holdings also, subject to certain exceptions, assumed the liabilities of the Loral Skynet Business.

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Telesat Reorganization

Immediately following the Telesat Canada acquisition, (i) all of the shares of Telesat Canada acquired by Telesat Interco in the Telesat Canada acquisition were transferred to 4363230 Canada Inc. in exchange for the issuance to Telesat Interco of common shares of 4363230 Canada Inc.; (ii) 4363230 Canada Inc. and Telesat Canada were amalgamated under the name “Telesat Canada”; and (iv) the Loral Skynet Business acquired by Telesat Holdings was transferred to Telesat Interco, and then to Telesat Canada, in exchange for the issuance to Telesat Interco of common shares of Telesat Canada. These transactions are referred to as the “Telesat Reorganization”.

As a result of the Telesat Reorganization all of the assets of Telesat Canada before its amalgamation became the assets of the amalgamated Telesat Canada, the Loral Skynet Business became owned by Telesat Canada and Telesat Canada became a wholly-owned subsidiary of Telesat Interco.

Currently, Loral indirectly holds shares in Telesat Holdings effectively representing 62.8% of the economic interests and 32.7% of the voting power of Telesat Holdings and PSP Investments indirectly holds shares effectively representing 35.8% of the economic interests, 67.3% of the voting power, other than in respect of the election of directors, and together with two other Canadian investors, 67.3% of the voting power for the election of directors, of Telesat Holdings. Certain current and former Telesat employees hold shares representing 1.4% of the economic interests of Telesat Holdings. Telesat Holdings owns all of the issued and outstanding shares of Telesat Interco, and Telesat Interco owns all of the issued and outstanding shares of Telesat Canada.

B. Business overview

We are a leading global fixed satellite services operator, with facilities around the world. Our global satellite fleet and ground infrastructure provide a powerful international platform supporting (i) strong video distribution and DTH neighborhoods in North America characterized by long-term contracts with blue chip customers and significant contractual backlog, (ii) an efficient enterprise and government services business that provides North American customers with end-to-end communications services, and (iii) a strong international video distribution, enterprise services and government services business.

Through our deep commitment to customer service and focus on innovation and technical expertise, we have developed strong relationships with a diverse range of high-quality customers, including many of the world’s largest video and data service providers. Our current customers include North American DTH providers Bell TV, Shaw Direct and EchoStar/DISH Network, and leading telecommunications and media firms such as AMC Networks, Bell Media, Canadian Broadcasting Corporation and HBO.

Our North American Broadcast and Enterprise Services customer service contracts are typically multi-year in duration and, in the past, we have successfully contracted all or a significant portion of a satellite’s capacity prior to commencing construction. As a result, we had approximately $4.8 billion in contracted revenue backlog as of December 31, 2015. See “Business overview — Sales and Marketing — Revenue Backlog” for additional information.

The North American focused part of our satellite fleet is comprised of Anik F1R, Anik F2, Anik F3, Nimiq 1, Nimiq 2, Nimiq 4, Nimiq 5, Nimiq 6, certain beams on Anik G1, and the Canadian payload on ViaSat-1. The international focused part of our satellite fleet is comprised of Anik F1, Telstar 11N, Telstar 12 VANTAGE, Telstar 14R/Estrela do Sul 2, Telstar 18 and certain beams on Anik G1. Our Telstar 12 VANTAGE satellite, which was launched in late 2015, is now operational and will replace our Telstar 12 satellite which will be redeployed in 2016. The Telstar 18 VANTAGE satellite is now under construction and will replace our Telstar 18 satellite and expand upon the services we are able to provide from the 138° EL orbital location. The Telstar 19 VANTAGE satellite is also under construction and will be collocated with Telstar 14R/Estrela do Sul 2 and will expand upon the services we are able to provide from our 63° WL orbital location. We also manage the operation of additional satellites for third parties.

We believe our global satellite fleet, access to our desirable orbital locations and strong relationships with our customers underpin our established, predictable core business, and provide us with the opportunity to capitalize on the growth drivers in the satellite industry and the markets we serve.

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Industry Overview and Trends

We compete in the market for the provision of voice, data, video and internet connectivity services worldwide. Services of this type are provided using various technologies, including satellite networks. We currently operate in the FSS sector of the satellite industry. Operators in the FSS sector provide communications links between fixed points on the earth’s surface, referred to as point-to-point services, and from one point to multiple points, referred to as point-to-multipoint services. Increasingly, the FSS sector is also providing services to mobile platforms, such as ships and airplanes. Over the last several decades, deregulation and privatization have significantly reshaped the FSS sector. In addition, the sector has undergone consolidation, with regional and national operators being acquired by larger companies or seeking to partner with other providers. In addition, there have been many new, smaller entrants including many governmental operators launching national satellite programs.

Satellite Systems

A generic satellite system consists of a space segment and an earth segment. The “space segment” is comprised of the satellites and the tracking, telemetry and command (“TT&C”) systems and facilities used to control and monitor the satellites. The “earth segment” is made up of all of the communication earth stations and other devices that access operational satellites. A satellite has two primary components: the communications payload and the spacecraft bus. In its simplest form, the communications payload consists of the antennas and transponders which receive the signals from earth at one frequency, amplify them, and transmit them back to earth at a different frequency. The spacecraft bus is essentially comprised of all of the non-communications equipment, including the electrical and TT&C subsystems, the propulsion and thermal subsystems and the spacecraft structure itself.

Geosynchronous satellites circle the earth from orbital locations approximately 22,300 miles (35,700 kilometers) above the equator. The speed at which they orbit the earth corresponds to the speed of the earth’s rotation. As a result, each geosynchronous satellite in essence “blankets” a fixed geographic area with its signals, and an earth station antenna on the earth can communicate continuously with a particular satellite if it is pointed to, and has an unobstructed view of, that satellite’s orbital location. An individual satellite can be designed to communicate with major portions of the earth via large, geographically dispersed beams, to focus its coverage more specifically on particular markets or regions through regional or spot beams, or to use a portion of its total capacity for each type of coverage.

Satellite Communication Benefits

Satellite operators compete with terrestrial network operators (e.g., cable, DSL, fiber optic, cellular/wireless and microwave transmission) in the market for video, data and voice communication services. We believe that satellite services have several advantages over these competing communication platforms, including:

• satellite remains a cost-effective and efficient means to deliver a signal (TV, radio, internet) to hundreds or millions of locations in a large geographic area;

• the ability to provide ubiquitous coverage over a large geographic region allowing for the addition of sites at a lower marginal cost. Unlike cable and fiber lines, satellites can readily provide broadcast and communication services over large areas and to remote locations where the population density may not be high enough to warrant the expense of building a terrestrial-based communications network;

• the ability to deploy communications quickly in locations where little or no infrastructure is available, for example in the case of natural disaster response;

• the ability to bypass shared and congested terrestrial links, further enhancing network performance; and

• ease and speed of service provision through a one-stop-shop solution. In cases where a terrestrial-based communications network does not reach 100% of a customer’s sites, a satellite-based network that covers the entire area may provide a complete solution for the customer.

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Terrestrial alternatives, such as fiber optic cable, are superior to satellite in some circumstances and can be used in conjunction with satellite to provide a hybrid network that makes use of the inherent advantages of both technologies. Generally, in areas well-served by terrestrial networks or for point-to-point communications, terrestrial alternatives may have a cost advantage, while more dispersed, point-to-multipoint communications may be better served by satellite. See “Business overview — Competition” for additional information about terrestrial based-services.

Supply and Demand Dynamics for Fixed Satellite Services

Satellite operators typically provide services on their satellites to customers who use the capacity for their own communications requirements or to provide satellite-based services to customers further down the distribution chain.

Demand

Demand for satellite services is primarily driven by: economic growth, both generally and within a particular geographic area; growth in product or service markets; growth in demand for bandwidth-intensive applications; and improved regulatory access to new and existing markets.

Key factors expected to drive FSS growth in the coming decade are as follows:

• Video Services — FSS operators are experiencing increased demand for satellite capacity for both video distribution and contribution. This includes a growing number of HDTV channels, which require two-to-three times more bandwidth than standard definition channels. New forms of content and enhanced services such as Ultra HD (4K) are also expected to drive demand for capacity.

• Consumer Broadband — As demand for high speed internet services continues to grow, many regions in the developed and underdeveloped world continue to lack any terrestrial communications network infrastructure. Today’s satellites offer a solution to address this increasing demand as the capabilities of high-throughput satellites allow broadband speeds significantly higher than earlier generation satellites and comparable to many terrestrial alternatives.

• Military Satellite Communications (“Milsatcom”) — The U.S. Government is the single largest user of commercial satcom and most of this use relates to U.S. Department of Defense (DoD) operations. FSS demand from the U.S. military and defense agencies around the world has been adversely affected in recent years by reduced spending, troop withdrawals and gains in network efficiencies that support higher data rates over the same amount of bandwidth. However, Milsatcom demand is expected to increase over time. Commercial FSS supports secure communications, surveillance, reconnaissance, mobile communications, including support for Unmanned Aerial Vehicles (UAVs), logistics, troop welfare and a host of other services.

• Government Digital Inclusion — Digital inclusion projects — government supported initiatives to bring broadband services to rural and remote communities and those with limited terrestrial infrastructure — are an important and growing application in both developed and developing nations.

• Resource Sector — FSS demand in the resource sector has largely been driven by oil and gas exploration, and the level of such exploration has largely been driven by global economic growth. Increased oil supply and reduced economic growth in many countries have led to decreased prices and a slowdown in exploration and production in many parts of the world. As a result, a number of energy projects are being scaled back or put on hold, which has adversely affected current demand for satellite capacity used by the networks that support these activities. However, service providers to the oil and gas and resource industries expect that the outlook for increasing levels of exploration and extraction is favorable in the long-term.

• Cellular Backhaul — Mobile subscribers have been growing rapidly around the world and particularly across Latin America, Africa, the Middle East and Asia. This has resulted in mobile operators in developing regions contracting for FSS capacity to support backhaul services. Cellular backhaul services utilize VSATs that can be deployed quickly, helping mobile operators gain market

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share and extended reach while avoiding large capital outlays for infrastructure. Future growth in satellite services is anticipated as mobile subscribers in satellite dependant regions move to smart phones and use more data intensive applications, including video streaming.

• Transportation (Maritime and Aeronautical Services) — As broadband connectivity becomes more central to businesses and individuals, the need to stay connected has spread to locations that cannot readily access terrestrial networks. Commercial maritime vessels including cruise ships, cargo carriers, container vessels and oil tankers are making greater use of full-time broadband to provide broadband services to passengers, improve operations and support crew morale. Aeronautical broadband for in-flight passenger communications is also growing and has become a significant driver of demand as airlines around the world continue to implement in-flight Wi-Fi in passenger cabins.

• Internet of Things — A vast number of physical objects — factories, appliances, machinery, electric grids and other infrastructure — now have the capability to monitor their environment, report status, receive instructions, and take action based on information they receive. This is all part of the Internet of Things (“IoT”) that already has billions of devices in use and which is expected to grow to over 20 billion connected units by 2020. Reliable communications are essential for IoT to work and, while most IoT connections will likely be by terrestrial wireless, the growth in the number of connected devices is expected to drive increased demand for satellite services.

• Corporate Networks in the Developing World — As economic growth accelerates in developing parts of the world with poor terrestrial infrastructure, corporate enterprises expanding their activities in these regions drive demand for increased satellite capacity.

Supply

Satellite capacity supply is impacted by the scarcity of radio spectrum and financial, regulatory and other barriers to entry that characterize the satellite services industry. There are a limited number of orbital locations and limited radio frequency spectrum available to commercial communications satellite operators. As a result, a limited number of satellites can be placed into service over any particular geographic area. New entrants must face the significant capital costs of procuring a satellite and must maintain the financial and highly specialized technical resources required to operate a satellite system and market its services. Other regulatory requirements must also be satisfied before a new entrant can provide services to, from, or within a specific country.

Available supply of satellite capacity varies significantly by region, frequency and customer requirements. Existing satellite operators that have orbital locations with a significant number of remote satellite dishes pointed at them have a meaningful competitive advantage over potential new entrants. With respect to video distribution, “neighborhoods” develop where many thousands of cable headends or millions of consumer satellite dishes are pointed at a specific orbital location or locations. Due to the often prohibitive cost of re-pointing dishes, video distribution networks and other networks with a significant number of remote satellite sites have a strong preference for securing expansion satellite capacity from satellites located at the orbital location(s), or neighborhoods, at which their or their customers’ satellite dishes are pointed.

Conversely, HTS capacity is becoming increasingly available. HTS rely on multiple spot beams and frequency reuse to deliver greatly increased throughput versus traditional satellites for the same amount of allocated frequency. New entrants, many with the support of export credit agency financing, are bringing additional capacity to the market. In addition, new technologies, such as second generation HTS, LEO constellations and alternate non-terrestrial services using drones or balloons, may significantly increase the supply of services that will compete with traditional satellite services.

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Competitive Strengths

Our business is characterized by the following key competitive strengths:

Leading Global FSS Operator

We are the fourth largest FSS operator in the world and the largest in Canada, with a strong and stable business. We have a leading position as a provider of satellite services in the North American video distribution market. We provide services to both of the major DTH providers in Canada, Bell TV and Shaw Direct, which together have approximately 2.4 million subscribers, as well as to EchoStar (DISH Network) in the United States, which has approximately 13.9 million subscribers. Our international satellites are well positioned to serve a number of growing markets and serve a range of important customers in those markets. Telstar 11N provides service to American, European and African regions and aeronautical and maritime markets of the Atlantic Ocean Region. Our recently launched Telstar 12 VANTAGE satellite provides a high level of flexibility with coverage of Europe, the Americas, the Middle East and Africa, as well as the Caribbean, North Sea, Mediterranean and South Atlantic regions. Telstar 14R/Estrela do Sul 2 offers high powered coverage of the Americas, the Gulf of Mexico, the Caribbean and the North Atlantic Ocean Region (“NAOR”). Telstar 18 delivers video distribution and contribution throughout Asia and offers connectivity to the U.S. mainland via Hawaiian teleport facilities. Our current enterprise services customers include leading telecommunications service providers as well as a range of network service providers and integrators, who provide services to enterprises, governments and international agencies and multiple ISPs.

Blue Chip Customer Base

We offer our broad suite of satellite services to more than 400 customers worldwide, which include some of the world’s leading television broadcasters, cable programmers, DTH service providers, ISPs, telecommunications carriers, corporations and government agencies. Over 45 years of operation, we have established long-term, collaborative relationships with our customers and have developed a reputation for creating innovative solutions and providing services essential for our customers to reach their end users. Our customers represent some of the strongest and most financially stable companies in their respective industries. These customers have historically committed to long-term contracts for our services, which enhances the predictability of our future revenues and cash flows and supports our future growth. Our customers include:

Broadcast:	North American DTH providers Bell TV, Shaw Direct, EchoStar (DISH Network), and leading telecommunications and media firms such as AMC Networks International, Bell Media, Canadian Broadcasting Corporation, HBO and NBC Universal.
Enterprise:	Bell Canada, BT, Embratel, Harris CapRock Communications, Lockheed Martin, Northern Space Link Ltd., Northwestel, Panasonic, Suncor and Xplornet Communications.
Consulting:	EchoStar, MacDonald, Dettwiler and Associates, Mitsubishi Electric Corporation and ViaSat/WildBlue.

Large Contracted Backlog and Young Satellite Fleet Underpin Anticipated Growth and High Revenue Visibility

Historically, we have been able to generate strong cash flows from our operating activities due to the high operating margins in the satellite industry and our disciplined control of expenses. The stability of our cash flows is underpinned by our large revenue backlog. As of December 31, 2015, we had contracted backlog for future services of approximately $4.8 billion, which represents a multiple of approximately five times revenue for the year ended December 31, 2015. Of the approximately $4.8 billion backlog, we anticipate that approximately 15% will be recognized as revenue in 2016 and the balance to be recognized in 2017 and thereafter. We have been able to generate significant backlog by entering into long-term contracts with our customers, in some cases for all or substantially all of a satellite’s orbital maneuver life. In addition to this backlog, we have historically experienced a high proportion of contract renewals. Together these two factors have produced ongoing, stable cash flows.

Many of our satellites are relatively new and will not need to be replaced for a significant period of time, which defers replacement capital expenditures.

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Portfolio of Orbital Real Estate

Telesat’s satellites occupy highly attractive orbital locations that provide the company with a leading position in many of the markets in which it operates due to the scarcity of available satellite spectrum and the strong neighborhoods Telesat has developed at these locations. Access to these orbital locations, coupled with the high capital intensity of the satellite industry, creates high barriers to entry in those markets. Telesat is licensed by the Department of Innovation, Science and Economic Development Canada (“DISED”), formerly Industry Canada, to occupy a number of key orbital positions that are well-suited to serve the Americas and maintain its leading position in North America. The company’s international satellites also occupy highly desirable orbital locations that enable broad pan-regional service with interconnectivity between regions, making them attractive for both intra- and inter-regional services. Telesat has rights to additional spectrum, including Ka-band and RDBS band at certain existing orbital locations as well as a global low earth orbit constellation in Ka-band.

See “Item 4D. Property, plants and equipment — In-orbit Satellites” for a more detailed description of our orbital locations, the satellites that occupy them and the geographic regions that they serve.

Global Operations Provides Revenue Diversification and Economies of Scale

The combination of Telesat’s North American broadcast and enterprise services businesses and the Company’s international business offers diversity in terms of both the customers and regions served as well as the services provided. Telesat continues to benefit from growth in both the broadcast and enterprise services markets, including government services, due to its strong presence in each.

Moreover, as the operator of a fleet of 15 satellites plus multiple other satellites for third parties, Telesat has attained meaningful scale to allow it to leverage its relatively fixed cost base to achieve substantial operating margins.

Business Strategy

We are committed to continuing to provide the strong customer service and focus on innovation and technical expertise that have allowed us to successfully build our business to date. Building on our existing activities and large contracted revenue backlog, our focus will be on increasing the utilization of our existing satellite capacity, maintaining our operating efficiency and, in a disciplined manner, using our strong cash flows to grow our in-orbit satellite capacity and strengthen our business.

Continue to Grow Our Core Business

We believe our satellite fleet offers a strong combination of existing backlog, contracted revenue growth and additional capacity on our existing satellites that provides a solid foundation upon which we will seek to grow our revenues and cash flows. To achieve this growth, we will seek to capture the anticipated increased demand for satellite services and capacity, (i) in the broadcast services market, from broadcast video applications, including DTH services, HDTV, and expansion in the number of channels and (ii) in the enterprise services market, from developing market requirements, maritime and aeronautical requirements, government services and enterprise network demand.

Follow a Disciplined Satellite Expansion Strategy

We will continue to focus on capturing the anticipated increase in worldwide demand for satellite services through a disciplined satellite expansion program that should drive incremental contracted backlog and cash flows, and further leverage the Company’s fixed cost structure.

Telstar 12 VANTAGE, a powerful, multi-mission satellite that was launched successfully in November 2015 and which became operational on December 15, 2015 will replace and expand on the services we provide on our Telstar 12 satellite at 15° WL. This new state-of-the-art satellite utilizes high throughput capabilities that offer superior performance to meet the growing needs of broadcast, government and enterprise users, including demand for aeronautical and maritime services. The satellite offers a high level of flexibility with coverage of Europe, the Americas, the Middle East and Africa, as well as the Caribbean, North Sea, Mediterranean and South Atlantic regions.

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Telstar 18 VANTAGE, a powerful, state-of-the-art, multi-mission satellite currently under construction will replace Telstar 18 at 138° EL. This new satellite will bring replacement and expansion capacity to this orbital location utilizing high throughput and broad beam capacity. The satellite will offer a high degree of flexibility with coverage of China, Mongolia, Indochina, Indonesia, Australia, New Zealand and the Pacific Ocean.

Telstar 19 VANTAGE, a powerful, multi-mission, high throughput satellite currently under construction will bring additional capacity to the 63° WL orbital location where we operate our Telstar 14R/Estrela do Sul 2 satellite. The satellite will offer a high degree of flexibility with coverage of Brazil, the Andean Region, the Caribbean, the North Atlantic Ocean and Northern Canada.

Increase Cash Flow and Maintain Strong Liquidity Profile

The satellite industry is characterized by a relatively fixed cost base that allows significant revenue growth with relatively minimal increases in operating costs, particularly for sales of satellite capacity. Thus, we anticipate that over time we can increase our revenues without proportional increases in our operating expenses, allowing us to expand our margins. We expect to continually review all aspects of our business to contain operating costs and to maintain and potentially improve our operating efficiency. To further enhance our liquidity, we have a $140 million Revolving Credit Facility that can be used for general corporate purposes including working capital and capital expenditures of which no amount was outstanding at December 31, 2015.

Our Services

We earn the majority of our revenues by providing satellite-based services to customers, who use these services for their own communications requirements or to provide services to customers further down the distribution chain for video and data services. We also earn revenue by providing ground-based transmit and receive services, selling equipment, installing, managing and maintaining satellite networks, and providing consulting services in the field of satellite communications. In this document, we categorize our revenues into: Broadcast, Enterprise and Consulting and other.

For the year ended December 31, 2015, we derived revenues from the following services:

Broadcast		52	%
Enterprise		45	%
Consulting and other		3	%

Broadcast:  Our broadcast services business provided approximately 52% of our revenues for the year ended December 31, 2015. These services include:

• DTH.  Both Canadian DTH service providers (Bell TV and Shaw Direct) use our satellites as a distribution platform for their services, delivering television programming, audio and information channels directly to customers’ homes. In addition, our satellites are used by EchoStar/DISH Network for DTH services in the United States.

• Video Distribution and Contribution.  Major broadcasters, cable networks and DTH service providers use our satellites for the full-time transmission of television programming. Additionally, we provide certain broadcasters and DTH service providers bundled, value-added services that include satellite capacity, digital encoding of video channels, authorization services and uplinking and downlinking services to and from our satellites and earth station facilities.

• Occasional Use Services.  Occasional use services consist of satellite transmission services for the timely broadcast of video news, sports and live event coverage on a short-term basis enabling broadcasters to conduct on-the-scene transmissions using small, portable antennas.

Enterprise:  Our enterprise services provided approximately 45% of our revenues for the year ended December 31, 2015. These services include:

Telecommunication Carrier and Integrator Services:  We provide satellite capacity and end-to-end services for data and voice transmission to telecommunications carriers and integrators located throughout the world. These services include (i) connectivity and voice circuits to remote locations in Canada for customers such as Bell Canada and Northwestel and (ii) space segment services and terrestrial facilities for internet

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backhaul, cellular backhaul and services such as rural telephone and internet access to telecommunications carriers and network services integrators around the world.

Government Services:  The United States Government is the largest single consumer of fixed satellite services in the world, and a significant user of our international satellites. Over the course of several years, we have implemented a successful strategy to sell through government service integrators, rather than directly to United States Government agencies. We are also a significant provider of satellite services to the Canadian Government, providing a variety of services from a maritime network for a Canadian Government entity to satellite services to the Department of National Defence.

Consumer Broadband Services:  We provide Ka-band satellite capacity to Xplornet Communications Inc. and other resellers in Canada who use it to provide two-way broadband internet services in Canada. We also provide Ka-band satellite capacity to ViaSat/WildBlue who use it to provide similar services in the United States.

Resource Services:  We provide communications services to geographically diverse locations, both on and off shore, for the oil and gas and mining industries.

Maritime and Aeronautical Services:  We are increasingly providing satellite capacity to customers serving the growing maritime and aeronautical markets, bringing broadband communications services to commercial airplanes and vessels, including cruise and working ships.

Retail Services:  We operate VSAT and hybrid VSAT/terrestrial networks in Canada providing end-to-end services including installation and maintenance of the end user terminal, maintenance of the VSAT hub, and provision of satellite capacity. These networks include the support of point-of-sale and other applications at thousands of retail petroleum sites.

Satellite Operator Services:  We provide services to other satellite operators in the form of partial channel satellite capacity, full transponder satellite capacity and, on occasion, the relocation and use of an entire satellite at their designated orbital location.

Consulting and other:  Our consulting and other category provided approximately 3% of our revenues for the year ended December 31, 2015. Our consulting operations allow us to realize operating efficiencies by leveraging our existing employees and the facility base dedicated to our core satellite communication business. With over forty-five years of engineering and technical experience, we are a leading consultant in establishing, operating and upgrading satellite systems worldwide, having provided services to businesses and governments in over 42 countries across six continents. In 2015, our international consulting business provided satellite-related services in approximately 15 countries.

We also benefit from revenue diversity in terms of the geographic location of our customers. For the year ended December 31, 2015, we derived revenues, based on the billing address of the customer, in the following geographic regions:

North America		79	%
Europe, Middle East and Africa		9	%
Latin America		9	%
Asia and Australia		3	%

Sales and Marketing

We have organized our sales effort by region. Our account teams typically include an experienced sales executive, supported by an application engineering team that provides both pre-sale and post-sale technical advice and consultation to our customers. Our sales staff is partially compensated based on meeting and exceeding individual revenue quota targets.

We sell our services worldwide primarily through a direct sales force located at our headquarters in Ottawa and at our regional offices including our offices in London, Singapore, Rio de Janeiro, Washington (D.C.) and Toronto.

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Contracts

We have generally sold satellite transponder capacity, ground services and end-to-end managed services to our customers using three different contractual arrangements:

• Service agreements:  The most common type of agreement that we have entered into for the provision of satellite capacity, ground services and end-to-end managed services is the service agreement. In our service agreements, a customer commits to purchase a specific type of capacity or service. These service agreements contain terms that are generally consistent with industry practices and, for our North American DTH customers, are often for the entire manufacturer’s service life of a satellite. Typically, our service agreements can only be terminated by our customers prior to the expiration date in the event of a continued period of service interruption.

• Transponder purchase and operating services agreements:  We have also entered into transponder purchase and operating services agreements with a number of our customers to provide them with access to capacity on Anik F1, Anik F1R and Anik F2. We refer to these transponder purchase and operating services agreements as “condominium style” agreements as the customer purchases the transponder on the satellite and then pays us ongoing operating fees for the life of the satellite. Typically, our customers are only entitled to terminate these transponder purchase and operating agreements in the event of a transponder failure. If such an event were to occur, barring a specified degree of negligence or misconduct on our part, our customers may no longer be required to pay us the ongoing operating fees, but would not be entitled to be reimbursed other fees paid by them in connection with the purchase of the transponder. We have not entered into any transponder purchase and operating services agreements since 2005.

• License agreements:  We have also entered into a license arrangement for the majority of the Ka-band capacity on Anik F2. This license agreement provides our customer with the exclusive right to access and use the licensed Ka-band capacity for the life of the satellite. Payment for the license has been received and we have no obligation to reimburse such payment in the event of service interruption.

We plan to sell satellite capacity in the future through service agreements or, in unique circumstances, through exclusive license agreements.

Revenue Backlog

Contracted revenue backlog represents our expected future revenue from existing service contracts (without discounting for present value), including any deferred revenue that we will recognize in the future in respect of cash already received. The significant majority of our contracted revenue backlog is generated from service or other agreements for satellite capacity. We do not include revenue beyond the stated expiration date of a contract regardless of the potential for a renewal. As of December 31, 2015, our contracted backlog, was approximately $4.8 billion. This amount includes approximately $323 million of customer prepayments that Telesat has already received.

Generally, following the successful launch of a satellite, if the satellite is operating nominally, our customers may only terminate their service agreements for satellite capacity by paying us all, or substantially all, of the payments that would have otherwise become due over the term of the service agreement. However, if certain of our existing satellites were to experience a significant launch delay, launch or in-orbit failure, or otherwise fail to operate as anticipated, our customers may be entitled to terminate their agreement and we may be obligated to return a portion of the customer prepayments made under service agreements for that satellite and reduce the associated contracted revenue from the revenue backlog. Those repayments would be funded by any insurance proceeds we may receive, cash on hand, short-term investments, and/or funds available under our Revolving Credit Facility.

Our actual realized revenues may differ from the revenues we expect to realize based on our contractual backlog, and such differences may be material. See “Item 3D. Risk factors — Risks related to our business” for a discussion of some of the factors that may affect our revenues.

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Patents and Proprietary Rights

As of December 31, 2015, Telesat had seven patents all in the United States. These patents expire between 2018 and 2027. Telesat also has several pending domestic and international patent applications.

There can be no assurance that infringement of existing third party patents has not occurred or will not occur. Additionally, because the patent application process is confidential, there can be no assurance that third parties, including competitors, do not have patents pending that could result in issued patents which we may infringe. In such event, we may be restricted from continuing the infringing activities, which could adversely affect our business, or we may be required to obtain a license from a patent holder and pay royalties, which would increase our cost of doing business.

Research and Development

Our research and development expenditures are incurred for the studies associated with advanced satellite system designs, and experimentation and development of space, satellite and ground communications products. This also includes the development of innovative and cost effective satellite applications for the various customer segments we serve.

Competition

We are a leading global FSS operator in a highly competitive industry and we compete against other global, regional and national satellite operators and with providers of terrestrial-based communications services.

Fixed Satellite Operators

Other global satellite operators are Intelsat S.A. (“Intelsat”), SES S.A. (“SES”), Eutelsat S.A. (“Eutelsat”), Inmarsat and O3b. We also compete with a number of nationally or regionally focused FSS operators around the world.

Intelsat, SES and Eutelsat are each substantially larger than we are in terms of both the number of satellites they have in-orbit as well as their revenues. We believe that Intelsat and its subsidiaries and SES and its subsidiaries each have global fleets of over fifty satellites, and that Eutelsat and its subsidiaries have a fleet of almost forty satellites. Due to their larger sizes, these operators may be able to take advantage of greater economies of scale, may be more attractive to customers, and may (depending on the specific satellite and orbital location in question) have greater flexibility to restore service to their customers in the event of a partial or total satellite failure. In addition, their larger sizes may enable them to devote more resources, both human and financial, to sales, operations, product development, and strategic alliances and acquisitions.

Regional and domestic providers: We also compete against regional FSS operators, including:

• in North America: Ciel, ViaSat/Wildblue, HNS/EchoStar and Hispasat;

• in Europe, Middle East, Africa: Arabsat, Nilesat, Hellas-Sat, RSCC, Yahsat, Turksat and Spacecom;

• in Asia: AsiaSat, Measat, Thaicom, APT, PT Telkom, Optus and Asia Broadcast Satellite; and

• in Latin America: Star One, Arsat and Hispamar.

A number of other countries have domestic satellite systems that we compete against in those markets.

The Canadian Government opened Canadian satellite markets to foreign satellite operators as part of its 1998 World Trade Organization commitments to liberalize trade in basic telecommunications services. As of January 2016, approximately 93 non-Canadian FSS satellites are listed as having been approved for use in Canada. Three of these are Telesat satellites licensed by other administrations and one is a satellite on which Telesat owns the Canadian-coverage capacity. The growth in satellite service providers using or planning to use Ka-band, including Avanti Communications, O3b, ViaSat/Wildblue, Eutelsat, HNS/EchoStar, Inmarsat, SES, Yahsat and others, will result in increased competition.

In addition, the FSS and the Mobile Satellite Services (“MSS”) sectors which have historically served distinct customer requirements, are converging. As a result, we face competition from MSS operators that include Inmarsat which recently began offering a high throughput Ka-band service using a global constellation of three geostationary satellites.

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In 2015 three global LEO satellite systems were announced and are now in various stages of development.

Many of the new and replacement satellites expected to be deployed in the near term will be high throughput satellites or will include high throughput payloads. This includes Intelsat’s “Epic” satellites, the first of which was launched in the first quarter of 2016. In addition, second generation HTS systems now in development purport to be capable of throughput that substantially exceeds the throughput of first generation HTS. This may result in a significant increase in satellite capacity which may further increase competition.

Terrestrial Service Providers

Providers of terrestrial-based communications services compete with satellite operators. Increasingly, in developed and developing countries alike, governments are providing funding and other incentives to encourage the expansion of terrestrial networks resulting in increased competition for FSS operators.

Consulting Services

The market for satellite consulting services is generally comprised of a few companies qualified to provide services in specific areas of expertise. Our competitors are primarily United States and European-based companies.

Government Regulation

Canadian Regulatory Environment

The Telesat Divestiture Act

Telesat Canada was established by the Government of Canada in 1969 under the Telesat Canada Act. As part of the Canadian government’s divestiture of its shares in Telesat Canada, pursuant to the Telesat Canada Reorganization and Divestiture Act (1991) (the “Telesat Divestiture Act”), Telesat Canada was continued on March 27, 1992 as a business corporation under the CBCA, the Telesat Canada Act was repealed and the Canadian government sold its shares in Telesat Canada. The Telesat Divestiture Act provides that no legislation relating to the solvency or winding-up of a corporation applies to Telesat Canada and that its affairs cannot be wound up unless authorized by an Act of Parliament. See “Item 3D. Risk factors — Risks related to our indebtedness and our Senior Notes — Because of the Telesat Canada Reorganization and Divestiture Act, a Canadian act uniquely applicable to Telesat Canada (but not the guarantors, other subsidiaries or Telesat LLC), Telesat Canada may not have access to the usual protections from creditors and other rights available to insolvent persons, and creditors, including holders of the Notes, may not have recourse to the usual rights, remedies and protections under applicable bankruptcy and insolvency laws generally available to creditors of insolvent persons.” In addition, Telesat Canada and its shareholders and directors cannot apply for Telesat Canada’s continuation in another jurisdiction or dissolution unless authorized by an Act of Parliament.

Telecommunications Regulation

We are subject to regulation by government authorities in Canada, the United States and other countries in which we operate and are subject to the frequency and orbital location coordination process of the ITU. Our ability to provide satellite services in a particular country or region is subject also to the technical constraints of our satellites, international coordination, local regulation including as it applies to securing landing rights and licensing requirements.

The Telecommunications Act

Telesat Canada is a Canadian carrier under the Telecommunications Act (Canada), or the Telecom Act. The Telecom Act authorizes the Canadian Radio-Television and Telecommunications Commission (“CRTC”) to regulate various aspects of the provision of telecommunications services by us and other telecommunications service providers. Under the current regulatory regime, we have pricing flexibility subject to a price ceiling on certain full period FSS services offered in Canada under minimum five-year arrangements, and otherwise we are not required to file tariffs for approvals. DBS services offered within Canada are also subject to CRTC regulation, but have been treated as distinct from FSS services and facilities. We require CRTC approval of customer agreements relating to the sale of DBS capacity in Canada, including the rates, terms and conditions of service set out therein. Section 28(2) of the Telecom Act provides that the CRTC may allocate satellite capacity to particular broadcasting undertakings if it is satisfied that the allocation will further the implementation of the broadcasting

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policy for Canada. The exercise by the CRTC of its rights under section 28(2) of the Telecommunications Act could affect our relationship with existing customers, which could have a material adverse effect on our results of operations, business prospects and financial condition. In 2015, the CRTC conducted a regulatory proceeding to review Telesat’s pricing for C-band FSS services. A decision by the CRTC is pending.

Radiocommunication Act

Our operations are also subject to regulation and licensing by DISED pursuant to the Radiocommunication Act (Canada). DISED has the authority to issue licenses, establish standards, assign Canadian orbital locations, and plan the allocation and use of the radio frequency spectrum, including the radio frequencies upon which our satellites and earth stations depend. The Minister responsible for DISED has broad discretion in exercising this authority to issue licenses, fix and amend conditions of licenses, and to suspend or even revoke them. Our licenses to operate the Anik and Nimiq satellites require us to comply with research and development and other industrial and public benefit commitments, to pay annual radio authorization fees, and to provide all-Canada satellite coverage.

DISED traditionally licensed satellite radio spectrum using a competitive licensing process. In 2012, DISED conducted a public consultation on the licensing framework for FSS and BSS in Canada. As a result of the consultation, changes in policy were announced in November 2013. Effective January 6, 2014, all FSS and BSS licences are awarded to qualified applicants on a first-come, first-served basis, and spectrum licences have replaced radio licences. The term of spectrum licences is 20 years, with a high expectation of renewal. DISED may, however, issue licences with a shorter term. DISED is also reviewing the license fees it will charge spectrum license holders and in December 2014 published a Gazette Notice seeking public comments on its fee proposal. Telesat, other satellite operators, and satellite associations supported the DISED proposal. DISED is proceeding with the changes, subject to Ministerial approval, that will come into effect in the 2016 fiscal year.

The Canadian Government opened Canadian satellite markets to foreign satellite operators as part of its 1998 World Trade Organization (“WTO”) commitments to liberalize trade in basic telecommunications services, with the exception of DTH television services provided through FSS or DBS facilities. Satellite digital audio radio service markets were also closed to foreign entry until 2005. In September 2005, the Canadian Government revised its satellite-use policy to permit the use of foreign-licensed satellites for digital audio radio services in Canada. Further liberalization of the policy may occur and could result in increased competition in Canadian satellite markets. See “Business Overview — Competition” for more information about our competitors in the Canadian satellite market.

Contribution Collection Mechanism

Since November 2000, pursuant to the CRTC’s Decision CRTC 2000-745, virtually all telecommunications service providers are required to pay contribution charges based on their Canadian telecommunications service revenues, minus certain deductions (e.g., retail internet and paging revenues, terminal equipment sales and inter-carrier payments). The contribution rate varies from year to year. It was initially set at 4.5% of eligible revenues but was significantly reduced in subsequent years. The rate for 2015 was 0.55%. An interim rate of 0.56% has been established by CRTC for 2016.

United States Regulatory Environment

The FCC regulates the provision of satellite services to, from, or within the United States.

We have chosen to operate our U.S.-authorized satellites, Telstar 11N, Telstar 12 and Telstar 12 VANTAGE, on a non-common carrier basis. Consequently, they are not subject to rate regulation or other common carrier regulations enacted under the Communications Act of 1934. We pay FCC filing fees in connection with our space station and earth station applications and annual fees to defray the FCC’s regulatory expenses. Annual and quarterly status reports must be filed with the FCC for interstate/international telecommunications and contribution charges to the FCC’s Universal Service Fund (“USF”) based on eligible United States telecom revenues are paid on a quarterly and annual basis. The USF contribution rate is adjusted quarterly and is currently set at 18.2% for the first quarter of 2016. At the present time, the FCC does not assess USF contributions with respect to bare transponder capacity (i.e., agreements for space segment only). Telesat’s United States telecom revenues that are USF eligible are currently small, and our USF payments are not material.

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Telesat also owns and operates the portion of the ViaSat-1 satellite (115° WL) payload that is capable of providing service within Canada. The ViaSat-1 satellite is licensed by the U.S.

The FCC currently grants satellite authorizations on a first-come, first-served basis to applicants who demonstrate that they are legally, technically and financially qualified, and that the public interest will be served by the grant. Under licensing rules, a bond must be posted for up to USD $3 million when an FSS geostationary satellite authorization is granted. Some or the entire amount of the bond may be forfeited if there is failure to meet any of the milestones for satellite contracting, design, construction, launch and commencement of operations. According to current licensing rules, the FCC will issue new satellite licenses for an initial 15 year term and will provide a licensee with an “expectancy” that a subsequent license will be granted for the replacement of an authorized satellite using the same frequencies. At the end of the 15 year term, a satellite that has not been replaced, or that has been relocated to another orbital location following its replacement, may be allowed to continue operations for a limited period of time subject to certain restrictions.

To facilitate the provision of FSS in C-, Ku- and Ka-band frequencies in the United States market, foreign licensed operators can apply to have their satellites placed on the FCC’s Permitted Space Station List. Our Anik F1, Anik F1R, Anik F2, Anik F3 and Telstar 14R/Estrela do Sul 2 satellites are currently on this list.

The United States made no WTO commitment to open its DTH, DBS or digital audio radio services to foreign competition, and instead indicated that provision of these services by foreign operators would be considered on a case-by-case basis, based on an evaluation of the effective competitive opportunities open to United States operators in the country in which the foreign satellite was licensed (i.e., an ECO-sat test) as well as other public interest criteria. While Canada currently does not satisfy the ECO-sat test in the case of DTH and DBS service, the FCC has found, in a number of cases, that provision of these services into the United States using Canadian-licensed satellites would provide significant public interest benefits and would therefore be allowed. In cases involving us, United States service providers Digital Broadband Applications Corp., DIRECTV and EchoStar have all received FCC approval to access Canadian-authorized satellites under Telesat’s direction and control in Canadian-licensed orbital locations to provide DTH-FSS or DBS service into the United States.

The approval of the FCC for the Telesat Canada acquisition and the Skynet Transaction was conditioned upon Telesat Holdings’, Telesat Interco’s and Loral Skynet’s compliance with commitments made to the Department of Justice, the Federal Bureau of Investigation and the Department of Homeland Security relating to the availability of certain records and communications in the United States in response to lawful United States law enforcement requests for such access.

The export of United States-manufactured satellites and technical information related to satellites, earth station equipment and provision of services to certain countries are subject to State Department, Commerce Department and Treasury Department regulations.

In 1999, the United States State Department published amendments to the International Traffic in Arms Regulations (“ITAR”) which included satellites on the list of items requiring export licenses. Effective November 2014, further amendments to the ITAR transferred jurisdiction of certain satellites and related technology to the Export Administration Regulations administered by the Commerce Department, which also impose license requirements in specified circumstances. The ITAR provisions may limit our access to certain technical information and have had a negative impact on our international consulting revenues.

If we do not maintain our existing authorizations or obtain necessary future authorizations under the export control laws and regulations of the United States, we may be unable to export technical information or equipment to non-U.S. persons and companies, including to our own non-U.S. employees, as required to fulfill existing contracts. If we do not maintain our existing authorizations or obtain necessary future authorizations under the trade sanctions laws and regulations of the United States, we may not be able to provide satellite capacity and related administrative services to certain countries subject to U.S. sanctions. Our ability to acquire new United States-manufactured satellites, procure launch services and launch new satellites, operate existing satellites, obtain insurance and pursue our rights under insurance policies or conduct our satellite-related operations and consulting activities could also be negatively affected if we and our suppliers are not able to obtain and maintain required U.S. export authorizations.

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Brazil Regulatory Environment

The Brazilian national telecommunications agency, ANATEL, has authorized us, through our subsidiary, Telesat Brasil Capacidade de Satélites Ltda. (“TBCS”), to operate a Ku-band FSS satellite at the 63° WL orbital location. In December 2008, TBCS entered into a new 15 year Concession Agreement with ANATEL which obligates TBCS to operate the satellite in accordance with Brazilian telecommunications law and contains provisions to enable ANATEL to levy fines for failure to perform according to the Concession Agreement terms.

In May 2015, TBCS was the successful bidder in an ANATEL auction for Ka-Band and Planned Ku-band frequency rights at the 63° WL orbital location. The associated 15 year Concession Agreements are expected to be signed in the first quarter of 2016.

Tonga Regulatory Environment

We own Telstar 18, which currently operates at the 138° EL orbital location under an agreement with APT. Telstar 18 VANTAGE will replace Telstar 18 at the same orbital location, also under an agreement with APT. APT has been granted the right to use the 138° EL orbital location by The Kingdom of Tonga. APT is the direct interface with the Tonga regulatory bodies. Because we have gained access to this orbital location through APT, there is greater uncertainty with respect to our ability to maintain access to this orbital location and the frequencies.

United Kingdom Regulatory Environment

We own and operate the portion of the ViaSat-1 satellite (115° WL) payload that is capable of providing service within Canada. ViaSat-1 operates in accordance with a license granted by the FCC in the United States. However, by virtue of an intergovernmental arrangement between the United States and the United Kingdom, ViaSat-1 operates in accordance with ITU networks filed by the United Kingdom regulatory agency, OFCOM, on behalf of the Isle of Man. The Isle of Man is a British Crown Dependency and Isle of Man satellite orbital filings are filed with the ITU-BR by OFCOM. ManSat Ltd. has been granted exclusive rights by the Isle of Man Government to manage all aspects of Isle of Man satellite orbital filings. Both Telesat and ViaSat have a commercial relationship with ManSat. ViaSat and Telesat have agreed to cooperate in their dealings with ManSat with respect to the ViaSat-1 satellite for OFCOM and ITU purposes. The Ka-band and portions of the Ku-band frequencies on Telstar 12 VANTAGE, and portions of the Ka-band frequencies on Telstar 18 VANTAGE, are also filed with the ITU by ManSat on behalf of Telesat.

Landing Rights and Other Regulatory Requirements

In addition to regulatory requirements governing the use of orbital locations, many countries regulate transmission signals to, and for uplink signals from, their territory. Telesat has landing rights in major market countries worldwide. In many jurisdictions, landing rights are granted on a per satellite basis and applications must be made to secure landing rights on replacement satellites.

International Regulatory Environment-International Telecommunication Union

The ITU, a body of the United Nations, is responsible for administering access by member states to frequencies in the radio portion of the electromagnetic spectrum. The ITU Radio Regulations set forth the process that member states must follow to secure rights for satellites to use frequencies at orbital locations and the obligations and restrictions that govern such use. The process includes, for example, a “first-come, first-served” system for gaining access to certain frequencies at orbital locations and time limits for bringing the frequencies into use. Other frequencies at specified orbital locations have been reserved in perpetuity for individual administrations’ use.

The Canadian, United States and other member states have rights to use certain frequencies at orbital locations. Telesat has been authorized by its ITU filing administrations Canada, USA, Brazil, and United Kingdom of Great Britain and Northern Ireland to use certain frequencies at orbital locations. In addition, through commercial arrangements, Telesat has the right to use certain frequencies for which the Kingdom of Tonga has the rights. Authorized frequencies include those already used by our current satellites, and additional frequencies at various orbital locations that must be brought into use within specified time limits.

The ITU Radio Regulations also govern the process used by satellite operators to coordinate their operations with other satellite operators to avoid harmful interference. Each member state is required to give

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notice of, coordinate, and register its proposed use of radio frequency assignments at associated orbital locations with the ITU. The filing and registration process is administered by the ITU Radiocommunications Bureau (the “ITU-BR”).

Once a member state has filed with the ITU-BR its proposed use of frequencies at a given orbital location, other member states inform that member state and the ITU-BR of any intended use that has the potential to cause interference to either existing operations, or operations that may occur in accordance with priority rights. The member states are then obligated to negotiate with each other in an effort to coordinate the proposed uses and resolve interference concerns. If all outstanding issues are resolved in accordance with the various procedures of the ITU Radio Regulations, the frequencies are entered into the ITU’s Master Register (“MIFR”). Registered frequencies are entitled under international law to interference protection from subsequent or nonconforming uses.

Under the ITU Radio Regulations, a member state that places a satellite or any ground station into operation without completing coordination could be vulnerable to interference from other systems and may have to alter the operating parameters of its satellite if harmful interference occurs to other users already entered in the MIFR or that have priority rights.

The process of ITU filing and notification in the MIFR of frequencies spans a period of seven to eight years, or longer, depending upon the frequency band and the various provisions of the ITU Radio Regulations that may be invoked. Telesat’s authorized frequencies are in various stages of the coordination and notification process. Many frequencies have completed the process and have been registered in the MIFR. In other cases, coordination is on-going so that entry into the MIFR is pending. This is typical for satellite operators. Depending upon the outcome of coordination discussions with other satellite operators, Telesat may need to make concessions in terms of how a frequency may be used. This, in turn, could have a material adverse impact on our financial condition, as well as on the value of our business. The failure to reach an appropriate arrangement with such satellite operators may render it impossible to secure entry into the MIFR and result in substantial restrictions on the use and operations of our existing satellites at their orbital locations. In the event disputes arise during the coordination process or thereafter, the ITU Radio Regulations set forth procedures for resolving disputes but do not contain a mandatory dispute resolution mechanism or an enforcement mechanism. Rather, the rules invite a consensual dispute resolution process for parties to reach a mutually acceptable agreement. Neither the rules nor international law provide a clear remedy for a party where this voluntary process fails.

Although non-governmental entities, including Telesat, participate at the ITU, only national administrations have full standing as ITU members. Consequently, we must ultimately rely on the administrations of Canada, the United States, Brazil, the United Kingdom and the Kingdom of Tonga to represent our interests, including submitting and coordinating the ITU satellite networks that provide orbital locations and frequency information within the ITU process described above. See “Item 3D. Risk factors —  Risks related to our business” for a discussion on how the international regulatory environment may affect our revenues.

Capital Expenditures

For a description of our principal capital expenditures during the past two fiscal years, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources.”

Property

We own or lease, as described, the satellites and other property identified under “Item 4D. Property, plants and equipment — In-Orbit Satellites”, “Item 4D. Property, plants and equipment — Rights to Other Satellites” and “Item 4D. Property, plants and equipment — Satellite Operations and Related Facilities —  Satellite Control Centre and Earth Station Facilities.”

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C. Organizational structure.

Our corporate structure is as follows:

(1) PSP Investments holds 29.4% of the shares eligible to vote for directors; the remaining 37.9% of shares eligible to vote for directors is held by two independent individuals.

(2) Telesat LLC, a Delaware limited liability company, is a wholly-owned subsidiary of Telesat Canada and exists primarily for the purpose of serving as a co-issuer of Telesat Canada’s Senior Notes due May 15, 2017 and co-borrower under our Senior Secured Credit Facilities.

D. Property, plants and equipment.

In-Orbit Satellites

Our North American focused fleet is comprised of eight satellites (Anik F1R, Anik F2, Anik F3, Nimiq 1, Nimiq 2, Nimiq 4, Nimiq 5 and Nimiq 6), plus the Canadian beams on ViaSat-1. Our international fleet is comprised of six satellites (Anik F1, Telstar 11N, Telstar 12, Telstar 12 VANTAGE, Telstar 14R/Estrela do Sul 2 and Telstar 18). Our Anik G1 satellite provides service for both North and South America.

Our operations and engineering personnel are actively involved in all stages of the lifecycle of a satellite from the design through the deorbiting of the satellites that we procure. Our personnel work directly with our contractors at the contractor’s site to provide technical input and monitor progress during the satellite’s design, construction and launch phases. Our personnel operate all of our owned satellites throughout the life of the satellite. We monitor earth station operations and around-the-clock satellite control and network operations in order to respond when problems occur. In addition, we have in place contingency plans, which we review on a regular basis, for technical problems that may occur during the life of a satellite. We also work closely with earth station manufacturers to test and implement the earth stations that we procure, and to resolve technical problems as they arise.

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The table below summarizes selected data relating to our owned in-orbit satellite capacity as of December 31, 2015:

	Orbital Location Regions Covered	Launch Date	Manufacturer’s End-of-Service Life	End-of-Orbital Maneuver Life(1)	Frequency(2)	Model
Anik F1	107.3° WL South America	November 2000	2016	2022	C/Ku	BSS702 (Boeing)
Anik F1R	107.3° WL North America	September 2005	2020	2023	C/Ku/L	E3000 (EADS Astrium)
Anik F2	111.1° WL Canada, Continental United States	July 2004	2019	2027	C/Ku/Ka	BSS702 (Boeing)
Anik F3	118.7° WL Canada, Continental United States	April 2007	2022	2026	C/Ku/Ka	E3000 (EADS Astrium)
Anik G1	107.3° WL Canada South America	April 2013	2028	2039	C/Ku/X	SS/L 1300
Nimiq 1	Not Applicable(3)	May 1999	2011	2021	Ku	A2100 AX (Lockheed Martin)
Nimiq 2	Not Applicable(3)	December 2002	2015	2021	Ku/Ka	A2100 AX (Lockheed Martin)
Nimiq 4	82° WL Canada	September 2008	2023	2027	Ku/Ka	E3000 (EADS Astrium)
Nimiq 5	72.7° WL Canada, Continental United States	September 2009	2024	2035	Ku	SS/L 1300
Nimiq 6	91.1° WL Canada	May 2012	2027	2048	Ku	SS/L 1300
Telstar 11N	37.55° WL North and Central America, Europe, Africa and the maritime Atlantic Ocean region	February 2009	2024	2026	Ku	SS/L 1300
Telstar 12	15° WL Eastern United States, SE Canada, Europe, Russia, Middle East, South Africa, portions of South and Central America	October 1999	2012	2017	Ku	SS/L 1300
Telstar 12 VANTAGE	15° WL Eastern United States, SE Canada, Europe, Russia, Middle East, South Africa, portions of South and Central America	November 2015	2030	2031	Ku/Ka	E3000 (Airbus)
Telstar 14R/ Estrela do Sul 2	63° WL Brazil and portions of Latin America, North America, Atlantic Ocean	May 2011	2026	2024	Ku	SS/L 1300
Telstar 18(4)	138° EL India, South East Asia, China, Australia and Hawaii	June 2004	2017	2018	C/Ku	SS/L 1300

(1) Our current estimate of when each satellite will be decommissioned, taking account of anomalies and malfunctions the satellites have experienced to date and other factors such as remaining fuel levels, consumption rates and other available engineering data. These estimates are subject to change and it is possible that the actual orbital maneuver life of any of these satellites will be shorter than we currently anticipate. Further, it is anticipated that the payload capacity of each satellite may be reduced prior to the estimated end of orbital maneuver life. For example, we currently anticipate that we will need to commence the turndown of transponders on Anik F1 prior to the End-of-Orbital Maneuver Life, as a result of further degradation in available power. See “Item 3D. Risk factors — Risks related to our business — The actual orbital maneuver lives of our satellites may be shorter than we anticipate and we may be required to reduce available capacity on our satellites prior to the end of their orbital maneuver lives.”

(2) Includes the DBS Ku-band, extended C-band and extended Ku-band in certain cases.

(3) Nimiq 1 and Nimiq 2 are currently located in non-Telesat orbital slots.

(4) Includes 16.6 MHz of C-band capacity provided to the Government of Tonga in lieu of a cash payment for the use of the orbital location. The satellite carries additional transponders (the “APT transponders”), as to which APT has a prepaid lease through the end of life of the satellite in consideration for APT’s

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funding a portion of the satellite’s cost. This transaction was accounted for as a sales-type lease, because substantially all of the benefits and risks incident to the ownership of the leased transponders were transferred to APT. We have agreed with APT among other things that if we are able to obtain the necessary approvals and licenses from the U.S. government under U.S. export laws, we would transfer title to the APT transponders on Telstar 18 to APT, as well as a corresponding interest in the elements on the satellite that are common to or shared by the APT transponders and our transponders. Telesat acquired two transponders from APT for an additional payment in August 2009.

Nimiq Satellites

A number of LM A2100 series of satellites have suffered similar in-orbit failures of circuits on their solar arrays. Lockheed Martin has determined that Nimiq 1 and Nimiq 2 are in the family of spacecraft that is susceptible to this anomaly.

Our Nimiq 1 has suffered a number of solar array circuit/string failures, resulting in a reduction of total available power. At this time, the solar array power continues to support operations.

Nimiq 1 has suffered a number of battery cell failures which have required some adjustments to the spacecraft’s operations to support the provision of satellite services, including reducing the number of transponders available for use during periods of solar eclipse.

Nimiq 1 has also experienced thruster anomalies that have required some adjustments to the spacecraft’s operations but have not impacted service.

In February 2003, Nimiq 2 experienced an anomaly affecting the available power on the satellite. Lockheed Martin, the satellite’s manufacturer, concluded the most likely cause of this anomaly was an electrical short-circuit caused by foreign object debris located in a single power-carrying connector. As a result of this anomaly, the south solar array power cannot be recovered.

Nimiq 2 has experienced solar array circuit failures, resulting in a significant reduction of available power. These failures have substantially reduced the number of transponders we can operate at saturation and it is currently expected that the available capacity will be further reduced over time.

In April 2005, another satellite operator reported that a satellite of the same series as Nimiq 2 suffered a solar array anomaly that resulted in the complete loss of one array and a corresponding 50% reduction in available satellite power. Lockheed Martin, the manufacturer, has traced the most likely cause of this failure to a component on the solar array drive. Unlike Nimiq 1, Nimiq 2 has this component in its remaining functioning solar array. If this same component failed on the functioning array of Nimiq 2, it would result in a total loss of service on the satellite.

Anik Satellites

Anik F1 was designed with the capability to cover both North America and South America from the 107.3° WL orbital location. In August 2001, Boeing, the manufacturer of the Anik F1 satellite, advised us of a gradual decrease in available power on-board the satellite. Boeing investigated the cause of the power loss and reported that the power will continue to degrade. We procured a replacement satellite, Anik F1R, which was launched in 2005. The North American traffic on Anik F1 was transferred to Anik F1R. We now use Anik F1 to provide coverage of South America only.

We have experienced and continue to experience intermittent anomalies with certain amplifiers in the Ka-band and Ku-band payloads on Anik F2. Boeing, the manufacturer, has completed its investigation of these anomalies. The majority of the affected Ka-band units continue to remain in service through modifying operational configurations. The Ku-band traveling-wave-tube amplifiers (“TWTAs”) that were affected as a result of these anomalies have failed. All but two of the failed transponders were replaced using spares and many of the Ku-band TWTAs currently in service have no further spares left to replace them should they fail. Anik F2 has experienced an anomaly with one of its two telemetry transmitters. While the failure of a single telemetry transmitter does not impact satellite operations or the service we provide to our customers, in the event we are unable to restore any redundancy and the second telemetry transmitter were to fail we would cease receiving important information from the satellite regarding its position in orbit and health and our ability to operate the satellite would be adversely affected. A software patch for the satellite was developed by Boeing to provide telemetry to support operations in the event of a failure of the second transmitter and was

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implemented on the satellite in February 2013. Our Anik F2 satellite has also experienced an anomaly on one of the station-keeping thrusters. However, this thruster anomaly has had no impact on service and continues to support operations.

There is a small Ka-band payload on Anik F3 which experienced an anomaly following launch. We implemented a plan to remedy the effect of this anomaly and the Ka-band payload is currently operational.

Telstar Satellites

Telstar 12 has experienced losses of power from its solar arrays. These losses of power have not resulted in any operational impact or reduction in the number of available transponders to date. Telstar 12 experienced a loss of one of two command receivers. Full command-receiver redundancy was subsequently restored through the loading of a software upgrade. Telstar 12 has experienced a loss of some redundant equipment that has not impacted satellite operations to date.

Telstar 14R/Estrela do Sul 2’s North solar array was damaged after launch and only partially deployed, diminishing the power and expected orbital maneuver life of the satellite. At the end of July 2011, the satellite began commercial service with substantially reduced available transponder capacity and with an expected end-of-orbital maneuver life reduced to 2024. It is currently expected that the available transponder capacity will be reduced over time. If the damaged solar array on Telstar 14R/Estrela do Sul 2 were to unexpectedly deploy in the future this could result in a loss of capability to provide service.

Telstar 18 has experienced a failure of one of its two telemetry transmitters. A software patch for the satellite has been developed by SS/Loral to provide telemetry to support operations in the event of a failure of the second transmitter. This patch was implemented on the spacecraft in 2011. Telstar 18 has experienced a loss of some other redundant equipment that has not impacted satellite operations to date.

In general, our satellites are exposed to the potential risk of loss. See “Item 3D. Risk factors — Risks related to our business — Our in-orbit satellites may fail to operate as expected due to operational anomalies resulting in lost revenues, increased costs and/or termination of contracts” for more information about the risks of loss associated with satellite anomalies.

Rights to Other Satellites

In addition, we have rights to satellite capacity on other satellites, including the Ka-band Canadian payload consisting of nine user beams on ViaSat-1.

Satellites Under Construction

On November 23, 2015, we entered into contractual arrangements with Space Systems Loral for the construction of Telstar 19 VANTAGE, which we anticipate will be launched in the first half of 2018. This new state-of-the-art satellite will utilize high throughput capabilities to offer superior performance, in Ku-band and in Ka-band and will be co-located with our Telstar 14R/Estrela do Sul 2 satellite at 63° WL, a prime orbital slot for coverage of the Americas. The satellite will have high throughput Ka-band capacity in South America, over Northern Canada, the Caribbean and the North Atlantic Ocean. It will also provide high throughput Ku-band capacity over Brazil, the Andean region and the North Atlantic.

On December 23, 2015, we entered into contractual arrangements with Space Systems Loral for the construction of Telstar 18 VANTAGE, which we anticipate will be launched in the first half of 2018. The new satellite will operate from 138° EL. Telstar 18 VANTAGE will expand our coverage of growing satellite service markets in China, Mongolia, Southeast Asia, and the Pacific Ocean region. This satellite will utilize a combination of broad regional beams and high throughput spot beams in Ku-band to maximize throughput and spectral efficiency. It will also provide extensive C-band coverage of Asia that reaches from India and Pakistan in the West all the way to Hawaii in the East, enabling direct connectivity from any point in Asia to the Americas.

Other Orbital Spectrum

We have been authorized by governments to operate using additional frequencies at some of the orbital locations where we are currently operating a satellite. In addition, we have been authorized by governments to operate at other orbital locations where we currently do not have a satellite in service including a global low earth orbit constellation in Ka-band.

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There can be no assurance that we will make use of all orbital spectrum available to us.

In general, our satellites are subject to various regulatory authorities and to the rights of other operators. See “Item 3D. Risk factors — Risks related to our business — Our operations may be limited or precluded by ITU rules or processes and we are required to coordinate our operations with those of other satellite operators” for more information about these risks.

Satellite Control Centre and Earth Station Facilities

Our primary Satellite Control Centre (“SCC”) is located at our headquarters in Ottawa, Ontario. The SCC is the hub for our satellite-related activities. The facility is staffed 24 hours per day and currently operates 14 Telesat owned satellites: Anik F1, Anik F1R, Anik F2, Anik F3, Anik G1, Nimiq 1, Nimiq 2, Nimiq 4, Nimiq 5, Nimiq 6, Telstar 11N, Telstar 12, Telstar 12 VANTAGE and Telstar 18. Telesat also operates ViaSat-1, as well as numerous other satellites for third parties from our SCC in Ottawa. We operate our Telstar 14R/Estrela do Sul 2 satellite from our SCC in Rio de Janeiro, Brazil.

Telesat leases an area in its headquarters building of approximately 112,000 rentable square feet pursuant to a lease which provides for a 15 year term (terminable by Telesat Canada at any time after 10 years upon two years’ notice), commencing February 1, 2009.

The Allan Park earth station, located northwest of Toronto, Ontario on approximately 65 acres of land, houses a customer support centre and a technical control centre. This facility is the single point of contact for Telesat’s customers internationally and is also the main earth station complex providing TT&C services for the satellites that we operate. The Allan Park earth station also houses our back-up satellite control centre for the Nimiq and Anik satellites. The back-up satellite control centre for the Telstar satellites is located at the Mount Jackson earth station. We would have the functional ability to restore satellite control services via the Allan Park and Mount Jackson back-up control centres if our primary SCCs became disabled.

In addition to the Ottawa headquarters and the Allan Park earth station, we operate a number of other earth stations, including the following:

Earth Stations	Earth Station Lands Owned/Leased by Us or Our Subsidiaries
Vancouver, British Columbia, Canada		Owned
Calgary, Alberta, Canada		Owned
Winnipeg, Manitoba, Canada		Owned
Montreal, Quebec, Canada		Owned
Toronto, Ontario, Canada		Leased
Mount Jackson, Virginia, USA		Owned
Perth, Australia		Leased
Belo Horizonte, Brazil		Owned
Iqaluit, Nunavut, Canada		Leased
Fort McMurray, Alberta, Canada		Leased
Saskatoon, Saskatchewan, Canada		Leased
St. John’s, Newfoundland, Canada		Leased

In addition to these facilities, we lease facilities for administrative and sales offices in various locations throughout Canada and the United States as well as in Brazil, England and Singapore.

Satellite Operations Risk Management

Satellites utilize highly complex technology and operate in the harsh environment of space and, accordingly, are subject to significant operational risks while in orbit. These risks include anomalies that have occurred in our satellites and the satellites of other operators. Once our satellites are in orbit, there is a risk that a failure could prevent them from completing their commercial mission of providing uninterrupted service to customers. See “Item 3D. Risk factors — Risks related to our business — Our in-orbit satellites may fail to operate as expected due to operational anomalies resulting in lost revenues, increased costs and/or termination of contracts.”

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To ensure continuity of service to our customers, we engineer satellites with on-board redundancies by including spare equipment on the satellite, conduct standard testing programs that provide high confidence of performance levels, and purchase insurance.

Our primary consideration in managing our satellite telecommunications systems is to provide reliable and cost-effective services to our customers. We endeavor to limit the assumption of risk to activities under our control. Our space risk management program has been designed to achieve these objectives.

Non-Insurance Risk Management Initiatives

The risk management program begins at the technical analysis and design stage of the satellites. We engineer certain redundancy on-board every satellite. Furthermore, we are involved in overseeing the manufacture of all of our satellites. We require the manufacturer and its subcontractors to follow assembly and quality assurance programs. We secure and maintain access to work performed by the satellite manufacturer and its subcontractors for the purpose of observing the quality and progress of such work. Comprehensive testing is conducted at the manufacturer’s or a subcontractor’s plant which must meet industry standards and, in many cases, be supervised by our engineering personnel. Our engineering personnel review program management and construction schedules, engineering, design, manufacturing and integration and testing activities at both the manufacturer’s and subcontractor’s sites. After construction is complete, we conduct final acceptance inspections of all deliverable items.

We believe it is crucial to have knowledge and insight into the launch vehicles being used to launch our satellites. Our engineering personnel are on site before and during all launches to observe that all checks and integration steps are completed.

We believe that these quality assurance and manufacturing process monitoring programs help us reduce the risk of satellite failures and anomalies and result in lower launch and in-orbit insurance costs.

Emergency Committee

Protecting and maintaining service to customers is of vital importance to us. Our emergency committee is responsible for managing the restoration of services in the event of an actual or threatened critical condition, such as a satellite failure, the loss of telemetry and tracking ability or the loss of earth station functionality. Despite our efforts, satellite failures or other anomalies may occur. See “Item 3D. Risk factors — Risks related to our business — Our in-orbit satellites may fail to operate as expected due to operational anomalies resulting in lost revenues, increased costs and/or termination of contracts.” We may also experience a failure of our ground operations infrastructure. See “Item 3D. Risk factors — Risks related to our business — We may experience a failure of ground operations infrastructure or interference with our satellite signals that impairs the commercial performance of, or the services delivered over, our satellites or the satellites of other operators for whom we provide ground services, which could result in a material loss of revenues.”

Satellite Insurance

We are required to maintain certain satellite insurance under the covenants of our Senior Secured Credit Facilities and under the indentures governing our Senior Notes. In addition, we may purchase additional insurance as we deem appropriate.

Satellite insurance falls into three categories: Pre-Launch Insurance, Launch Insurance and In-Orbit Insurance.

Pre-Launch Insurance

Pre-launch insurance is typically purchased by the satellite manufacturer. We manage our pre-launch risks (i.e. risks during the manufacturing and transport phase) primarily through our contractual arrangements with the satellite manufacturer.

Launch Insurance

The procurement of satellite launch insurance is, and has been, an integral part of our risk management program. It has been our practice to insure our launches where we bear the risk of loss. Typically, our launch insurance has covered the following events during the period of coverage: (i) delivery from the launch pad to orbit; (ii) separation from the launch vehicle; (iii) drift orbit maneuvers; (iv) solar array and antenna deployment; and (v) testing and commissioning.

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In-Orbit Insurance

In-orbit (life) insurance provides coverage for total and/or partial losses during the operating phase of a satellite. In-orbit insurance may be purchased at the same time launch insurance is procured (for new satellites) or once the satellite is in orbit, in the case of existing satellites, subject to functionality and insurance market conditions. Premium rates are dependent on the operating condition of the satellite and other satellites of the same design or using the same components as well as prevailing insurance market conditions. Typically, these insurance policies exclude coverage for damage arising from acts of war, anti-satellite devices, lasers, and other similar potential risks for which exclusions are customary in the industry at the time the policy is written. In addition, they typically exclude coverage for satellite health-related problems affecting our satellites and other satellites of the same design or using the same components that are known at the time the policy is written.

Insurance Coverage

We comply with requirements to maintain satellite insurance under the terms of our Senior Secured Credit Facilities and indenture. Under the most restrictive of these covenants, we are required to maintain insurance equal to a minimum of 50% of the net book value of certain operating satellites, and an aggregate of 50% of the net book value across the satellite fleet. As of December 31, 2015, we complied with these requirements and have arranged in-orbit insurance policies that expire in November 2016.

We may discontinue or change our in-orbit insurance practices in the future, subject to the requirements of our Senior Secured Credit Facilities and indenture. Some of our satellite in-orbit insurance policies contain deductibles or coverage exclusions related to potential future failures of certain specific on-board components.

We do not insure our interests in Anik F1, Nimiq 1, Nimiq 2, Telstar 12 or Telstar 18. We also do not insure our capacity on ViaSat-1.

Item 4A. Unresolved Staff Comments

None.

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Item 5. Operating and Financial Review and Prospects

A. Operating results

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with Telesat Holdings Inc.’s audited consolidated financial statements beginning at Page F-1 of this Annual Report. As used in this management’s discussion and analysis of financial condition and results of operations (“MD&A”), unless the context states or requires otherwise, references to “Telesat”, “Company”, “we”, “our” and “us” refer to Telesat Holdings Inc. and its subsidiaries. Unless the context states or requires otherwise, reference herein to “the consolidated financial statements” or “the financial statements” or similar terms refer to Telesat Holdings Inc.’s audited consolidated financial statements included herein.

Except for the historical information contained in the following MD&A, the matters discussed below are not based on historical fact and 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”, “well positioned”, “project”, “targeted”, “intend”, “pursue” or “outlook” or other variations of these words. These statements, including without limitation those relating to Telesat and Telesat Canada, 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 “Item 3D. — Risk factors”. We undertake no obligation to update any forward-looking statements.

The dollar amounts presented in this Annual Report are in Canadian dollars unless otherwise specified.

The information contained in this MD&A takes into account information available up to February 24, 2016, unless otherwise noted.

OVERVIEW OF THE BUSINESS

We are a leading global fixed satellite services operator, with offices and facilities around the world. We provide our satellite and communication services from a fleet of satellites that occupy Canadian and other orbital locations. We are organized into one operating segment, the satellite services business; however, we provide our services through three business categories: Broadcast, Enterprise and Consulting and other.

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. We have been able to generate a large contracted revenue backlog by entering into long-term contracts with some of our customers for all or substantially all of a satellite’s life. Historically, this has resulted in revenue from the satellite services business being fairly predictable.

At December 31, 2015, we provided satellite services to customers from our fleet of 15 in-orbit satellites, including Telstar 12 VANTAGE which was successfully launched in the fourth quarter of 2015. In addition, we own the Canadian payload on the ViaSat-1 satellite and have two other satellites under construction. We also manage the operations of additional satellites for third parties.

Telesat and its affiliates operate satellites pursuant to authorizations granted by governments, including those of Canada, the United States, Brazil, the Kingdom of Tonga and the United Kingdom, to access and use certain geostationary orbital locations and associated spectrum resources. The use of these orbital locations, as well as our other operations, is subject to a variety of Canadian and international regulations.

Revenue

We earn most of our revenue by providing video and data services using satellite transponder capacity. We also earn revenue by providing ground-based transmit and receive services, selling equipment, managing satellite networks, and providing consulting services in the field of satellite communications.

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We recognize revenue when earned, as services are rendered or as products are delivered to customers. For us to recognize revenue, there must be evidence that an arrangement exists, the amount of revenue must be fixed or determinable and our ability to collect must be reasonably assured. In particular, broadcast and some enterprise revenue are generally billed in advance to customers and recognized in the month for which the service is rendered. Consulting revenue for cost-plus contracts is recognized after the work has been completed and accepted by the customer. The percentage of completion method is used to recognize consulting revenue for fixed price contracts.

Expenses

Our operating expenses consist of labor, the cost of which has historically been relatively stable, and variable operating expenses which include in-orbit insurance and direct-billed expenses, such as third-party contractor services. As we take advantage of growth opportunities through the addition of satellites to our fleet, we believe we can increase revenue with relatively smaller increases in operating expenses.

Interest expense continues to be significant and arises principally from our Senior Secured Credit Facilities and our Senior Notes. Non-cash foreign exchange gains or losses incurred on the translation of our U.S. dollar denominated debt and the gains or losses on financial instruments resulting from variations in the fair value of our interest rate swaps, the prepayment option on our Senior Notes and embedded derivatives related to the interest rate floors included on our Canadian and U.S. Term Loan B Facilities remain significant components of our total expenses.

Other significant operating expenses include the straight-line depreciation of the cost of each of our satellites over their useful lives and amortization expense related to various finite life intangible assets.

OPERATING HIGHLIGHTS OF 2015

Procurement of Telstar 19 VANTAGE and Telstar 18 VANTAGE

In November 2015, we announced the procurement of a new satellite, Telstar 19 VANTAGE, that will be co-located with our Telstar 14R satellite at 63° WL. The new satellite will be built by Space Systems Loral (“SSL”) and launched by Space Exploration Technologies Corp. (“SpaceX”), and will utilize two high throughput payloads, one in Ku-band and the other in Ka-band. Telstar 19 VANTAGE will provide coverage of the Americas and is expected to be launched in the first half of 2018. Also in 2015, we entered into a long-term satellite service agreement with Hughes Network Systems LLC for services using the high throughput Ka-band capacity of Telstar 19 VANTAGE in South America.

In December 2015, we announced the procurement of a new satellite, Telstar 18 VANTAGE, that will utilize a combination of broad regional beams and high throughput spot beams in Ku-band, as well as provide extensive C-band coverage throughout Asia. The new satellite will be built by SSL and launched by SpaceX. Telstar 18 VANTAGE will operate from 138° EL and is expected to be launched in the first half of 2018. At the same time, we also announced that we entered into agreements with our partner, APT, under which APT will use certain capacity on the Telstar 18 VANTAGE satellite.

Telstar 12 VANTAGE successfully launched and operational

On November 24, 2015, we successfully launched our latest satellite, and our first high throughput satellite, Telstar 12 VANTAGE, aboard a Mitsubishi Heavy Industries rocket. On December 15, 2015, we completed in-orbit testing and announced that the satellite was fully operational at its 15° WL orbital location.

Changes to Board of Directors and Committees

Effective April 16, 2015, Mr. Daniel Garant replaced Mr. Derek Murphy as a director of Telesat Holdings Inc., Telesat Interco Inc. and Telesat Canada, and as a member of the Board of Managers of Telesat LLC. Effective July 21, 2015, Mr. Garant became a member of Telesat’s Compensation and Corporate Governance Committee.

Effective July 17, 2015, Mr. Michael Boychuk replaced Mr. Bezul (“Karim”) Abuani as a director of Telesat Holdings Inc., Telesat Interco Inc. and Telesat Canada, and as a member of the Board of Managers of Telesat LLC, and, effective July 21, 2015, replaced Mr. James Pittman on Telesat’s Audit Committee.

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Effective January 13, 2016, Mr. Antoine Bisson-McLernon replaced Mr. James Pittman as a director of Telesat Holdings Inc., Telesat Interco Inc. and Telesat Canada, and as member of the Board of Managers of Telesat LLC.

Changes to Senior Executives

On November 30, 2015, we announced that Michael Schwartz rejoined Telesat as Senior Vice President, Corporate and Business Development. He will also serve on the executive committee. Paul Bush, the former Senior Vice President, Corporate and Business Development, retired effective October 1, 2015.

Notice from Shareholder

In July 2015, Loral Space & Communications Inc. (“Loral”) and its subsidiaries delivered a notice to Telesat indicating that they were exercising their rights under the Telesat Holdco Shareholders Agreement to require Telesat to conduct an initial public offering (a “Telesat IPO”). There can be no assurance as to whether, when or on what terms a Telesat IPO may occur.

FUTURE OUTLOOK

Our desirable orbital locations, commitment to providing the highest level of customer service, deep technical expertise and culture of innovation have enabled us to successfully develop our business to date. Leveraging these strengths and building on our existing contractual revenue backlog, our focus is on profitably growing our business by increasing the utilization of our in-orbit satellites, including our newly launched Telstar 12 VANTAGE and, in a disciplined manner, deploying expansion satellite capacity where we anticipate there will be strong market demand.

We believe we are well-positioned to serve our customers and the markets in which we participate. We actively pursue 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. Although we regularly pursue opportunities to develop new satellites, we do not procure additional or replacement satellites until we believe there is a demonstrated need and a sound business plan for such satellite capacity. We anticipate that the relatively fixed cost nature of our business, combined with increasing demand for satellite services, will over time produce growth in our operating income and cash flows.

Leading into 2016, we remain focused on increasing the utilization of our existing satellites, the construction of our new satellites, identifying and pursuing opportunities to expand our satellite fleet while maintaining our operating discipline.

RESULTS OF OPERATIONS

Review of financial performance

Our significant revenue backlog and long-term customer contracts protect us, to a certain extent, from short-term market fluctuations. With our Telstar 12 VANTAGE satellite launched in the fourth quarter of 2015, and with growing demand for satellite services, we believe we are well positioned to strengthen our overall financial performance.

Our net loss for the year ended December 31, 2015, was $267 million compared to net income of $13 million for the same period in the prior year. The negative variation of $280 million was principally due to a mainly non-cash loss on foreign exchange which was higher in 2015 than in 2014, and was primarily a result of the Canadian dollar continuing to weaken during the year relative to the U.S. dollar, negatively impacting the translation of our U.S. dollar denominated debt into Canadian dollars. The higher net loss was also due to lower gains on changes in the fair value of financial instruments and higher tax expense in 2015 compared to 2014, partially offset by an increase in operating income and lower interest expense.

Our net income for the year ended December 31, 2014, was $13 million compared to net income of $68 million in the prior year for a decrease of $55 million. The decrease was principally due to a mainly non-cash loss on foreign exchange, which was primarily a result of the Canadian dollar weakening during the year relative to the U.S. dollar, negatively impacting the translation of our U.S. dollar denominated debt into

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Canadian dollars. The lower net income was also due to lower gains on changes in the fair value of financial instruments and a higher tax expense in 2014 compared to 2013, partially offset by an increase in operating income and lower interest expense.

Below are the foreign exchange rates used for our audited consolidated financial statements and this MD&A:

	2015		2014		2013
USD to CAD spot rate at December 31		1.3839		1.1621		1.0623
USD to CAD average rate for the year		1.2714		1.1001		1.0291

Revenue

	Year ended December 31,						% Increase (Decrease) 2015 vs. 2014
(in millions of Canadian dollars except percentages)	2015		2014		2013
Broadcast	$	493	$	468	$	471		5	%
Enterprise		434		430		402		1	%
Consulting and other		28		25		24		12	%
Revenue	$	955	$	923	$	897		3	%

Total revenue for the year ended December 31, 2015, increased by $32 million to $955 million compared to $923 million for the prior year. Revenue from Broadcast services increased by $25 million for the year ended December 31, 2015, when compared to the prior year. The increase was mainly due to a favorable foreign exchange impact on the conversion of our U.S. dollar denominated revenue resulting from a stronger U.S. dollar to Canadian dollar exchange rate for the year ended December 31, 2015, when compared to the prior year. Revenue from Enterprise services increased by $4 million for the year ended December 31, 2015, when compared to the prior year. The increase was primarily due to a favorable foreign exchange impact on the conversion of our U.S. dollar denominated revenue for the year ended December 31, 2015, when compared to the same period in 2014, partially offset by lower revenue from customers in the energy and resource industries and lower equipment sales. Consulting and other revenue increased by $3 million for the year ended December 31, 2015, when compared to the prior year. The increase was primarily due to a favorable foreign exchange impact on the conversion of our U.S. dollar denominated revenue.

Total revenue for the year ended December 31, 2014, increased by $26 million to $923 million compared to $897 million for the prior year. Revenue from Broadcast services decreased by $3 million for the year ended December 31, 2014, when compared to the prior year. The decrease was mainly due to a decrease in revenue earned on our Nimiq 2 satellite, partially offset by an increase in revenue from our Anik G1 satellite which entered commercial service in May 2013 and a favorable foreign exchange impact on the conversion of our U.S. dollar denominated revenue resulting from a stronger U.S. dollar to Canadian dollar exchange rate in 2014 compared to 2013. Revenue from Enterprise services increased by $28 million for the year ended December 31, 2014, when compared to the prior year. The increase was primarily due to a favorable foreign exchange impact on the conversion of our U.S. dollar denominated revenue and revenue earned on our Anik G1 satellite, partially offset by lower equipment sales. Consulting and other revenue increased by $1 million for the year ended December 31, 2014, when compared to the prior year. The increase was primarily due to a favorable foreign exchange impact on the conversion of our U.S. dollar denominated revenue.

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Expenses

	Year ended December 31,							% Increase (Decrease) 2015 vs. 2014
(in millions of Canadian dollars except percentages)	2015		2014		2013
Depreciation	$	208	$	216	$	211			(4	)%
Amortization		28		31		33			(10	)%
Operating expenses		184		188		201			(2	)%
Other operating (gains) losses, net		—		—		(25	)		—	%
Total expenses	$	420	$	435	$	420			(3	)%

Depreciation

Depreciation of satellites, property and other equipment decreased by $8 million for the year ended December 31, 2015, when compared to the prior year. The decrease was primarily a result of the end of the useful life, for accounting purposes, of our Nimiq 2 satellite in February 2015, partially offset by the start of depreciation of our Telstar 12 VANTAGE which entered into service in December 2015.

Depreciation of satellites, property and other equipment increased by $5 million for the year ended December 31, 2014, when compared to the prior year. The increase was primarily a result of depreciation on our Anik G1 satellite which entered commercial service in May 2013.

Amortization

Amortization of intangible assets decreased by $3 million for the year ended December 31, 2015, when compared to the prior year. The decrease was primarily a result of lower amortization on intangible assets related to revenue backlog as certain contracts were completed.

Amortization of intangible assets decreased by $2 million for the year ended December 31, 2014, when compared to the prior year. The decrease was primarily a result of lower amortization on intangible assets related to revenue backlog as certain contracts were completed, partially offset by higher amortization of intangible assets related to customer relationships.

Operating Expenses

	Year ended December 31,						% Increase (Decrease) 2015 vs. 2014
(in millions of Canadian dollars except percentages)	2015		2014		2013
Compensation and employee benefits	$	66	$	70	$	79		(6	)%
Other operating expenses		42		43		44		(2	)%
Cost of sales		76		75		78		1	%
Operating expenses	$	184	$	188	$	201		(2	)%

Total operating expenses decreased by $4 million for the year ended December 31, 2015, when compared to the prior year. Compensation and employee benefits decreased by $4 million for the year ended December 31, 2015, in comparison to the prior year. This decrease was primarily due to a decrease in share-based compensation expense related to stock options granted during the second quarter of 2013. Other operating expenses decreased by $1 million for the year ended December 31, 2015, in comparison to the prior year, primarily as a result of a lower in-orbit insurance expense and a lower provision for doubtful accounts receivable, partially offset by an unfavorable foreign exchange impact on the conversion of our U.S. dollar denominated expenses for the year ended December 31, 2015, when compared to 2014. Cost of sales increased by $1 million for the year ended December 31, 2015, when compared to the prior year, mainly as a result of an unfavorable foreign exchange impact on the conversion of our U.S. dollar denominated expenses relative to 2014, partially offset by lower cost of equipment sales.

Total operating expenses decreased by $13 million for the year ended December 31, 2014, when compared to the prior year. Compensation and employee benefits decreased by $9 million for the year ended December 31, 2014, in comparison to the prior year. This was primarily due to a decrease in share-based compensation expense related to stock options granted during the second quarter of 2013 and a decrease in the provision for variable compensation expense in 2014. Other operating expenses decreased by $1 million for

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the year ended December 31, 2014, in comparison to the prior year, primarily as a result of a lower in-orbit insurance expense, partially offset by a higher provision for doubtful accounts receivable. Cost of sales decreased by $3 million for the year ended December 31, 2014, when compared to the prior year as a result of lower equipment sales.

Other Operating Gains (Losses), Net

	Year ended December 31,
(in millions of Canadian dollars except percentages)	2015		2014		2013
Impairment reversal on intangible assets	$	—	$	—	$	17
Gain on other post-employment benefit plan amendment		—		—		10
Loss on disposal of assets		—		—		(2	)
Other operating gains (losses), net	$	—	$	—	$	25

Other operating gains (losses), net, were $25 million for the year ended December 31, 2013, and were primarily a result of an impairment reversal on our orbital slots due to the utilization of a lower discount rate, as well as a gain resulting from an amendment relating to one of our other post-employment benefit plans.

Interest Expense

	Year ended December 31,									% Increase (Decrease) 2015 vs. 2014
(in millions of Canadian dollars except percentages)	2015			2014			2013
Debt service costs	$	186		$	206		$	220			(10	)%
Interest on performance incentive payments		4			4			4			—
Interest on employee benefit plans		2			1			3			100	%
Capitalized interest		(9	)		(4	)		(3	)		125	%
Interest expense	$	183		$	207		$	224			(12	)%

Interest expense included interest related to our debt, net of capitalized interest, as well as, interest related to our derivative instruments, performance incentive payments and employee benefit plans.

Debt service costs, which included interest expense on our indebtedness and derivative instruments, decreased by $20 million for the year ended December 31, 2015, when compared to the prior year. The decrease in debt service costs was primarily due to the maturity of our cross-currency basis swaps and three of our interest rate swaps in October 2014, and one additional interest rate swap in June 2015. These decreases were partially offset by an unfavorable foreign exchange impact on the conversion of our U.S. dollar denominated interest expense resulting from a stronger U.S. dollar to Canadian dollar average exchange rate in 2015 relative to 2014.

Debt service costs decreased by $14 million for the year ended December 31, 2014, when compared to the prior year. The decrease was primarily due to the redemption of our 12.5% Senior Subordinated Notes in May 2013, the termination of unfavorable derivative instruments at the end of October 2014, lower interest expense due to mandatory repayments of principal on our debt, and lower interest expense on our Term Loan B Facilities as a result of the amendment of our Senior Secured Credit Facilities in April 2013. This was partially offset by an unfavorable foreign exchange impact on the conversion of our U.S. dollar denominated interest expense resulting from a stronger U.S. dollar to Canadian dollar average exchange rate in 2014 relative to 2013.

Interest expense on performance incentive payments remained consistent for the years ended December 31, 2015 and December 31, 2014.

Interest expense on employee benefit plans increased by $1 million for the year ended December 31, 2015, when compared to the prior year, primarily due to an increase in the liabilities related to employee benefit plans between December 31, 2015 and 2014. Interest on employee benefit plans decreased by $2 million for the year ended December 31, 2014 compared to the prior year, due to a decrease in the liabilities related to the employee benefit plans between December 31, 2014 and 2013.

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Capitalized interest increased by $5 million for the year ended December 31, 2015, when compared to the prior year. The increase was due to an increase in accumulated capital expenditures related to our Telstar 12 VANTAGE satellite. Capitalized interest increased by $1 million for the year ended December 31, 2014, when compared to the prior year. The increase was due to the procurement of Telstar 12 VANTAGE which commenced construction in the third quarter of 2013, partially offset by the completion of the construction of our Anik G1 satellite in the second quarter of 2013.

Loss on Financing

	Year ended December 31,
(in millions of Canadian dollars)	2015		2014		2013
Loss on financing	$	—	$	—	$	18

There were no financing transactions during the years ended December 31, 2015 and December 31, 2014.

The loss on financing of $18 million for the year ended December 31, 2013, was related to the call premium associated with the redemption of our 12.5% Senior Subordinated Notes. The loss on financing also included the write-off of the unamortized deferred financing fees, and the write-off of the unamortized prepayment option incurred in connection with our 12.5% Senior Subordinated Notes.

Interest and Other Income

	Year ended December 31,
(in millions of Canadian dollars)	2015		2014		2013
Interest and other income	$	5	$	3	$	12

Interest and other income were mainly related to interest income on cash and short-term investments and variances year over year were primarily due to the level of cash balances maintained.Interest and other income for the year ended December 31, 2013 also included dividends and the sale of investments.

Foreign Exchange and Derivatives

	Year ended December 31,
(in millions of Canadian dollars)	2015			2014			2013
Gain on changes in fair value of financial instruments	$	6		$	49		$	81
Loss on foreign exchange	$	(540	)	$	(241	)	$	(195	)

The $6 million gain on changes in fair value of financial instruments for the year ended December 31, 2015, represented a net decrease of $43 million compared to the prior year. The gain on changes in fair value of financial instruments reflected changes in the fair values of our interest rate swaps, interest rate floors, and the prepayment option on our Senior Notes, as a result of changes in key economic variables, such as foreign exchange rates, credit spreads and swap rates. This negative change was mainly due to the impact of our cross-currency basis swaps and interest rate swap contracts which were settled in October 2014, partially offset by a decrease in the loss on the fair value of the prepayment option on our Senior Notes and the impact of our forward foreign exchange contract which was settled in October 2014.

The $49 million gain on changes in fair value of financial instruments for the year ended December 31, 2014, represented a net decrease of $32 million compared to the prior year. The decrease was a result of the loss incurred on our forward foreign exchange contract in 2014, the gain on the fair value of the embedded derivatives related to the interest rate floors included in our Canadian and U.S. TLB facilities as a result of the re-pricing and amendment to our credit agreement in 2013, and the negative impact of the changes in the fair values of our cross-currency basis swaps, our interest rate floors, and the prepayment option on our 6.0% Senior Notes. The decrease was partially offset by the write-off of the prepayment option on our 12.5% Senior Subordinated Notes in 2013 and the positive impact of the change in the fair values of the interest rate swaps.

The foreign exchange loss for the year ended December 31, 2015, was $540 million compared to a foreign exchange loss of $241 million for 2014 resulting in a net increase in the loss of $299 million. The loss for the year ended December 31, 2015, was mainly the result of a stronger U.S. dollar to Canadian dollar spot rate at December 31, 2015 ($1.3839), compared to the spot rate at December 31, 2014 ($1.1621), and the resulting unfavorable impact on the translation of our U.S. dollar denominated debt.

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The foreign exchange loss for the year ended December 31, 2014, was $241 million compared to a foreign exchange loss of $195 million for 2013 resulting in a net increase in the loss of $46 million. The loss for the year ended December 31, 2014, was mainly the result of a stronger U.S. dollar to Canadian dollar spot rate at December 31, 2014 ($1.1621), compared to the spot rate at December 31, 2013 ($1.0623), and the resulting unfavorable impact on the translation of our U.S. dollar denominated debt.

Income Taxes

	Year ended December 31,
(in millions of Canadian dollars)	2015			2014			2013
Current tax expense	$	112		$	103		$	50
Deferred tax (recovery) expense		(23	)		(25	)		14
Tax expense	$	89		$	78		$	64

The tax expense for the year ended December 31, 2015, was $11 million higher than the prior year. The increase was mainly due to an increase in operating income and a decrease in interest expense in 2015, partially offset by realized foreign exchange losses in 2015.

The tax expense for the year ended December 31, 2014, was $14 million higher than the prior year. The increase was mainly due to an increase in operating income, a decrease in interest expense and the reversal of previously recognized tax assets in 2014.

Backlog

Contracted revenue backlog represents our expected future revenue from existing service contracts (without discounting for present value) including any deferred revenue that we will recognize in the future in respect of cash already received. The majority of our contracted revenue backlog is generated from contractual agreements for satellite capacity. We do not include revenue beyond the stated expiration date of a contract regardless of the potential for a renewal. As of December 31, 2015, our contracted backlog was approximately $4.8 billion as compared to $4.5 billion as of December 31, 2014.

Generally, following the successful launch of a satellite, if the satellite is operating nominally, our customers may only terminate their service agreements for satellite capacity by paying us all, or substantially all, of the payments that would have otherwise become due over the term of the service agreement. However, if certain of our existing satellites were to experience a significant launch delay, launch or in-orbit failure, or otherwise fail to operate as anticipated, our customers may be entitled to terminate their agreement and we may be obligated to return all or a portion of the customer prepayments made under service agreements for that satellite and reduce the associated contractual revenue from revenue backlog. Any repayments under such conditions would be funded by insurance proceeds we may receive, cash on hand, short-term investments, and funds available under our Revolving Credit Facility.

We expect our backlog to be recognized as follows:

(in millions of Canadian dollars)	2016		2017		2018		2019		2020		Thereafter
Backlog	$	737	$	650	$	575	$	526	$	488	$	1,825

LIQUIDITY AND CAPITAL RESOURCES

Cash and Available Credit

As at December 31, 2015, we had $691 million of cash and short-term investments, as well as approximately $140 million of borrowing availability under our Revolving Credit Facility.

Cash Flows from Operating Activities

Cash generated from operating activities for the year ended December 31, 2015, was $422 million, a $10 million increase compared to the prior year. The increase was primarily due to higher operating income, combined with lower interest payments and a positive change in working capital, partially offset by higher income taxes paid.

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Cash generated from operating activities for the year ended December 31, 2014, was $412 million, a $69 million decrease compared to the prior year. The decrease was primarily due to higher income taxes paid and lower prepayments received from customers for future satellite services, partially offset by lower interest paid and an increase in operating income.

Cash generated from operating activities for the year ended December 31, 2013, was $481 million. This consisted of operating income and customer prepayments for future satellite services, net of interest and income taxes paid.

Cash Flows used in Investing Activities

Cash used in investing activities for the year ended December 31, 2015, was $194 million. This consisted of $183 million of expenditures on satellite programs for the completion and launch of the Telstar 12 VANTAGE satellite in December 2015, and for the beginning of construction of the Telstar 19 VANTAGE and Telstar 18 VANTAGE satellites, as well as $10 million for other property and equipment.

Cash used in investing activities for the year ended December 31, 2014, was $95 million. This consisted of $85 million of expenditures on satellite programs for the on-going construction of Telstar 12 VANTAGE, as well as $10 million for other property and equipment net of proceeds from the sale of assets.

Cash used in investing activities for the year ended December 31, 2013, was $79 million. This consisted of $71 million of expenditures related to our satellite programs for the completion and launch of Anik G1 in April 2013, and for the on-going construction of Telstar 12 VANTAGE, as well as $8 million for other property and equipment net of proceeds from the sale of assets.

Cash Flows used in Financing Activities

Cash used in financing activities for the year ended December 31, 2015, was $81 million. This was primarily related to mandatory principal repayments made on our Senior Secured Credit Facilities.

Cash used in financing activities for the year ended December 31, 2014, was $137 million. This was primarily related to mandatory principal repayments made on our Senior Secured Credit Facilities and the cash settlement related to the termination of our cross-currency basis swaps and forward foreign exchange contract in October 2014.

Cash used in financing activities for the year ended December 31, 2013, was $292 million. This was primarily the result of the early redemption of our 12.5% Senior Subordinated Notes and the associated premiums. Other financing activities included: mandatory repayments made on our Senior Secured Credit Facilities, debt issue costs relating to the re-pricing and amendment of our credit agreement in April 2013, and satellite performance incentive payments.

Liquidity

A large portion of our 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. We believe cash and short-term investments as at December 31, 2015, cash flows from operating activities, and drawings on the available lines of credit under our Senior Secured Credit Facilities will be adequate to meet our expected cash requirements for at least the next twelve months for activities in the normal course of business, including our capital requirements and required interest and principal payments on our debt.

The construction of any satellite replacement or expansion program will require significant capital expenditures. We may choose to invest in new satellites to further grow our business. Cash required for current and future satellite construction programs will be funded from some or all of the following: cash and short-term investments, cash flows from operating activities, cash flows from customer prepayments or through borrowings on available lines of credit under our Senior Secured Credit Facilities. In addition, we may sell certain satellite assets and, in accordance with the terms and conditions of our Senior Secured Credit Facilities, reinvest the proceeds in replacement satellites or pay down indebtedness under those Senior Secured Credit Facilities. Subject to market conditions and subject to compliance with the terms and conditions of our Senior Secured Credit Facilities and the financial leverage covenant tests therein, we may also have the ability to obtain additional secured or unsecured financing to fund current or future satellite construction. However,

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our ability to access these sources of funding is not guaranteed, and therefore, we may not be able to fully fund additional replacement or new satellite construction programs.

Debt

Senior Secured Credit Facilities

The obligations under the 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 Canada and certain of our subsidiaries (“Guarantors”). The Credit Agreement contains covenants that restrict the ability of Telesat Canada 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 Canada and the Guarantors to comply with a maximum senior secured leverage ratio and contains customary events of default and affirmative covenants, including an excess cash sweep, that may require us to repay a portion of the outstanding principal under our Senior Secured Credit Facilities prior to the stated maturity.

Our Senior Secured Credit Facilities are comprised of the following facilities:

i — Revolving Credit Facility

Our Revolving Credit Facility (“Revolving Facility”) is a $140 million loan facility available in either Canadian or U.S. dollars, maturing on March 28, 2017. Loans under our Revolving Facility bear interest at a floating rate plus an applicable margin of 2.00% for prime rate and Alternative Base Rate loans, and 3.00% for Bankers Acceptance (“BA”) and Eurodollar loans. Our Revolving Facility currently has an unused commitment fee of 50 basis points. As at December 31, 2015, other than approximately $0.1 million in drawings related to letters of credit, there were no borrowings under this facility.

ii — Term Loan A Facility

Our Term Loan A Facility (“TLA Facility”) is a $500 million loan maturing on March 28, 2017. As at December 31, 2015, $375 million of this facility was outstanding which represents the full amount available following mandatory repayments. The outstanding borrowings under our TLA Facility currently bear interest at a floating rate of the BA borrowing rate plus an applicable margin of 3.00%. The mandatory principal repayments on our TLA Facility are payable in varying amounts on a quarterly basis.

iii — Term Loan B — Canadian Facility

Our Term Loan B — Canadian Facility (“Canadian TLB Facility”) is a $140 million loan maturing on March 28, 2019. As at December 31, 2015, $136 million of this facility was outstanding, which represents the full amount available following mandatory repayments. Our Canadian TLB Facility currently bears interest at a floating rate of the BA borrowing rate, but not less than 1.00%, plus an applicable margin of 3.25%. The mandatory principal repayments on our Canadian TLB Facility are one quarter of 1.00% of the original amount of the loan, which must be paid on the last day of each quarter.

iv — Term Loan B — U.S. Facility

Our Term Loan B — U.S. Facility (“U.S. TLB Facility”) is a USD $1,746 million loan maturing on March 28, 2019. As at December 31, 2015, USD $1,698 million of this facility was outstanding, which represents the full amount available following mandatory repayments. The outstanding borrowings under our U.S. TLB Facility bear interest at a floating rate of Libor, but not less than 0.75%, plus an applicable margin of 2.75%. The mandatory principal repayments on our U.S. TLB Facility are one quarter of 1.00% of the original amount of the loan, which must be paid on the last day of each quarter.

The maturity date for each of our Senior Secured Credit Facilities described above will be accelerated if our existing Senior Notes or certain refinancing thereof are not repurchased, redeemed, refinanced or deferred before the date that is 91 days prior to the maturity date of such notes.

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Senior Notes

Our Senior Notes, in the amount of USD $900 million, bear interest at an annual rate of 6.0% and are due May 15, 2017. They include covenants or terms that restrict our 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 our satellite insurance, effect mergers with another entity, and redeem our Senior Notes, without penalty, before May 15, 2016, in each case subject to exceptions provided in the Senior Notes indenture.

As at December 31, 2015, we were in compliance with the financial covenants of our Senior Secured Credit Facilities and the indenture governing our Senior Notes.

Debt Service Cost

An estimate of the interest expense is based upon assumptions of foreign exchange rates, Libor, BA rates and the applicable margins of our Senior Secured Credit Facilities and Senior Notes. Our interest expense for the year ending December 31, 2016, is expected to be approximately $180 million.

Derivatives

We use, from time to time, interest rate and currency derivatives to manage our exposure to changes in interest rates and foreign exchange rates.

In 2007, we entered into cross-currency basis swaps to synthetically convert USD $1.0 billion of our U.S. TLB Facility debt into $1.2 billion of debt. In September 2014, we entered into a forward foreign exchange contract to fix the exchange rate on these cross-currency basis swaps. These cross-currency basis swaps and the forward foreign exchange contract matured on October 31, 2014. We have no outstanding currency derivative instruments at December 31, 2015.

At December 31, 2015, we had one interest rate swap to fix interest on $250 million of Canadian dollar denominated debt at a fixed rate of 1.62% (excluding applicable margins) and one interest rate swap to fix interest on $300 million of U.S. dollar denominated debt at a fixed rate of 1.46% (excluding applicable margins). As at December 31, 2015, the fair value of the interest rate swaps was a liability of $2 million. These contracts mature between June 30, 2016 and September 30, 2016.

We also have embedded derivatives that are accounted for separately at fair value. These embedded derivatives are related to a prepayment option included on our Senior Notes, as well as interest rate floors included on our Canadian and U.S. TLB Facilities. At December 31, 2015, the fair value of the embedded derivative related to the prepayment option on our Senior Notes was an asset of $20 million and the fair value of the embedded derivatives related to the interest rate floors was a liability of $9 million. The changes in the fair value of these embedded derivatives are recorded on our condensed consolidated statement of (loss) income as a gain or loss on changes in fair value of financial instruments and are non-cash. The prepayment option on our Senior Notes will expire on its maturity date of May 15, 2017. The interest rate floors on our Canadian and U.S. TLB Facilities will expire on their maturity date of March 28, 2019.

All derivative instruments are measured at fair value.

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants in the principal market under current market conditions at the measurement date. Where possible, fair values are based on the quoted market values in an active market. In the absence of an active market, we determine fair values based on prevailing market rates (bid and ask prices, as appropriate) for instruments with similar characteristics and risk profiles or internal or external valuation models, such as option pricing models and discounted cash flow analysis, using observable market-based inputs.

These estimates are affected significantly by the assumptions for the amount and timing of estimated future cash flows and discount rates, which all reflect varying degrees of risk. Potential income taxes and other expenses that would be incurred on disposition of our derivative instruments are not reflected in the fair values. The fair values also include an adjustment related to the counterparty credit risk. As a result, the fair values are not necessarily the net amounts that would be realized if these instruments were actually settled.

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Capital Expenditures

We have entered into contracts for the construction and launch of satellites and other capital expenditures. The outstanding commitments associated with these contracts were approximately $413 million as at December 31, 2015. 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 or funds available under our Revolving Credit Facility. For the year ended December 31, 2015, we had capital expenditures of $229 million, which included $52 million in trade and other liabilities, as compared to capital expenditures of $108 million in the prior year.

CONTRACTUAL OBLIGATIONS AND OTHER COMMERCIAL COMMITMENTS

The following table summarizes our contractual obligations at December 31, 2015, that are due in each of the next five years and after 2020. This table does not include any future satellite expenditures not committed to at year end.

	2016		2017		2018		2019		2020		Thereafter		Total
		(in millions of Canadian dollars)
Deferred satellite performance incentive payments, including interest	$	14.9	$	14.1	$	14.6	$	14.0	$	11.7	$	51.2	$	120.5
Senior Secured Credit Facilities and Notes(1)		100.6		1,571.1		25.6		2,408.9		—		—		4,106.2
Interest on long-term debt		176.5		125.2		86.9		19.3		—		—		407.9
Swaps, including interest		2.4		—		—		—		—		—		2.4
Operating property lease commitments		6.6		6.0		5.6		2.0		0.5		1.5		22.2
Commitments for capital expenditures(2)		213.7		171.0		28.4		—		—		—		413.1
Other operating commitments		21.0		8.7		7.1		5.4		5.0		4.8		52.0
Contributions to employment benefit plans(3)		8.5		—		—		—		—		—		8.5
Decommissioning liabilities		0.1		—		—		—		—		2.9		3.0
Customer and other deposits		2.9		0.1		0.2		—		—		0.2		3.4
Other long-term financial liabilities, including interest		1.0		0.9		0.6		0.5		0.3		—		3.3
Total	$	548.2	$	1,897.1	$	169.0	$	2,450.1	$	17.5	$	60.6	$	5,142.5

(1) See Note 24 of our audited consolidated financial statements. Excludes interest, deferred financing costs, interest rate floors, prepayment option and premiums.

(2) The commitments for capital expenditures include the construction of the Telstar 18 VANTAGE and Telstar 19 VANTAGE satellites and other capital expenditures (see Note 31 of our audited consolidated financial statements).

(3) See Note 29 of our audited consolidated financial statements.

Our future contributions to the pension plans past 2016, future income tax liabilities and uncertain tax positions, have not been included in the table as the timing and amount of cash required cannot be accurately determined as:

• future contributions to the pension plans depend largely on the result of actuarial valuations that are performed periodically and on the investment performance of the pension fund assets; and

• future payments of income taxes depend on the amount of taxable earnings and on whether there are tax loss carry forwards available to reduce income tax liabilities.

Deferred revenue has not been included in the table above because it does not represent future cash payments (see Notes 21 and 23 of our audited consolidated financial statements).

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MARKET RISK

Credit Risk Related to Financial Instruments

Financial instruments that potentially subject us to a concentration of credit risk consist of cash and short-term investments, accounts receivable, derivative assets and other assets. Cash and short-term investments are invested with high quality financial institutions and are governed by our corporate investment policy, which aims to reduce credit risk by restricting investments to high-grade, mainly U.S. dollar and Canadian dollar denominated investments. Credit checks are performed to minimize exposure to any one customer. We are exposed to credit risk if counterparties to our derivative instruments are unable to meet their obligations. It is expected that these counterparties will be able to meet their obligations as they are institutions with strong credit ratings. We periodically monitor their credit risk and credit exposure.

Foreign Exchange Risk

Our operating results are subject to fluctuations as a result of exchange rate variations to the extent that transactions are made in currencies other than Canadian dollars. The most significant impact of variations in the exchange rate is on our U.S. dollar denominated debt and cash and short-term investments. In addition, approximately 51% of our revenue, 42% of our operating expenses, 86% of our interest expense, and the majority of our capital expenditures were denominated in U.S. dollars for the year ended December 31, 2015.

As a result, the volatility of the U.S. currency exposes us to foreign exchange risks. At December 31, 2015, we recorded a mainly non-cash foreign exchange loss of approximately $540 million due to a stronger U.S. to Canadian dollar spot rate ($1.3839) compared to December 31, 2014 ($1.1621). Similarly, at December 31, 2014, the U.S. to Canadian dollar spot rate strengthened ($1.1621) as compared to December 31, 2013 ($1.0623), thus resulting in a mainly non-cash foreign exchange loss of approximately $241 million, prior to the impact of hedging instruments.

We use, from time to time, the following instruments to manage our exposure to foreign exchange risk:

• forward currency contracts to hedge foreign exchange risk on anticipated cash flows, mainly related to the construction of satellites and interest payments; and

• currency derivative instruments to hedge the foreign exchange risk on our U.S. dollar denominated debt.

Our policy is that we do not use derivative instruments for speculative purposes. At December 31, 2015, we had no forward currency contracts or currency derivative instruments in place.

A five percent increase (decrease) in the value of the U.S. dollar against the Canadian dollar would have increased (decreased) our indebtedness and cash and short-term investments at December 31, 2015 by $180 million and $18 million, respectively, and increased (decreased) our revenue and our operating expenses for the year ended December 31, 2015 by $24 million and $4 million, respectively. This analysis assumes that all other variables remain constant.

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Through our U.S. dollar denominated debt, we are exposed to foreign exchange fluctuations. The following table contains our existing U.S. dollar denominated debt balances at the beginning of each respective period net of our scheduled debt repayments, and the foreign exchange rate as at December 31, 2015 (USD $1 = CAD $1.3839).

(CAD millions, beginning of year)	2016		2017		2018		2019		Thereafter
U.S. TLB Facility	$	2,349.5	$	2,325.3	$	2,301.2	$	2,277.0	$	—
Senior Notes		1,245.5		1,245.5		—		—		—
U.S. dollar denominated debt balances	$	3,595.0	$	3,570.8	$	2,301.2	$	2,277.0	$	—

Interest Rate Risk

We are exposed to interest rate risk on our cash and short-term investments and on our indebtedness, a portion of which includes a variable interest rate. Changes in the interest rates could impact the amount of interest that we receive or are required to pay.

We use, from time to time, interest rate swaps to hedge the interest rate risk related to our debt.

Our policy is that we do not use derivative instruments for speculative purposes. At December 31, 2015, we had two interest rate swaps outstanding to hedge interest on a portion of our debt.

If the interest rates on our unhedged variable rate debt increased (decreased) by 0.25%, excluding the potential impact of interest rate floors, the result would be an increase (decrease) of $4.8 million to our net loss for year ended December 31, 2015.

Through our debt we are exposed to interest rate fluctuations. The following table contains our existing debt that is exposed to interest rate fluctuations, after the impact of interest rate derivatives, at the beginning of each respective period net of our scheduled debt repayments, derivative maturities and foreign exchange rates as at December 31, 2015.

(CAD millions, beginning of year)	2016			2017		2018		2019		Thereafter		Fair value December 31, 2015
CAD denominated (CDOR + spread)	$	375.0		$	300.0	$	—	$	—	$	—
CAD denominated (CDOR with 1.00% floor + spread)		136.2			134.8		133.4		132.0		—
USD denominated (Libor with 0.75% floor + spread)		2,349.5			2,325.3		2,301.2		2,277.0		—
Debt exposed to variable interest rate	$	2,860.7		$	2,760.1	$	2,434.6	$	2,409.0	$	—
Variable to fixed	$	(250.0	)	$	—	$	—	$		$	—	$	(1.0	)
Weighted average fixed rate (before spread)		1.62	%
Variable to fixed(1)		(415.2	)		—		—		—		—	$	(1.3	)
Weighted average fixed rate (before spread)		1.46	%		—		—		—		—
Total interest rate derivatives	$	(665.2	)	$	—	$	—	$	—	$	—
Debt exposed to variable interest rate after interest rate derivatives	$	2,195.5		$	2,760.1	$	2,434.6	$	2,409.0	$	—

(1) USD $300 million notional, variable rate is greater of 3 month Libor or 1.00%

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Guarantees

In the normal course of business, we enter into agreements that provide for indemnification and guarantees to counterparties in transactions involving sales of assets, sales of services, purchases and development of assets, securitization agreements and operating leases. The nature of almost all of these indemnifications prevents us from making a reasonable estimate of the maximum potential amount that we could be required to pay counterparties. As a result, we cannot determine how they could affect future liquidity, capital resources or our credit risk profile. We have not made any significant payments under these indemnifications in the past. For more information, see Note 31 of our audited consolidated financial statements.

RELATED PARTY TRANSACTIONS

As at December 31, 2015, related parties consisted of PSP Investments and Loral, our common shareholders, together with their subsidiaries and affiliates. In addition to the documents related to the Telesat Canada Acquisition, we have also entered into various commercial arrangements with Loral and subsidiaries and affiliates of Loral. These arrangements primarily relate to the sale or use of satellite transponder capacity and consulting services, and are entered into in the form of either service agreements or consulting service agreements. For more information, see Note 33 of our audited consolidated financial statements.

NON-IFRS MEASURES

Consolidated EBITDA for Covenant Purposes

Under the terms of the Credit Agreement for our Senior Secured Credit Facilities, we are required to comply with a senior secured leverage ratio maintenance covenant.

Our Consolidated Earnings Before Interest, Taxes, Depreciation and Amortization (“EBITDA”) for Covenant Purposes is defined as net income (loss) for Telesat and Restricted Subsidiaries plus interest expense, depreciation expense, amortization expense, extraordinary losses and unusual and non-recurring charges, non-cash charges, any expenses or charges incurred in connection with any issuance of debt, any impairment charges or asset write-off, foreign withholding taxes paid or accrued, non-cash charges related to share-based compensation expense and consulting fees payable to Loral. Additional sums which may be added include projected cost savings from an acquisition and lost revenue which may have been earned by satellites that have been subject to an insured loss. Deductions which are made in calculating Consolidated EBITDA for Covenant Purposes include extraordinary, non-recurring gains and losses and non-cash gains and losses. Further adjustments are made to account for income from Unrestricted Subsidiaries, and currency gains and losses (including non-cash gains or losses on derivative contracts). Unrestricted Subsidiaries are defined as (a) The SpaceConnection, Inc. (b) any Subsidiary of Telesat that is formed or acquired after the closing date of the Credit Agreement, provided that such Subsidiary is designated as an Unrestricted Subsidiary, and (c) any Restricted Subsidiary subsequently re-designated as an Unrestricted Subsidiary.

Consolidated EBITDA for Covenant Purposes is not a presentation made in accordance with IFRS, is not a measure of financial condition or profitability, and should not be considered as an alternative to (1) net income (loss) determined in accordance with IFRS or (2) cash flows from operating activities determined in accordance with IFRS. Additionally, Consolidated EBITDA for Covenant Purposes is not intended to be a measure of free cash flow for management’s discretionary use as it does not include certain cash requirements for such items as interest payments, tax payments and debt service requirements. We believe that the inclusion of Consolidated EBITDA for Covenant Purposes herein is appropriate to provide additional information concerning the calculation of the financial ratio maintenance covenant on our Senior Secured Credit Facilities. Consolidated EBITDA for Covenant Purposes is a material component of this covenant. Non-compliance with the financial ratio maintenance covenant contained in our Senior Secured Credit Facilities could result in the requirement to immediately repay all amounts outstanding. This presentation of Consolidated EBITDA for Covenant Purposes is not comparable to other similarly titled measures of other companies because not all companies use identical calculations of EBITDA. We believe the disclosure of the calculation of Consolidated EBITDA for Covenant Purposes provides information that is useful to an investor’s understanding of our liquidity and financial flexibility.

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The following is a reconciliation of net loss, which is an IFRS measure of our operating results, to Consolidated EBITDA for Covenant Purposes, as defined in the Credit Agreement and the calculation of the ratio of Consolidated Total Secured Debt to Consolidated EBITDA for Covenant Purposes as defined in the Credit Agreement. The terms and related calculations are defined in the Credit Agreement, a copy of which is publicly available atwww.sec.gov.

(in millions of Canadian dollars)	Year ended December 31, 2015
Net loss	$	(266.9	)
Impact of unrestricted subsidiary		(0.6	)
Consolidated earnings for covenant purposes		(267.5	)
Plus:
Income taxes (note 1)		88.7
Interest expense (note 1)		177.1
Depreciation and amortization expense (note 1)		235.7
Non-cash share-based compensation		5.4
Other		13.3
(Decreased) increased by:
Non-cash gains on changes in fair value of financial instruments and swap obligations		(6.0	)
Non-cash losses resulting from changes in foreign exchange rates (note 1)		525.7
Consolidated EBITDA for Covenant Purposes	$	772.4

Note 1:  Tax, interest, depreciation and amortization expense for covenant purposes excludes certain specific expenses as defined in the Credit Agreement. Non-cash gains and losses on foreign exchange exclude realized amounts for covenant purposes. As a result, these items in the covenant calculation do not reconcile to the financial statement line items.

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Consolidated Total Secured Debt for Covenant Purposes

Consolidated Total Secured Debt for Covenant Purposes is a non-IFRS measure. We believe that the inclusion of Consolidated Total Secured Debt for Covenant Purposes herein is appropriate to provide additional information concerning the calculation of the financial ratio maintenance covenant under our Senior Secured Credit Facilities. We believe the disclosure of the calculation of Consolidated Total Secured Debt for Covenant Purposes provides information that is useful to an investor’s understanding of our compliance with this financial covenant.

The following is a reconciliation of our Consolidated Total Secured Debt for Covenant Purposes to Indebtedness:

(in millions of dollars)	As at December 31, 2015
USD denominated debt
U.S. TLB Facility (USD)	$	1,697.7
Senior Notes (USD)		900.0
		2,597.7
Foreign exchange adjustment		997.3
Subtotal (CAD)		3,595.0
Deferred financing costs, interest rate floors, prepayment option and premiums		(43.0	)
CAD denominated debt
TLA Facility		375.0
Canadian TLB Facility		136.2
Indebtedness	$	4,063.2

(in millions of Canadian dollars)
Indebtedness	$	4,063.2
less: Unsecured debt (Senior Notes)		(1,245.5	)
Adjustments for covenant purposes:
Deferred financing costs, interest rate floors, prepayment option and premiums		43.0
Consolidated Total Secured Debt for Covenant Purposes	$	2,860.7

As at December 31, 2015, the Consolidated Total Secured Debt to Consolidated EBITDA for Covenant Purposes ratio, for the purposes of our Senior Secured Credit Facilities, was 3.70:1.00, which was less than the maximum test ratio of 5.25:1.00.

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CRITICAL ACCOUNTING JUDGMENTS AND ESTIMATES

The preparation of financial statements in accordance with IFRS requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the amounts of revenue and expenses reported for the year. Actual results could differ from these estimates under different assumptions and conditions. For more details on these estimates, refer to Note 5 of our audited consolidated financial statements for the year ended December 31, 2015.

Critical judgments in applying accounting policies

Revenue recognition

Revenue for fixed priced consulting contracts is recognized using the percentage of completion method. When using this method for revenue recognition, we are required to make judgments to accurately estimate costs incurred and costs required to complete our contracts.

Uncertain income tax positions

We operate in numerous jurisdictions and are subject to country-specific tax laws. We use significant judgment when determining the worldwide provision for tax, and estimate provisions for uncertain tax positions as the amounts expected to be paid based on a qualitative assessment of all relevant factors. In the assessment, we consider risk with respect to tax matters under active discussion, audit, dispute or appeal with tax authorities, or which are otherwise considered to involve uncertainty. We review the provisions at each balance sheet date.

Determining whether an arrangement contains a lease

We use significant judgment to assess whether each new arrangement contains a lease based on IFRIC 4. The determination of whether an arrangement is, or contains a lease, is based on the substance of the arrangement at inception date, and whether the fulfillment of the arrangement is dependent on the use of a specific asset or assets and the arrangement conveys a right to use the asset. If contracts contain a lease arrangement, the leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases.

Critical accounting estimates and assumptions

Derivative financial instruments measured at fair value

Derivative financial assets and liabilities are measured at fair value. When quoted market values are unavailable for our financial instruments, and in the absence of an active market, we determine fair value for financial instruments based on prevailing market rates (bid and ask prices, as appropriate) for instruments with similar characteristics and risk profiles or we make use of internal or external valuation models, such as option pricing models and discounted cash flow analysis, using observable market-based inputs. The determination of fair value is significantly impacted by the assumptions used for the amount and timing of estimated future cash flows and discount rates. As a result, the fair value of financial assets and liabilities, and the amount of gains or losses on changes in fair value recorded to net income could vary.

Impairment of goodwill

Goodwill represented $2,446.6 million of our total assets at December 31, 2015. Determining whether goodwill is impaired requires an estimation of our value, which requires us to estimate the future cash flows expected to arise from operations and to make assumptions regarding economic factors, tax rates, and annual growth rates. Actual operating results and our related cash flows could differ from the estimates used for the impairment analysis.

Impairment of intangible assets

Intangible assets represented a significant portion of our total assets at December 31, 2015. We test intangible assets for impairment annually or more frequently if indicators of impairment or reversal of a prior impairment loss exist. The impairment analysis requires us to estimate the future cash flows expected to arise

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from operations, and to make assumptions regarding economic factors, discount rates, tax rates, and annual growth rates. Significant judgments are made in establishing these assumptions. Actual operating results and our related cash flows could differ from the estimates used for the impairment analysis.

Employee benefits

The cost of defined benefit pension plans, other post-employment benefits, and the present value of the pension obligation are determined using actuarial valuations. An actuarial valuation involves making various assumptions which may differ from actual developments in the future. These include the determination of the discount rate, future salary increases, mortality rates, future pension increases and return on plan assets. Due to the complexity of the valuation, the underlying assumptions, and its long-term nature, a defined benefit obligation is highly sensitive to changes in these assumptions. All assumptions are reviewed annually.

Determination of useful life of satellites and finite life intangible assets

The estimated useful life and depreciation method for satellites and finite life intangible assets are reviewed annually, with the effect of any changes in estimate being accounted for on a prospective basis. Any change in these estimates may have a significant impact on the amounts reported.

Income taxes

We assess the recoverability of deferred tax assets based upon an estimation of our projected taxable income using enacted or substantially enacted tax laws, and our ability to utilize future tax deductions before they expire. Actual results could differ from expectations.

ACCOUNTING STANDARDS

Changes in Accounting Policies

We have prepared our consolidated financial statements in accordance with IFRS. For more on the impacts of the following changes in accounting policy, please refer to Note 3 of our audited consolidated financial statements.

IAS 1, Presentation of the Consolidated Statements of Cash Flows

We have changed our presentation of the loss on foreign exchange on the consolidated statements of cash flows. The total loss on foreign exchange has been included as an adjustment to reconcile net (loss) income to cash flows from operating activities and the realized portion of the loss on foreign exchange has been included in the respective component of cash flows from operating assets and liabilities and the effect of changes in exchange rates on cash and cash equivalents.

Recent IFRS Accounting Pronouncements

The IASB periodically issues new accounting standards. The new standards determined to be applicable to us are disclosed below. The remaining standards have been excluded as they are not applicable.

Revenue

IFRS 15,Revenue from Contracts with Customers (“IFRS 15”) was issued by the IASB on May 28, 2014, and will replace IAS 18,Revenue, IAS 11,Construction Contracts,and related interpretations on revenue. IFRS 15 sets out the requirements for recognizing revenue that apply to all contracts with customers, except for contracts that are within the scope of the standards on leases, insurance contracts and financial instruments. IFRS 15 uses a control based approach to recognize revenue which is a change from the risk and reward approach under the current revenue standard. We can elect to use either a full or modified retrospective approach when adopting this standard and it is effective for annual periods beginning on or after January 1, 2018. We are currently evaluating the impact of IFRS 15 on our audited consolidated financial statements.

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Financial instruments

IFRS 9,Financial Instruments (“IFRS 9”) was issued by the IASB on July 24, 2014, and will replace IAS 39,Financial Instruments: Recognition and Measurement (“IAS 39”). IFRS 9 uses a single approach to determine whether a financial asset is measured at amortized cost or fair value, replacing multiple rules in IAS 39. The approach in IFRS 9 is based on how an entity manages its financial instruments in the context of its business model and the contractual cash flow characteristics of the financial assets. Impairments of financial assets are determined using a single impairment model that requires entities to recognize expected credit losses without requiring a triggering event to occur. Financial liabilities are measured using one of three measurement approaches (fair value through profit or loss (“FVTPL”), fair value through other comprehensive income (“FVTOCI”), or amortized cost). Financial liabilities that are held-for-trading are measured at FVTPL, financial liabilities that are considered available for sale are measured at FVTOCI unless the FVTPL option is elected, while all other financial liabilities are measured at amortized cost unless the fair value option is elected. The treatment of embedded derivatives under the new standard is consistent with IAS 39. This standard is effective for annual periods beginning on or after January 1, 2018. We are currently evaluating the impact of IFRS 9 on our audited consolidated financial statements.

Leases

IFRS 16,Leases(“IFRS 16”) was issued by the IASB on January 13, 2016, and will replace IAS 17,Leases and related interpretations on leases. IFRS 16 will require a lessee to recognize a right-of-use asset and lease liability for all leases with a term of more than 12 months. The standard will also require that the depreciation of the leased assets be recorded separately from the interest expense on the lease liabilities on the statement of income. For lessors, IFRS 16 substantially carries forward the requirements of IAS 17. IFRS 16 also aligns the definition of a lease with the control based approach in IFRS 15. We can elect to use either a retrospective approach with full restatement of comparative information or a retrospective approach with the cumulative effect of initial application shown in retained earnings instead of the restatement of the comparative information. The standard is effective for annual periods beginning on or after January 1, 2019. Earlier adoption of the standard is permitted if it is applied in conjunction with IFRS 15. We are currently evaluating the impact of IFRS 16 on our audited consolidated financial statements.

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Item 6. Directors, Senior Management and Employees

A. Directors and senior management.

In the following table are listed the names, ages as of December 31, 2015 and positions of the individuals who serve as the directors and senior management of Telesat Holdings and Telesat Canada, along with the date that each individual was elected or appointed:

Name	Age	Title	Date Elected or Appointed a Director or Member of Senior Management
Directors
Mark H. Rachesky, M.D.(1)	56	Chairman of the Board	October 31, 2007
Michael B. Targoff(2)	71	Director	October 31, 2007
Henry (Hank) Intven	67	Director	October 31, 2007
Daniel Garant(1)(3)	49	Director	April 16, 2015
Michael Boychuk(2)(4)	60	Director	July 17, 2015
Antoine Bisson-McLernon(5)	35	Director	January 13, 2016
John P. (Jack) Cashman	75	Director	October 31, 2007
Colin D. Watson(2)	74	Director, Chair of Audit Committee	October 31, 2007
Clare R. Copeland	79	Director	October 31, 2007
V. Peter Harder(1)	63	Director, Chair of Compensation and Corporate Governance Committee	October 31, 2007
Senior Management
Daniel S. Goldberg	50	President and Chief Executive Officer (Telesat Holdings and Telesat Canada)	October 31, 2007 (Telesat Holdings) September 18, 2006 (Telesat Canada)
Michèle Beck	50	Vice President, North American Sales (Telesat Canada)	January 1, 2013
Michel G. Cayouette	57	Chief Financial Officer and Treasurer (Telesat Holdings and Telesat Canada)	September 17, 2008
Christopher S. DiFrancesco	52	Vice President, General Counsel and Secretary (Telesat Holdings and Telesat Canada)	January 5, 2009
Thomas E. Eaton, Jr.	60	Vice President, International Sales (Telesat Canada)	September 11, 2014
Patrick M. Enright	57	Vice President, Network Operations (Telesat Canada)	December 1, 2004
John Flaherty	50	Vice President, Business Planning & Marketing (Telesat Canada)	January 1, 2013
Michael C. Schwartz(6)	51	Senior Vice President, Corporate & Business Development (Telesat Canada)	November 30, 2015
David N. Wendling	53	Chief Technical Officer (Telesat Canada)	October 31, 2007

(1) Member of Compensation and Corporate Governance Committee.

(2) Member of Audit Committee.

(3) Effective April 16, 2015, Mr. Daniel Garant replaced Derek Murphy as a director of Telesat Holdings Inc., Telesat Interco Inc. and Telesat Canada, and as a member of the Board of Managers of Telesat LLC. Effective July 21, 2015, Mr. Garant was appointed to the Compensation and Corporate Governance Committee.

(4) Effective July 17, 2015, Mr. Michael Boychuk replaced Bezul “Karim” Abuani as a director of Telesat Holdings Inc., Telesat Interco Inc. and Telesat Canada, and as a member of the Board of Managers of Telesat LLC. Effective July 21, 2015, Mr. Boychuk was appointed to the Audit Committee.

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(5) Effective January 13, 2016, Mr. Antoine Bisson-McLernon replaced James Pittman as a director of Telesat Holdings Inc., Telesat Interco Inc. and Telesat Canada, and as a member of the Board of Managers of Telesat LLC.

(6) Paul Bush, the former Senior Vice President, Corporate and Business Development, retired effective October 1, 2015. Michael C. Schwartz rejoined the company as Senior Vice President, Corporate and Business Development effective November 30, 2015.

There are no family relationships among any of the directors or members of senior management. Except for the Shareholders Agreement described in “Item 7B. Related Party Transactions”, there are no material arrangements or understandings with major shareholders or between any two or more directors or members of senior management pursuant to which any person was selected as a director or member of senior management.

Each of the directors has served in his respective capacity since his election, and we expect that he will serve until the next annual meeting of shareholders, unless his office is earlier vacated in accordance with the by-laws of the corporation or with the provisions of the CBCA.

Each member of senior management is appointed by the board to serve, subject to the discretion of the board, until his successor is appointed or he resigns.

The following is a brief description of the principal business activities of the directors and members of senior management.

Directors

Mark H. Rachesky, M.D. is the founder of MHR Fund Management LLC and has been its President since its inception in 1996. He has been Non-executive Chairman of the Board of Directors of Loral since March 1, 2006 and is Chairman of the Compensation Committee and a member of the Executive Committee of Loral. Dr. Rachesky is Non-executive Chairman of the Board and a member of the Strategic Advisory Committee and Compensation Committee of Lions Gate Entertainment Corp., and a Director and member of the Compensation, Finance and Nominating and Governance Committees of Navistar International Corporation, and a Director, and member of the Governance and Nominating Committee and the Compensation Committee of Emisphere Technologies, Inc., and a Director of Titan International Inc.

Michael B. Targoff has been Vice Chairman of Loral Space & Communications since November 2005, a consultant to Loral since December 2012 and was Chief Executive Officer from March 2006 to December 2012, and President from January 2008 to December 2012. From 1998 to February 2006, Mr. Targoff was founder and principal of Michael B. Targoff & Co., a private investment company.

Henry (Hank) Intven is a legal counsel with the telecommunications practice of the law firm McCarthy Tétrault LLP. He served as Executive Director of Telecommunications at the Canadian Radio-television and Telecommunications Commission from 1980 to 1985. Over the past 30 years, he has advised on many of the major commercial, regulatory and policy developments in the Canadian telecommunications industry and has worked on commercial and regulatory telecommunications matters in more than 20 other countries.

Daniel Garant joined PSP Investments in September 2008 and, since July 2015, is the Executive Vice-President & Chief Investment Officer. Prior to that, from September 2008 to July 2015, he was Senior Vice-President, Public Market Investments. From 2005 to 2008, he was Executive Vice-President, Finance & Chief Financial Officer of Hydro-Québec, President & Chief Executive Officer of Hydro-Québec International and Chair of the Board of Hydro-Québec Capitech. In 2005, he also served as Hydro-Québec’s Vice-President, Wholesale Markets, and previously since 1999 as Hydro-Québec’s Vice-President, Wholesale Markets and Project Development. From 1997 to 1999, he was Managing Director, Project Development at Hydro-Québec and from 1991 to 1997, he held the position of Manager, Private Equity Investments – Special Projects at the Caisse de dépôt et placement du Québec.

Michael T. Boychuk was, from July 2009 to June 2015, President of Bimcor Inc., the pension fund investment manager for the Bell Canada group of companies. From 1999 to 2009, he was Senior Vice-President and Treasurer of BCE Inc. and Bell Canada, being responsible for all Treasury and Capital Markets activities of the BCE group of companies and, until 2005, he was also responsible for all mergers and acquisition activities. He joined BCE in 1997 as President and Chief Executive Officer of BCE Capital, the

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venture capital arm of BCE Inc. Mr. Boychuk began his career with KPMG (Peat Marwick) and later joined the Montreal Trust Company where he held progressively senior positions until 1993. From 1994 to 1997, he co-founded Manitex Capital Inc., a private equity merchant bank. He currently is a member of the Board of Directors of the Laurentian Bank of Canada (Audit Committee), Fengate (Advisory Board) and GDI Integrated Services (Lead Director, Chair Audit Committee). He is also a member of the Investment Advisory Committee of Nunavut Trust, the McConnell Foundation and the McGill Pension Investment Committee (Chair). Mr. Boychuk is a Governor of McGill University and Chair the University’s Audit Committee. He is also a member of the International Advisory Board of the Faculty of Management of McGill University.

Antoine Bisson-McLernon joined PSP Investments in July 2009 and, since December 7, 2015, is the Managing Director, Private Equity – Americas. Prior to that, he led PSP Investments Natural Resources investment group and sat on the Boards of TimberWest Forest Corp. (Canada), Kaingaroa Timberlands (New Zealand), and X2 Resources (UK). He is also a past Advisory Committee member of Haymarket Financial LLP (UK). Before joining PSP Investments, Mr. McLernon worked in private equity and investment banking.

John P. (Jack) Cashman is currently a director of Mettrum Health Corp (TSXV:MT). He is also a director of Capsos Medical Ltd., and chairman of Aventamed D.A.C., both medical device companies located in Ireland. Until February 1, 2014, he was the Non Executive Chairman of Vectura Group Plc. UlKl (LSE: VEC). From 2002 – 2005 he was the Chairman of Advanced Surgical Concepts Ltd., Ireland, and a director of Bespak Plc. Mr. Cashman is also the former Chairman and joint CEO of R.P. Scherer Corporation.

Colin D. Watson is currently a director of Louisiana Pacific Corp. and COM DEV International Ltd. He was President and CEO of Rogers Cablesystems (1979 – 1996), Spar Aerospace (1996 – 1999) and Vector Aerospace (2003 – 2005). He was also Vice Chairman of Spar Aerospace Limited from 2000 to 2002.

Clare R. Copeland is the Vice Chairman of Falls Management Company, a commercial development and casino in Niagara Falls, Ontario. He held the position of Chairman of Toronto Hydro Corporation, a Canadian electricity provider, from 1999 to May 2013. Between 2000 and 2002, he was Chairman and Chief Executive Officer of OSF Inc., a manufacturer of retail store interiors. He is also on the Boards of RioCan, MDC Corp., Entertainment One and Chesswood Inc. He was President and Chief Executive Officer of People’s Jewellers Corporation (1993 – 1999), Chairman of Sun Media (1997 – 1999), President and CEO of Granada Canada Limited (1984 – 1988) and Chairman of Ontario Place (1987 – 1997). He has also held several senior management positions, including Chief Operating Officer with Zale Corporation (1991 – 1993).

V. Peter Harder is a Senior Policy Advisor with the law firm Dentons LLP. He was, until he left the Government of Canada in 2007, its longest serving Deputy Minister. Between 1991 and 2007, he served as the most senior public servant in a number of Canadian government departments, including the Departments of Industry, Foreign Affairs and International Trade. He currently serves on the Boards of IGM Financial, Power Financial Corporation, TimberWest, Northland Power, Energizer Resources and Magna International Inc. He is also a chair of the Board of The United Church Foundation and serves as the Chair of the National Arts Centre’s Governance, Nominating, and Ethics Committee. In 2008, he was elected the President of the Canada China Business Council (CCBC).

Senior Management

Daniel S. Goldberg became President and Chief Executive Officer of Telesat Canada in September 2006, and of Telesat Holdings in October 2007. Prior to September 2006, Mr. Goldberg served as Chief Executive Officer of SES New Skies, a position he held since March 2006 following the purchase of New Skies by SES. Mr. Goldberg served as the Chief Executive Officer of New Skies Satellites from January 2002 to March 2006 and prior to that as Chief Operating Officer of New Skies since February 2000. Prior to that time, he had served as New Skies General Counsel since October 1998. Prior to joining New Skies, Mr. Goldberg worked at PanAmSat as the Associate General Counsel and Vice President of Government and Regulatory Affairs during 1998. From 1993 to 1997, he was an associate at Goldberg, Godles, Wiener & Wright, a law firm in Washington, D.C. Mr. Goldberg received a Bachelor of Arts degree from the University of Virginia, graduating with highest honors, and a Juris Doctor degree, cum laude, from Harvard Law School.

Michèle Beck joined Telesat in 1987 as a project engineer in the Broadband Development Group. In 1994, she joined the Canadian Cable Telecommunications Association as Director Engineering and was

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subsequently promoted to Vice President in 1996. In March 2006, Ms. Beck returned to Telesat as the Director, Engineering responsible for all satellite service offerings. In 2009, she became Director of North American Enterprise and Government Sales and in January 2013 was promoted to Vice President, North American Sales. She holds a Bachelor of Applied Science, Electrical Engineering from the University of Ottawa.

Michel G. Cayouette became Chief Financial Officer and Treasurer of Telesat Canada and Telesat Holdings in September 2008. Prior to that, Mr. Cayouette was Managing Partner of Gordon Blake, LLC since August 2003. From January 2002 to July 2003, he served as Chief Financial Officer of Flag Telecom Holdings Ltd. From January 2001 to November 2001, he served as Executive Vice President and Chief Financial Officer of TIW Asia N.V. From June 1992 to December 2000, he held several senior executive positions for Teleglobe Communications Corporation and Teleglobe Inc. Mr. Cayouette is a chartered accountant and a certified public accountant. He holds a Master of Business Administration degree and a Bachelor of Administration degree from the University of Montreal (École des Hautes Études Commerciales).

Christopher S. DiFrancesco became Vice President, General Counsel and Secretary of Telesat Canada and Telesat Holdings in January 2009. Prior to that, Mr. DiFrancesco served as Senior Vice President, Legal, General Counsel and Secretary of Corel Corporation, a position he held since October 2006. From December 2003 to October 2006, he served as Corel Corporation’s Vice President, Legal, General Counsel and Secretary, and as Corporate Counsel from September 2000 to December 2003. From 1998 to 2000, he served as Associate Counsel for the National Hockey League Players’ Association. From 1989 to 1998, he was an Articling Student and then Associate with the law firm of Gowling Lafleur Henderson in Toronto, Canada. He has a Bachelor of Engineering Science in Mechanical Engineering and a Bachelor of Laws from the University of Western Ontario.

Thomas E. Eaton Jr. joined Telesat Canada in September 2014 as Vice-President, International Sales. Before joining Telesat, Mr. Eaton was President of Harris CapRock Communications and an officer of Harris Corp from May 2011 to November 2013, Chief Operating Officer of Harris CapRock Communications from January 2010 to May 2011, and President of CapRock Government Solutions from October 2007 to January 2010. Previously, he served as President of G2 Satellite Solutions, a wholly-owned subsidiary of PanAmSat, and Executive Vice-President of PanAmSat from June 2002 to August 2007, and as Executive Vice-President of Global Sales and Marketing from November 2000 to June 2002. Mr. Eaton was Vice-President of Global Sales and Marketing for Intelsat from February 1995 to November 2000, and served as co-founder and Vice-President, Sales and Marketing for Integrated Network Services, Inc. from January 1992 to February 1995. He holds a Master of Business Administration from Mercer University and a Bachelor of Business Administration, Accounting from the University of Georgia.

Patrick M. Enright joined Telesat Canada in 1981, and held progressively responsible management positions until being appointed Vice President, Network Services in 2004 with a title change to Vice President, Network Operations in 2008. Mr. Enright holds a diploma in Electronic Engineering Technology from Conestoga College of Applied Arts and Technology. He is a graduate of the Western Executive Program, University of Western Ontario, as well as a graduate of the Executive Management Development Program from the Banff Centre for Management.

John Flaherty joined Telesat in 1987, and since that time has held a variety of positions in Finance, Business Development and Marketing including the Director, South America from 2006 to 2007 and the Director, Planning and Marketing from 2007 to 2012. Mr. Flaherty was appointed Vice President, Business Planning & Marketing in 2013. He holds a Master of Business Administration from Queen’s University as well as a Bachelor of Arts, major in Economics from Carleton University.

Michael C. Schwartz rejoined Telesat Canada on November 30, 2015 as Senior Vice President, Corporate & Business Development. Prior to that, from January 2013 through November 6, 2015, he served as Senior Vice President, Corporate Strategy and Development with Sprint Corporation, after having served as Vice President, Marketing and Corporate Development of Telesat Canada from February 2007, with a title change to Vice President, Marketing, Corporate Development & Regulatory on December 1, 2007. Mr. Schwartz joined Telesat Canada from SES New Skies, where he served as Senior Vice President of Marketing and Corporate Development, a position he held since March 2006 following the purchase of New Skies Satellites

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by SES. Prior to that, Mr. Schwartz served in the same position for New Skies Satellites since September 2003. Prior to joining New Skies Satellites, he served as Chief Development and Financial Officer of Terabeam Corporation (Terabeam), responsible for business and corporate development as well as financial operations. Prior to Terabeam, he was a co-founder and President of an Internet infrastructure company, which was sold in December 2000. He also held two senior positions at AT&T Wireless Services, most recently as Vice President of Acquisitions and Development. Mr. Schwartz graduated magna cum laude from Harvard University in physics and magna cum laude from Harvard Law School.

David N. Wendling joined Telesat Canada in 1986, and has held a variety of key positions within the Space Systems Department prior to being appointed Vice President, Space Systems in 2007 with a title change to Vice President Space and Network Engineering in 2008 and to Chief Technical Officer in January 2013. Mr. Wendling holds a Bachelor of Applied Science from the University of Waterloo. He is registered as a Professional Engineer with the Professional Engineers of Ontario.

B. Compensation.

Director Compensation

Loral and PSP Investments are each entitled to nominate three directors to the board. None of those six directors who are shareholder nominees are paid a fee by us for his services as a director.

During the fiscal year ended December 31, 2015, the aggregate fees paid to the other four directors by us were approximately $337,000.

These four independent directors are each paid an annual fee of $75,000. In addition to the annual fee, the Chair of the Audit Committee is paid $15,000, and the Chair of the Corporate Governance Committee is paid $7,500. For each attendance at a meeting of the board or a board committee, each director who is paid the annual fee is also paid a meeting fee of $1,000 for each meeting attended in person, and a meeting fee of $500 for each meeting attended by telephone. Directors may be offered a right to elect to participate in one or more compensation plans which may be developed by us, in which case the annual fee of the participating director may be reduced by any value attributed to such right of participation. All directors are entitled to be reimbursed for travel and other expenses properly incurred by them in attending meetings of the board or of any committee of the board.

The directors of Telesat Holdings are also directors of Telesat Canada and Telesat Interco, and are members of the board of managers of Telesat LLC. They do not receive additional remuneration from us for acting in that capacity.

Senior Management Compensation

The aggregate salary and benefits paid by us to Telesat’s senior management for the year ended December 31, 2015 amounted to approximately $6.5 million. The aggregate salary and benefits paid by us to the five highest-paid officers of Telesat for the fiscal year ended December 31, 2015 was approximately $4.6 million.

As a Canadian company that is not a reporting issuer under the securities legislation of any jurisdiction in Canada, Telesat is not required to publicly disclose individual compensation information either as a requirement under its governing statute or under any securities legislation. Telesat does not publicly disclose individual compensation information in Canada.

In addition, the total amounts set aside or accrued by us in 2015 to provide pension, retirement or similar benefits to senior management of Telesat amounted to approximately $3.3 million.

Directors’ and Senior Management’s Indemnity Payments

We have entered into indemnity agreements with Telesat’s directors and members of senior management that may require us to indemnify them against certain liabilities that may arise by reason of their status or service as our directors or members of senior management. No indemnity payments were made to directors and/or senior management in 2015.

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C. Board practices.

Board of Directors

The board currently consists of ten members. Each director is elected annually, and we expect that he will serve until the next annual meeting of shareholders, unless his office is earlier vacated in accordance with the by-laws of the corporation or with the provisions of the CBCA. Each of the directors has served in his respective capacity since his election; see “Item 6A. Directors and Senior Management” for the period during which each director and member of senior management has served in that office.

Directors’ Service Contracts

There are no director service contracts between Telesat and its directors providing for benefits upon termination of employment.

Committees of the Board

Our board has an Audit Committee, and a Compensation and Corporate Governance Committee.

Audit Committee.

Our Audit Committee is comprised of Messrs. Boychuk, Targoff and Watson. Mr. Watson is the chair of the committee.

The principal duties and responsibilities of our Audit Committee, which are included in our Audit Committee charter, are to assist the board in its oversight of:

• the integrity of the corporation’s financial statements and related information;

• the corporation’s compliance with applicable legal and regulatory requirements;

• the independence, qualifications and appointment of the corporation’s auditor;

• management responsibility for reporting on internal controls and risk management; and

• the administration, funding and investment of the corporation’s pension plans and fund.

Our Audit Committee is also responsible for:

• appointing, compensating, retaining and overseeing the work of the corporation’s principal accounting firm;

• establishing procedures for (a) the receipt, retention and treatment of complaints received by the corporation regarding accounting, internal controls or auditing matters and (b) confidential, anonymous submission of complaints by employees regarding questionable accounting or auditing matters;

• pre-approving all engagements for permitted non-audit services provided by the corporation’s auditor to the corporation; and

• reviewing and discussing the annual consolidated financial statements with management.

The Audit Committee has the authority to engage outside counsel and other outside advisors as it deems appropriate to assist it in the performance of its functions.

Compensation and Corporate Governance Committee

Our Compensation and Corporate Governance Committee is comprised of Messrs. Harder, Garant and Dr. Rachesky. Mr. Harder is the chair of the committee.

The principal duties and responsibilities of our Compensation and Corporate Governance Committee, which are included in our Compensation and Corporate Governance Committee charter, are to assist the board in its oversight of:

• the compensation, nomination, evaluation and succession of officers and other management personnel;

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• developing and implementing the corporation’s corporate governance guidelines;

• identifying individuals qualified to become board members;

• determining the composition of the board of directors and its committees;

• determining the directors’ remuneration for board and committee service; and

• overseeing the corporation’s policies concerning business conduct, ethics, and other matters, and if required, public disclosure of material information.

D. Employees.

As of December 31, 2015, Telesat Canada and its subsidiaries had approximately 405 full and part time employees, approximately 3.5% of whom are subject to collective bargaining agreements. Our employee body is primarily comprised of professional engineering, sales and marketing staff, administrative staff and skilled technical workers. Telesat Canada considers its employee relations to be good.

E. Share ownership.

The following table presents information regarding the ownership of certain classes of shares of Telesat Holdings by our directors and senior management as of February 24, 2016.

Name (Title)	Common		Voting Participating Preferred		Non-Voting Participating Preferred		Director Voting Preferred		Percentage of Class
Mark H. Rachesky, M.D.(1)		—		—		—		—		—
Michael B. Targoff		—		—		—		—		—
Hank Intven		—		—		—		—		—
Michael Boychuk		—		—		—		—		—
Daniel Garant		—		—		—		—		—
Antoine Bisson-McLernon		—		—		—		—		—
John P. (Jack) Cashman		—		—		—		820		82	%
Colin D. Watson		—		—		—		180		18	%
Clare R. Copeland		—		—		—		—		—
V. Peter Harder		—		—		—		—		—
Daniel S. Goldberg		—		—		935,880		—		2.4	%
Michèle Beck		—		—		—		—		—
Michel G. Cayouette		—		—		120,749		—		0.3	%
Christopher S. DiFrancesco		—		—		—		—		—
Patrick M. Enright		—		—		—		—		—
Thomas E. Eaton, Jr.		—		—		—		—		—
John Flaherty		—		—		—		—		—
Michael C. Schwartz		—		—		383,034		—		1.0	%
David N. Wendling		—		—		—		—		—

(1) Various funds affiliated with MHR Fund Capital Management (“MHR”) hold, as of December 31, 2015, approximately 38.0% of Loral’s outstanding voting common stock and 57.1% of Loral’s total outstanding voting and non-voting common stock. Mark H. Rachesky, M.D., chairman of our board of directors and non-executive chairman of the board of directors of Loral, is the co-founder and president of MHR.

Telesat Holdings Stock Options

In September 2008 and April 2013, Telesat adopted stock incentive plans for certain key employees. The plans provide for the grant of up to 12,923,779 options, 8,824,646 authorized in 2008, 4,036,729 authorized in 2013, and an additional 62,404 authorized in 2015, to purchase non-voting participating preferred shares of Telesat Holdings, convertible into common shares of Telesat Holdings.

Under both plans, two different types of stock options may be granted: time-vesting options and performance-vesting options. The time-vesting options generally become vested and exercisable over a

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five-year period by 20% annual increments. The performance-vesting options become vested and exercisable over a five-year period, provided that Telesat has achieved or exceeded an annual or cumulative target consolidated EBITDA established by the board of directors. The exercise period of the stock options expires 10 years from the grant date. The exercise price of each share underlying the options will be the higher of a fixed price, established by the board of directors on the grant date, and the fair market value of a non-voting participating preferred share on the grant date. Both plans authorize the board of directors to grant tandem SARs, at their discretion.

As at December 31, 2015, there were 5,588,995 options outstanding under both plans (of which 3,344,839 were vested). The weighted-average remaining life of these outstanding options was six years and the weighted average exercise price of the outstanding options granted to senior management is $22.67. There are 252,179 and nil remaining options available for grant under the 2008 and 2013 plans respectively.

In January 2016, the Board approved the purchase for cancellation of up to 25% of the currently outstanding stock options. The cash consideration for this purchase will be paid in the first half of 2016 and is expected to be approximately $25 million.

Item 7. Major Shareholders and Related Party Transactions

A. Major shareholders.

Telesat Interco holds 145 shares of common stock of Telesat Canada, which represents all of the issued and outstanding common stock of Telesat Canada. Telesat Holdings holds 1,100,001 shares of common stock of Telesat Interco, which represents all of the issued and outstanding common stock of Telesat Interco.

The following table sets forth the ownership of shareholders that are the beneficial owners of 5% or more of each class of shares of Telesat Holdings as of February 24, 2016.

Name (Title)	Common (C)		Voting Participating Preferred (VPP)		Non-Voting Participating Preferred (NPP)		Director Voting Preferred (DVP)		Percentage of Class
Red Isle Private Investments Inc.(1)		35,172,218		7,034,444		595,956		—		C: 47.4%
										VPP: 100% NPP: 1.6%
Loral Holdings Corporation(1)(2)		39,080,242		—		35,953,824		—		C: 52.6%
										NPP: 94.0%
John P. (Jack) Cashman		—		—		—		820		DVP: 82%
Colin D. Watson		—		—		—		180		DVP: 18%

(1) Each of Red Isle’s and Loral’s economic and voting interests on a combined basis taking into account the number and classes of shares owned by each of them are described below.

(2) Various funds affiliated with MHR hold, as of December 31, 2015, approximately 38.0% of Loral's outstanding voting common stock and 57.1% of Loral's total outstanding voting and non-voting common stock. Mark H. Rachesky, M.D., chairman of our board of directors and non-executive chairman of the board of directors of Loral, is the co-founder and president of MHR.

On December 16, 2006, Telesat Interco, a subsidiary of Telesat Holdings, entered into a share purchase agreement with BCE and Telesat Canada to acquire all of the issued and outstanding common shares of Telesat Canada, formerly a wholly-owned subsidiary of BCE. Pursuant to the share purchase agreement, Telesat Holdings, owned indirectly by PSP Investments and Loral, acquired, through a subsidiary, all of the issued and outstanding shares of Telesat Canada from BCE.

PSP Investments is a Canadian crown corporation established to invest the amounts transferred by the federal government equal to the proceeds of the net contributions since April 1, 2000, for the pension plans of the Public Service, the Canadian Forces and the Royal Canadian Mounted Police, and since March 1, 2007, for the Reserve Force Pension Plan. PSP Investments holds its interest in Telesat Holdings through a wholly-owned subsidiary, Red Isle Private Investments Inc. (“Red Isle”), a corporation organized under the CBCA. Red Isle’s interest in Telesat Holdings is a 35.8% equity interest, a 67.3% voting interest on all

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matters except for the election of directors, and a 29.4% voting interest for the election of directors. PSP Investments’ principal offices are at 1250 Boulevard René Lévesque West, Suite 900, Montreal, Quebec, Canada, H3B 4W8 and its registered offices are at 440 Laurier Avenue West, Suite 200, Ottawa, Ontario, Canada, K1R 7X6.

Loral is a Delaware corporation and, together with its subsidiaries, is a leading satellite communications company. Loral participates in satellite services operations through its ownership of a 62.8% equity interest in Telesat Holdings and a 32.7% voting interest on all matters. Loral's principal offices are located at 565 Fifth Avenue, 19^th Floor, New York, New York 10017. Loral's registered office in the State of Delaware is located at 1209 Orange Street, Wilmington County of New Castle, Delaware 19801. Various funds affiliated with MHR hold, as of December 31, 2015, approximately 38.0% of Loral's outstanding voting common stock and 57.1% of Loral's total outstanding voting and non-voting common stock. Mark H. Rachesky, M.D., chairman of our board of directors and non-executive chairman of the board of directors of Loral, is the co-founder and president of MHR.

John P. Cashman is a Canadian citizen, residing in the City of Toronto, in the Province of Ontario. Mr. Cashman holds director voting preferred shares having a 31.1% voting interest for the election of directors only in Telesat Holdings. These shares have liquidation preference and dividend rights above common shares of Telesat Holdings. Mr. Cashman is an independent director of Telesat Holdings and Telesat Canada.

Colin D. Watson is a Canadian citizen, residing in the City of Toronto, in the Province of Ontario. Mr. Watson holds director voting preferred shares having a 6.8% voting interest for the election of directors only in Telesat Holdings. These shares have liquidation preference and dividend rights above common shares of Telesat Holdings. Mr. Watson is an independent director of Telesat Holdings and Telesat Canada.

B. Related party transactions.

Consulting Services Agreement

On October 31, 2007, Loral and Telesat Canada entered into a consulting services agreement (the “Consulting Agreement”). Pursuant to the terms of the Consulting Agreement, Loral provides certain non-exclusive consulting services in relation to the business of Loral Skynet which was transferred to Telesat Canada as part of the Skynet Transaction, as well as with respect to certain aspects of our satellite communications business. The Consulting Agreement had an initial term of seven years and was automatically renewed on October 31, 2014 for an additional seven-year term. In exchange for Loral’s services under the Consulting Agreement, we pay Loral an annual fee of USD $5 million, payable quarterly in arrears on the last day of March, June, September and December of each year during the term of the Consulting Agreement. If the terms of our Senior Secured Credit Facilities or certain other debt obligations prevent us from paying such fees in cash, we can issue junior subordinated promissory notes to Loral in the amount of such payment, with interest on such promissory notes at the rate of 7% per annum, compounded quarterly, from the date of issue of such promissory note to the maturity date thereof.

The services available from Loral can include providing advice as to business objectives, strategies, implementation of a synergy plan after the Skynet Transaction, the transferred assets, satellite orbital locations outside of Canada, capital structure and financing, satellite expert personnel and general personnel matters. Furthermore, for additional fees, we may request assistance from Loral with respect to certain areas, including benefits administration, insurance and risk management, auditing, human resources, treasury operations, and, in the United States, public relations, regulatory, tax and legal compliance if the provision of such organizational services at the agreed price is approved by a majority of our directors, excluding Loral nominees. The amounts of such additional payments are limited by the provisions of the Notes.

Under the terms of the Consulting Agreement, we indemnify Loral from certain liabilities arising out of the Consulting Agreement, provided that Loral (or its representative, employee or affiliate, if applicable) has not committed fraud or misconduct in relation to the matters giving rise to the indemnification claim.

Shareholders Agreement

On October 31, 2007, in connection with the Telesat Canada acquisition, PSP Investments, Red Isle, Loral, LSC Holdings, Loral Holdings Corporation, a Delaware corporation (“Loral Holdings”), Loral Skynet,

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John P. Cashman, Colin D. Watson, Telesat Interco, Telesat Holdings, Telesat Canada and MHR entered into a shareholders agreement (the “Shareholders Agreement”).

The Shareholders Agreement provides for, among other things, the manner in which the affairs of Telesat Holdings and its subsidiaries will be conducted and the relationships among the parties and future shareholders of Telesat Holdings. Specifically, with respect to Telesat Holdings, the Shareholders Agreement provides for its capital structure, the number and election of members of the board of directors, the meetings of directors, the required vote of the board of directors to take certain actions, the approval of the Skynet Transaction, the officers, and the rights of certain shareholders to appoint observers to the board of directors. The Shareholders Agreement also approves an initial business plan, provides for the preparation and approval of annual budgets and business plan updates and procedures for the purchase of equipment, products and services from Loral and its affiliates, an agreement by Loral not to engage in a competing satellite communications business and agreements by the shareholders not to solicit employees of Telesat Holdings or any of its subsidiaries. Additionally, the Shareholders Agreement details the matters requiring shareholder approval or the approval of a shareholder, provides for preemptive rights for certain shareholders upon the issuance of certain shares of capital stock of Telesat Holdings and provides for either PSP Investments or Loral to cause Telesat Holdings to conduct an initial public offering of its equity shares if an initial public offering is not completed by the fourth anniversary of the closing of the Telesat Canada acquisition. The Shareholders Agreement also restricts the ability of holders of certain shares to transfer them unless certain conditions are met or approval of the transfer is approved by directors, provides for a right of first offer to equity shareholders if a holder of equity shares wishes to sell them to a third party, provides for, in certain circumstances, tag-along rights in favor of non-Loral shareholders if Loral sells equity shares, drag-along rights in favor of Loral in case Loral enters into an agreement to sell all of its Telesat Holdings equity securities and drag-along rights in favor of PSP Investments for the sale of Telesat Holdings if Loral undergoes a change of control. Also, the Shareholders Agreement provides for PSP Investments and Loral to have the right to require the other party to sell all of its equity shares or voting shares to PSP Investments or to a designee of Loral, as applicable, under certain circumstances.

The Shareholders Agreement provides for a board of directors of Telesat Holdings consisting of 10 directors, three nominated by Loral, three nominated by PSP Investments and four independent directors selected by a nominating committee comprised of one PSP Investments nominee, one Loral nominee and one of the independent directors then in office. Each shareholder is obligated to vote all shares for the election of the directors nominated by the nominating process. Each shareholder of Telesat Holdings made certain representations, including but not limited to representations with respect to due incorporation and valid existence, corporate power, ownership of shares of Telesat Holdings, due authorization and execution of the Shareholders Agreement, absence of any violations of material provisions of existing indentures or agreements of each party, and, with respect to each of Cashman and Watson, that they each qualified as an independent director and as a “resident Canadian” as that term is defined under Canadian law. Telesat Holdings made certain representations, including but not limited to representations that it owned all of the issued and outstanding shares in Telesat Interco. Telesat Interco made certain representations, including but not limited to representations that it owned all of the issued and outstanding shares in Telesat Canada.

Each shareholder of Telesat Holdings agreed to certain covenants, particularly with respect to: voting of shares in certain circumstances, compliance by such party’s subsidiaries with the Shareholders Agreement and keeping certain information confidential. Telesat Holdings subsequently entered into a Unanimous Shareholder Declaration with Telesat Interco, and Telesat Interco entered into a Unanimous Shareholder Declaration with Telesat Canada the effect of which is to compel each of Telesat Interco and Telesat Canada to comply with the relevant shareholder approval matters as set out in the Shareholders Agreement.

Our Shareholders Agreement provides to Loral the right of approval over many large capital expenditures, a first right of acceptance of an offer by us to procure equipment, products and services, and a first right to negotiate in those areas where Loral and its affiliates carry on business, subject to approval of any such contract by a majority of our directors, excluding Loral nominees, but not an exclusive obligation to deal with, or purchase from, Loral or its affiliates. Under certain circumstances, Loral can withhold its approval of purchases and/or financing of new satellites by us.

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In connection with the Telesat Canada acquisition, Loral agreed to indemnify Telesat for any tax liabilities for taxation years prior to 2007 and Telesat agreed to indemnify Loral for the settlement of any tax receivables for taxation years prior to 2007.

In November, 2015, dividends on the director voting preferred shares were paid for the period November 1, 2014 to October 31, 2015 in the amount of $10,000.

Accession Agreement

Coincident with their exercise of share appreciation rights and receipt of non-voting particpating preferred shares, current members of senior management, Daniel S. Goldberg, Michael Schwartz, and Michel G. Cayouette, as well as a former member of senior management, entered into Accession Agreements pursuant to which they agreed to be bound by certain provisions of the Shareholders Agreement.

Administration Fee

Loral’s employees and retirees participate in certain welfare plans sponsored by Telesat. Loral pays Telesat an annual administrative fee of USD $100,000 and reimburses Telesat for the plan costs attributable to Loral participants.

ViaSat-1

On January 7, 2008 an agreement was entered into between SS/L and ViaSat, Inc. (“ViaSat”) for the construction by SS/L for ViaSat of a high capacity broadband satellite called ViaSat-1 (the “Satellite”). On January 11, 2008, Loral Space & Communications Inc. (“Loral”) and ViaSat entered into a Beam Sharing Agreement (the “Beam Sharing Agreement”) that provides for, among other things, (i) the purchase by Loral of a portion of the Satellite payload providing coverage into Canada (the “Canadian Payload”) and (ii) payment by Loral of a portion of the actual costs of launch and associated services, launch insurance and telemetry, tracking and control services for the Satellite.

On December 31, 2009, Loral entered into a Satellite Capacity and Gateway Service Agreement (the “Xplornet Agreement”) with Barrett Xplore Inc. (which subsequently changed its name to Xplornet Communications Inc. (“Xplornet”)) to provide satellite capacity and gateway service for broadband services in Canada.

On March 1, 2011, Telesat Canada and one of its subsidiaries (“Telesat”) entered into agreements (the “Assignment and Assumption Agreements”) with Loral and one of its subsidiaries pursuant to which Loral assigned to Telesat and Telesat assumed from Loral all of Loral’s rights and obligations with respect to the Canadian payload on the ViaSat-1 satellite, and all related agreements. Under the Assignment and Assumption Agreements, Loral received a fee from Telesat for the assignment and was reimbursed for its net costs incurred through closing of the sale. Loral is entitled to receive one-half of any net revenue earned by Telesat in connection with the sale of any non-geostationary capacity to Telesat’s customers during the first four years after the commencement of service using the non-geostationary capacity. In connection with the sale, Loral also assigned to Telesat the Xplornet Agreement.

In 2015, Telesat paid to Loral, or accrued, approximately $1.2 million pursuant to the above agreements.

Loral Nominee Director

McCarthy Tétrault LLP has acted as Canadian counsel to Loral, Telesat Interco and Telesat Holdings in connection with the Telesat Canada acquisition, and as Canadian counsel to Telesat Canada in respect of the offering of the notes, the exchange offer and other matters, and may act for Telesat Canada, Telesat Interco and Telesat Holdings on other matters in the future. Mr. Hank Intven, counsel with McCarthy Tétrault LLP, is a director of Telesat Canada, Telesat Interco and Telesat Holdings. See “Item 6A. Directors, Senior Management and Employees” for additional information. In 2015, the aggregate amount of expenses incurred by Telesat Canada and its subsidiaries for services received from McCarthy Tétrault LLP was approximately $150,000.

Goldberg, Godles, Wiener & Wright

Henry Goldberg, the father of Daniel Goldberg, the President and Chief Executive Officer of Telesat Canada, is a partner in the law firm Goldberg, Godles, Wiener & Wright, which handles certain matters for Telesat Canada and its subsidiaries. In 2015, the aggregate amount of expenses incurred by Telesat Canada and its subsidiaries for services received was approximately USD $270,000.

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C. Interests of experts and counsel.

Not applicable.

Item 8. Financial Information

A. Consolidated Statements and Other Financial Information.

See our Consolidated Financial Statements beginning at page F-1.

Legal Proceedings

We frequently participate in proceedings before national telecommunications regulatory authorities. See “Government Regulation.” In addition, we may also become involved from time to time in other legal proceedings arising in the normal course of our business.

We are subject to audits by taxing authorities in the various jurisdictions in which we operate. In Brazil, we are currently involved in a number of disputes with the Brazilian tax authorities who have alleged that additional taxes are owing on revenue earned by our Brazilian subsidiaries for the period 2003 to 2012. The disputes relate to the Brazilian tax authorities’ characterization of our revenue. Additional taxes and interest of approximately $32.0 million have been assessed by Brazilian tax authorities and we have challenged those assessments. We believe the likelihood of an unfavorable outcome in these disputes is remote and, as such, no reserve has been established. Loral has agreed to indemnify us with respect to certain of the assessments issued in Brazil.

We have been re-assessed by Canadian tax authorities for income taxes and interest of approximately $16.5 million relating to the deductibility of certain expenses for the 2007 tax year and we are challenging these re-assessments. We believe the likelihood of an unfavorable outcome in this dispute is remote, and as such, no reserve has been established.

Other than the above, we are not aware of any proceedings outstanding or threatened as of the date hereof by or against us or relating to our business which may have, or have had in the recent past, significant effects on Telesat Canada’s financial position or profitability.

Environmental Matters

We are subject to various laws and regulations relating to the protection of the environment and human health and safety (including those governing the management, storage and disposal of hazardous materials). Some of our operations require continuous power supply, and, as a result, current and past operations at our earth stations and other technical facilities include fuel storage, and batteries for back-up generators and uninterruptible power systems. As an owner or operator of property and in connection with current and historical operations at some of our sites, we could incur costs, including cleanup costs, fines, sanctions and third-party claims, as a result of violations of or liabilities under environmental laws and regulations. We are not aware, however, of any environmental matters outstanding or threatened as of the date hereof by or against us or relating to our business which would be material to our financial condition or results of operations.

Dividend Policy

Common Shares

In 2015, no dividends on the common shares were declared. Dividends will be declared subject to the requirements of the CBCA, and paid as permitted by the Senior Secured Credit Facilities and the indenture governing the Senior Notes.

Voting Participating Preferred Shares

In 2015, no dividends on the voting participating preferred shares were declared. Dividends will be declared subject to the requirements of the CBCA, and paid as permitted by the Senior Secured Credit Facilities and the indenture governing the Senior Notes.

Non-Voting Participating Preferred Shares

In 2015, no dividends on the non-voting participating preferred shares were declared. Dividends will be declared subject to the requirements of the CBCA, and paid as permitted by the senior secured facilities and the indenture governing the Senior Notes.

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Director Voting Preferred Shares

In November, 2015, dividends on the director voting preferred shares were paid for the period November 1, 2014 to October 31, 2015 in the amount of $10,000. Dividends for future periods will be declared subject to the requirements of the CBCA, and paid as permitted by the Senior Secured Credit Facilities and the indenture governing the Senior Notes.

B. Significant Changes.

Except as disclosed elsewhere in this Annual Report, no significant changes have occurred since the date of the annual financial statements included in this Annual Report.

Item 9. The Offer and Listing

A. Offer and listing details.

Not applicable.

B. Plan of distribution.

Not applicable.

C. Markets.

Our common shares are not traded on any stock exchanges or other regulated markets.

D. Selling shareholders.

Not applicable.

E. Dilution.

Not applicable.

F. Expenses of the issue.

Not applicable.

Item 10. Additional Information

A. Share capital.

Not applicable.

B. Memorandum and articles of association.

Telesat Holdings Inc.

Register, Entry Number and Purposes.  Telesat Holdings’ Articles of Incorporation are registered with DISED under Certificate No. 436320-5 under the CBCA. There are no restrictions in Telesat Holdings’ Articles of Incorporation on the type of business that it may carry on. Neither Telesat Holdings’ articles nor its by-laws contain a description of its objects and purposes.

Directors’ Powers.  The Shareholders Agreement provides for, among other things, Telesat Holdings’ capital structure, the number and election of members of the board of directors, the meetings of directors, the required vote of the board of directors to take certain actions, the officers, and the rights of certain shareholders to appoint observers to the board of directors. See “Item 7B. Related party transactions —  Shareholders Agreement.” Pursuant to the Shareholders Agreement, at any meeting at which Telesat Holdings’ board of directors considers any question involving a material agreement or transaction or proposed material agreement or transaction with Telesat Holdings, Telesat Canada or Telesat Interco to which an interested shareholder is a party, any director nominee of that interested shareholder shall be required by the chairperson to leave the meeting while the matter is being considered, unless such requirement is waived by a majority vote of the disinterested directors, and shall abstain from voting thereon.

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According to its by-laws, the directors of Telesat Holdings may be paid such remuneration for their services as the board of directors may from time to time determine. However, the Shareholders Agreement provides that no director who is a shareholder nominee shall receive compensation for his services as a director (other than reimbursement for expenses). Neither Telesat Holdings’ articles nor its by-laws (a) require an independent quorum for voting on director compensation; (b) set out a mandatory retirement age for Telesat Holdings’ directors; or (c) require the directors to own securities of Telesat Holdings in order to serve as directors.

Telesat Holdings’ by-laws provide that, without limiting the borrowing powers as set forth in the CBCA, the board of directors may (a) borrow money upon the credit of Telesat Holdings; (b) issue, reissue, sell or pledge bonds, debentures, notes or other evidences of indebtedness or guarantee of Telesat Holdings, whether secured or unsecured; (c) give a guarantee on behalf of Telesat Holdings to secure performance of any present or future indebtedness, liability or obligation of any person; and (d) charge, mortgage, hypothecate, pledge, or otherwise create a security interest in all or any currently owned or subsequently acquired real or personal, movable or immovable, property of Telesat Holdings, including book debts, rights, powers, franchises and undertakings, to secure any such bonds, debentures, notes or other indebtedness, liability or obligation of the corporation. The by-laws do not limit or restrict the borrowing of money by Telesat Holdings on bills of exchange or promissory notes made, drawn, accepted or endorsed by or on behalf of Telesat Holdings.

Rights, Preferences and Restrictions Attaching to Each Class of Telesat Holdings’ Shares.  The authorized share capital of the Company is comprised of: (i) an unlimited number of common shares, of voting participating preferred shares, of non-voting participating preferred shares, of redeemable common shares, and of redeemable non-voting participating preferred shares, (ii) 1,000 director voting preferred shares, and (iii) 325,000 senior preferred shares. There are no outstanding redeemable common shares, redeemable non-voting participating preferred shares, or senior preferred shares. Below is a description of the rights, preferences and restrictions attaching to each outstanding class of Telesat Holdings’ shares. There are no provisions for sinking funds, and no class of shares is subject to further capital calls by Telesat Holdings. The Telesat Holdings articles and by-laws do not provide for cumulative voting. The members of Telesat Holdings’ board of directors are not replaced at staggered intervals but are elected annually.

Common Shares

The holders of common shares are entitled to receive notice of and to attend all annual and special meetings of the shareholders of Telesat Holdings and to one vote in respect of each common share held on all matters at all such meetings, except in respect of a class vote applicable only to the shares of any other class, in respect of which the common shareholders shall have no right to vote. The holders of common shares are entitled to receive dividends as may be declared by the board of directors of Telesat Holdings, and are entitled to share in the distribution of the assets of Telesat Holdings upon liquidation, winding-up or dissolution, subject to the rights, privileges and conditions attaching to any other class of shares ranking in order of priority. The common shares are convertible at the holders’ option, at any time, into voting participating preferred shares or non-voting participating preferred shares, on a one-for-one basis. The common shares have no par value. There are no provisions for redemption of common shares. Each holder of common shares entitled to vote at an annual or special meeting of the shareholders is entitled to cast one vote for each share held.

Voting Participating Preferred Shares

The rights, privileges and conditions of the voting participating preferred shares are identical in all respects to those of the common shares, except for the following:

• The holders of voting participating preferred shares are not entitled to vote at meetings of the shareholders of Telesat Holdings on resolutions electing directors.

• For all other meetings of the shareholders of Telesat Holdings, the holders of voting participating preferred shares are entitled to a variable number of votes per voting participating preferred share based on the number of voting participating preferred shares, non-voting participating preferred shares and redeemable non-voting participating preferred shares outstanding on the record date of the given meeting of the shareholders of Telesat Holdings.

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• The voting participating preferred shares are convertible, at any time, at the holders’ option into common shares or non-voting participating preferred shares on a one-for-one basis as long as the result of such conversion does not cause Telesat Holdings to cease to be a “qualified corporation” within the meaning of the Canadian Telecommunication Common Carrier Ownership and Control Regulations pursuant to the Telecommunications Act (Canada).

The voting participating preferred shares have no par value.

Non-Voting Participating Preferred Shares

The rights, privileges and conditions of the non-voting participating preferred shares are identical in all respects to those of the common shares, except for the following:

• The holders of non-voting participating preferred shares are not entitled to vote on any matter at meetings of the shareholders of Telesat Holdings, except in respect of a class vote applicable only to the non-voting participating preferred shares.

• The non-voting participating preferred shares are convertible, at any time, at the holders’ option into common shares or voting participating preferred shares on a one-for-one basis as long as the result of such conversion does not cause Telesat Holdings to cease to be a “qualified corporation” within the meaning of the Canadian Telecommunication Common Carrier Ownership and Control Regulations pursuant to the Telecommunications Act (Canada).

The non-voting participating preferred shares have no par value.

Director Voting Preferred Shares

The rights, privileges and conditions of the director voting preferred shares are identical in all respects to those of the common shares, except for the following:

• The holders of director voting preferred shares are entitled to receive notice of and to attend all meetings of the shareholders of Telesat Holdings at which directors of Telesat Holdings are to be elected. The holders of director voting preferred shares are not entitled to attend meetings of the shareholders of Telesat Holdings and have no right to vote on any matter other than the election of directors of Telesat Holdings.

• The holders of director voting preferred shares are entitled to receive annual non-cumulative dividends of $10 per share if declared by the Board of Directors of Telesat Holdings, in priority to the payment of dividends on the common shares, voting participating preferred shares, non-voting participating preferred shares, redeemable common shares, and redeemable non-voting participating preferred shares, but after payment of any accrued dividends on the senior preferred shares.

• In the event of liquidation, wind-up or dissolution, the holders of director voting preferred shares are entitled to receive $10 per share in priority to the payment of dividends on the common shares, voting participating preferred shares, non-voting participating preferred shares, redeemable common shares, and redeemable non-voting participating preferred shares, but after payment of any accrued dividends on the senior preferred shares.

• The director voting preferred shares are redeemable at the option of Telesat Holdings, at any time, at a redemption price of $10 per share.

The director voting preferred shares have a nominal stated value.

Procedures to Change the Rights of Shareholders.  In order to change the rights of the shareholders as contained in Telesat Holdings’ Articles of Incorporation, an amendment to the Articles of Incorporation is required. Such an amendment would require, in addition to any shareholder approval required as a mandatory provision of the CBCA, (a) with respect to any amendment not excepted by the Shareholders Agreement, the approval of each of PSP Investments and Loral; (b) with respect to changes to the rights, privileges, restrictions, and conditions of the common shares, voting participating preferred shares, non-voting participating preferred shares, redeemable common shares or redeemable non-voting participating preferred shares, the approval of two-thirds of each such class affected by such amendment voting as a separate class and the approval of two-thirds of the common shares, voting participating preferred shares, non-voting

80

participating preferred shares, redeemable common shares or redeemable non-voting participating preferred shares voting together as a class; (c) with respect to changes to the rights, privileges, restrictions, and conditions of the director voting preferred shares, the approval of two-thirds of the director voting preferred shares voting as a separate class and the approval of two-thirds of the common shares, voting participating preferred shares, non-voting participating preferred shares, redeemable common shares or redeemable non-voting participating preferred shares voting together as a class; and (d) with respect to changes to the rights, privileges, restrictions, and conditions of the senior preferred shares, the approval of two-thirds of the senior preferred shares voting as a separate class, except that (i) an increase to the number of senior preferred shares or (ii) the creation of a new class of shares having priority, or ranking pari passu, as to dividends or liquidation shall not require consent of the senior preferred shares. The Shareholders Agreement of Telesat Holdings may not be amended without the written consent of both PSP Investments and Loral and, for the amendment of certain provisions, the additional consent of MHR.

Shareholder Meetings.  The CBCA provides that Telesat Holdings must hold an annual general meeting not later than fifteen months after holding the last preceding annual meeting but no later than six months after the end of Telesat Holdings’ preceding financial year. The board of directors or the chairman of the board of directors has the power to call a special meeting of shareholders at any time.

If Telesat Holdings has only one shareholder or only one holder of any class or series of shares, the shareholder present in person or represented by proxy constitutes a meeting. Otherwise, subject to the CBCA, a quorum of shareholders is two persons, present in person, each being a shareholder or proxy holder, and together representing by proxy at least 51% of the outstanding shares of Telesat Holdings carrying voting rights at the meeting, provided that at least 51% of the voting rights of outstanding shares represented at the meeting are at all times held by Canadians.

The only persons entitled to be present at a meeting of shareholders are those entitled to vote at that meeting, the directors, officers and auditor of Telesat Holdings and others who, although not entitled to vote, are entitled or required under any provision of the CBCA, or Telesat Holdings’ articles or by-laws to be present at the meeting. Any other person may be admitted only on the invitation of the chairman of the meeting or with the consent of the meeting.

Limitations on Rights to Own Securities.  The articles of Telesat Holdings provide that Non-Canadians (as the term is defined in Section 2 of the Canadian Telecommunications Common Carrier Ownership and Control Regulations promulgated pursuant to the Telecommunications Act, or “Canadian Ownership Regulations”) may not hold, beneficially own or control, directly or indirectly, otherwise than by way of security only, in the aggregate voting shares to which are attached more than 33 1/3 per cent of the votes that may ordinarily be cast at a meeting of Telesat Holdings’ shareholders.

Impediments to Change of Control.  There are no provisions of Telesat Holdings’ articles or by-laws that would have an effect of delaying, deferring or preventing a change in control of Telesat Holdings and that would operate only with respect to a merger, acquisition or corporate restructuring involving Telesat Holdings.

Shareholder Ownership Disclosure.  Neither Telesat Holdings’ articles nor its by-laws contain a provision governing the ownership threshold above which shareholder ownership must be disclosed. Telesat Holdings’ by-laws do, however, require each person in whose name shares are registered to furnish an affidavit or a declaration in accordance with the Canadian Ownership Regulations or the articles, if requested in writing by a director of Telesat Holdings with the authorization of the board of directors.

Significant Differences with Applicable U.S. Law.  None.

Special Conditions for Changes in Capital.  None.

Telesat Canada

For a description of the information called for by this Item 10B. relating to Telesat Canada, please see Item 10B. of our Form 20-F for the year ended December 31, 2011.

81

C. Material contracts.

Set forth below is a list of each material contract, other than contracts entered into in the ordinary course of business, to which Telesat Canada and its subsidiaries is a party, for the two years immediately preceding publication of this Annual Report:

• Second Supplemental Indenture, dated as of November 13, 2015, with respect to Telesat Canada’s 6.0% Senior Notes due 2017, among Telesat (IOM) Holdings Limited, Telesat International Limited, Telesat Canada, Telesat LLC, as co-issuer, the guarantors party thereto and The Bank of New York Mellon, as Trustee.

D. Exchange controls.

There are no governmental laws, decrees or regulations in Canada relating to restrictions on the export or import of capital, or Canadian exchange restrictions affecting the remittance of dividends, interest, royalties or similar payments to non-resident holders of our securities.

E. Taxation.

Not applicable.

F. Dividends and paying agents.

Not applicable.

G. Statement by experts.

Not applicable.

H. Documents on display.

The documents concerning the Company which are referred to in this Annual Report may be inspected at the principal executive offices of the Company.

I. Subsidiary Information.

Not applicable.

Item 11. Quantitative and Qualitative Disclosures About Market Risk

A. Quantitative information about market risk.

The information called for by this Item may be found in “Item 5. Operating and Financial Review and Prospects”.

B. Qualitative information about market risk.

The information called for by this Item may be found in “Item 5. Operating and Financial Review and Prospects”.

Item 12. Description of Securities Other than Equity Securities

Not applicable.

82

PART II

Item 13. Defaults, Dividend Arrearages and Delinquencies

None.

Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds

Not applicable.

Item 15. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

“Disclosure controls and procedures”, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities and Exchange Act of 1934, as amended (“Exchange Act”), are designed to provide reasonable assurance that information required to be disclosed is accumulated and communicated to management in a timely manner. As of December 31, 2015, Telesat conducted an evaluation under the supervision and with the participation of its management, including its Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of its disclosure controls and procedures. Based on this evaluation, Telesat’s Chief Executive Officer and Chief Financial Officer concluded that Telesat’s disclosure controls and procedures were effective as of December 31, 2015 to provide reasonable assurance that information required to be disclosed by it in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

Management’s Report on Internal Control over Financial Reporting

Telesat’s management is responsible for establishing and maintaining adequate “internal control over financial reporting”, as such term is defined in Rule 13a-15(f) of the Exchange Act. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with International Financial Reporting Standards. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements in a timely manner, and can provide only reasonable assurances that the objectives of the control system have been met. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with the underlying policies and procedures.

An evaluation of the effectiveness of Telesat’s internal control over financial reporting was conducted by Telesat’s management, under the supervision and with the participation of Telesat’s Chief Executive Officer and Chief Financial Officer, based on the framework set forth in theInternal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013. Based on this evaluation, Telesat’s Chief Executive Officer and Chief Financial Officer have concluded that Telesat’s internal control over financial reporting was effective as of December 31, 2015.

This annual report does not include an attestation report of Telesat’s independent registered public accounting firm regarding internal control over financial reporting. Management’s report on internal control over financial reporting was not subject to attestation by our independent registered public accounting firm pursuant to the exemption for public companies whose public market capitalization is less than USD $75 million in the Dodd-Frank Act signed on July 21, 2010.

Changes in Internal Control over Financial Reporting

During the period covered by this annual report, there have been no changes in Telesat’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, its internal control over financial reporting.

Item 16A. Audit Committee Financial Expert

Our Audit Committee is composed of Messrs. Targoff, Boychuk and Watson. Telesat Canada’s board of directors has determined that Mr. Watson is an “audit committee financial expert”. Based upon the listing standards of the Nasdaq, we believe that Mr. Watson is, and Messrs. Targoff and Boychuk are not, considered independent as that term is defined in the Nasdaq listing standards.

83

Item 16B. Code of Ethics

Telesat Canada has adopted a written code of ethics that applies to all of its employees. A copy of the Code of Business Conduct is available, free of charge, on Telesat Canada’s website located atwww.telesat.com. If any amendments are made to this Code of Business Conduct other than technical, administrative, or other non-substantive amendments, or if any waivers, including implicit waivers, from a provision of this Code of Business Conduct are granted to Telesat Canada’s Chief Executive Officer, Chief Financial Officer or other finance executives, Telesat Canada will disclose the nature of the amendment or waiver, its effective date and to whom it applies on its website or in a report on Form 6-K or other similar form filed with the SEC. There were no material amendments to, or waivers of, the Code of Business Conduct during our fiscal year ended December 31, 2015.

Item 16C. Principal Accountant Fees and Services

Deloitte LLP (“Deloitte”) acted as the principal independent registered public accounting firm for Telesat Holdings for the years ended December 31, 2015 and December 31, 2014. Set forth below is a breakdown of fees for services rendered during those years.

	Year Ended December 31, 2015		Year Ended December 31, 2014
	(In thousands of Canadian dollars)
Audit fees	$	870	$	840
Tax fees		90		90
All other fees		3		54
Total	$	963	$	984

Our Audit Committee must approve all audit, audit-related and permitted non-audit services to be provided by Deloitte and their related fees. Fees related to the annual audits of our consolidated financial statements are specifically approved by the Audit Committee on an annual basis. All fees for other audit and audit-related services are pre-approved annually or more frequently, if required. The Audit Committee has considered whether the provision of non-audit services is compatible with maintaining Deloitte’s independence.

Audit Fees

Audit fees were for professional services rendered by Deloitte for the audit of our annual financial statements and for the reviews of our quarterly financial statements for the years ended December 31, 2015 and 2014. The audit fees also include fees for the audits of our pension plans, and for other miscellaneous audits.

Tax Fees

The 2015 and 2014 tax fees include amounts related to SR&ED services.

All Other Fees

The 2015 and 2014 other fees related to access to on-line accounting research services. In addition, the 2014 other fees also included assistance with due diligence procedures, and consulting services related to the preparation of customer proposal.

Item 16D. Exemptions from the Listing Standards for Audit Committees

Not applicable.

Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers

Not applicable.

84

Item 16F. Change in Registrant’s Certifying Accountant

Not applicable.

Item 16G. Corporate Governance

Not applicable.

Item 16H. Mine Safety Disclosure

Not applicable.

85

PART III

Item 17. Financial Statements

See our Audited Consolidated Financial Statements beginning at page F-1.

Item 18. Financial Statements

Not applicable.

Item 19. Exhibits

Exhibit No.	Description
1.1	Certificate and Articles of Amalgamation of Telesat Canada, dated as of October 31, 2007(3)
1.2	Telesat Canada Unanimous Shareholder Declaration, dated as of October 31, 2007, by and between Telesat Canada and Telesat Interco Inc.(3)
1.3	By-Law No. 1 of Telesat Canada, dated as of October 31, 2007(3)
1.4	Certificate of Formation, dated September 7, 2007, and Certificate of Amendment to Certificate of Formation, dated October 12, 2007, of Telesat LLC(3)
1.5	Limited Liability Company Agreement of Telesat LLC, dated October 31, 2007(3)
1.6	Articles of Incorporation of Telesat Holdings Inc. (formerly 4363205 Canada Inc.)(2)
1.7	By-Law No. 1 of Telesat Holdings Inc. (formerly 4363205 Canada Inc.)(2)
2.1	Indenture, dated May 14, 2012, with respect to Telesat Canada’s 6.0% Senior Notes due 2017, among Telesat Canada, Telesat LLC, as co-issuer, the guarantors party thereto and The Bank of New York Mellon, as Trustee(7)
2.2	First Supplemental Indenture, dated as of September 13, 2013, with respect to Telesat Canada’s 6.0% Senior Notes due 2017, among Telesat Luxembourg S.à r.l., Telesat Canada, Telesat LLC, as co-issuer, the guarantors party thereto and The Bank of New York Mellon, as Trustee(11)
2.3*	Second Supplemental Indenture, dated as of November 13, 2015, with respect to Telesat Canada’s 6.0% Senior Notes due 2017, among Telesat (IOM) Holdings Limited, Telesat International Limited, Telesat Canada, Telesat LLC, as co-issuer, the guarantors party thereto and The Bank of New York Mellon, as Trustee
4.1	Adjustment Agreement, dated as of October 29, 2007, between Telesat Interco Inc. (formerly 4363213 Canada Inc.), BCE Inc, and Telesat Canada(2)
4.2	Shareholders Agreement, dated as of October 31, 2007, between Public Sector Pension Investment Board, Red Isle Private Investments Inc., Loral Space & Communications Inc., Loral Space & Communications Holdings Corporation, Loral Holdings Corporation, Loral Skynet Corporation, John P. Cashman, Colin D. Watson, Telesat Holdings Inc, (formerly 4363205 Canada Inc.), Telesat Interco Inc. (formerly 4363213 Canada Inc.), Telesat Canada and MHR Fund Management LLC(2)
4.3	Consulting Services Agreement, dated as of October 31, 2007, by and between Loral Space & Communications Inc. and Telesat Canada(2)
4.4	Form of Indemnity Agreement by and among Telesat Canada, Telesat Holdings Inc., Telesat Interco Inc. and Officers and Directors(6)
4.5	Indemnity Agreement dated as of October 31, 2007 by and among Loral Space & Communications Inc., Telesat Canada, Telesat Holdings Inc., Telesat Interco Inc. and Henry (Hank) Intven(2)
4.6	Acknowledgement and Indemnity Agreement, dated as of October 31, 2007, between Loral Space & Communications Inc., Telesat, Telesat Holdings Inc. (formerly 4363205 Canada Inc.), Telesat Interco Inc. (formerly 4363213 Canada Inc.) and McCarthy Tétrault LLP(2)
4.7	Grant Agreement, dated as of May 20, 2011, by and among Telesat Holdings Inc., Telesat Canada, Loral Space & Communications Inc, the Public Sector Pension Investment Board, 4440480 Canada Inc. and Daniel Goldberg(5)

86

Exhibit No.	Description
4.8	Grant Agreement, dated as of May 31, 2011, by and among Telesat Holdings Inc., Telesat Canada, Loral Space & Communications Inc, the Public Sector Pension Investment Board, 4440480 Canada Inc. and Michel G. Cayouette(5)
4.9	Grant Agreement, dated as of May 31, 2011, by and among Telesat Holdings Inc., Telesat Canada, Loral Space & Communications Inc., the Public Sector Pension Investment Board, 4440480 Canada Inc. and Michael C. Schwartz(5)
4.10	Grant Agreement, dated as of November 18, 2013, by and among Telesat Holdings Inc., Telesat Canada, Loral Space & Communications Inc., the Public Sector Pension Investment Board, 4440480 Canada Inc. and Daniel Goldberg(10)
4.11	Grant Agreement, dated as of November 18, 2013, by and among Telesat Holdings Inc., Telesat Canada, Loral Space & Communications Inc., the Public Sector Pension Investment Board, 4440480 Canada Inc. and Michel G. Cayouette(10)
4.12	Grant Agreement, dated as of November 18, 2013, by and among Telesat Holdings Inc., Telesat Canada, Loral Space & Communications Inc., the Public Sector Pension Investment Board, 4440480 Canada Inc. and Paul D. Bush(10)
4.13	Grant Agreement, dated as of January 28, 2016, by and among Telesat Holdings Inc., Telesat Canada, Loral Space & Communications Inc., the Public Sector Pension Investment Board, 4440480 Canada Inc. and Michael C. Schwartz(12)
4.14	Form of Accession Agreement to the Unanimous Shareholders’ Agreement by and among Telesat Holdings, Inc. and Daniel S. Goldberg, Michel G. Cayouette, Paul Bush and Michael Schwartz(9)
4.15	Credit Agreement, dated as of March 28, 2012, by and among Telesat Holdings, Inc., Telesat Canada, Telesat LLC, the guarantors party thereto, JP Morgan Chase Bank, N.A., as administrative agent, and the other lenders party thereto(6)
4.16	Amendment No. 1, dated as of April 2, 2013, to the Credit Agreement dated as of March 28, 2012, by and among Telesat Holdings Inc., Telesat Canada, Telesat LLC, the guarantors party thereto, JP Morgan Chase Bank, N.A., as administrative agent, and the other lenders party thereto(8)
4.17	Share Purchase Agreement among 4363213 Canada Inc., BCE Inc. and Telesat Canada dated December 16, 2006(1)
4.18	Space Segment Assignment and Assumption Agreement, dated as of March 1, 2011, by and among Telesat IOM Limited and Loral Space & Communications Inc.(4)
4.19	Gateway Facilities Assignment and Assumption Agreement, dated as of March 1, 2011, by and among Telesat Canada, Loral Space & Communications Inc. and Loral Canadian Gateway Corporation(4)
4.20	Barrett Assignment Agreement, dated as of March 1, 2011, by and among Telesat (IOM) Limited and Loral Space & Communications Inc.(4)
4.21	Guarantee Novation Agreement, dated as of August 3, 2012, by and among Loral Space & Communications Inc., MacDonald, Dettwiler and Associates Ltd. and Telesat Canada(9)
8.1*	List of Subsidiaries
12.1*	Section 302 Certification of Chief Executive Officer
12.2*	Section 302 Certification of Chief Financial Officer
13.1*	Section 906 Certification of Chief Executive Officer
13.2*	Section 906 Certification of Chief Financial Officer

(1) Incorporated by reference from the Current Report on Form 8-K of Loral Space & Communications Inc. filed on December 21, 2006.

(2) Incorporated by reference from the Current Report on Form 8-K of Loral Space & Communications Inc. filed on November 2, 2007.

87

(3) Incorporated by reference from the Form F-4 of Telesat Canada filed on June 5, 2009.

(4) Incorporated by reference from the Annual Report on Form 20-F of Telesat Canada filed on March 3, 2011.

(5) Incorporated by reference from the Current Report on Form 8-K of Loral Space & Communications Inc. filed on June 13, 2011.

(6) Incorporated by reference from the Report of Foreign Issuer on Form 6-K of Telesat Canada filed on March 29, 2012.

(7) Incorporated by reference from the Report of Foreign Issuer on Form 6-K of Telesat Canada filed on May 14, 2012.

(8) Incorporated by reference from the Report of Foreign Issuer on Form 6-K of Telesat Holdings Inc. filed on April 2, 2013.

(9) Incorporated by reference from the Annual Report on Form 20-F of Telesat Holdings Inc. filed on February 21, 2013.

(10) Incorporated by reference from the Current Report on Form 8-K of Loral Space & Communications Inc. filed on November 20, 2013.

(11) Incorporated by reference from the Annual Report on Form 20-F of Telesat Holdings Inc. filed on February 24, 2014.

(12) Incorporated by reference from the Current Report on Form 8-K of Loral Space & Communications Inc. filed on January 29, 2016.

* Filed herewith.

88

SIGNATURES

The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this Annual Report on its behalf.

Telesat Holdings Inc.

/s/ Daniel S. Goldberg

Name: Daniel S. Goldberg
Title:  President and Chief Executive Officer

Date: February 25, 2016

89

Telesat Holdings Inc.
 
Index To Consolidated Financial Statements

Report of Independent Registered Public Accounting Firm		F-2
Consolidated Statements of (Loss) Income		F-3
Consolidated Statements of Comprehensive (Loss) Income		F-4
Consolidated Statements of Changes in Shareholders’ Equity		F-5
Consolidated Balance Sheets		F-6
Consolidated Statements of Cash Flows		F-7
Notes to the 2015 Consolidated Financial Statements		F-8

F-1

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of Telesat Holdings Inc.

We have audited the accompanying consolidated balance sheets of Telesat Holdings Inc. and subsidiaries (the “Company”) as of December 31, 2015 and 2014, and the related consolidated statements of (loss) income, comprehensive (loss) income, changes in shareholders' equity, and cash flows for each of the years in the three-year period ended December 31, 2015. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States) and Canadian generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Telesat Holdings Inc. and subsidiaries as of December 31, 2015 and 2014, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2015, in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board.

/s/ Deloitte LLP
  
Chartered Professional Accountants
Licensed Public Accountants
February 24, 2016
Toronto, Canada

F-2

Telesat Holdings Inc.
 
Consolidated Statements of (Loss) Income
For the year ended December 31

(in thousands of Canadian dollars)	Notes		2015			2014			2013
Revenue		6	$	954,907		$	922,871		$	896,896
Operating expenses		7		(184,279	)		(187,789	)		(201,062	)
				770,628			735,082			695,834
Depreciation				(207,835	)		(216,496	)		(211,151	)
Amortization				(27,902	)		(30,825	)		(32,659	)
Other operating (losses) gains, net		8		(30	)		(304	)		25,335
Operating income				534,861			487,457			477,359
Interest expense		9		(183,297	)		(206,933	)		(224,099	)
Loss on financing		24		—			—			(18,487	)
Interest and other income				4,661			3,056			11,668
Gain on changes in fair value of financial instruments				6,035			48,931			80,928
Loss on foreign exchange				(540,470	)		(241,087	)		(194,909	)
(Loss) income before tax				(178,210	)		91,424			132,460
Tax expense		10		(88,729	)		(78,220	)		(64,367	)
Net (loss) income			$	(266,939	)	$	13,204		$	68,093

 
 
See accompanying notes to the consolidated financial statements

F-3

Telesat Holdings Inc.
 
Consolidated Statements of Comprehensive (Loss) Income
For the year ended December 31

(in thousands of Canadian dollars)	Notes		2015			2014			2013
Net (loss) income			$	(266,939	)	$	13,204		$	68,093
Other comprehensive income (loss)
Items that may be reclassified into profit or loss
Foreign currency translation adjustments				44,740			3,793			(1,281	)
Items that will not be reclassified into profit or loss
Actuarial gains (losses) on employee benefit plans		29		5,225			(23,346	)		21,230
Tax (expense) recovery				(1,425	)		5,777			(5,280	)
Other comprehensive income (loss)				48,540			(13,776	)		14,669
Total comprehensive (loss) income			$	(218,399	)	$	(572	)	$	82,762

 
 
See accompanying notes to the consolidated financial statements

F-4

Telesat Holdings Inc.
 
Consolidated Statements of Changes in Shareholders’ Equity

(in thousands of Canadian dollars)	Notes		Common shares		Preferred shares		Total share capital		Accumulated earnings			Equity-settled employee benefits reserve		Foreign currency translation reserve			Total reserves			Total shareholders’ equity
Balance at January 1, 2013			$	340,602	$	315,792	$	656,394	$	373,042		$	4,038	$	(6,742	)	$	(2,704	)	$	1,026,732
Net income				—		—		—		68,093			—		—			—			68,093
Dividends declared on preferred shares		25		—		—		—		(10	)		—		—			—			(10	)
Issuance of share capital		25		—		266		266		—			—		—			—			266
Other comprehensive income (loss), net of tax expense of $5,280				—		—		—		15,950			—		(1,281	)		(1,281	)		14,669
Share-based compensation				—		—		—		(1,062	)		13,215		—			13,215			12,153
Balance at December 31, 2013			$	340,602	$	316,058	$	656,660	$	456,013		$	17,253	$	(8,023	)	$	9,230		$	1,121,903
Balance at January 1, 2014			$	340,602	$	316,058	$	656,660	$	456,013		$	17,253	$	(8,023	)	$	9,230		$	1,121,903
Net income				—		—		—		13,204			—		—			—			13,204
Dividends declared on preferred shares		25		—		—		—		(20	)		—		—			—			(20	)
Issuance of share capital		25		—		214		214		—			—		—			—			214
Other comprehensive (loss) income, net of tax recovery of $5,777				—		—		—		(17,569	)		—		3,793			3,793			(13,776	)
Share-based compensation				—		—		—		—			9,643		—			9,643			9,643
Balance at December 31, 2014			$	340,602	$	316,272	$	656,874	$	451,628		$	26,896	$	(4,230	)	$	22,666		$	1,131,168
Balance at January 1, 2015			$	340,602	$	316,272	$	656,874	$	451,628		$	26,896	$	(4,230	)	$	22,666		$	1,131,168
Net loss				—		—		—		(266,939	)		—		—			—			(266,939	)
Dividends declared on preferred shares		25		—		—		—		(10	)		—		—			—			(10	)
Other comprehensive income, net of tax expense of $1,425				—		—		—		3,800			—		44,740			44,740			48,540
Share-based compensation				—		—		—		—			5,369		—			5,369			5,369
Balance at December 31, 2015			$	340,602	$	316,272	$	656,874	$	188,479		$	32,265	$	40,510		$	72,775		$	918,128

 
 
See accompanying notes to the consolidated financial statements

F-5

Telesat Holdings Inc.
 
Consolidated Balance Sheets

(in thousands of Canadian dollars)	Notes		December 31, 2015		December 31, 2014
Assets
Cash and cash equivalents		30	$	690,726	$	497,356
Trade and other receivables		11		50,781		49,534
Other current financial assets		12		1,186		765
Prepaid expenses and other current assets		13		17,100		17,202
Total current assets				759,793		564,857
Satellites, property and other equipment		6, 16		1,925,265		1,861,015
Deferred tax assets		10		7,791		3,183
Other long-term financial assets		6, 14		40,362		38,442
Other long-term assets		6, 15		13,438		3,170
Intangible assets		6, 17		811,397		820,572
Goodwill		18		2,446,603		2,446,603
Total assets			$	6,004,649	$	5,737,842
Liabilities
Trade and other payables		19	$	44,166	$	36,714
Other current financial liabilities		20		36,425		35,633
Other current liabilities		21		80,637		124,145
Current indebtedness		24		87,386		58,822
Total current liabilities				248,614		255,314
Long-term indebtedness		24		3,975,835		3,486,857
Deferred tax liabilities		10		467,971		484,758
Other long-term financial liabilities		22		94,190		60,753
Other long-term liabilities		23		299,911		318,992
Total liabilities				5,086,521		4,606,674
Shareholders’ Equity
Share capital		25		656,874		656,874
Accumulated earnings				188,479		451,628
Reserves				72,775		22,666
Total shareholders’ equity				918,128		1,131,168
Total liabilities and shareholders’ equity			$	6,004,649	$	5,737,842

 
 
See accompanying notes to the consolidated financial statements

F-6

Telesat Holdings Inc.
 
Consolidated Statements of Cash Flows
For the year ended December 31

(in thousands of Canadian dollars)	Notes		2015			2014			2013
						Restated (Note 3)			Restated (Note 3)
Cash flows from operating activities
Net (loss) income			$	(266,939	)	$	13,204		$	68,093
Adjustments to reconcile net (loss) income to cash flows from operating activities
Depreciation				207,835			216,496			211,151
Amortization				27,902			30,825			32,659
Tax expense		10		88,729			78,220			64,367
Interest expense				183,297			206,933			224,099
Interest income				(4,543	)		(2,711	)		(1,288	)
Loss on foreign exchange				540,470			241,087			194,909
Gain on changes in fair value of financial instruments				(6,035	)		(48,931	)		(80,928	)
Share-based compensation		28		5,369			9,655			13,517
Impairment reversal on intangible assets		8		—			—			(17,274	)
Gain on other post-employment benefit plan amendment		8		—			—			(9,786	)
Loss on disposal of assets		8		30			304			1,725
Loss on financing		24		—			—			18,487
Other				(40,164	)		(50,657	)		(46,430	)
Income taxes paid, net of income taxes received		30		(155,023	)		(80,799	)		(12,569	)
Interest paid, net of capitalized interest and interest received		30		(161,914	)		(192,897	)		(211,141	)
Customer prepayments on future satellite services				—			—			32,305
Repurchase of stock options and exercise of share appreciation rights		28		—			—			(1,196	)
Operating assets and liabilities		30		3,348			(8,707	)		388
Net cash from operating activities			$	422,362		$	412,022		$	481,088
Cash flows used in investing activities
Satellite programs, including capitalized interest			$	(183,415	)	$	(84,591	)	$	(71,178	)
Purchase of other property and equipment				(10,445	)		(10,695	)		(8,772	)
Purchase of intangible assets				(5	)		(185	)		(6	)
Proceeds from sale of assets				—			311			1,081
Net cash used in investing activities			$	(193,865	)	$	(95,160	)	$	(78,875	)
Cash flows used in financing activities
Repayment of indebtedness			$	(73,864	)	$	(70,692	)	$	(271,448	)
Settlement of derivatives				—			(60,824	)		(1,219	)
Payment of premium on early retirement of indebtedness				—			—			(13,793	)
Payment of debt issue costs				—			—			(810	)
Proceeds from exercise of stock options				—			202			99
Dividends paid on preferred shares				(10	)		(20	)		(10	)
Satellite performance incentive payments				(6,702	)		(5,452	)		(4,770	)
Net cash used in financing activities			$	(80,576	)	$	(136,786	)	$	(291,951	)
Effect of changes in exchange rates on cash and cash equivalents			$	45,449		$	18,567		$	7,490
Increase in cash and cash equivalents			$	193,370		$	198,643		$	117,752
Cash and cash equivalents, beginning of year				497,356			298,713			180,961
Cash and cash equivalents, end of year		30	$	690,726		$	497,356		$	298,713

 
 
See accompanying notes to the consolidated financial statements

F-7

Telesat Holdings Inc.
 
Notes to the 2015 Consolidated Financial Statements
(all amounts in thousands of Canadian dollars, except where otherwise noted)

1. BACKGROUND OF THE COMPANY

Telesat Holdings Inc. (the “Company” or “Telesat”) is a Canadian corporation. Telesat is a leading global satellite operator providing reliable and secure satellite-delivered communications solutions worldwide to broadcast, telecom, corporate and government customers. The fleet today consists of 15 satellites and the Canadian payload on ViaSat-1 with two other satellites under construction. Telesat also manages the operations of additional satellites for third parties. Telesat is headquartered in Ottawa at 1601 Telesat Court, Ontario, Canada, K1B 5P4, with offices and facilities around the world.

Loral Space and Communications Inc. (“Loral”) and Canada’s Public Sector Pension Investment Board (“PSP Investments”) indirectly held economic interests in Telesat of approximately 63% and 36%, respectively, with the remaining economic interest held by various individuals. Loral indirectly held a voting interest of 33% on all matters including the election of directors. PSP Investments indirectly held a voting interest of 67% on all matters except for the election of directors, and a 29% voting interest for the election of directors. The remaining voting interest of 38% for the election of directors is held by shareholders of the Company’s Director Voting Preferred Shares.

Unless the context states or requires otherwise, references herein to the “financial statements” or similar terms refer to the consolidated financial statements of Telesat Holdings Inc.

On February 24, 2016, these financial statements were approved by the Audit Committee of the Board of Directors and authorized for issue.

2. BASIS OF PRESENTATION

Statement of Compliance

The consolidated financial statements were prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”). The accounting policies described in Note 4 were consistently applied to all the years presented.

Basis of Consolidation

Subsidiaries

These consolidated financial statements include the results of the Company and subsidiaries controlled by the Company. Control is achieved when the Company has power over an entity, has exposure, or rights to variable returns from its involvement with an entity, and has the ability to use the power over an entity to affect the amount of its return. The most significant subsidiaries are listed in Note 32.

Joint arrangements

A joint operation is a type of joint arrangement whereby the parties that have joint control of the arrangement have rights to their share of the assets and revenue, and obligations for the liabilities and expenses, relating to the arrangement.

The Company’s consolidated financial statements include the Company’s share of the assets, liabilities, revenue and expenses of its interest in joint operations.

F-8

Telesat Holdings Inc.
 
Notes to the 2015 Consolidated Financial Statements
(all amounts in thousands of Canadian dollars, except where otherwise noted)

3. CHANGES IN ACCOUNTING POLICIES

IAS 1, Presentation of the Consolidated Statements of Cash Flows

The Company changed its presentation of the loss on foreign exchange on the consolidated statements of cash flows. The total loss on foreign exchange has been included as an adjustment to reconcile net (loss) income to cash flows from operating activities and the realized portion of the loss on foreign exchange has been included in the respective component of cash flows from operating assets and liabilities and in the effect of changes in exchange rates on cash and cash equivalents.

The change has resulted in the following reclassifications on the consolidated statements of cash flows.

Year ended December 31,	2014			2013
Net cash from operating activities	$	(177	)	$	1,558
Effect of changes in exchange rates on cash and cash equivalents		177			(1,558	)

4. SIGNIFICANT ACCOUNTING POLICIES

The consolidated financial statements have been prepared on an historical cost basis except for certain financial instruments which were measured at their fair values, as explained in the accounting policies below. Historical cost is based on the fair value of the consideration given or received in exchange for assets or liabilities.

Segment Reporting

The Company operates in a single industry segment, in which it provides satellite-based services to its broadcast, enterprise and consulting customers around the world. Operating segments are reported in a manner consistent with the internal reporting provided to the Company’s Chief Operating Decision Maker, who is the Company’s Chief Executive Officer. To be reported, a segment is usually based on quantitative thresholds but can also encompass qualitative factors management deems significant.

Foreign Currency Translation

Unless otherwise specified, all figures reported in the consolidated financial statements and associated note disclosures are presented in Canadian dollars, which is the functional and presentational currency of the Company. Each of the subsidiaries of the Company determines its own functional currency and uses that currency to measure items on its separate financial statements.

For the Company’s non-foreign operations, foreign currency non-monetary assets and liabilities are translated at their historical exchange rates, foreign currency monetary assets and liabilities are translated at the year end exchange rates, and foreign denominated revenue and expenses are translated at the average exchange rates of the month in which the transactions occurred. Gains or losses on translation of these items are recognized as a component of net (loss) income.

Upon consolidation of the Company’s foreign operations that have a functional currency other than the Canadian dollar, assets and liabilities are translated at the year end exchange rate, and revenue and expenses are translated at the average exchange rates of the month in which the transactions occurred. Gains or losses on the translation of foreign subsidiaries are recognized in other comprehensive income (loss).

Cash and Cash Equivalents

All highly liquid investments with an original maturity of three months or less, or which are available upon demand with no penalty for early redemption, are classified as cash and cash equivalents. Cash and cash equivalents are comprised of cash on hand, demand deposits, short-term investments and restricted cash expected to be used within the next twelve months.

F-9

Telesat Holdings Inc.
 
Notes to the 2015 Consolidated Financial Statements
(all amounts in thousands of Canadian dollars, except where otherwise noted)

4. SIGNIFICANT ACCOUNTING POLICIES  – (continued)

Revenue Recognition

Telesat recognizes revenue from satellite services when earned, as services are rendered or delivered to customers. Revenue is measured at the fair value of the consideration received or receivable. There must be clear evidence that an arrangement exists, the amount of revenue must be known or determinable and collectability must be reasonably assured.

Revenue from a contract to sell consulting services is recognized as follows:

• Consulting revenue for cost-plus contracts is recognized after the work has been completed and accepted by the customer.

• The percentage of completion method is used for fixed price consulting revenue contracts. Percentage of completion is measured by comparing actual cost incurred to total cost expected.

Equipment sales revenue is recognized when the equipment is delivered to and accepted by the customer. Only equipment sales are subject to warranty or return and there is no general right of return. Historically, the Company has not incurred significant expenses for warranties.

When a transaction involves more than one product or service, revenue is allocated to each deliverable based on its relative fair value; otherwise, revenue is recognized as products are delivered or as services are provided over the term of the customer contract. Transactions are evaluated to determine whether the Company is the principal and if the transactions should be recorded on a gross or net basis.

Deferred Revenue

Deferred revenue represents the Company’s liability for the provision of future services and is classified on the balance sheet in other current and other long-term liabilities. Deferred revenue consists of remuneration received in advance of the provision of service and is recognized in income on a straight-line basis over the term of the related customer contract.

Inventory

Inventories are valued at the lower of cost and net realizable value and consist of finished goods and work in process. Cost for substantially all network equipment inventories is determined on a weighted average cost basis. Cost for work in process and certain one-of-a-kind finished goods are determined using the specific identification method.

Borrowing Costs

Borrowing costs are incurred on the Company’s debt financing. Borrowing costs attributable to the acquisition, production or construction of a qualifying asset are added to the cost of that asset. The Company has defined a qualifying asset as an asset that takes longer than twelve months to be ready for its intended use or sale. Capitalization of borrowing costs continues until such time that the asset is substantially ready for its intended use or sale. Borrowing costs are determined based on specific financing related to the asset or in the absence of specific financing, the borrowing costs are calculated on the basis of a capitalization rate which is equal to the Company’s weighted average cost of debt. All other borrowing costs are expensed when incurred.

Satellites, Property and Other Equipment

Satellites, property and other equipment, which are carried at cost, less accumulated depreciation and any accumulated impairment losses, include the contractual cost of equipment, capitalized engineering costs, capitalized borrowing costs during the construction or production of qualifying assets, and with respect to satellites, the cost of launch services, and launch insurance.

Depreciation is calculated using the straight-line method over the respective estimated useful lives of the assets.

F-10

Telesat Holdings Inc.
 
Notes to the 2015 Consolidated Financial Statements
(all amounts in thousands of Canadian dollars, except where otherwise noted)

4. SIGNIFICANT ACCOUNTING POLICIES  – (continued)

Below are the estimated useful lives in years of satellites, property and other equipment as of December 31, 2015.

	Years
Satellites		12 to 15
Property and other equipment		3 to 30

Construction in progress is not depreciated as depreciation only commences when the asset is ready for its intended use. For satellites, depreciation commences on the day the satellite becomes available for service.

The investment in each satellite will be removed from the accounts when the satellite is retired. When other property is retired from operations at the end of its useful life, the cost of the asset and accumulated depreciation are removed from the accounts. Earnings are credited with the amount of any net salvage value and charged with any net cost of removal. When an asset is sold prior to the end of its useful life, the gain or loss is recognized immediately in other operating (losses) gains, net.

In the event of an unsuccessful launch or total in-orbit satellite failure, all unamortized costs that are not recoverable under launch or in-orbit insurance are recorded in other operating (losses) gains, net.

Liabilities related to decommissioning and restoration of retiring property and equipment are measured at fair value with a corresponding increase to the carrying amount of the related asset. The liability is accreted over the period of expected cash flows with a corresponding charge to interest expense. The liabilities recorded to date have not been significant and are reassessed at the end of each reporting period. There are no decommissioning or restoration obligations for satellites.

Deferred Satellite Performance Incentive Payments

Deferred satellite performance incentive payments are obligations payable to satellite manufacturers over the lives of certain satellites. The present value of the payments are capitalized as part of the cost of the satellite and recognized as part of the depreciation of the satellite.

Impairment of Long-Lived Assets

Tangible fixed assets and finite life intangible assets are assessed for impairment on an annual basis or more frequently when events or changes in circumstances indicate that the carrying value of an asset exceeds the recoverable amount. Tangible fixed assets and finite life intangible assets are also assessed for indicators of impairment at each reporting period.

An impairment test consists of assessing the recoverable amount of an asset, which is the higher of its fair value less cost of disposal and its value in use. If it is not practicable to measure the recoverable amount for a particular asset, the Company determines the recoverable amount of the cash generating unit (“CGU”) with which it is associated. A CGU is the smallest identifiable group of assets that generates cash inflows which are largely independent of the cash inflows from other assets or groups of assets.

The Company measures value in use on the basis of the estimated future cash flows to be generated by an asset or CGU. These future cash flows are based on the Company’s latest business plan information approved by senior management and are discounted using rates that best reflect the time value of money and the specific risks associated with the underlying asset or assets in the CGU.

The fair value less cost of disposal is the price that would be received to sell an asset or CGU in an orderly transaction between market participants at the measurement date. For the impairment assessment, the fair value is calculated on a recurring basis and is calculated using level 3 of the fair value hierarchy.

An impairment loss is the amount by which the carrying amount of an asset or CGU exceeds its recoverable amount. When an impairment loss subsequently reverses, the carrying amount of the asset (or a

F-11

Telesat Holdings Inc.
 
Notes to the 2015 Consolidated Financial Statements
(all amounts in thousands of Canadian dollars, except where otherwise noted)

4. SIGNIFICANT ACCOUNTING POLICIES  – (continued)

CGU) is increased to the revised measure of its recoverable amount, so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognized for the asset (or CGU) in prior years. Impairment losses and reversals of impairment losses are recognized in other operating (losses) gains, net.

Goodwill and Intangible Assets

The Company accounts for business combinations using the acquisition method of accounting, which establishes specific criteria for the recognition of intangible assets separately from goodwill. Goodwill represents the excess between the total of the consideration transferred over the fair value of net assets acquired. After initial recognition at cost, goodwill is measured at cost less any accumulated impairment losses.

The Company distinguishes intangible assets between assets with finite and indefinite useful lives. Intangible assets with indefinite useful lives are comprised of the Company’s trade name and orbital slots. These assets are carried at cost less any accumulated impairment losses. Finite life intangible assets, which are carried at cost less accumulated amortization and any accumulated impairment losses, consist of revenue backlog, customer relationships, customer contracts, concession rights, transponder rights and patents. Intangible assets with finite lives are amortized over their estimated useful lives using the straight-line method of amortization, except for revenue backlog which is based on the expected period of recognition of the related revenue.

Below are the estimated useful lives in years of the finite life intangible assets as of December 31, 2015.

	Years
Revenue backlog		9 to 17
Customer relationships		6 to 21
Customer contracts		5 to 15
Concession rights		1 to 15
Transponder rights		17
Patents		18

Impairment of Goodwill and Indefinite Life Intangible Assets

An assessment for impairment of goodwill and indefinite life intangible assets is performed annually, or more frequently whenever events or changes in circumstances indicate that the carrying amounts of these assets are likely to exceed their recoverable amount. Goodwill is tested for impairment at the entity level as this represents the lowest level within the Company at which the goodwill is monitored for internal management purposes, and is not larger than an operating segment. Indefinite life intangibles have not been allocated to any CGU and are tested for impairment at the asset level.

Goodwill and indefinite life intangible assets are also assessed for indicators of impairment at each reporting period.

An impairment test consists of assessing the recoverable amount of an asset, which is the higher of its fair value less costs of disposal and its value in use. For the impairment assessment, fair value is calculated on a recurring basis and is calculated using level 2 or level 3 of the fair value hierarchy, depending upon the valuation approach being utilized.

Orbital Slots

In performing the orbital slot impairment analysis, the Company determines, for each orbital slot, its fair value less costs of disposal and its value in use on an annual basis. The higher of these two amounts is

F-12

Telesat Holdings Inc.
 
Notes to the 2015 Consolidated Financial Statements
(all amounts in thousands of Canadian dollars, except where otherwise noted)

4. SIGNIFICANT ACCOUNTING POLICIES  – (continued)

determined to be the recoverable amount. To the extent that the recoverable amount is less than the carrying value of the asset, an impairment exists and the asset is written down to its recoverable amount.

The key assumptions used in estimating the recoverable amounts of the orbital slots include:

i) the market penetration leading to revenue growth;

ii) the profit margin;

iii) the duration and profile of the build-up period;

iv) the estimated start-up costs and losses incurred during the build-up period; and

v) the discount rate.

Fair value less costs of disposal is the price that would be received to sell an asset in an orderly transaction between market participants at the measurement date. In order to determine the fair value less costs of disposal, the Company uses either a market or income approach. Under a market approach, the Company measures what an independent third party would pay to purchase the orbital slot by looking to actual market transactions for similar assets. Under an income approach, the fair value is determined to be the sum of the projected discounted cash flows over a discrete period of time in addition to the terminal value.

The value in use amount is the present value of the future cash flows expected to be derived from the asset. The determination of this amount includes projections of cash inflows from the continuing use of the asset and cash outflows that are required to generate the associated cash inflows. These cash inflows are discounted at an appropriate discount rate.

Goodwill

In performing the goodwill impairment analysis, the Company assesses the recoverable amount of goodwill using the income approach as well as the market approach in the determination of the fair value of goodwill at the entity level.

Under the income approach, the sum of the projected discounted cash flows for the next five years, or a longer period if justified by the most recent financial plan approved by management, in addition to a terminal value are used to determine the fair value at the entity level. In this model, significant assumptions used include: revenue, expenses, capital expenditures, working capital, costs of disposal, terminal growth rate and discount rate.

Under the market approach, the fair value at the entity level is determined based on market multiples derived from comparable public companies. As part of this analysis, assumptions are made regarding the comparability of selected companies including revenue, earnings before interest, taxes, depreciation and amortization multiples for valuation purposes, growth rates, size and overall profitability.

Under both approaches, all assumptions used are based on management’s best estimates. The discount rates are consistent with external sources of information.

Trade Name

For the purposes of impairment testing, the fair value of the trade name is determined using an income approach, specifically the relief from royalties method.

F-13

Telesat Holdings Inc.
 
Notes to the 2015 Consolidated Financial Statements
(all amounts in thousands of Canadian dollars, except where otherwise noted)

4. SIGNIFICANT ACCOUNTING POLICIES  – (continued)

The relief from royalties method is comprised of two major steps:

i) a determination of the hypothetical royalty rate; and

ii) the subsequent application of the royalty rate to projected revenue.

In determining the hypothetical royalty rate in the relief from royalties method, the Company considered comparable license agreements, operating earnings benchmark, an excess earnings analysis to determine aggregate intangible asset earnings, and other qualitative factors. The key assumptions used include the tax and discount rates.

Financial Instruments

The Company has used derivative financial instruments to manage its exposure to foreign exchange risk associated with debt denominated in foreign currencies, as well as to reduce its exposure to interest rate risk associated with debt. Currently, the Company does not designate any of its derivative financial instruments as hedging instruments for accounting purposes. All realized and unrealized gains and losses on these derivative financial instruments are recorded in the consolidated statement of (loss) income as part of gain on changes in fair value of financial instruments.

Financial assets and financial liabilities that are classified as held-for-trading (“HFT”) are measured at fair value. The unrealized gains and losses relating to HFT assets and liabilities are recorded in the consolidated statement of (loss) income in the gain on changes in fair value of financial instruments. Loans and receivables and other liabilities are recorded at amortized cost in accordance with the effective interest method.

Derivatives, including embedded derivatives that must be separately accounted for, are recorded at fair value on the consolidated balance sheet at inception and marked to market at each reporting period thereafter. Derivatives embedded in other financial instruments are treated as separate derivatives when their risk and characteristics are not closely related to those of the host contract and the host contract is measured separately according to its characteristics. The Company accounts for embedded foreign currency derivatives and the related host contract as a single instrument where the contract requires payments denominated in the currency that is commonly used in contracts to procure non-financial items in the economic environment in which the Company transacts.

Transaction costs for financial instruments classified as HFT are expensed as incurred. Transaction costs that are directly attributable to the acquisition of the financial assets and financial liabilities (other than HFT) are added or deducted from the fair value of the financial asset and financial liability on initial recognition.

Financing Costs

The debt issuance costs related to the Revolving Credit Facility and the Canadian Term Loan Facility are accounted for as short-term and long-term deferred charges and included in prepaid expenses and other current assets and other long-term assets. The deferred charges are amortized to interest expense on a straight-line basis. All other debt issuance costs are included in current and long-term indebtedness and are amortized to interest expense using the effective interest method.

F-14

Telesat Holdings Inc.
 
Notes to the 2015 Consolidated Financial Statements
(all amounts in thousands of Canadian dollars, except where otherwise noted)

4. SIGNIFICANT ACCOUNTING POLICIES  – (continued)

Employee Benefit Plans

Telesat maintains one contributory and three non-contributory defined benefit pension plans which provide benefits based on length of service and rate of pay. Two of these defined benefit plans were closed to new members in 2013. Telesat is responsible for adequately funding the defined benefit pension plans. Contributions are made based on actuarial cost methods that are permitted by pension regulatory bodies and reflect assumptions about future investment returns, salary projections and future service benefits. Telesat also provides other post-employment and retirement benefits, including health care and life insurance benefits on retirement and various disability plans, workers compensation and medical benefits to former or inactive employees, their beneficiaries and covered dependents, after employment but before retirement, under certain circumstances. In addition, Telesat provides defined contribution pension plans, under certain circumstances, for employees who are not eligible for the defined benefit pension plans. Costs for defined contribution pension plans are recognized as an expense during the year in which the employees have rendered service entitling them to the Company’s contribution.

The Company accrues the present value of its obligations under employee benefit plans and the related costs reduced by the fair value of plan assets. Pension costs and other retirement benefits are determined using the projected unit credit method prorated on service and management’s best estimate of expected investment performance, salary escalation, retirement ages of employees and expected health care costs.

Pension plan assets are valued at fair value. The discount rate is based on the market interest rate of high quality bonds and is consistent with guidance described by the Canadian Institute of Actuaries in an Educational note dated September 2011. Past service costs arising from plan amendments are recognized immediately to the extent that the benefits are already vested, and otherwise are amortized on a straight-line basis over the average remaining vesting period. A valuation is performed at least every three years to determine the present value of the accrued pension and other retirement benefits.

Remeasurements arising from defined benefit pension plans comprise actuarial gains and losses and the return on plan assets (excluding interest). Telesat recognizes them immediately in other comprehensive income (loss), which is included in accumulated earnings, in the year in which they occur.

The current service costs and administration fees not related to asset management are included in operating expenses. The net interest expense (income) on the net defined benefit liability (asset) for the period is calculated by applying the discount rate used to measure the defined benefit obligation at the beginning of the year to the net defined benefit liability (asset) at the beginning of the year while taking into account any changes in the net defined benefit liability (asset) during the year as a result of contributions and benefit payments. The net interest expense (income) is included in interest expense.

The pension expense for 2015 was determined based on membership data as at December 31, 2013. The accrued benefit obligation as at December 31, 2015 was determined based on the membership data as at December 31, 2014, and extrapolated one year based on December 31, 2015 assumptions. For certain Canadian post-retirement benefits, the expense for 2015 was based on membership and eligibility data as at September 30, 2012. For certain American post-retirement benefits, the expense for 2015 was based on membership and eligibility data as at January 1, 2015. The accrued benefit obligation as at December 31, 2015 was determined based on membership data as at January 1, 2015, and extrapolated, based on December 31, 2015 assumptions. The most recent valuation of the pension plans for funding purposes was as of January 1, 2015. The next required valuation for the employee pension plan is as of January 1, 2016 while the pension plan for designated employees is due as of January 1, 2018. Valuations will be performed for both pension plans as of January 1, 2016.

Telesat also provides health care and life insurance benefits for certain retired employees. These benefits are funded primarily on a pay-as-go basis, with the retiree paying a portion of the cost through contributions,

F-15

Telesat Holdings Inc.
 
Notes to the 2015 Consolidated Financial Statements
(all amounts in thousands of Canadian dollars, except where otherwise noted)

4. SIGNIFICANT ACCOUNTING POLICIES  – (continued)

deductibles and co-insurance provisions. Commencing in 2015, as a result of an amendment to one of the plans, Telesat has contributed to a health reimbursement account instead of providing the health care and life insurance benefits directly to certain retired employees.

Share-Based Compensation Plan

The Company offers an equity-settled share-based incentive plan for certain key employees under which it receives services from employees in exchange for equity instruments of the Company. The expense is based on the fair value of the awards granted using the Black-Scholes option pricing model. The expense is recognized over the vesting period, which is the period over which all of the specified vesting conditions are satisfied, with a corresponding increase in equity. For awards with graded vesting, the fair value of each tranche is recognized over the respective vesting period.

Income Taxes

Income tax expense, comprised of current and deferred income tax, is recognized in income except to the extent it relates to items recognized in other comprehensive income (loss) or equity, in which case the income tax expense is recognized in other comprehensive income (loss) or equity, respectively.

Current income tax is measured at the amount expected to be paid to the taxation authorities, net of recoveries, based on the tax rates and laws enacted or substantively enacted at the balance sheet date.

Deferred taxes are the result of temporary differences arising between the tax bases of assets and liabilities and their carrying amount. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period when the asset is realized or the liability is settled, based on tax rates and laws that have been enacted or substantively enacted at the balance sheet date. Deferred tax assets are recognized for all deductible temporary differences to the extent that it is probable that taxable profit will be available against which the deductible temporary difference can be utilized.

The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that the deferred tax assets will be realized. Unrecognized deferred tax assets are reassessed at each balance sheet date and recognized to the extent that it has become probable that future taxable profit will allow the deferred tax assets to be recovered.

Deferred tax assets are netted against the deferred tax liabilities when they relate to income taxes levied by the same taxation authority on either:

i) the same taxable entity; or

ii) different taxable entities which intend to settle current tax liabilities and assets on a net basis, or to realize the assets and settle the liabilities simultaneously, in each future period in which significant amounts of deferred tax liabilities or assets are expected to be settled or recovered.

Deferred tax liabilities are recognized for all taxable temporary differences except when the deferred tax liability arises from the initial recognition of goodwill or the initial recognition of an asset or liability in a transaction which is not a business combination. For taxable temporary differences associated with investments in subsidiaries, a deferred tax liability is recognized unless the parent can control the timing of the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future.

F-16

Telesat Holdings Inc.
 
Notes to the 2015 Consolidated Financial Statements
(all amounts in thousands of Canadian dollars, except where otherwise noted)

4. SIGNIFICANT ACCOUNTING POLICIES  – (continued)

Future Changes in Accounting Policies

The IASB periodically issues new accounting standards. The new standards determined to be applicable to the Company are disclosed below. The remaining standards have been excluded as they are not applicable.

Revenue

IFRS 15,Revenue from Contracts with Customers (“IFRS 15”) was issued by the IASB on May 28, 2014, and will replace IAS 18,Revenue, IAS 11,Construction Contracts,and related interpretations on revenue.

IFRS 15 sets out the requirements for recognizing revenue that apply to all contracts with customers, except for contracts that are within the scope of the standards on leases, insurance contracts and financial instruments. IFRS 15 uses a control based approach to recognize revenue which is a change from the risk and reward approach under the current revenue standard.

Companies can elect to use either a full or modified retrospective approach when adopting this standard which is effective for annual periods beginning on or after January 1, 2018. The Company is currently evaluating the impact of IFRS 15 on its consolidated financial statements.

Financial instruments

IFRS 9,Financial Instruments (“IFRS 9”) was issued by the IASB on July 24, 2014, and will replace IAS 39,Financial Instruments: Recognition and Measurement (“IAS 39”).

IFRS 9 uses a single approach to determine whether a financial asset is measured at amortized cost or fair value, replacing multiple rules in IAS 39. The approach in IFRS 9 is based on how an entity manages its financial instruments in the context of its business model and the contractual cash flow characteristics of the financial assets. Impairments of financial assets are determined using a single impairment model that requires entities to recognize expected credit losses without requiring a triggering event to occur. Financial liabilities are measured using one of three measurement approaches (fair value through profit or loss (“FVTPL”), fair value through other comprehensive income (“FVTOCI”), or amortized cost). Financial liabilities that are held-for-trading are measured at FVTPL, financial liabilities that are considered available for sale are measured at FVTOCI unless the FVTPL option is elected, while all other financial liabilities are measured at amortized cost unless the fair value option is elected. The treatment of embedded derivatives under the new standard is consistent with IAS 39.

This standard is effective for annual periods beginning on or after January 1, 2018. The Company is currently evaluating the impact of IFRS 9 on its consolidated financial statements.

Leases

IFRS 16,Leases(“IFRS 16”) was issued by the IASB on January 13, 2016, and will replace IAS 17,Leases and related interpretations on leases.

IFRS 16 will require a lessee to recognize a right-of-use asset and lease liability for all leases with a term of more than 12 months. The standard will also require that the depreciation of the leased assets be recorded separately from the interest on the lease liabilities on the statement of income. For lessors, IFRS 16 substantially carries forward the requirements of IAS 17. IFRS 16 also aligns the definition of a lease with the control based approach in IFRS 15.

Companies can elect to use either a retrospective approach with a restatement of comparative information or a retrospective approach with the cumulative effect of initial application shown in retained earnings instead of the restatement of the comparative information.

F-17

Telesat Holdings Inc.
 
Notes to the 2015 Consolidated Financial Statements
(all amounts in thousands of Canadian dollars, except where otherwise noted)

4. SIGNIFICANT ACCOUNTING POLICIES  – (continued)

The standard is effective for annual periods beginning on or after January 1, 2019. Earlier application of the standard is permitted if it is applied in conjunction with IFRS 15. The Company is currently evaluating the impact of IFRS 16 on its consolidated financial statements.

5. CRITICAL ACCOUNTING JUDGMENTS AND ESTIMATES

Critical judgments in applying accounting policies

The following are the critical judgments made in applying the Company’s accounting policies which have the most significant effect on the amounts reported in the financial statements:

Revenue recognition

The Company’s accounting policy relating to revenue recognition is described in Note 4. The percentage of completion method is used for fixed price consulting revenue contracts and requires judgment by management to accurately determine costs incurred and costs required to complete contracts.

Uncertain income tax positions

The Company operates in numerous jurisdictions and is subject to country-specific tax laws. Management uses significant judgment when determining the worldwide provision for tax, and estimates provisions for uncertain tax positions as the amounts expected to be paid based on a qualitative assessment of all relevant factors. In the assessment, management considers risk with respect to tax matters under active discussion, audit, dispute or appeal with tax authorities, or which are otherwise considered to involve uncertainty. Management reviews the provisions at each balance sheet date.

Determining whether an arrangement contains a lease

Management uses significant judgment in assessing whether each new arrangement contains a lease based on IFRIC 4. The determination of whether an arrangement is, or contains a lease, is based on the substance of the arrangement at inception date, and whether the fulfillment of the arrangement is dependent on the use of a specific asset or assets and the arrangement conveys a right to use the asset. If contracts contain a lease arrangement, the leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases.

Critical accounting estimates and assumptions

The Company makes accounting estimates and assumptions that affect the carrying value of assets and liabilities, reported net (loss) income and disclosure of contingent assets and liabilities. Estimates and assumptions are based on historical experience, current events and other relevant factors, therefore, actual results may differ and differences could be material.

The accounting estimates and assumptions critical to the determination of the amounts reported in the financial statements were as follows:

Derivative financial instruments measured at fair value

Derivative financial assets and liabilities measured at fair value were $20.2 million and $11.4 million, respectively at December 31, 2015 (December 31, 2014 — $22.6 million and $19.4 million, respectively). Quoted market values are unavailable for the Company’s financial instruments and, in the absence of an active market, the Company determines fair value for financial instruments based on prevailing market rates (bid and ask prices, as appropriate) for instruments with similar characteristics and risk profiles or internal or external valuation models, such as option pricing models and discounted cash flow analysis, using observable market-based inputs. The determination of fair value is significantly impacted by the assumptions used for the amount and timing of estimated future cash flows and discount rates. As a result, the fair value of financial assets and liabilities and the amount of gain on changes in fair value of financial instruments recorded to net (loss) income could vary.

F-18

Telesat Holdings Inc.
 
Notes to the 2015 Consolidated Financial Statements
(all amounts in thousands of Canadian dollars, except where otherwise noted)

5. CRITICAL ACCOUNTING JUDGMENTS AND ESTIMATES  – (continued)

Impairment of goodwill

Goodwill represented $2,446.6 million of total assets at December 31, 2015 and December 31, 2014. Determining whether goodwill is impaired requires an estimation of the Company’s value which requires management to estimate the future cash flows expected to arise from operations and to make assumptions regarding economic factors, tax rates and annual growth rates. Actual operating results and the related cash flows of the Company could differ from the estimates used for the impairment analysis.

Impairment of intangible assets

Intangible assets represented $811.4 million of total assets at December 31, 2015 (December 31, 2014 —  $820.6 million). Impairment of intangible assets is tested annually or more frequently if indicators of impairment or reversal of a prior impairment loss exist. The impairment analysis requires the Company to estimate the future cash flows expected to arise from operations and to make assumptions regarding economic factors, discount rates, tax rates and annual growth rates. Significant judgments are made in establishing these assumptions. Actual operating results and the related cash flows of the Company could differ from the estimates used for the impairment analysis.

Employee benefits

The cost of defined benefit pension plans and other post-employment benefits, and the present value of the pension obligation are determined using actuarial valuations. An actuarial valuation involves making various assumptions which may differ from actual developments in the future. These include the determination of the discount rate, future salary increases, mortality rates, future pension increases and return on plan assets. Due to the complexity of the valuation, the underlying assumptions, and its long-term nature, the defined benefit obligation is highly sensitive to changes in these assumptions. All assumptions are reviewed annually.

Determination of useful life of satellites and finite life intangible assets

The estimated useful life and depreciation method for satellites and finite life intangible assets are reviewed annually, with the effect of any changes in estimate being accounted for on a prospective basis. Any change in these estimates may have a significant impact on the amounts reported.

Income taxes

Management assesses the recoverability of deferred tax assets based upon an estimation of the Company’s projected taxable income using enacted or substantially enacted tax laws, and its ability to utilize future tax deductions before they expire. Actual results could differ from expectations.

6. SEGMENT INFORMATION

Telesat operates in a single reportable industry segment, in which it provides satellite-based services to its broadcast, enterprise and consulting customers around the world.

The Company derives revenue from the following services:

• Broadcast — Direct-to-home television, video distribution and contribution, and occasional use services.

• Enterprise — Telecommunication carrier and integrator, government, consumer broadband, resource, maritime and aeronautical, retail and satellite operator services.

• Consulting and other — Consulting services related to space and earth segments, government studies, satellite control services, and research and development.

F-19

Telesat Holdings Inc.
 
Notes to the 2015 Consolidated Financial Statements
(all amounts in thousands of Canadian dollars, except where otherwise noted)

6. SEGMENT INFORMATION  – (continued)

Revenue derived from the above services were as follows:

Year ended December 31,	2015		2014		2013
Broadcast	$	492,633	$	468,207	$	471,006
Enterprise		434,555		430,217		402,377
Consulting and other		27,719		24,447		23,513
Revenue	$	954,907	$	922,871	$	896,896

Geographic Information

Revenue by geographic regions was based on the point of origin of the revenue (destination of the billing invoice), and was allocated as follows:

Year ended December 31,	2015		2014		2013
Canada	$	431,005	$	435,761	$	446,567
United States		322,679		294,977		276,983
Latin America & Caribbean		88,794		83,024		74,181
Europe, Middle East & Africa		84,877		83,591		81,143
Asia & Australia		27,552		25,518		18,022
Revenue	$	954,907	$	922,871	$	896,896

The Company’s satellites are in geosynchronous orbit. For disclosure purposes, the satellites have been classified based on ownership. Satellites, property and other equipment and intangible assets by geographic regions were allocated as follows with the comparative figures being restated to conform with the geographic regions disclosed in the current year:

As at December 31,	2015		2014
Canada	$	1,310,943	$	1,479,557
Europe, Middle East & Africa		448,699		193,095
United States		162,269		184,419
All others		3,354		3,944
Satellites, property and other equipment	$	1,925,265	$	1,861,015

As at December 31,	2015		2014
Canada	$	755,380	$	770,816
United States		44,315		37,174
All others		11,702		12,582
Intangible assets	$	811,397	$	820,572

Other long-term financial assets and other long-term assets by geographic regions were allocated as follows:

As at December 31,	2015		2014
Canada	$	33,005	$	36,509
Europe, Middle East & Africa		5,536		—
All others		1,821		1,933
Other long-term financial assets	$	40,362	$	38,442

F-20

Telesat Holdings Inc.
 
Notes to the 2015 Consolidated Financial Statements
(all amounts in thousands of Canadian dollars, except where otherwise noted)

6. SEGMENT INFORMATION  – (continued)

As at December 31	2015		2014
Canada	$	12,775	$	3,108
All others		663		62
Other long-term assets	$	13,438	$	3,170

Goodwill was not allocated to geographic regions.

Major Customers

For the year ended December 31, 2015, there were three significant customers each representing more than 10% of consolidated revenue (December 31, 2014 and December 31, 2013 — three customers).

7. OPERATING EXPENSES

Year ended December 31,	2015		2014		2013
Compensation and employee benefits(a)	$	65,819	$	69,723	$	79,051
Other operating expenses(b)		41,947		42,555		43,960
Cost of sales(c)		76,513		75,511		78,051
Operating expenses	$	184,279	$	187,789	$	201,062

(a) Compensation and employee benefits include salaries, bonuses, commissions, post-employment benefits and charges arising from share-based compensation.

(b) Other operating expenses include general and administrative expenses, marketing expenses, in-orbit insurance expenses, professional fees and facility costs.

(c) Cost of sales includes the cost of third-party capacity, the cost of equipment sales and other costs directly attributable to fulfilling the Company’s obligations under customer contracts.

8. OTHER OPERATING (LOSSES) GAINS, NET

Year ended December 31,	2015			2014			2013
Impairment reversal on intangible assets (Note 17)	$	—		$	—		$	17,274
Gain on other post-employment benefit plan amendment (Note 29)		—			—			9,786
Loss on disposal of assets		(30	)		(304	)		(1,725	)
Other operating (losses) gains, net	$	(30	)	$	(304	)	$	25,335

9. INTEREST EXPENSE

Year ended December 31,	2015			2014			2013
Interest on indebtedness	$	182,506		$	167,051		$	173,522
Interest on derivative instruments		3,721			38,851			46,349
Interest on performance incentive payments		4,362			4,117			4,453
Interest on promissory notes		—			—			66
Interest on employee benefit plans (Note 29)		1,976			1,344			3,070
Capitalized interest (Note 16)		(9,268	)		(4,430	)		(3,361	)
Interest expense	$	183,297		$	206,933		$	224,099

F-21

Telesat Holdings Inc.
 
Notes to the 2015 Consolidated Financial Statements
(all amounts in thousands of Canadian dollars, except where otherwise noted)

10. INCOME TAXES

Year ended December 31,	2015			2014			2013
Current tax expense	$	111,579		$	103,388		$	50,039
Deferred tax (recovery) expense		(22,850	)		(25,168	)		14,328
Tax expense	$	88,729		$	78,220		$	64,367

A reconciliation of the statutory income tax rate, which is a composite of Canadian federal and provincial rates, to the effective income tax rate was as follows:

Year ended December 31,	2015			2014			2013
(Loss) income before tax	$	(178,210	)	$	91,424		$	132,460
Multiplied by the statutory income tax rates		26.53	%		26.52	%		26.50	%
		(47,279	)		24,246			35,102
Income tax recorded at rates different from the Canadian tax rate		1,887			1,704			1,125
Permanent differences		62,025			32,167			24,388
Effect on deferred tax balances due to changes in income tax rates		1,554			—			196
Effect of temporary differences not recognized as deferred tax assets		76,009			23,556			14,121
Previously unrecognized tax losses and credits		(4,392	)		(2,425	)		(8,443	)
Reversal of tax reserve		—			(708	)		(2,045	)
Other		(1,075	)		(320	)		(77	)
Tax expense	$	88,729		$	78,220		$	64,367
Effective income tax rate		(49.79	)%		85.56	%		48.59	%

The tax effects of temporary differences between the carrying amounts of assets and liabilities for accounting purposes and the amounts used for tax purposes are presented below:

As at December 31,	2015			2014
Deferred tax assets
Foreign tax credit	$	9,933		$	9,879
Minimum tax credit		1,185			801
Financing charges		5,540			8,871
Unrealized foreign exchange losses		23,709			17,891
Deferred revenue		—			1,159
Loss carry forwards		19,130			4,764
Employee benefits		11,710			12,731
Other		771			1,577
Total deferred tax assets	$	71,978		$	57,673
Deferred tax liabilities
Capital assets	$	(289,988	)	$	(295,201	)
Intangibles		(237,942	)		(238,396	)
Finance charges		(4,228	)		(4,388	)
Reserves		—			(1,263	)
Total deferred tax liabilities	$	(532,158	)	$	(539,248	)
Deferred tax liabilities, net	$	(460,180	)	$	(481,575	)

F-22

Telesat Holdings Inc.
 
Notes to the 2015 Consolidated Financial Statements
(all amounts in thousands of Canadian dollars, except where otherwise noted)

10. INCOME TAXES  – (continued)

Deferred tax assets of $7.8 million (December 31, 2014 — $3.2 million) on the balance sheet relate to the U.S. and United Kingdom tax jurisdictions (December 31, 2014 — U.S. and Brazil tax jurisdiction).

Losses and tax credits

Foreign tax credit

The Company has $11.3 million of foreign tax credits which may only be used to offset taxes payable. The deferred tax assets not recognized in respect of these credits is $1.4 million. These credits will begin to expire in 2016.

Unrealized foreign exchange losses

The Company has recognized deferred tax assets of $19.8 million, and has unrecognized deductible temporary differences of $398 million in relation to the unrealized foreign exchange losses on its U.S. dollar denominated debt financing. The remaining $3.9 million relates to the U.S. tax jurisdiction.

Loss carry forwards

The Company has U.S. tax losses carried forward of $19.9 million which will expire between 2028 and 2031. The Company also has tax losses in the United Kingdom of $61.8 million, principally related to accelerated asset depreciation, that can be carried forward indefinitely.

Brazil tax losses and unrealized foreign exchange losses

The Company has Brazil tax losses carried forward of $7.2 million and $10.7 million of unrealized foreign exchange losses for which no deferred tax assets have been recognized. The unused tax losses have not been recognized as it is not more likely than not that a deferred tax asset can be realized.

Investments in subsidiaries

As at December 31, 2015, the Company had temporary differences of $73.4 million associated with investments in subsidiaries for which no deferred tax liabilities have been recognized, as the Company is able to control the timing of the reversal of these temporary differences and it is not probable that these differences will reverse in the foreseeable future.

11. TRADE AND OTHER RECEIVABLES

As at December 31,	2015			2014
Trade receivables	$	48,544		$	45,921
Trade receivables due from related parties (Note 33)		119			82
Less: Allowance for doubtful accounts		(3,779	)		(3,977	)
Net trade receivables		44,884			42,026
Other receivables		5,897			7,412
Other receivables due from related parties (Note 33)		—			96
Trade and other receivables	$	50,781		$	49,534

F-23

Telesat Holdings Inc.
 
Notes to the 2015 Consolidated Financial Statements
(all amounts in thousands of Canadian dollars, except where otherwise noted)

11. TRADE AND OTHER RECEIVABLES  – (continued)

Allowance for doubtful accounts

The movement in the allowance for doubtful accounts was as follows:

Year ended December 31,	2015			2014
Allowance for doubtful accounts, beginning of year	$	3,977		$	2,887
(Reversals) provisions for impaired receivables		(13	)		1,711
Receivables written off		(80	)		(684	)
Impact of foreign exchange		(105	)		63
Allowance for doubtful accounts, end of year	$	3,779		$	3,977

12. OTHER CURRENT FINANCIAL ASSETS

As at December 31,	2015		2014
Security deposits	$	1,186	$	765
Other current financial assets	$	1,186	$	765

13. PREPAID EXPENSES AND OTHER CURRENT ASSETS

As at December 31,	2015		2014
Prepaid expenses(a)	$	10,536	$	11,456
Income tax recoverable		188		146
Inventory(b)		5,933		5,152
Deferred charges(c)		301		300
Other		142		148
Prepaid expenses and other current assets	$	17,100	$	17,202

(a) Prepaid expenses are primarily comprised of prepaid satellite in-orbit insurance, prepaid interest on long-term indebtedness and prepaid license fees.

(b) As at December 31, 2015, inventory consists of $4.7 million of finished goods (December 31, 2014 —  $5.0 million) and $1.2 million of work in process (December 31, 2014 — $0.2 million). During the year, $13.1 million was recognized as cost of equipment sales and recorded as an operating expense (December 31, 2014 — $15.5 million, December 31, 2013 — $20.7 million).

(c) Deferred charges include deferred financing charges relating to the Revolving Credit Facility.

14. OTHER LONG-TERM FINANCIAL ASSETS

As at December 31,	2015		2014
Long-term receivables	$	13,672	$	15,273
Security deposits		6,455		541
Derivative assets		20,235		22,628
Other long-term financial assets	$	40,362	$	38,442

F-24

Telesat Holdings Inc.
 
Notes to the 2015 Consolidated Financial Statements
(all amounts in thousands of Canadian dollars, except where otherwise noted)

15. OTHER LONG-TERM ASSETS

Other long-term assets were allocated as follows with the comparative figures being restated to conform to the categories disclosed in the current year:

As at December 31,	2015		2014
Prepaid expenses	$	736	$	62
Deferred charges		71		372
Income tax recoverable		12,329		2,434
Other		302		302
Other long-term assets	$	13,438	$	3,170

16. SATELLITES, PROPERTY AND OTHER EQUIPMENT

	Satellites			Property and other equipment			Assets under construction			Total
Cost at January 1, 2014	$	2,848,929		$	214,442		$	46,178		$	3,109,549
Additions		—			2,814			104,887			107,701
Disposals/retirements		—			(2,118	)		—			(2,118	)
Reclassifications and transfers from assets under construction		—			6,949			(6,949	)		—
Impact of foreign exchange		—			1,083			7,375			8,458
Cost at December 31, 2014 and January 1, 2015	$	2,848,929		$	223,170		$	151,491		$	3,223,590
Additions		—			1,519			227,885			229,404
Disposals/retirements		—			(2,170	)		—			(2,170	)
Reclassifications and transfers from assets under construction		315,863			9,155			(325,018	)		—
Impact of foreign exchange		48,789			2,001			(6,301	)		44,489
Cost at December 31, 2015	$	3,213,581			233,675			48,057			3,495,313
Accumulated depreciation and impairment at January 1, 2014	$	(1,046,545	)	$	(100,245	)	$	—		$	(1,146,790	)
Depreciation		(200,576	)		(15,920	)		—			(216,496	)
Disposals/retirements		—			1,489			—			1,489
Impact of foreign exchange		—			(778	)		—			(778	)
Accumulated depreciation and impairment at December 31, 2014 and January 1, 2015	$	(1,247,121	)	$	(115,454	)	$	—		$	(1,362,575	)
Depreciation		(191,743	)		(16,092	)		—			(207,835	)
Disposals/retirements		—			2,140			—			2,140
Impact of foreign exchange		(131	)		(1,647	)		—			(1,778	)
Accumulated depreciation and impairment at December 31, 2015	$	(1,438,995	)	$	(131,053	)	$	—		$	(1,570,048	)
Net carrying values
At December 31, 2014	$	1,601,808		$	107,716		$	151,491		$	1,861,015
At December 31, 2015	$	1,774,586		$	102,622		$	48,057		$	1,925,265

F-25

Telesat Holdings Inc.
 
Notes to the 2015 Consolidated Financial Statements
(all amounts in thousands of Canadian dollars, except where otherwise noted)

16. SATELLITES, PROPERTY AND OTHER EQUIPMENT  – (continued)

Substantially all of the Company’s satellites, property and other equipment have been pledged as security as a requirement of the Company’s Senior Secured Credit Facilities (Note 24).

Borrowing costs

Borrowing costs of $9.3 million were capitalized for the year ended December 31, 2015 (December 31, 2014 — $4.4 million, December 31, 2013 — $3.4 million). The average capitalization rate was 5% (6% in 2014 and 2013), representing the Company’s weighted average cost of debt.

Impairment

No impairment was recognized for the years ended December 31, 2015, 2014 and 2013.

Joint arrangements

Telesat International Limited (“TIL”) and APT entered into agreements relating to the Telstar 18 VANTAGE satellite currently under construction, which are accounted for as a joint operation, whereby TIL’s interest is 42.5%. Telesat (IOM) Limited (“TIOM”) and ViaSat Inc. entered into agreements relating to the ViaSat-1 satellite, which are accounted for as a joint operation, whereby TIOM owns the Canadian payload on the ViaSat-1 Satellite.

17. INTANGIBLE ASSETS

The intangible assets are split between assets with finite and indefinite lives.

The indefinite life intangible assets are summarized below.

	Orbital slots			Trade name		Total indefinite life intangibles
Cost at January 1, 2014	$	600,725		$	17,000	$	617,725
Additions		—			—		—
Disposals/retirements		—			—		—
Impact of foreign exchange		3,121			—		3,121
Cost at December 31, 2014 and January 1, 2015	$	603,846		$	17,000	$	620,846
Additions		—			—		—
Disposals/retirements		—			—		—
Impact of foreign exchange		6,765			—		6,765
Cost at December 31, 2015	$	610,611		$	17,000	$	627,611
Accumulated impairment at January 1, 2014	$	(1,100	)	$	—	$	(1,100	)
Impairment reversal		—			—		—
Accumulated impairment at December 31, 2014 and January 1, 2015	$	(1,100	)	$	—	$	(1,100	)
Impairment reversal		—			—		—
Accumulated impairment at December 31, 2015	$	(1,100	)	$	—	$	(1,100	)
Net carrying values
At December 31, 2014	$	602,746		$	17,000	$	619,746
At December 31, 2015	$	609,511		$	17,000	$	626,511

F-26

Telesat Holdings Inc.
 
Notes to the 2015 Consolidated Financial Statements
(all amounts in thousands of Canadian dollars, except where otherwise noted)

17. INTANGIBLE ASSETS  – (continued)

The finite life intangible assets are summarized below.

	Revenue backlog			Customer relationships			Customer contracts			Transponder rights			Other			Total finite life intangibles
Cost at January 1, 2014	$	268,460		$	195,794		$	12,688		$	16,718		$	1,196		$	494,856
Additions		—			2,356			170			—			320			2,846
Disposals/retirements		(22,200	)		—			—			—			—			(22,200	)
Impact of foreign exchange		299			277			—			—			(53	)		523
Cost at December 31, 2014 and January 1, 2015	$	246,559		$	198,427		$	12,858		$	16,718		$	1,463		$	476,025
Additions		—			1,285			10,284			—			5			11,574
Disposals/retirements		(1,236	)		(1,710	)		—			—			—			(2,946	)
Impact of foreign exchange		666			805			—			—			(255	)		1,216
Cost at December 31, 2015	$	245,989		$	198,807		$	23,142		$	16,718		$	1,213		$	485,869
Accumulated amortization and impairment at January 1, 2014	$	(180,918	)	$	(75,906	)	$	(1,741	)	$	(7,244	)	$	(386	)	$	(266,195	)
Amortization		(17,600	)		(11,174	)		(998	)		(924	)		(129	)		(30,825	)
Disposals/retirements		22,200			—			—			—			—			22,200
Impact of foreign exchange		(304	)		(102	)		—			—			27			(379	)
Accumulated amortization and impairment at December 31, 2014 and January 1, 2015	$	(176,622	)	$	(87,182	)	$	(2,739	)	$	(8,168	)	$	(488	)	$	(275,199	)
Amortization		(14,303	)		(11,636	)		(876	)		(925	)		(162	)		(27,902	)
Disposals/retirements		1,236			1,710			—			—			—			2,946
Impact of foreign exchange		(657	)		(314	)		—			—			143			(828	)
Accumulated amortization and impairment at December 31, 2015	$	(190,346	)	$	(97,422	)	$	(3,615	)	$	(9,093	)	$	(507	)	$	(300,983	)
Net carrying values
At December 31, 2014	$	69,937		$	111,245		$	10,119		$	8,550		$	975		$	200,826
At December 31, 2015	$	55,643		$	101,385		$	19,527		$	7,625		$	706		$	184,886

The total combined indefinite and finite life intangible assets are summarized below.

	As at December 31, 2015							As at December 31, 2014
	Cost		Accumulated amortization and impairment			Net carrying value		Cost		Accumulated amortization and impairment			Net carrying value
Indefinite life intangibles	$	627,611	$	(1,100	)	$	626,511	$	620,846	$	(1,100	)	$	619,746
Finite life intangibles		485,869		(300,983	)		184,886		476,025		(275,199	)		200,826
Total intangibles	$	1,113,480	$	(302,083	)	$	811,397	$	1,096,871	$	(276,299	)	$	820,572

The orbital slots represent a right to operate satellites in a given longitudinal coordinate in space, where geostationary orbit may be achieved. They are limited in availability and represent a scarce resource. Usage of orbital slots is licensed through the International Telecommunications Union. Satellite operators can generally expect, with a relatively high level of certainty, continued occupancy of an assigned orbital slot either during the operational life of an existing orbiting satellite or upon replacement by a new satellite once the operational

F-27

Telesat Holdings Inc.
 
Notes to the 2015 Consolidated Financial Statements
(all amounts in thousands of Canadian dollars, except where otherwise noted)

17. INTANGIBLE ASSETS  – (continued)

life of the existing orbiting satellite is over. As a result of the expectancy right to maintain the once awarded orbital slots, an indefinite life is typically associated with orbital slots.

The Company’s trade name has a long and established history, a strong reputation and has been synonymous with quality and growth within the satellite industry. It has been assigned an indefinite life because of expected ongoing future use.

The following are the remaining useful lives of the intangible assets:

	Years
Revenue backlog		1 to 9
Customer relationships		3 to 13
Transponder rights		9
Customer contracts		5 to 11
Concession rights		1 to 8
Patent		10

All of the Company’s intangible assets have been pledged as security as a requirement of the Company’s Senior Secured Credit Facilities (Note 24).

Impairment

Finite life intangible assets are assessed for impairment at the Company’s CGU level. Indefinite life intangible assets are tested for impairment at the individual asset level. The annual impairment tests for these assets were performed in the fourth quarter of 2015, 2014 and 2013 in accordance with the policy described in Note 4.

In 2013, $17.3 million of the impairment on orbital slots was reversed due to a decrease in the discount rate.

No impairment loss was recognized in 2015, 2014, or 2013.

The recoverable amount, for indefinite life intangible assets, which is equal to the fair value less costs of disposal, was calculated using the following assumptions:

	2015			2014			2013
Discount rate		10.0	%		10.0	%		10.0	%

Some of the more sensitive assumptions used, including the forecasted cash flows and the discount rate, could have yielded different estimates of the recoverable amount. Actual operating results and the related cash flows of the Company could differ from the estimated operating results and related cash flows used in the impairment analysis, and had different estimates been used, it could have resulted in a different fair value.

F-28

Telesat Holdings Inc.
 
Notes to the 2015 Consolidated Financial Statements
(all amounts in thousands of Canadian dollars, except where otherwise noted)

18. GOODWILL

The Company carries goodwill at its cost of $2,446.6 million with no accumulated impairment losses since acquisition.

Impairment

Goodwill is tested for impairment at the entity level because that represents the lowest level at which goodwill supports the Company’s operations and is monitored internally. The annual impairment test on goodwill was performed in the fourth quarter of 2015, 2014, and 2013 in accordance with the policy described in Note 4. The Company’s recoverable amount exceeded the carrying value therefore no impairment was recognized. The most significant assumptions used in the impairment test were as follows:

	2015			2014			2013
Discount rate		10.0	%		10.0	%		10.0	%
Terminal year growth rate		2.5	%		3.0	%		3.0	%

Some of the more sensitive assumptions used, including the forecasted cash flows and discount rate, could have yielded different estimates of the recoverable amount. Actual operating results and the related cash flows of the Company could differ from the estimated operating results and related cash flows used in the impairment analysis, and had different estimates been used, it could have resulted in a different fair value.

19. TRADE AND OTHER PAYABLES

As at December 31,	2015		2014
Trade payables	$	2,821	$	3,042
Other payables and accrued liabilities(a)		40,816		33,379
Other payables and accrued liabilities due to related parties (Note 33)		529		293
Trade and other payables	$	44,166	$	36,714

(a) Other payables and accrued liabilities include payables that are not trade in nature as well as various operating and capital accruals.

20. OTHER CURRENT FINANCIAL LIABILITIES

As at December 31,	2015		2014
Derivative liabilities	$	6,510	$	11,533
Security deposits		2,880		2,551
Deferred satellite performance incentive payments		11,011		6,937
Interest payable(a)		11,084		9,213
Other		4,940		5,399
Other current financial liabilities	$	36,425	$	35,633

(a) Interest payable includes interest payable on indebtedness, interest payable on deferred satellite performance incentive payments, and interest payable on other current financial liabilities.

21. OTHER CURRENT LIABILITIES

As at December 31,	2015		2014
Deferred revenue	$	68,054	$	69,112
Decommissioning liabilities (Note 23)		96		121
Uncertain tax positions		1,315		1,315
Income taxes payable		7,934		53,029
Other		3,238		568
Other current liabilities	$	80,637	$	124,145

F-29

Telesat Holdings Inc.
 
Notes to the 2015 Consolidated Financial Statements
(all amounts in thousands of Canadian dollars, except where otherwise noted)

22. OTHER LONG-TERM FINANCIAL LIABILITIES

As at December 31,	2015		2014
Derivative liabilities	$	4,903	$	7,883
Security deposits		551		360
Deferred satellite incentive payments		76,015		50,791
Tax indemnification payable		10,973		—
Other		1,748		1,719
Other long-term financial liabilities	$	94,190	$	60,753

23. OTHER LONG-TERM LIABILITIES

As at December 31,	2015		2014
Deferred revenue	$	255,076	$	270,087
Accrued benefit liability (Note 29)		42,762		46,779
Uncertain tax positions		175		175
Decommissioning liabilities(a)		1,628		1,534
Other		270		417
Other long-term liabilities	$	299,911	$	318,992

(a) The current and long-term decommissioning liabilities on property and equipment were $1.7 million (December 31, 2014 — $1.7 million). The decommissioning liabilities are for the restoration of leased buildings and teleports. During the 2015 year, $0.1 million (December 31, 2014 — $0.1 million) was recorded as interest expense with no decommissioning liabilities derecognized (December 31, 2014 —  $0.1 million). It is expected that the decommissioning liabilities will come to maturity between April 2017 and April 2062.

24. INDEBTEDNESS

As at December 31,	2015			2014
Senior Secured Credit Facilities(a)
Revolving Credit Facility	$	—		$	—
Term Loan A		375,000			425,000
Term Loan B — U.S. Facility (December 31, 2015 – USD $1,697,742, December 31, 2014 – USD $1,715,199)		2,349,505			1,993,233
Term Loan B — Canadian Facility		136,150			137,550
6.0% Senior Notes (USD $900,000) (b)		1,245,510			1,045,890
		4,106,165			3,601,673
Less: deferred financing costs, interest rate floors, prepayment option and premiums (c)		(42,944	)		(55,994	)
		4,063,221			3,545,679
Less: current indebtedness		(87,386	)		(58,822	)
Long-term indebtedness	$	3,975,835		$	3,486,857

F-30

Telesat Holdings Inc.
 
Notes to the 2015 Consolidated Financial Statements
(all amounts in thousands of Canadian dollars, except where otherwise noted)

24. INDEBTEDNESS  – (continued)

On March 28, 2012, Telesat Canada entered into a Credit Agreement with a syndicate of banks which provides for the extension of credit under the Senior Secured Credit Facilities as described below. All obligations under the Credit Agreement are guaranteed by the Company and certain of Telesat Canada’s existing subsidiaries (“Guarantors”). The obligations under the Credit Agreement and the guarantees of those obligations are secured, subject to certain exceptions, by first priority liens and security interest in the assets of Telesat Canada and the Guarantors. The Credit Agreement contains covenants that restrict the ability of Telesat Canada 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 requires Telesat Canada to comply with a maximum senior secured leverage ratio. The Credit Agreement also contains customary events of default and affirmative covenants, including an excess cash sweep, that may require the Company to repay a portion of the outstanding principal under the Senior Secured Credit Facilities prior to the stated maturity.

On May 14, 2012, Telesat Canada issued, through a private placement, USD $700 million of 6.0% Senior Notes which mature on May 15, 2017. On October 29, 2012, an additional USD $200 million of 6.0% Senior Notes were issued through a private placement. The additional USD $200 million of Senior Notes were priced at 103.5% of the principal amount and held the same terms and conditions as those issued on May 14, 2012. The 6.0% Senior Notes are subordinated to Telesat Canada’s existing and future secured indebtedness, including obligations under its Senior Secured Credit Facilities, and are governed under the 6.0% Senior Notes Indenture.

On April 2, 2013, Telesat amended its Senior Secured Credit Facilities. The amendment to the Senior Secured Credit Facilities converted $34 million from Canadian to U.S. dollars and decreased the interest rate on the Term Loan B — Canadian Facility (“Canadian TLB Facility”) and the Term Loan B — U.S. Facility (“U.S. TLB Facility”) by 0.50%. The amendment also decreased the interest rate floors on the debt to 0.75% and 1.00% for the U.S. TLB Facility and the Canadian TLB Facility, respectively. While the debt incurrence test and maximum permitted debt test of the Consolidated Total Secured Debt to EBITDA (the “Senior Secured Leverage Ratio”) remained unchanged at 5.00:1.00 and 5.25:1.00, respectively, the permitted leverage ratio to incur first lien debt changed to 4.25:1.00 from the prior 4.00:1.00. Additional debt issue costs of $6.7 million and $0.5 million were incurred with the amendment of the U.S. TLB Facility and Canadian TLB Facility, respectively.

On May 1, 2013, Telesat redeemed all outstanding 12.5% Senior Subordinated Notes at a price equal to 106.25% of the principal amount from cash on-hand. The redemption premiums, along with the deferred financing costs which were capitalized in the carrying value, were expensed resulting in a net loss on financing of $18.5 million.

(a) The Senior Secured Credit Facilities are secured by substantially all of Telesat’s assets. The Credit Agreement requires Telesat Canada and the Guarantors to comply with a maximum senior secured leverage ratio. At December 31, 2015 and December 31, 2014, Telesat was in compliance with this covenant.

Each tranche of the Senior Secured Credit Facilities is subject to mandatory principal repayment requirements, which, in the initial years, are generally an annual amount representing one quarter of 1% of the initial aggregate principal amount, payable quarterly. The maturity of the Senior Secured Credit Facilities will be accelerated if Telesat Canada’s existing 6.0% Senior Notes due in 2017 or certain refinancing thereof are not repurchased, redeemed, refinanced or deferred before 91 days prior to the maturity date of such notes.

F-31

Telesat Holdings Inc.
 
Notes to the 2015 Consolidated Financial Statements
(all amounts in thousands of Canadian dollars, except where otherwise noted)

24. INDEBTEDNESS  – (continued)

The Senior Secured Credit Facilities have several tranches which are described below:

(i) A Revolving Credit Facility (“Revolving Facility”) of up to $140 million in Canadian or U.S. dollars is available to Telesat. This Revolving Facility matures on March 28, 2017 and is available to be drawn at any time. Loans under the Revolving Facility bear interest at a floating rate plus an applicable margin of 2.00% for prime rate and Alternative Base Rate loans and 3.00% for Bankers Acceptance (“BA”) and Eurodollar loans. The Revolving Facility has an unused commitment fee of 50 basis points. As of December 31, 2015, other than $0.1 million (December 31, 2014 — $0.2 million) in drawings related to letters of credit, there were no borrowings under this facility.

(ii) The Term Loan A Facility (“TLA Facility”) is a $500 million loan maturing on March 28, 2017. Loans under this facility bear interest at a floating rate of the BA plus an applicable margin of 3.00%. Mandatory principal repayments of $50.0 million were made in 2015. The weighted average effective interest rate was 4.36% (December 31, 2014 — 4.60%).

(iii) The U.S. TLB Facility is a USD $1,746 million loan maturing on March 28, 2019. The outstanding borrowings under the U.S. TLB Facility currently bear interest at a floating rate of LIBOR, but not less than 0.75%, plus an applicable margin of 2.75%. Mandatory principal repayments of $22.5 million were made in 2015. The weighted average effective interest rate was 4.26% (December 31, 2014 — 4.26%).

(iv) The Canadian TLB Facility is a $140 million loan maturing on March 28, 2019. The outstanding borrowings under the Canadian TLB Facility currently bear interest at a floating rate of the BA borrowing, but not less than 1.00%, plus an applicable margin of 3.25%. Mandatory principal repayments of $1.4 million were made in 2015. The weighted average effective interest rate was 5.18% (December 31, 2014 — 5.37%).

(b) The Senior Notes bear interest at an annual rate of 6.0% and are due May 15, 2017. The total balance of the Senior Notes is USD $900 million, with USD $700 million issued on May 14, 2012, and an additional USD $200 million issued on October 29, 2012. The Senior Notes include covenants or terms that restrict the Company’s ability to, among other things: (i) incur additional indebtedness, (ii) incur liens, (iii) pay dividends or make certain restricted payments, investments or acquisitions, (iv) enter into certain transactions with affiliates, (v) modify or cancel satellite insurance, (vi) effect mergers with another entity, and (vii) redeem the Senior Notes, without penalty, prior to May 15, 2016, in each case subject to exceptions provided for in the Senior Notes indenture. The weighted average effective interest rate was 5.99% (December 31, 2014 — 5.99%).

(c) The TLA Facility, U.S. TLB Facility, Canadian TLB Facility and Senior Notes are presented on the balance sheet net of related deferred financing costs of $25.0 million (December 31, 2014 —  $34.4 million). The indenture agreement for the Senior Notes contains provisions for certain prepayment options (Note 27) and premiums which were fair valued at the time of debt issuance.

The fair value of the prepayment option related to the 6.0% Senior Notes was allocated to indebtedness at their inception date. The aggregate impact of the prepayment option related to the 6.0% Senior Notes issued on May 14, 2012 and October 29, 2012 was a $5.6 million increase to the indebtedness. This liability is subsequently amortized using the effective interest method and had a carrying amount of $1.8 million at December 31, 2015 (December 31, 2014 — $3.0 million).

The initial fair value impact of the premiums on the 6.0% Senior Notes was an increase to indebtedness of $7.0 million. This liability is subsequently amortized using the effective interest method and had a carrying amount of $2.3 million at December 31, 2015 (December 31, 2014 — $3.9 million).

F-32

Telesat Holdings Inc.
 
Notes to the 2015 Consolidated Financial Statements
(all amounts in thousands of Canadian dollars, except where otherwise noted)

24. INDEBTEDNESS  – (continued)

The initial fair value impact, in March 2012, of the interest rate floors on the U.S. TLB Facility was a decrease to the indebtedness of $44.3 million. This asset is subsequently amortized using the effective interest method and had a carrying amount of $21.2 million at December 31, 2015 (December 31, 2014 — $27.3 million).

The initial fair value impact, in March 2012, of the interest rate floors on the Canadian TLB Facility was a decrease to the indebtedness of $1.7 million. This asset is subsequently amortized using the effective interest method and had a carrying amount of $0.9 million at December 31, 2015 (December 31, 2014 — $1.1 million).

The short-term and long-term portions of deferred financing costs, interest rate floors, prepayment option and premiums were as follows:

As at December 31,	2015			2014
Short-term deferred financing costs	$	9,609		$	9,355
Long-term deferred financing costs		15,370			25,093
	$	24,979		$	34,448
Short-term interest rate floors	$	6,479		$	6,256
Long-term interest rate floors		15,591			22,175
	$	22,070		$	28,431
Short-term prepayment option	$	(1,266	)	$	(1,191	)
Long-term prepayment option		(516	)		(1,797	)
	$	(1,782	)	$	(2,988	)
Short-term premiums	$	(1,649	)	$	(1,552	)
Long-term premiums		(674	)		(2,345	)
	$	(2,323	)	$	(3,897	)
Deferred financing costs, interest rate floors, prepayment option and premiums	$	42,944		$	55,994

The outstanding balance of indebtedness, excluding deferred financing costs, interest rate floors, prepayment option and premiums will be repaid as follows (in millions of Canadian dollars):

2016	2017		2018		2019		2020 and thereafter		Total
$100.6	$	1,571.1	$	25.6	$	2,408.9	$	—	$	4,106.2

F-33

Telesat Holdings Inc.
 
Notes to the 2015 Consolidated Financial Statements
(all amounts in thousands of Canadian dollars, except where otherwise noted)

25. SHARE CAPITAL

The number of shares and stated value of the outstanding shares at December 31, 2015 and 2014 were as follows:

	Number of shares		Stated value
Common Shares		74,252,460	$	340,602
Voting Participating Preferred Shares		7,034,444		77,995
Non-Voting Participating Preferred Shares		38,255,423		238,267
Director Voting Preferred Shares		1,000		10
Share capital			$	656,874

In January 2013, January 2014, November 2014 and November 2015, dividends were declared and paid on the Director Voting Preferred Shares.

In 2013, 83,204 share appreciation rights (“SARs”) were exercised in relation to the stock options granted under the Company’s stock incentive plan for 24,638 Non-Voting Participating Preferred Shares with a stated value of $0.2 million.

In 2013, 8,948 stock options granted under the Company’s stock incentive plan were exercised for 8,948 Non-Voting Participating Preferred Shares in exchange for $0.1 million.

In 2014, 18,266 stock options granted under the Company’s stock incentive plan were exercised for 18,266 Non-Voting Participating Preferred Shares in exchange for $0.2 million.

There were no changes to the rights, privileges or conditions associated to each class of shares.

There were no changes in the number of shares issued in any class of shares in 2014 or 2015.

The authorized share capital of the Company is comprised of: (i) an unlimited number of Common Shares, Voting Participating Preferred Shares, Non-Voting Participating Preferred Shares, Redeemable Common Shares, and Redeemable Non-Voting Participating Preferred Shares, (ii) 1,000 Director Voting Preferred Shares, and (iii) 325,000 Senior Preferred Shares. None of the Redeemable Common Shares, Redeemable Non-Voting Participating Preferred Shares or Senior Preferred Shares have been issued as at December 31, 2015. The Company’s share-based compensation plans have authorized the grant of up to 12,923,779 options to purchase Non-Voting Participating Preferred Shares (Note 28).

Common Shares

The holders of the Common Shares are entitled to receive notice of and to attend all annual and special meetings of the shareholders of the Company and to one vote in respect of each common share held on all matters at all such meetings, except in respect of a class vote applicable only to the shares of any other class, in respect of which the common shareholders shall have no right to vote. The holders of the Common Shares are entitled to receive dividends as may be declared by the Board of Directors of the Company, and are entitled to share in the distribution of the assets of the Company upon liquidation, winding-up or dissolution, subject to the rights, privileges and conditions attaching to any other class of shares ranking in order of priority. The Common Shares are convertible at the holders’ option, at any time, into Voting Participating Preferred Shares or Non-Voting Participating Preferred Shares, on a one-for-one basis. The Common Shares have no par value.

F-34

Telesat Holdings Inc.
 
Notes to the 2015 Consolidated Financial Statements
(all amounts in thousands of Canadian dollars, except where otherwise noted)

25. SHARE CAPITAL  – (continued)

Voting Participating Preferred Shares

The rights, privileges and conditions of the Voting Participating Preferred Shares are identical in all respects to those of the Common Shares, except for the following:

• The holders of Voting Participating Preferred Shares are not entitled to vote at meetings of the shareholders of the Company on resolutions electing directors.

• For all other meetings of the shareholders of the Company, the holders of Voting Participating Preferred Shares are entitled to a variable number of votes per Voting Participating Preferred Share based on the number of Voting Participating Preferred Shares, Non-Voting Participating Preferred Shares and Redeemable Non-Voting Participating Preferred Shares outstanding on the record date of the given meeting of the shareholders of the Company.

• The Voting Participating Preferred Shares are convertible, at any time, at the holders’ option into Common Shares or Non-Voting Participating Preferred Shares on a one-for-one basis as long as the result of such conversion does not cause the Company to cease to be a “qualified corporation” within the meaning of the Canadian Telecommunication Common Carrier Ownership and Control Regulations pursuant to the Telecommunications Act (Canada).

The Voting Participating Preferred Shares have no par value.

Non-Voting Participating Preferred Shares

The rights, privileges and conditions of the Non-Voting Participating Preferred Shares are identical in all respects to those of the Common Shares, except for the following:

• The holders of Non-Voting Participating Preferred Shares are not entitled to vote on any matter at meetings of the shareholders of the Company, except in respect of a class vote applicable only to the Non-Voting Participating Preferred Shares.

• The Non-Voting Participating Preferred Shares are convertible, at any time, at the holders’ option into Common Shares or Voting Participating Preferred Shares on a one-for-one basis as long as the result of such conversion does not cause the Company to cease to be a “qualified corporation” within the meaning of the Canadian Telecommunication Common Carrier Ownership and Control Regulations pursuant to the Telecommunications Act (Canada).

The Non-Voting Participating Preferred Shares have no par value.

Director Voting Preferred Shares

The rights, privileges and conditions of the Director Voting Preferred Shares are identical in all respects to those of the Common Shares, except for the following:

• The holders of Director Voting Preferred Shares are entitled to receive notice of and to attend all meetings of the shareholders of the Company at which directors of the Company are to be elected. The holders of the Director Voting Preferred Shares are not entitled to attend meetings of the shareholders of the Company and have no right to vote on any matter other than the election of directors of the Company.

• The holders of Director Voting Preferred Shares are entitled to receive annual non-cumulative dividends of $10 per share if declared by the Board of Directors of the Company, in priority to the payment of dividends on the Common Shares, Voting Participating Preferred Shares, Non-Voting Participating Preferred Shares, Redeemable Common Shares, and Redeemable Non-Voting Participating Preferred Shares, but after payment of any accrued dividends on the Senior Preferred Shares.

F-35

Telesat Holdings Inc.
 
Notes to the 2015 Consolidated Financial Statements
(all amounts in thousands of Canadian dollars, except where otherwise noted)

25. SHARE CAPITAL  – (continued)

• In the event of liquidation, wind-up or dissolution, the holders of Director Voting Preferred Shares are entitled to receive $10 per share in priority to the payment of dividends on the Common Shares, Voting Participating Preferred Shares, Non-Voting Participating Preferred Shares, Redeemable Common Shares, and Redeemable Non-Voting Participating Preferred Shares, but after payment of any accrued dividends on the Senior Preferred Shares.

• The Director Voting Preferred Shares are redeemable at the option of the Company, at any time, at a redemption price of $10 per share.

The Director Voting Preferred Shares have a nominal stated value.

26. CAPITAL DISCLOSURES

Telesat is a privately held company. The Company’s financial strategy is designed to maintain compliance with the financial covenant under its Senior Secured Credit Facilities (Note 24), and to maximize returns to its shareholders and other stakeholders. The Company meets these objectives through regular monitoring of the financial covenant and operating results on a quarterly basis. The Company’s overall financial strategy remains unchanged from 2014.

The Company defines its capital as shareholders’ equity (comprising issued share capital, accumulated earnings and excluding reserves) and debt financing (comprising indebtedness and excluding deferred financing costs, prepayment option, interest rate floors and premiums as detailed in Note 24).

The Company’s capital at the end of the year was as follows:

As at December 31,	2015		2014
Shareholders’ equity (excluding reserves)	$	845,353	$	1,108,502
Debt financing (excluding deferred financing costs, prepayment option, interest rate floors and premiums)	$	4,106,165	$	3,601,673

The Senior Secured Credit Facilities are secured by substantially all of the Company’s assets, excluding the assets of non-restricted subsidiaries. Under the terms of the Senior Secured Credit Facilities, Telesat Canada and the Guarantors are required to comply with a senior secured leverage ratio covenant. The covenant is based on the Senior Secured Leverage Ratio. At December 31, 2015, the Senior Secured Leverage Ratio was 3.70:1.00 (December 31, 2014 — 3.40:1.00), which was less than the maximum test ratio of 5.25:1.00.

The Company’s operating results are tracked against budget on a monthly basis, and this analysis is reviewed by senior management. The Company partly manages its interest rate risk due to variable interest rate debt through the use of interest rate swaps (Note 27).

27. FINANCIAL INSTRUMENTS

Measurement of Risks

The Company, through its financial assets and liabilities, is exposed to various risks. The following analysis provides a measurement of risks as at December 31, 2015.

Credit risk

Credit risk is the risk that a counterparty to a financial asset will default, resulting in the Company incurring a financial loss. At December 31, 2015, the maximum exposure to credit risk is equal to the carrying value of the financial assets totaling $783.1 million (December 31, 2014 — $586.1 million).

F-36

Telesat Holdings Inc.
 
Notes to the 2015 Consolidated Financial Statements
(all amounts in thousands of Canadian dollars, except where otherwise noted)

27. FINANCIAL INSTRUMENTS  – (continued)

Cash and cash equivalents are invested with high quality investment grade financial institutions and are governed by the Company’s corporate investment policy, which aims to reduce credit risk by restricting investments to high-grade, mainly U.S. dollar and Canadian dollar denominated investments.

The Company has entered into various cross-currency basis swaps, forward foreign exchange contracts and interest rate swaps. The Company mitigates the credit risk associated with these swaps by entering into them with only high quality financial institutions.

The cross-currency basis swaps, forward foreign exchange contract, and three of the interest rate swaps were settled on October 31, 2014 with an additional interest rate swap settled on June 30, 2015.

The Company has credit evaluation, approval and monitoring processes intended to mitigate potential credit risks. The Company’s standard payment terms are 30 days. Interest at a rate of 1.5% per month, compounded monthly, is typically charged on balances remaining unpaid at the end of the standard payment terms. The Company’s historical experience with customer defaults has been minimal. As a result, the Company considers the credit quality of its North American customers to be high, however due to the additional complexities of collecting from its International customers, the Company considers the credit quality of its International customers to be lower than its North American customers. At December 31, 2015, North American and International customers made up 47% and 53% of the outstanding trade receivable balance, respectively (December 31, 2014 — 48% and 52%, respectively). Anticipated bad debt losses have been provided for in the allowance for doubtful accounts. The allowance for doubtful accounts at December 31, 2015 was $3.8 million (December 31, 2014 — $4.0 million).

Foreign exchange risk

The Company’s operating results are subject to fluctuations as a result of exchange rate variations to the extent that transactions are made in currencies other than Canadian dollars. The Company’s main currency exposures lie in its U.S. dollar denominated cash and cash equivalents, trade and other receivables, trade and other payables and indebtedness with the most significant impact being on the U.S. dollar denominated debt financing. At December 31, 2015, $3,595.0 million of the $4,106.2 million total debt financing (December 31, 2014 — $3,039.1 million of the $3,601.7 million) was the Canadian dollar equivalent of the U.S. dollar denominated debt (before netting of deferred financing costs, premiums, interest rate floors and prepayment option).

In 2007, the Company entered into cross-currency basis swaps to economically hedge the foreign currency risk on a portion of its U.S. dollar denominated debt. These cross-currency basis swaps matured on October 31, 2014.

On September 22, 2014, the Company entered into a forward foreign exchange contract which required the Company to pay $1,036.7 million U.S. dollars to receive $1,141.6 million Canadian dollars. This forward foreign exchange contract was used to fix the exchange rate on the cross currency basis swaps on their maturity date. In 2014, a net loss of $17.8 million was recorded in gain on changes in fair value of financial instruments relating to the initial recognition and subsequent settlement of the forward foreign exchange contract.

As at December 31, 2015, the impact of a 5 percent increase (decrease) in the value of the Canadian dollar against the U.S. dollar on financial assets and liabilities would have decreased (increased) net loss by $159.8 million (December 31, 2014 — $139.2 million) and decreased (increased) other comprehensive (loss) income by $4.0 million (December 31, 2014 — $2.9 million). This analysis assumes that all other variables, in particular interest rates, remain constant.

F-37

Telesat Holdings Inc.
 
Notes to the 2015 Consolidated Financial Statements
(all amounts in thousands of Canadian dollars, except where otherwise noted)

27. FINANCIAL INSTRUMENTS  – (continued)

Interest rate risk

The Company is exposed to interest rate risk on its cash and cash equivalents and its long-term debt. The interest rate risk on the long-term debt is from a portion of the debt having a variable interest rate. Changes in the interest rates could impact the amount of interest that the Company is required to pay or receive. The Company has entered into interest rate swaps to hedge the interest rate risk associated with the variable interest rates on a portion of the long-term debt. As at December 31, 2015, the Company had one interest rate swap to fix interest on $250.0 million of debt at a fixed rate, excluding applicable margin, of 1.62% and one interest rate swap to fix interest on $300.0 million of U.S. denominated debt at a fixed interest rate, excluding applicable margin, of 1.46% (December 31, 2014 — two interest rate swaps to fix interest on $550.0 million of debt at a weighted average fixed rate, excluding applicable margin, of 1.53% and one interest rate swap to fix interest on $300.0 million of U.S. denominated debt at a fixed rate, excluding applicable margin, of 1.46%). These contracts mature between June 30, 2016 and September 30, 2016. As at December 31, 2015, the fair value of these derivative contracts was a liability of $2.3 million (December 31, 2014 — liability of $2.7 million).

If the interest rates on the unhedged variable rate debt change by 0.25%, excluding the potential impact of interest rate floors, the result would be an increase or decrease to net (loss) income of $4.8 million for the year ended December 31, 2015 (December 31, 2014 — $2.4 million).

Liquidity risk

The Company maintains credit facilities to ensure it has sufficient funds available to meet current and foreseeable financial requirements.

The following were the contractual maturities of financial liabilities as at December 31, 2015:

	Carrying amount		Contractual cash flows (undiscounted)		2016		2017		2018		2019		2020		Thereafter
Trade and other payables	$	44,166	$	44,166	$	44,166	$	—	$	—	$	—	$	—	$	—
Security deposits		3,431		3,431		2,886		87		197		19		—		242
Deferred satellites performance incentive payments		88,243		120,514		14,867		14,076		14,614		14,007		11,667		51,283
Other financial liabilities		18,017		18,537		5,228		11,894		568		484		363		—
Long-term indebtedness		4,115,714		4,514,016		277,021		1,696,298		112,461		2,428,236		—		—
Interest rate swaps		2,335		2,384		2,384		—		—		—		—		—
	$	4,271,906	$	4,703,048	$	346,552	$	1,722,355	$	127,840	$	2,442,746	$	12,030	$	51,525

The carrying value of the deferred satellites performance incentive payments and other financial liabilities included $1.2 million and $0.3 million of interest payable, respectively. In addition, the carrying value of the indebtedness included $9.5 million of interest payable.

The contractual cash flows of the deferred satellites performance incentive payments and other financial liabilities included $31.4 million and $0.8 million of interest payments, respectively. In addition, the contractual cash flows of the indebtedness included $407.9 million of interest payments.

F-38

Telesat Holdings Inc.
 
Notes to the 2015 Consolidated Financial Statements
(all amounts in thousands of Canadian dollars, except where otherwise noted)

27. FINANCIAL INSTRUMENTS  – (continued)

Financial assets and liabilities recorded on the balance sheet and the fair value hierarchy levels used to calculate those values were as follows:

As at December 31, 2015	Loans and receivables		FVTPL			Other financial liabilities			Total			Fair value			Fair value hierarchy
Cash and cash equivalents	$	690,726	$	—		$	—		$	690,726		$	690,726			Level 1
Trade and other receivables		50,781		—			—			50,781			50,781			(3)
Other current financial assets		1,186		—			—			1,186			1,186			Level 1
Other long-term financial assets(1)		20,127		20,235			—			40,362			40,362			Level 1, Level 2
Trade and other payables		—		—			(44,166	)		(44,166	)		(44,166	)		(3)
Other current financial liabilities		—		(6,510	)		(29,915	)		(36,425	)		(40,718	)		Level 2
Other long-term financial liabilities		—		(4,903	)		(89,287	)		(94,190	)		(99,562	)		Level 2
Indebtedness(2)		—		—			(4,106,165	)		(4,106,165	)		(4,069,522	)		Level 2
	$	762,820	$	8,822		$	(4,269,533	)	$	(3,497,891	)	$	(3,470,913	)

As at December 31, 2014	Loans and receivables		FVTPL			Other financial liabilities			Total			Fair value			Fair value hierarchy
Cash and cash equivalents	$	497,356	$	—		$	—		$	497,356		$	497,356			Level 1
Trade and other receivables		49,534		—			—			49,534			49,534			(3)
Other current financial assets		765		—			—			765			765			Level 1
Other long-term financial assets(1)		15,814		22,628			—			38,442			38,442			Level 1, Level 2
Trade and other payables		—		—	��		(36,714	)		(36,714	)		(36,714	)		(3)
Other current financial liabilities		—		(11,533	)		(24,100	)		(35,633	)		(37,675	)		Level 2
Other long-term financial liabilities		—		(7,883	)		(52,870	)		(60,753	)		(64,126	)		Level 2
Indebtedness(2)		—		—			(3,601,673	)		(3,601,673	)		(3,590,132	)		Level 2
	$	563,469	$	3,212		$	(3,715,357	)	$	(3,148,676	)	$	(3,142,550	)

(1) The other long-term financial assets classified as fair value through profit or loss were calculated using level 2 of the fair value hierarchy. All other balances were calculated using level 1 of the fair value hierarchy.

(2) Excludes deferred financing costs, interest rate floors, prepayment option and premiums.

(3) Trade and other receivables and trade and other payables approximate fair value due to the short-term maturity of these instruments.

Assets pledged as security

The Senior Secured Credit Facilities are secured by substantially all of Telesat’s assets excluding the assets of non-restricted subsidiaries.

Fair Value

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants in the principal market under current market conditions at the measurement date. Where possible, fair values are based on the quoted market values in an active market. In the absence of an active market, the Company determines fair values based on prevailing market rates (bid and ask prices, as appropriate) for instruments with similar characteristics and risk profiles or internal or external valuation models, such as option pricing models and discounted cash flow analysis, using observable market-based inputs.

F-39

Telesat Holdings Inc.
 
Notes to the 2015 Consolidated Financial Statements
(all amounts in thousands of Canadian dollars, except where otherwise noted)

27. FINANCIAL INSTRUMENTS  – (continued)

The fair value hierarchy is as follows:

Level 1 based on quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company can access at the measurement date.

Level 2 based on observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially all of the full term of the assets or liabilities.

Level 3 based on unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation.

Estimates of fair values are affected significantly by the assumptions for the amount and timing of estimated future cash flows and discount rates, which all reflect varying degrees of risk. Potential income taxes and other expenses that would be incurred on disposition of these financial instruments are not reflected in the fair values. As a result, the fair values are not necessarily the net amounts that would be realized if these instruments were actually settled.

The carrying amounts of cash and cash equivalents, trade and other receivables, and trade and other payables approximate fair value due to the short-term maturity of these instruments. Included in cash and cash equivalents are $214.0 million (December 31, 2014 — $334.4 million) of short-term investments.

The fair value of the deferred satellites performance incentive payments, included in other current and other long-term financial liabilities, was determined using a discounted cash flow methodology. These calculations are performed on a recurring basis. At December 31, 2015, the discount rate used was 4.6% (December 31, 2014 — 4.7%).

The fair value of the indebtedness was based on transactions and quotations from third parties considering market interest rates and excluding deferred financing costs, interest rate floors, prepayment option and premiums. The calculation of the fair value of the indebtedness is performed on a recurring basis. The rates used were as follows:

As at December 31,	2015			2014
Canadian Term Loan A Facility		99.00	%		99.50	%
Canadian Term Loan B Facility		98.63	%		96.75	%
U.S. Term Loan B Facility		98.25	%		98.44	%
6.0% Senior Notes		100.81	%		102.50	%

Fair value of derivative financial instruments

Apart from the forward foreign exchange contract, derivatives were valued using a discounted cash flow methodology. The calculations of the fair value of the derivatives are performed on a recurring basis.

Interest and cross-currency basis swaps future cash flows were determined based on current yield curves and exchange rates and then discounted based on discount curves obtained from Bloomberg. The cross-currency basis swaps matured on October 31, 2014.

Prepayment option cash flows were calculated with a Bloomberg option valuation model which is based on the current price of the debt instrument and discounted based on a discount curve obtained from Bloomberg.

F-40

Telesat Holdings Inc.
 
Notes to the 2015 Consolidated Financial Statements
(all amounts in thousands of Canadian dollars, except where otherwise noted)

27. FINANCIAL INSTRUMENTS  – (continued)

Interest rate floor cash flows were calculated using the Black Scholes option valuation model in Bloomberg and discounted based on discount curves obtained from Bloomberg.

The fair value of the forward foreign exchange contract was calculated using the forward foreign exchange rate for the same transaction at the valuation date. The forward foreign exchange contract matured on October 31, 2014.

The discount rates used to discount U.S. dollar cash flows ranged from 0.43% to 1.46% (December 31, 2014 — 0.17% to 1.62%). The discount rates used to discount Canadian dollar cash flows ranged from 0.79% to 0.97% (December 31, 2014 — 1.30% to 1.70%).

The current and long-term portion of the fair value of the Company’s derivative assets and liabilities, at each balance sheet date, and the fair value hierarchy levels used to calculate those fair values were as follows:

As at December 31, 2015	Other long-term financial assets		Other current financial liabilities			Other long-term financial liabilities			Total			Fair value hierarchy
Interest rate swaps	$	—	$	(2,335	)	$	—		$	(2,335	)		Level 2
Interest rate floors		—		(4,175	)		(4,903	)		(9,078	)		Level 2
Prepayment option		20,235		—			—			20,235			Level 2
	$	20,235	$	(6,510	)	$	(4,903	)	$	8,822

As at December 31, 2014	��	Other long-term financial assets		Other current financial liabilities			Other long-term financial liabilities			Total			Fair value hierarchy
Interest rate swaps		$	—	$	(2,434	)	$	(298	)	$	(2,732	)		Level 2
Interest rate floors			—		(9,099	)		(7,585	)		(16,684	)		Level 2
Prepayment option			22,628		—			—			22,628			Level 2
		$	22,628	$	(11,533	)	$	(7,883	)	$	3,212

F-41

Telesat Holdings Inc.
 
Notes to the 2015 Consolidated Financial Statements
(all amounts in thousands of Canadian dollars, except where otherwise noted)

27. FINANCIAL INSTRUMENTS  – (continued)

The reconciliation of the fair value of derivative assets and liabilities are as follows:

Fair value, December 31, 2013 and January 1, 2014	$	(102,724	)
Unrealized gains (losses) on derivatives
Interest rate floors		8,090
Prepayment options		(32,725	)
Interest rate swaps		19,749
Realized (losses) gains on derivatives
Forward foreign exchange contract		(17,817	)
Cross-currency basis swaps		71,634
Net cash paid on settlement
Forward foreign exchange contract		19,297
Cross-currency basis swaps		41,527
Impact of foreign exchange		(3,819	)
Fair value, December 31, 2014 and January 1, 2015	$	3,212
Unrealized gains (losses) on derivatives
Interest rate floors		10,233
Prepayment options		(5,261	)
Interest rate swaps		1,063
Impact of foreign exchange		(425	)
Fair value, December 31, 2015	$	8,822

F-42

Telesat Holdings Inc.
 
Notes to the 2015 Consolidated Financial Statements
(all amounts in thousands of Canadian dollars, except where otherwise noted)

28. SHARE-BASED COMPENSATION PLANS

Telesat Holdings Stock Incentive Plans

In September 2008 and April 2013, Telesat adopted share-based compensation plans (the “stock incentive plans”) for certain key employees of the Company and its subsidiaries. The stock incentive plans provide for the grant of up to 12,923,779 options, 8,824,646 authorized in 2008, 4,036,729 authorized in 2013, and an additional 62,404 authorized in 2015, to purchase Non-Voting Participating Preferred Shares of Telesat Holdings Inc., convertible into Common Shares.

Under the stock incentive plans, two different types of stock options can be granted: time-vesting options and performance-vesting options. The time-vesting options generally become vested and exercisable over a five-year period by 20% annual increments. The performance-vesting options become vested and exercisable over a five-year period, provided that the Company has achieved or exceeded an annual or cumulative target consolidated EBITDA established by the Board of Directors. The exercise period of the stock options expire 10 years from the grant date. The exercise price of each share underlying the options will be the higher of a fixed price, established by the Board of Directors on the grant date, and the fair market value of a Non-Voting Participating Preferred Share on the grant date. Both plans authorize the Board of Directors to grant tandem SARs, at their discretion.

The Company expenses the fair value of stock options that are expected to vest over the vesting period using the Black-Scholes option pricing model. The share-based compensation expense is included in operating expenses.

In January 2016, the Board approved the purchase for cancellation of up to 25% of the currently outstanding stock options. The cash consideration for this purchase will be paid in the first half of 2016 and is expected to be approximately $25 million.

The stock options granted in the current and prior years, and their weighted average fair value were as follows:

	2015		2014		2013
Number of stock options granted		418,606		150,000		3,999,399
Weighted average fair value of options granted	$	14.80	$	12.05	$	8.93

F-43

Telesat Holdings Inc.
 
Notes to the 2015 Consolidated Financial Statements
(all amounts in thousands of Canadian dollars, except where otherwise noted)

28. SHARE-BASED COMPENSATION PLANS  – (continued)

The movement in the number of stock options outstanding and their weighted average exercise price were as follows:

	Time vesting option plans					Performance vesting option plans
	Number of options			Weighted- average exercise price		Number of options			Weighted- average exercise price
Outstanding at December 31, 2013 and January 1, 2014		3,664,455		$	21.72		1,853,623		$	18.40
Granted		67,500					82,500
Forfeited		(100,884	)				(136,539	)
Exercised (Note 25)		(8,256	)				(10,010	)
Expired		—					—
Outstanding at December 31, 2014 and January 1, 2015		3,622,815		$	21.95		1,789,574		$	18.94
Granted		380,106					38,500
Forfeited		(239,250	)				(2,750	)
Exercised		—					—
Expired		—					—
Outstanding at December 31, 2015		3,763,671		$	23.65		1,825,324		$	19.38

The amounts of stock options exercisable and the weighted average remaining life were as follows:

As at December 31,	2015		2014
Time vesting option plans		2,265,694		1,757,250
Performance vesting option plans		1,079,145		920,134
Weighted-average remaining life		6 years		7 years

The share-based compensation expense included in the consolidated statements of income was as follows:

Year ended December 31,	2015		2014		2013
Operating expenses	$	5,369	$	9,655	$	13,517

The weighted-average assumptions used to determine the share-based compensation expense for stock options using the Black-Scholes option pricing model were as follows:

	2015			2014			2013
Dividend yield		—	%		—	%		—	%
Expected volatility		24.6	%		24.8	%		25.0	%
Risk-free interest rate		1.81	%		1.76	%		1.74	%
Expected life (years)		10			10			10

The expected volatility is based on the historical volatility.

F-44

Telesat Holdings Inc.
 
Notes to the 2015 Consolidated Financial Statements
(all amounts in thousands of Canadian dollars, except where otherwise noted)

29. EMPLOYEE BENEFIT PLANS

The expenses included on the consolidated statements of (loss) income and the consolidated statements of comprehensive (loss) income were as follows:

	Pension plans								Other post-employment benefit plans
Year ended December 31,	2015			2014		2013			2015			2014		2013
Consolidated statements of (loss) income
Operating expenses	$	7,659		$	5,426	$	6,104		$	494		$	362	$	372
Interest expense	$	933		$	294	$	1,603		$	1,043		$	1,050	$	1,467
Other operating (losses) gains, net	$	—		$	—	$	—		$	—		$	—	$	9,786
Consolidated statements of comprehensive (loss) income
Actuarial (gains) losses on employee benefit plans	$	(1,140	)	$	20,070	$	(24,942	)	$	(4,085	)	$	3,276	$	3,712

In October 2013, the Company ceased allowing new employees to join certain of the defined benefit plans, except under certain circumstances, and commenced a defined contribution pension plan for new employees. The Company made contributions of $0.9 million for various defined contribution arrangements during 2015 (December 31, 2014 — $0.7 million).

The Company’s funding policy is to make contributions to its defined benefit pension funds based on actuarial cost methods as permitted by pension regulatory bodies. Contributions reflect actuarial assumptions concerning future investment returns, salary projections and future service benefits. Plan assets are represented primarily by Canadian and foreign equity securities, fixed income instruments and short-term investments.

The Company provides certain health care and life insurance benefits for some of its retired employees and their dependents. Participants are eligible for these benefits generally when they retire from active service and meet the eligibility requirements for the pension plan. These benefits are funded primarily on a pay-as-you-go basis, with the retiree generally paying a portion of the cost through contributions, deductibles and coinsurance provisions.

In January 2013, the Company changed its funding strategy for other post-employment benefits provided to certain retired employees. As a result of this change, the Company recognized a $5.2 million loss in actuarial (gains) losses on the employee benefit plans in the statement of comprehensive (loss) income.

In 2013, there was a change in how certain retired employees would have their health care benefits coordinated with Medicare. As a result of this change, the Company recognized a $2.4 million loss in operating (losses) gains, net in the statement of (loss) income.

In 2013, the Company also announced that effective January 2015 it would cease paying health care and life insurance benefits to certain retired employees and would commence paying an amount into a health reimbursement account for the affected retired employees. As a result of this change in benefits, the Company recognized a $12.2 million gain in other operating (losses) gains, net in the statement of (loss) income.

The balance sheet obligations, which were included on the balance sheets in other long-term liabilities (note 23), were distributed between pension and other post-employment benefits as follows:

As at December 31,	2015		2014
Pension benefits	$	19,901	$	21,531
Other post-employment benefits		22,861		25,248
	$	42,762	$	46,779

F-45

Telesat Holdings Inc.
 
Notes to the 2015 Consolidated Financial Statements
(all amounts in thousands of Canadian dollars, except where otherwise noted)

29. EMPLOYEE BENEFIT PLANS  – (continued)

The amounts recognized in the balance sheets and the funded statuses of the benefit plans were as follows:

	2015					2014
As at December 31,	Pension			Other		Pension			Other
Present value of funded obligations	$	268,058		$	—	$	259,195		$	—
Fair value of plan assets		(249,335	)		—		(238,911	)		—
	$	18,723		$	—	$	20,284		$	—
Present value of unfunded obligations		1,178			22,861		1,247			25,248
Accrued benefit liability	$	19,901		$	22,861	$	21,531		$	25,248

The changes in the benefit obligations and in the fair value of plan assets were as follows:

December 31, 2015	Pension			Other			Total
Change in benefit obligations
Benefit obligation, January 1, 2015	$	260,442		$	25,248		$	285,690
Current service cost		5,917			494			6,411
Interest expense		10,533			1,043			11,576
Remeasurements
Actuarial gains arising from plan experience		(2,983	)		(2,243	)		(5,226	)
Actuarial gains from change in demographic assumptions		—			(154	)		(154	)
Actuarial losses (gains) from changes in financial assumptions		1,223			(1,688	)		(465	)
Benefits paid		(8,761	)		(685	)		(9,446	)
Contributions by plan participants		1,305			8			1,313
Adjustment to obligation for past service cost credit		1,560			—			1,560
Other		—			838			838
Benefit obligation, December 31, 2015	$	269,236		$	22,861		$	292,097
Change in fair value of plan assets
Fair value of plan assets, January 1, 2015	$	(238,911	)	$	—		$	(238,911	)
Contributions by plan participants		(1,305	)		(8	)		(1,313	)
Contributions by employer		(9,082	)		(677	)		(9,759	)
Interest income		(9,600	)		—			(9,600	)
Benefits paid		8,761			685			9,446
Remeasurements
Return on plan assets, excluding interest income		620			—			620
Administrative costs		386			—			386
Adjustment to fair value of assets due to past service cost credit		(204	)		—			(204	)
Fair value of plan assets, December 31, 2015	$	(249,335	)	$	—		$	(249,335	)
Accrued benefit liability, December 31, 2015	$	19,901		$	22,861		$	42,762

F-46

Telesat Holdings Inc.
 
Notes to the 2015 Consolidated Financial Statements
(all amounts in thousands of Canadian dollars, except where otherwise noted)

29. EMPLOYEE BENEFIT PLANS  – (continued)

December 31, 2014	Pension			Other			Total
Change in benefit obligations
Benefit obligation, January 1, 2014	$	218,372		$	21,626		$	239,998
Current service cost		5,095			362			5,457
Interest expense		11,042			1,050			12,092
Remeasurements
Actuarial (gains) losses arising from plan experience		(1,166	)		186			(980	)
Actuarial (gains) losses from change in demographic assumptions		(2,242	)		67			(2,175	)
Actuarial losses from changes in financial assumptions		36,348			3,023			39,371
Benefits paid		(8,379	)		(988	)		(9,367	)
Contributions by plan participants		1,367			76			1,443
Other		5			(154	)		(149	)
Benefit obligation, December 31, 2014	$	260,442		$	25,248		$	285,690
Change in fair value of plan assets
Fair value of plan assets, January 1, 2014	$	(212,623	)	$	—		$	(212,623	)
Contributions by plan participants		(1,367	)		(76	)		(1,443	)
Contributions by employer		(10,013	)		(912	)		(10,925	)
Interest income		(10,748	)		—			(10,748	)
Benefits paid		8,379			988			9,367
Remeasurements
Return on plan assets, excluding interest income		(12,870	)		—			(12,870	)
Administrative costs		331			—			331
Fair value of plan assets, December 31, 2014	$	(238,911	)	$	—		$	(238,911	)
Accrued benefit liability, December 31, 2014	$	21,531		$	25,248		$	46,779

The weighted average duration of the defined benefit obligation as at December 31, 2015 is 16 years for the defined benefit pension plans and 14 years for the other post-employment benefit plans. The weighted average duration of the current service cost as at December 31, 2015 is 27 years for the defined benefit pension plans and 25 years for the other post-employment benefit plans.

The estimated future benefit payments for the defined benefit pension plans and other post-employment benefit plans until 2025 are as follows:

	Pension		Other
2016	$	9,185	$	923
2017	$	9,696	$	952
2018	$	10,369	$	984
2019	$	11,152	$	1,020
2020	$	11,695	$	1,058
2021 to 2025	$	70,595	$	6,740

Benefit payments include obligations to 2025 only as obligations beyond this date are not quantifiable.

F-47

Telesat Holdings Inc.
 
Notes to the 2015 Consolidated Financial Statements
(all amounts in thousands of Canadian dollars, except where otherwise noted)

29. EMPLOYEE BENEFIT PLANS  – (continued)

The fair value of the plan assets are allocated as follows between the various types of investments:

As at December 31,	2015			2014
Equity securities
Canada		21.5	%		21.1	%
United States		14.6	%		15.0	%
International (other than United States)		19.6	%		18.5	%
Fixed income instruments
Canada		41.7	%		42.8	%
Cash and cash equivalents
Canada		2.6	%		2.6	%

Plan assets are valued at the measurement date of December 31 each year.

The investments are made in accordance with the Statement of Investment Policies and Procedures. The Statement of Investment Policies and Procedures is reviewed on an annual basis by the Management Level Pension Fund Investment Committee with approval of the policy being provided by the Audit Committee.

The following are the significant assumptions adopted in measuring the Company’s pension and other benefit obligations:

	Pension			Other			Pension			Other
As at December 31,	2015			2015			2014			2014
Actuarial benefit obligation
Discount rate		4.00	%		4.00	%		5.00	%		3.75% to 5.00	%
Benefit costs for the year ended
Discount rate		4.00	%		3.75% to 4.00	%		5.00	%		4.50% to 5.00	%
Future salary growth		2.50	%		N/A			3.00	%		N/A
Health care cost trend rate		N/A			4.50	%		N/A			4.50	%
Other medical trend rates		N/A			4.50	%		N/A			4.50	%

For certain Canadian post-retirement benefits, the medical trend rate for drugs was assumed to be 7.0% in 2016, decreasing by 0.25% per annum, to a rate of 4.5% in 2026 and thereafter.

F-48

Telesat Holdings Inc.
 
Notes to the 2015 Consolidated Financial Statements
(all amounts in thousands of Canadian dollars, except where otherwise noted)

29. EMPLOYEE BENEFIT PLANS  – (continued)

Sensitivity of assumptions

The calculation of the defined benefit obligation is sensitive to the assumptions set out above. The following table summarizes how the impact on the defined benefit obligation as at December 31, 2015 and 2014 would have increased or decreased as a result of the change in the respective assumptions by one percent.

	Pension						Other
As at December 31, 2015	1% increase			1% decrease			1% increase			1% decrease
Discount rate	$	(37,222	)	$	46,173		$	(2,714	)	$	3,370
Future salary growth	$	7,865		$	(7,951	)		N/A			N/A
Medical and dental trend rates		N/A			N/A		$	1,658		$	(1,364	)

	Pension						Other
As at December 31, 2014	1% increase			1% decrease			1% increase			1% decrease
Discount rate	$	(35,949	)	$	46,355		$	(3,134	)	$	3,922
Future salary growth	$	8,892		$	(7,948	)		N/A			N/A
Medical and dental trend rates		N/A			N/A		$	2,352		$	(1,898	)

The above sensitivities are hypothetical and should be used with caution. Changes in amounts based on a one percent variation in assumptions generally cannot be extrapolated because the relationship of the change in assumption to the change in amounts may not be linear. The sensitivities have been calculated independently of changes in other key variables. Changes in one factor may result in changes in another, which could amplify or reduce certain sensitivities.

The Company expects to make contributions of $8.4 million to the defined benefit plans and $0.1 million to the defined contribution plan during the next fiscal year.

F-49

Telesat Holdings Inc.
 
Notes to the 2015 Consolidated Financial Statements
(all amounts in thousands of Canadian dollars, except where otherwise noted)

30. SUPPLEMENTAL CASH FLOW INFORMATION

Cash and cash equivalents were comprised of the following:

As at December 31,	2015		2014		2013
Cash	$	476,700	$	162,968	$	63,816
Short-term investments, original maturity three months or less(1)		214,026		334,388		234,897
Cash and cash equivalents	$	690,726	$	497,356	$	298,713

(1) Consists of short-term investments with an original maturity of three months or less or which are available upon demand with no penalty for early redemption.

Income taxes paid, net of income taxes received was comprised of the following:

Year ended December 31,	2015			2014			2013
Income taxes paid	$	(159,256	)	$	(83,310	)	$	(12,569	)
Income taxes received		4,233			2,511			—
	$	(155,023	)	$	(80,799	)	$	(12,569	)

Interest paid, net of capitalized interest and interest received was comprised of the following:

Year ended December 31,	2015			2014			2013
Interest paid	$	(176,312	)	$	(200,029	)	$	(215,674	)
Capitalized interest		9,268			4,430			3,361
Interest received		5,130			2,702			1,172
	$	(161,914	)	$	(192,897	)	$	(211,141	)

The net change in operating assets and liabilities shown in the consolidated statements of cash flows was comprised of the following:

As at December 31,	2015			2014			2013
				Restated (Note 3)			Restated (Note 3)
Trade and other receivables	$	4,944		$	3,821		$	16,134
Financial assets		(4,590	)		15,534			(2,385	)
Other assets		(12,346	)		(19	)		3,342
Trade and other payables		(4,722	)		(2,029	)		(3,865	)
Financial liabilities		8,396			(7,432	)		(1,712	)
Other liabilities		11,666			(18,582	)		(11,126	)
	$	3,348		$	(8,707	)	$	388

F-50

Telesat Holdings Inc.
 
Notes to the 2015 Consolidated Financial Statements
(all amounts in thousands of Canadian dollars, except where otherwise noted)

30. SUPPLEMENTAL CASH FLOW INFORMATION  – (continued)

Non-cash investing and financing activities were comprised of:

Year ended December 31,	2015		2014		2013
Satellites, property and other equipment	$	51,587	$	16,539	$	4,069
Intangible assets	$	11,569	$	2,661	$	1,061

31. COMMITMENTS AND CONTINGENT LIABILITIES

The following is a summary of the Company’s off-balance sheet contractual obligations as at December 31, 2015:

	2016		2017		2018		2019		2020		Thereafter		Total
Operating property leases	$	6,573	$	5,979	$	5,556	$	2,022	$	481	$	1,556	$	22,167
Capital commitments		213,734		171,020		28,343		—		—		—		413,097
Other operating commitments		20,968		8,682		7,134		5,390		5,045		4,791		52,010
	$	241,275	$	185,681	$	41,033	$	7,412	$	5,526	$	6,347	$	487,274

Operating property leases consist of off-balance sheet contractual obligations for land or building usage, while capital commitments include commitments for capital projects. Other operating commitments consist of third party satellite capacity arrangements as well as other commitments that are not categorized as operating property leases or capital commitments. The Company’s off-balance sheet obligations include the future minimum payments for the expected duration of each respective obligation, which have various terms and expire between 2016 to 2043. The aggregate expense related to operating property lease commitments for the year ended December 31, 2015 was $7.4 million (December 31, 2014 — $7.1 million, December 31, 2013 —  $7.2 million).

The Company has entered into contracts for the construction of two satellites and other capital expenditures. The total outstanding commitments at December 31, 2015 were included in capital commitments.

The Company has agreements with various customers for prepaid revenue on several service agreements which take effect when the spacecraft is placed into service. The Company is responsible for operating and controlling these satellites. As at December 31, 2015, customer prepayments of $323.1 million (December 31, 2014 — $339.2 million), a portion of which is refundable under certain circumstances, were reflected in current and long-term liabilities.

In the normal course of business, the Company has executed agreements that provide for indemnification and guarantees to counterparties in various transactions. These indemnification undertakings and guarantees may require the Company to compensate the counterparties for costs and losses incurred as a result of certain events including, without limitation, loss or damage to property, change in the interpretation of laws and regulations (including tax legislation), claims that may arise while providing services, or as a result of litigation that may be suffered by the counterparties. The nature of substantially all of the indemnification undertakings prevents the Company from making a reasonable estimate of the maximum potential amount the Company could be required to pay counterparties as the agreements do not specify a maximum amount and the amounts are dependent upon the outcome of future contingent events, the nature and likelihood of which cannot be determined at this time. Historically, the Company has not made any significant payments under such indemnifications.

Telesat and Loral have entered into an indemnification agreement whereby Loral will indemnify Telesat for tax liabilities for taxation years prior to 2007 related to Loral Skynet operations. Likewise, Telesat will indemnify Loral for the settlement of tax receivables for taxation years prior to 2007.

F-51

Telesat Holdings Inc.
 
Notes to the 2015 Consolidated Financial Statements
(all amounts in thousands of Canadian dollars, except where otherwise noted)

31. COMMITMENTS AND CONTINGENT LIABILITIES  – (continued)

Legal Proceedings

The Company frequently participates in proceedings before national telecommunications regulatory authorities. In addition, the Company may also become involved from time to time in other legal proceedings arising in the normal course of its business.

The Company is subject to audits by taxing authorities in the various jurisdictions in which it operates.

In Brazil, the Company is currently involved in a number of disputes with the Brazilian tax authorities who have alleged that additional taxes are owed on revenue earned by the Company for the period 2003 to 2012. The disputes relate to the Brazilian tax authorities’ characterization of the Company’s revenue. Additional taxes and interest of approximately $32.0 million have been assessed by Brazilian tax authorities and the Company has challenged those assessments. The Company believes the likelihood of an unfavorable outcome in these disputes is remote and, as such, no reserve has been established. Loral has agreed to indemnify the Company with respect to certain of the assessments issued in Brazil.

The Company was re-assessed by Canadian tax authorities for income taxes and interest of approximately $16.5 million relating to the deductibility of certain expenses for the 2007 tax year and the Company is challenging these re-assessments. The Company believes the likelihood of an unfavorable outcome in these disputes is remote, and as such, no reserve has been established.

Other than the above, the Company is not aware of any proceedings outstanding or threatened as of the date hereof by or against it or relating to its business which may have, or have had in the recent past, significant effects on the Company’s financial position or profitability.

32. SUBSIDIARIES

The list of significant companies included in the scope of consolidation as at December 31, 2015 was as follows:

Company	Country	Method of Consolidation	% voting rights
Telesat Canada	Canada	Fully consolidated	100
Infosat Communications LP	Canada	Fully consolidated	100
Skynet Satellite Corporation	United States	Fully consolidated	100
Telesat Network Services, Inc.	United States	Fully consolidated	100
The SpaceConnection Inc.	United States	Fully consolidated	100
Telesat Satellite LP	United States	Fully consolidated	100
Infosat Able Holdings, Inc.	United States	Fully consolidated	100
Able Infosat Communications, Inc.	United States	Fully consolidated	100
Telesat Brasil Capacidade de Satélites Ltda.	Brazil	Fully consolidated	100
Telesat (IOM) Limited	Isle of Man	Fully consolidated	100
Telesat International Limited	United Kingdom	Fully consolidated	100

The percentage of voting rights and method of consolidation were the same as at December 31, 2014.

F-52

Telesat Holdings Inc.
 
Notes to the 2015 Consolidated Financial Statements
(all amounts in thousands of Canadian dollars, except where otherwise noted)

33. RELATED PARTY TRANSACTIONS

The Company’s immediate shareholders are Red Isle Private Investment Inc. (“Red Isle”), a company incorporated in Canada, Loral Holdings Corporation (“Loral Holdings”), a company incorporated in the United States and various individuals. Red Isle is wholly-owned by PSP Investments, a Canadian Crown corporation. Loral Holdings is a wholly-owned subsidiary of Loral, a United States publicly listed company.

Transactions with subsidiaries

The Company and its subsidiaries regularly engage in inter-group transactions. These transactions include the purchase and sale of satellite services and communication equipment, providing and receiving network and call centre services, access to orbital slots and management services. The transactions have been entered into over the normal course of operations. Any balances and transactions between the Company and its subsidiaries have been eliminated on consolidation and therefore have not been disclosed.

Compensation of executives and Board level directors

Year ended December 31,	2015		2014		2013
Short-term benefits (including salaries)	$	7,132	$	7,543	$	7,293
Special payments(1)		—		980		2,162
Post-employment benefits		3,268		1,922		1,814
Share-based payments(2)		4,674		8,931		12,705
	$	15,074	$	19,376	$	23,974

(1) In 2012, the Board authorized special payments to certain employees which would be paid over three years subject to certain conditions being met. All special payments were expensed and paid as at December 31, 2014.

(2) During 2013, 2014 and 2015, the Board authorized the grant of stock options to certain key management personnel pursuant to the stock incentive plan. A total of 3,701,027, 150,000 and 348,606 stock options were granted to key management personnel in 2013, 2014 and 2015, respectively. Share-based payments also include all expenses associated with stock options previously issued under the 2008 stock incentive plan.

Stock option repurchase and exercise of share appreciation rights

In April 2013, a member of senior management exercised 83,204 SARs in relation to the stock options granted under the Company’s stock incentive plan and received 24,638 Non-Voting Participating Preferred Shares.

Defined benefit pension plans

The Company funds certain defined benefit pension plans. Contributions made to the defined benefit pension plans for the year ended December 31, 2015 were $9.1 million (December 31, 2014 — $10.0 million).

F-53

Telesat Holdings Inc.
 
Notes to the 2015 Consolidated Financial Statements
(all amounts in thousands of Canadian dollars, except where otherwise noted)

33. RELATED PARTY TRANSACTIONS  – (continued)

Transactions with related parties

The Company and certain of its subsidiaries regularly engage in transactions with related parties. The Company’s related parties include Loral and Red Isle. There were no transactions or balances outstanding with Red Isle during any of the years presented.

During the year, the Company and its subsidiaries entered into the following transactions with Loral.

	Sale of goods and services, interest income						Purchase of goods and services, interest expense
Year ended December 31,	2015		2014		2013		2015		2014		2013
Revenue	$	129	$	215	$	—	$	—	$	—	$	—
Operating expenses		—		—		—		7,547		6,663		6,267
Interest expense		—		—		—		—		—		66
Interest and other expenses		—		—		—		—		1,070		—

The following balances were outstanding with Loral at the end of the years presented below:

	Amounts owed by related parties				Amounts owed to related parties
At December 31,	2015		2014		2015		2014
Current receivables/payables	$	119	$	178	$	529	$	293

The amounts outstanding are unsecured and will be settled in cash.

34. CONDENSED CONSOLIDATING FINANCIAL INFORMATION

The 6.0% Senior Notes and 12.5% Senior Subordinated Notes, which were fully redeemed on May 1, 2013, were co-issued by Telesat LLC and Telesat Canada, (“the Issuers”) which are 100% owned subsidiaries of Telesat, and were guaranteed fully and unconditionally, on a joint and several basis, by Telesat and the Guarantors.

The condensed consolidating financial information reflects the investments, using the equity method of accounting, of Telesat and Telesat Interco Inc. in the Issuers, of the Issuers in their respective Guarantor and Non-Guarantor subsidiaries, and of the Guarantors in their Non-Guarantor subsidiaries.

The comparative condensed consolidating financial information has been restated to present the financial information of Telesat Interco Inc., separately from the other Guarantors as Telesat Interco Inc. is a parent Guarantor.

A change in accounting policy was made for the presentation of the loss on foreign exchange on the statements of cash flows. For more information on the impact of the change, refer to Note 3.

A restatement of comparative figures, for the issuance and repayment of loans between Telesat, Telesat Canada, Guarantor subsidiaries and Non-Guarantor subsidiaries, is reflected in the statements of cash flows for 2014 and 2013 to conform to the presentation adopted during the current year.

In addition, a restatement of comparative figures was also performed for the treatment of capitalized interest and corresponding depreciation and foreign currency translation adjustment for 2014 and 2013 to conform to the presentation adopted in the current year.

F-54

Telesat Holdings Inc.
 
Notes to the 2015 Consolidated Financial Statements
(all amounts in thousands of Canadian dollars, except where otherwise noted)

34. CONDENSED CONSOLIDATING FINANCIAL INFORMATION  – (continued)

Condensed Consolidating Statements of (Loss) Income
For the year ended December 31, 2015

	Telesat Holdings Inc.			Telesat Interco Inc.			Telesat LLC		Telesat Canada			Guarantor subsidiaries			Non-guarantor subsidiaries			Adjustments			Consolidated
Revenue	$	—		$	—		$	—	$	911,712		$	140,345		$	18,846		$	(115,996	)	$	954,907
Operating expenses		—			—			—		(158,416	)		(121,929	)		(19,220	)		115,286			(184,279	)
		—			—			—		753,296			18,416			(374	)		(710	)		770,628
Depreciation		—			—			—		(175,366	)		(32,291	)		(80	)		(98	)		(207,835	)
Amortization		—			—			—		(25,825	)		(2,077	)		—			—			(27,902	)
Other operating gains (losses), net		—			—			—		4,999			23,178			—			(28,207	)		(30	)
Operating income (loss)		—			—			—		557,104			7,226			(454	)		(29,015	)		534,861
Loss (income) from equity investments		(221,127	)		(221,127	)		—		8,403			(5,201	)		—			439,052			—
Interest expense		—			—			—		(191,510	)		(1,014	)		(2	)		9,229			(183,297	)
Interest and other income		—			—			—		3,238			1,392			31			—			4,661
Gain on changes in fair value of financial instruments		—			—			—		6,035			—			—			—			6,035
(Loss) gain on foreign exchange		(3	)		—			—		(511,510	)		(23,804	)		20,870			(26,023	)		(540,470	)
(Loss) income before tax		(221,130	)		(221,127	)		—		(128,240	)		(21,401	)		20,445			393,243			(178,210	)
Tax (expense) recovery		—			—			—		(92,887	)		4,336			(178	)		—			(88,729	)
Net (loss) income	$	(221,130	)	$	(221,127	)	$	—	$	(221,127	)	$	(17,065	)	$	20,267		$	393,243		$	(266,939	)

F-55

Telesat Holdings Inc.
 
Notes to the 2015 Consolidated Financial Statements
(all amounts in thousands of Canadian dollars, except where otherwise noted)

34. CONDENSED CONSOLIDATING FINANCIAL INFORMATION  – (continued)

Condensed Consolidating Statements of Comprehensive (Loss) Income
For the year ended December 31, 2015

	Telesat Holdings Inc.			Telesat Interco Inc.			Telesat LLC		Telesat Canada			Guarantor subsidiaries			Non-guarantor subsidiaries			Adjustments			Consolidated
Net (loss) income	$	(221,130	)	$	(221,127	)	$	—	$	(221,127	)	$	(17,065	)	$	20,267		$	393,243		$	(266,939	)
Other comprehensive income (loss)
Items that may be reclassified into profit or loss
Foreign currency translation adjustments		—			—			—		—			45,310			(2,046	)		1,476			44,740
Foreign currency translation reclassified into profit or loss		—			—			—		—			(30,695	)		4,672			26,023			—
Other comprehensive income (loss) from equity investments		17,241			17,241			—		17,241			2,626			—			(54,349	)		—
Items that will not be reclassified into profit or loss
Actuarial gains on employee benefit plans		—			—			—		4,992			233			—			—			5,225
Tax expense		—			—			—		(1,328	)		(97	)		—			—			(1,425	)
Other comprehensive income from equity investments		3,800			3,800			—		136			—			—			(7,736	)		—
Other comprehensive income (loss)		21,041			21,041			—		21,041			17,377			2,626			(34,586	)		48,540
Total comprehensive (loss) income	$	(200,089	)	$	(200,086	)	$	—	$	(200,086	)	$	312		$	22,893		$	358,657		$	(218,399	)

F-56

Telesat Holdings Inc.
 
Notes to the 2015 Consolidated Financial Statements
(all amounts in thousands of Canadian dollars, except where otherwise noted)

34. CONDENSED CONSOLIDATING FINANCIAL INFORMATION  – (continued)

Condensed Consolidating Statements of Income (Loss)
For the year ended December 31, 2014

	Telesat Holdings Inc.		Telesat Interco Inc.		Telesat LLC		Telesat Canada			Guarantor subsidiaries			Non-guarantor subsidiaries			Adjustments			Consolidated
Revenue	$	—	$	—	$	—	$	855,312		$	157,810		$	18,212		$	(108,463	)	$	922,871
Operating expenses		—		—		—		(151,264	)		(127,227	)		(17,761	)		108,463			(187,789	)
		—		—		—		704,048			30,583			451			—			735,082
Depreciation		—		—		—		(184,870	)		(31,350	)		(120	)		(156	)		(216,496	)
Amortization		—		—		—		(28,986	)		(1,839	)		—			—			(30,825	)
Other operating (losses) gains, net		—		—		—		(314	)		14			(4	)		—			(304	)
Operating income (loss)		—		—		—		489,878			(2,592	)		327			(156	)		487,457
Income (loss) from equity investments		8,930		8,930		—		(11,983	)		(2,223	)		—			(3,654	)		—
Interest expense		—		—		—		(210,369	)		(632	)		(839	)		4,907			(206,933	)
Interest and other income		—		—		—		627			2,906			—			(477	)		3,056
Gain on changes in fair value of financial instruments		—		—		—		48,931			—			—			—			48,931
(Loss) gain on foreign exchange		—		—		—		(240,370	)		(9,267	)		8,550			—			(241,087	)
Income (loss) before tax		8,930		8,930		—		76,714			(11,808	)		8,038			620			91,424
Tax expense		—		—		—		(67,784	)		(10,190	)		(246	)		—			(78,220	)
Net income (loss)	$	8,930	$	8,930	$	—	$	8,930		$	(21,998	)	$	7,792		$	620		$	13,204

F-57

Telesat Holdings Inc.
 
Notes to the 2015 Consolidated Financial Statements
(all amounts in thousands of Canadian dollars, except where otherwise noted)

34. CONDENSED CONSOLIDATING FINANCIAL INFORMATION  – (continued)

Condensed Consolidating Statements of Comprehensive (Loss) Income
For the year ended December 31, 2014

	Telesat Holdings Inc.			Telesat Interco Inc.			Telesat LLC		Telesat Canada			Guarantor subsidiaries			Non-guarantor subsidiaries		Adjustments			Consolidated
Net income (loss)	$	8,930		$	8,930		$	—	$	8,930		$	(21,998	)	$	7,792	$	620		$	13,204
Other comprehensive (loss) income
Items that may be reclassified into profit or loss
Foreign currency translation adjustments		—			—			—		—			207			3,294		292			3,793
Other comprehensive income from equity investments		3,501			3,501			—		3,501			3,294			—		(13,797	)		—
Items that will not be reclassified into profit or loss
Actuarial losses on employee benefit plans		—			—			—		(22,871	)		(475	)		—		—			(23,346	)
Tax recovery		—			—			—		5,589			188			—		—			5,777
Other comprehensive loss from equity investments		(17,569	)		(17,569	)		—		(287	)		—			—		35,425			—
Other comprehensive (loss) income		(14,068	)		(14,068	)		—		(14,068	)		3,214			3,294		21,920			(13,776	)
Total comprehensive (loss) income	$	(5,138	)	$	(5,138	)	$	—	$	(5,138	)	$	(18,784	)	$	11,086	$	22,540		$	(572	)

F-58

Telesat Holdings Inc.
 
Notes to the 2015 Consolidated Financial Statements
(all amounts in thousands of Canadian dollars, except where otherwise noted)

34. CONDENSED CONSOLIDATING FINANCIAL INFORMATION  – (continued)

Condensed Consolidating Statements of Income
For the year ended December 31, 2013

	Telesat Holdings Inc.			Telesat Interco Inc.		Telesat LLC		Telesat Canada			Guarantor subsidiaries			Non-guarantor subsidiaries			Adjustments			Consolidated
Revenue	$	—		$	—	$	—	$	837,358		$	152,306		$	16,879		$	(109,647	)	$	896,896
Operating expenses		—			—		—		(170,865	)		(121,312	)		(18,532	)		109,647			(201,062	)
		—			—		—		666,493			30,994			(1,653	)		—			695,834
Depreciation		—			—		—		(179,442	)		(31,342	)		(211	)		(156	)		(211,151	)
Amortization		—			—		—		(31,262	)		(1,358	)		(39	)		—			(32,659	)
Other operating gains (losses), net		—			—		—		15,721			9,733			(119	)		—			25,335
Operating income (loss)		—			—		—		471,510			8,027			(2,022	)		(156	)		477,359
Income (loss) from equity investments		67,696			67,696		—		8,240			(1,962	)		—			(141,670	)		—
Interest expense		—			—		—		(223,424	)		(1,266	)		(5	)		596			(224,099	)
Loss on financing		—			—		—		(18,487	)		—			—			—			(18,487	)
Interest and other income		—			—		—		11,708			—			2			(42	)		11,668
Gain on changes in fair value of financial instruments		—			—		—		80,928			—			—			—			80,928
(Loss) gain on foreign exchange		(1	)		—		—		(190,562	)		(12,586	)		8,240			—			(194,909	)
Income (loss) before tax		67,695			67,696		—		139,913			(7,787	)		6,215			(141,272	)		132,460
Tax (expense) recovery		—			—		—		(72,217	)		7,902			(52	)		—			(64,367	)
Net income	$	67,695		$	67,696	$	—	$	67,696		$	115		$	6,163		$	(141,272	)	$	68,093

F-59

Telesat Holdings Inc.
 
Notes to the 2015 Consolidated Financial Statements
(all amounts in thousands of Canadian dollars, except where otherwise noted)

34. CONDENSED CONSOLIDATING FINANCIAL INFORMATION  – (continued)

Condensed Consolidating Statements of Comprehensive Income (Loss)
For the year ended December 31, 2013

	Telesat Holdings Inc.			Telesat Interco Inc.			Telesat LLC		Telesat Canada			Guarantor subsidiaries			Non-guarantor subsidiaries			Adjustments			Consolidated
Net income	$	67,695		$	67,696		$	—	$	67,696		$	115		$	6,163		$	(141,272	)	$	68,093
Other comprehensive income (loss)
Items that may be reclassified into profit or loss
Foreign currency translation adjustments		—			—			—		—			(908	)		(382	)		9			(1,281	)
Other comprehensive loss from equity investments		(1,290	)		(1,290	)		—		(1,290	)		(382	)		—			4,252			—
Items that will not be reclassified into profit or loss
Actuarial gains (losses) on employee benefit plans		—			—			—		25,360			(4,130	)		—			—			21,230
Tax (expense) recovery		—			—			—		(6,754	)		1,474			—			—			(5,280	)
Other comprehensive income (loss) from equity investments		15,950			15,950			—		(2,656	)		—			—			(29,244	)		—
Other comprehensive income (loss)		14,660			14,660			—		14,660			(3,946	)		(382	)		(24,983	)		14,669
Total comprehensive income (loss)	$	82,355		$	82,356		$	—	$	82,356		$	(3,831	)	$	5,781		$	(166,255	)	$	82,762

F-60

Telesat Holdings Inc.
 
Notes to the 2015 Consolidated Financial Statements
(all amounts in thousands of Canadian dollars, except where otherwise noted)

34. CONDENSED CONSOLIDATING FINANCIAL INFORMATION  – (continued)

Condensed Consolidating Balance Sheets
As at December 31, 2015

	Telesat Holdings Inc.		Telesat Interco Inc.		Telesat LLC		Telesat Canada		Guarantor subsidiaries		Non-guarantor subsidiaries		Adjustments			Consolidated
Assets
Cash and cash equivalents	$	—	$	—	$	—	$	623,931	$	63,656	$	3,139	$	—		$	690,726
Trade and other receivables		—		—		—		36,543		13,284		954		—			50,781
Other current financial assets		—		—		—		94		1,073		19		—			1,186
Intercompany receivables		—		—		—		355,022		103,230		184,766		(643,018	)		—
Prepaid expenses and other current assets		—		—		—		12,140		4,920		40		—			17,100
Total current assets		—		—		—		1,027,730		186,163		188,918		(643,018	)		759,793
Satellites, property and other equipment		—		—		—		1,310,977		598,604		—		15,684			1,925,265
Deferred tax assets		—		—		—		—		8,569		261		(1,039	)		7,791
Other long-term financial assets		—		—		—		33,005		6,800		557		—			40,362
Other long-term assets		—		—		—		12,484		954		—		—			13,438
Intangible assets		—		—		—		754,239		57,158		—		—			811,397
Investment in affiliates		965,084		965,084		—		1,461,718		45,576		—		(3,437,462	)		—
Goodwill		—		—		—		2,078,056		343,876		24,671		—			2,446,603
Total assets	$	965,084	$	965,084	$	—	$	6,678,209	$	1,247,700	$	214,407	$	(4,065,835	)	$	6,004,649
Liabilities
Trade and other payables	$	—	$	—	$	—	$	9,562	$	33,805	$	799	$	—		$	44,166
Other current financial liabilities		—		—		—		31,648		3,620		1,157		—			36,425
Intercompany payables		30,507		—		—		194,551		415,456		2,504		(643,018	)		—
Other current liabilities		—		—		—		79,056		1,387		194		—			80,637
Current indebtedness		—		—		—		87,386		—		—		—			87,386
Total current liabilities		30,507		—		—		402,203		454,268		4,654		(643,018	)		248,614
Long-term indebtedness		—		—		—		3,975,835		—		—		—			3,975,835
Deferred tax liabilities		—		—		—		469,010		—		—		(1,039	)		467,971
Other long-term financial liabilities		—		—		—		64,400		29,432		358		—			94,190
Other long-term liabilities		—		—		—		279,229		20,682		—		—			299,911
Total liabilities		30,507		—		—		5,190,677		504,382		5,012		(644,057	)		5,086,521
Shareholders’ equity		934,577		965,084		—		1,487,532		743,318		209,395		(3,421,778	)		918,128
Total liabilities and shareholders’ equity	$	965,084	$	965,084	$	—	$	6,678,209	$	1,247,700	$	214,407	$	(4,065,835	)	$	6,004,649

F-61

Telesat Holdings Inc.
 
Notes to the 2015 Consolidated Financial Statements
(all amounts in thousands of Canadian dollars, except where otherwise noted)

34. CONDENSED CONSOLIDATING FINANCIAL INFORMATION  – (continued)

Condensed Consolidating Balance Sheets
As at December 31, 2014

	Telesat Holdings Inc.		Telesat Interco Inc.		Telesat LLC		Telesat Canada		Guarantor subsidiaries		Non-guarantor subsidiaries		Adjustments			Consolidated
Assets
Cash and cash equivalents	$	—	$	—	$	—	$	450,280	$	44,188	$	2,888	$	—		$	497,356
Trade and other receivables		—		—		—		31,419		16,497		1,618		—			49,534
Other current financial assets		—		—		—		25		687		53		—			765
Intercompany receivables		—		—		—		366,317		174,888		167,251		(708,456	)		—
Prepaid expenses and other current assets		—		—		—		12,099		4,987		127		(11	)		17,202
Total current assets		—		—		—		860,140		241,247		171,937		(708,467	)		564,857
Satellites, property and other equipment		—		—		—		1,479,324		374,172		378		7,141			1,861,015
Deferred tax assets		—		—		—		—		3,183		—		—			3,183
Other long-term financial assets		—		—		—		36,509		1,466		467		—			38,442
Other long-term assets		—		—		—		2,817		1,080		134		(861	)		3,170
Intangible assets		—		—		—		769,780		50,792		—		—			820,572
Investment in affiliates		1,154,518		1,154,518		—		1,244,606		25,266		261		(3,579,169	)		—
Goodwill		—		—		—		2,078,056		343,876		24,671		—			2,446,603
Total assets	$	1,154,518	$	1,154,518	$	—	$	6,471,232	$	1,041,082	$	197,848	$	(4,281,356	)	$	5,737,842
Liabilities
Trade and other payables	$	—	$	—	$	—	$	13,838	$	21,528	$	1,348	$	—		$	36,714
Other current financial liabilities		—		—		—		32,539		1,705		1,389		—			35,633
Intercompany payables		30,491		—		—		226,280		413,455		38,230		(708,456	)		—
Other current liabilities		—		—		—		120,951		3,203		—		(9	)		124,145
Current indebtedness		—		—		—		58,820		2		—		—			58,822
Total current liabilities		30,491		—		—		452,428		439,893		40,967		(708,465	)		255,314
Long-term indebtedness		—		—		—		3,486,857		—		—		—			3,486,857
Deferred tax liabilities		—		—		—		485,619		—		—		(861	)		484,758
Other long-term financial liabilities		—		—		—		54,698		5,964		91		—			60,753
Other long-term liabilities		—		—		—		314,665		4,321		6		—			318,992
Total liabilities		30,491		—		—		4,794,267		450,178		41,064		(709,326	)		4,606,674
Shareholders’ equity		1,124,027		1,154,518		—		1,676,965		590,904		156,784		(3,572,030	)		1,131,168
Total liabilities and shareholders’ equity	$	1,154,518	$	1,154,518	$	—	$	6,471,232	$	1,041,082	$	197,848	$	(4,281,356	)	$	5,737,842

F-62

Telesat Holdings Inc.
 
Notes to the 2015 Consolidated Financial Statements
(all amounts in thousands of Canadian dollars, except where otherwise noted)

34. CONDENSED CONSOLIDATING FINANCIAL INFORMATION  – (continued)

Condensed Consolidating Statements of Cash Flows
For the year ended December 31, 2015

	Telesat Holdings Inc.			Telesat Interco Inc.			Telesat LLC		Telesat Canada			Guarantor subsidiaries			Non-guarantor subsidiaries			Adjustments			Consolidated
Cash flows from operating activities
Net (loss) income	$	(221,130	)	$	(221,127	)	$	—	$	(221,127	)	$	(17,065	)	$	20,267		$	393,243		$	(266,939	)
Adjustments to reconcile net (loss) income to cash flows from operating activities
Depreciation		—			—			—		175,366			32,291			80			98			207,835
Amortization		—			—			—		25,825			2,077			—			—			27,902
Tax expense (recovery)		—			—			—		92,887			(4,336	)		178			—			88,729
Interest expense		—			—			—		191,510			1,014			2			(9,229	)		183,297
Interest income		—			—			—		(3,417	)		(1,093	)		(33	)		—			(4,543	)
Loss (gain) on foreign exchange		3			—			—		511,510			23,804			(20,870	)		26,023			540,470
Gain on changes in fair value of financial instruments		—			—			—		(6,035	)		—			—			—			(6,035	)
Share-based compensation		—			—			—		3,760			1,609			—			—			5,369
Loss from equity investments		221,127			221,127			—		(8,403	)		5,201			—			(439,052	)		—
Loss (gain) on disposal of assets		—			—			—		(4,999	)		(23,178	)		—			28,207			30
Other		—			—			—		(39,976	)		(173	)		(15	)		—			(40,164	)
Income taxes paid, net of income taxes received		—			—			—		(154,165	)		(782	)		(76	)		—			(155,023	)
Interest paid, net of capitalized interest and interest received		—			—			—		(171,596	)		421			32			9,229			(161,914	)
Operating assets and liabilities		—			—			—		(19,838	)		22,114			362			710			3,348
Net cash from (used in) operating activities	$	—		$	—		$	—	$	371,302		$	41,904		$	(73	)	$	9,229		$	422,362
Cash flows used in investing activities
Satellite programs, including capitalized interest	$	—		$	—		$	—	$	—		$	(174,186	)	$	—		$	(9,229	)	$	(183,415	)
Purchase of other property and equipment		—			—			—		(6,650	)		(3,795	)		—			—			(10,445	)
Purchase of intangible assets		—			—			—		—			(5	)		—			—			(5	)
Repayment of loans receivable from affiliates		—			—			—		19,900			—			—			(19,900	)		—
Loans receivable from affiliates		—			—			—		(1,646	)		—			—			1,646			—
Return of capital to shareholder		—			—			—		6,300			—			—			(6,300	)		—
Investment in affiliates		—			—			—		(185,703	)		—			—			185,703			—
Net cash used in investing activities	$	—		$	—		$	—	$	(167,799	)	$	(177,986	)	$	—		$	151,920		$	(193,865	)
Cash flows (used in) from financing activities
Repayment of indebtedness	$	—		$	—		$	—	$	(73,864	)	$	—		$	—		$	—		$	(73,864	)
Dividends paid on preferred shares		(10	)		—			—		—			—			—			—			(10	)
Satellite performance incentive payments		—			—			—		(6,624	)		(78	)		—			—			(6,702	)
Repayment of loans payable to affiliates		—			—			—		—			(19,900	)					19,900			—
Loans payable to affiliates		10			—			—		—			1,627			9			(1,646	)		—
Return of capital to shareholder		—			—			—		—			(6,300	)		—			6,300			—
Proceeds from issuance of share capital		—			—			—		—			185,703			—			(185,703	)		—
Net cash (used in) from financing activities	$	—		$	—		$	—	$	(80,488	)	$	161,052		$	9		$	(161,149	)	$	(80,576	)
Effect of changes in exchange rates on cash and cash equivalents	$	—		$	—		$	—	$	50,636		$	(5,502	)	$	315		$	—		$	45,449
Increase in cash and cash equivalents	$	—		$	—		$	—	$	173,651		$	19,468		$	251		$	—		$	193,370
Cash and cash equivalents, beginning of year		—			—			—		450,280			44,188			2,888			—			497,356
Cash and cash equivalents, end of year	$	—		$	—		$	—	$	623,931		$	63,656		$	3,139		$	—		$	690,726

F-63

Telesat Holdings Inc.
 
Notes to the 2015 Consolidated Financial Statements
(all amounts in thousands of Canadian dollars, except where otherwise noted)

34. CONDENSED CONSOLIDATING FINANCIAL INFORMATION  – (continued)

Condensed Consolidating Statements of Cash Flows
For the year ended December 31, 2014

	Telesat Holdings Inc.			Telesat Interco Inc.			Telesat LLC		Telesat Canada			Guarantor subsidiaries			Non-guarantor subsidiaries			Adjustments			Consolidated
Cash flows (used in) from operating activities
Net income (loss)	$	8,930		$	8,930		$	—	$	8,930		$	(21,998	)	$	7,792		$	620		$	13,204
Adjustments to reconcile net income (loss) to cash flows (used in) from operating activities
Depreciation		—			—			—		184,870			31,350			120			156			216,496
Amortization		—			—			—		28,986			1,839			—			—			30,825
Tax expense		—			—			—		67,784			10,190			246			—			78,220
Interest expense		—			—			—		210,369			632			839			(4,907	)		206,933
Interest income		—			—			—		(2,205	)		(278	)		(705	)		477			(2,711	)
Loss (gain) on foreign exchange		—			—			—		240,370			9,267			(8,550	)		—			241,087
Gain on changes in fair value of financial instruments		—			—			—		(48,931	)		—			—			—			(48,931	)
Share-based compensation		—			—			—		8,704			1,314			(363	)		—			9,655
(Income) loss from equity investments		(8,930	)		(8,930	)		—		11,983			2,223			—			3,654			—
Loss (gain) on disposal of assets		—			—			—		314			(14	)		4			—			304
Other		—			—			—		(48,900	)		(1,616	)		(141	)		—			(50,657	)
Income taxes paid, net of income taxes received		—			—			—		(78,520	)		(2,103	)		(176	)		—			(80,799	)
Interest paid, net of capitalized interest and interest received		—			—			—		(197,182	)		(12	)		(133	)		4,430			(192,897	)
Operating assets and liabilities		(202	)		—			—		(34,422	)		17,680			8,237			—			(8,707	)
Net cash (used in) from operating activities	$	(202	)	$	—		$	—	$	352,150		$	48,474		$	7,170		$	4,430		$	412,022
Cash flows used in investing activities
Satellite programs, including capitalized interest	$	—		$	—		$	—	$	—		$	(80,161	)	$	—		$	(4,430	)	$	(84,591	)
Purchase of other property and equipment		—			—			—		(8,762	)		(1,846	)		(87	)		—			(10,695	)
Purchase of intangible assets		—			—			—		—			(185	)		—			—			(185	)
Proceeds from sale of assets		—			—			—		311			—			—			—			311
Repayment of loans receivable from affiliates		—			—			—		12,300			—			63			(12,363	)		—
Loans receivable from affiliates		—			—			—		(2,008	)		—			(5,793	)		7,801			—
Return of capital to shareholder		—			—			—		6,503			—			—			(6,503	)		—
Investment in affiliates		—			—			—		(83,071	)		—			—			83,071			—
Net cash used in investing activities	$	—		$	—		$	—	$	(74,727	)	$	(82,192	)	$	(5,817	)	$	67,576		$	(95,160	)
Cash flows from (used in) financing activities
Repayment of indebtedness	$	—		$	—		$	—	$	(70,692	)	$	—		$	—		$	—		$	(70,692	)
Settlement of derivatives		—			—			—		(60,824	)		—			—			—			(60,824	)
Proceeds from exercise of stock options		202			—			—		—			—			—			—			202
Dividends paid on preferred shares		(20	)		—			—		—			—			—			—			(20	)
Satellite performance incentive payments		—			—			—		(5,409	)		(43	)		—			—			(5,452	)
Repayment of loans payable to affiliates		—			—			—		(63	)		(12,300	)		—			12,363			—
Loans payable to affiliates		20			—			—		5,793			1,988			—			(7,801	)		—
Return of capital to shareholder		—			—			—		—			(6,503	)		—			6,503			—
Proceeds from issuance of share capital		—			—			—		—			83,071			—			(83,071	)		—
Net cash from (used in) financing activities	$	202		$	—		$	—	$	(131,195	)	$	66,213		$	—		$	(72,006	)	$	(136,786	)
Effect of changes in exchange rates on cash and cash equivalents	$	—		$	—		$	—	$	19,821		$	(1,315	)	$	61		$	—		$	18,567
Increase in cash and cash equivalents	$	—		$	—		$	—	$	166,049		$	31,180		$	1,414		$	—		$	198,643
Cash and cash equivalents, beginning of year		—			—			—		284,231			13,008			1,474			—			298,713
Cash and cash equivalents, end of year	$	—		$	—		$	—	$	450,280		$	44,188		$	2,888		$	—		$	497,356

F-64

Telesat Holdings Inc.
 
Notes to the 2015 Consolidated Financial Statements
(all amounts in thousands of Canadian dollars, except where otherwise noted)

34. CONDENSED CONSOLIDATING FINANCIAL INFORMATION  – (continued)

Condensed Consolidating Statements of Cash Flows
For the year ended December 31, 2013

	Telesat Holdings Inc.			Telesat Interco Inc.			Telesat LLC		Telesat Canada			Guarantor subsidiaries			Non-guarantor subsidiaries			Adjustments			Consolidated
Cash flows (used in) from operating activities
Net income	$	67,695		$	67,696		$	—	$	67,696		$	115		$	6,163		$	(141,272	)	$	68,093
Adjustments to reconcile net income to cash flows (used in) from operating activities
Depreciation		—			—			—		179,442			31,342			211			156			211,151
Amortization		—			—			—		31,262			1,358			39			—			32,659
Tax expense (recovery)		—			—			—		72,217			(7,902	)		52			—			64,367
Interest expense		—			—			—		223,424			1,266			5			(596	)		224,099
Interest income		—			—			—		(1,194	)		(136	)		—			42			(1,288	)
Loss (gain) on foreign exchange		1			—			—		190,562			12,586			(8,240	)		—			194,909
Gain on changes in fair value of financial instruments		—			—			—		(80,928	)		—			—			—			(80,928	)
Share-based compensation		—			—			—		12,065			1,050			402			—			13,517
(Income) loss from equity investments		(67,696	)		(67,696	)		—		(8,240	)		1,962			—			141,670			—
Impairment reversal on intangible assets		—			—			—		(17,274	)		—			—			—			(17,274	)
Gain on other post-employment benefit plan amendment		—			—			—		—			(9,786	)		—			—			(9,786	)
Loss on disposal of assets		—			—			—		1,553			53			119			—			1,725
Loss on financing		—			—			—		18,487			—			—			—			18,487
Other		—			—			—		(46,007	)		(551	)		128			—			(46,430	)
Income taxes paid, net of income tax received		—			—			—		(11,716	)		(824	)		(29	)		—			(12,569	)
Interest paid, net of capitalized interest and interest received		—			—			—		(211,560	)		(135	)		—			554			(211,141	)
Customer prepayments on future satellite services		—			—			—		31,778			527			—			—			32,305
Repurchase of stock options and exercise of share appreciation rights		—			—			—		(701	)		(495	)		—			—			(1,196	)
Operating assets and liabilities		(99	)		—			—		21,462			(19,506	)		(1,469	)		—			388
Net cash (used in) from operating activities	$	(99	)	$	—		$	—	$	472,328		$	10,924		$	(2,619	)	$	554		$	481,088
Cash flows (used in) from investing activities
Satellite programs, including capitalized interest	$	—		$	—		$	—	$	(32,816	)	$	(37,808	)	$	—		$	(554	)	$	(71,178	)
Purchase of other property and equipment		—			—			—		(6,511	)		(2,199	)		(62	)		—			(8,772	)
Purchase of intangible assets		—			—			—		—			(6	)		—			—			(6	)
Proceeds from sale of assets		—			—			—		81			—			1,000			—			1,081
Repayment of loans receivable from affiliates		—			—			—		11,500			—			19			(11,519	)		—
Loans receivable from affiliates		—			—			—		(1,217	)		—			—			1,217			—
Return of capital from subsidiary		—			—			—		4,394			—			—			(4,394	)		—
Investment in affiliates		—			—			—		(36,823	)		—			—			36,823			—
Net cash (used in) from investing activities	$	—		$	—		$	—	$	(61,392	)	$	(40,013	)	$	957		$	21,573		$	(78,875	)
Cash flows from (used in) financing activities
Repayment of indebtedness	$	—		$	—		$	—	$	(271,448	)	$	—		$	—		$	—		$	(271,448	)
Settlement of derivatives		—			—			—		(1,219	)		—			—			—			(1,219	)
Payment of premium on early retirement of indebtedness		—			—			—		(13,793	)		—			—			—			(13,793	)
Payment of debt issue costs		—			—			—		(810	)		—			—			—			(810	)
Proceeds from exercise of stock options		99			—			—		—			—			—			—			99
Dividends paid on preferred shares		(10	)		—			—		—			—			—			—			(10	)
Satellite performance incentive payments		—			—			—		(4,756	)		(14	)		—			—			(4,770	)
Repayment of loans payable to affiliates		—			—			—		(19	)		(11,500	)		—			11,519			—
Loans payable to affiliates		10			—			—		—			1,207			—			(1,217	)		—
Return of capital to shareholder		—			—			—		—			(4,394	)		—			4,394			—
Proceeds from issuance of share capital		—			—			—		—			36,823			—			(36,823	)		—
Net cash from (used in) financing activities	$	99		$	—		$	—	$	(292,045	)	$	22,122		$	—		$	(22,127	)	$	(291,951	)
Effect of changes in exchange rates on cash and cash equivalents	$	—		$	—		$	—	$	6,824		$	467		$	199		$	—		$	7,490
Increase (decrease) in cash and cash equivalents	$	—		$	—		$	—	$	125,715		$	(6,500	)	$	(1,463	)	$	—		$	117,752
Cash and cash equivalents, beginning of year		—			—			—		158,516			19,508			2,937			—			180,961
Cash and cash equivalents, end of year	$	—		$	—		$	—	$	284,231		$	13,008		$	1,474		$	—		$	298,713

F-65