Financial Instruments, Derivative Instruments and Hedging

12 Months Ended

Dec. 31, 2012

Financial Instruments, Derivative Instruments and Hedging [Abstract]

Financial Instruments, Derivative Instruments and Hedging

16.Financial Instruments, Derivative Instruments and Hedging

Financial Instruments

The carrying amount of cash equivalents approximates fair value because of the short maturity of those instruments. The fair value of short-term investments, investments in available-for-sale securities and supplemental retirement plan assets is based on market quotations. The fair value of derivatives is based on the income approach, using observable Level II market expectations at the measurement date and standard valuation techniques to discount future amounts to a single present value. The carrying amount of the Land Note approximates fair value because the stated interest rate is consistent with current market rates.

Foreign Currency

In the normal course of business, we are subject to the risks associated with fluctuations in foreign currency exchange rates. To limit this foreign exchange rate exposure, we attempt to denominate all contracts in U.S. dollars. Where appropriate, derivatives are used to minimize the risk of foreign exchange rate fluctuations to operating results and cash flows. We do not use derivative instruments for trading or speculative purposes.

Derivatives and Hedging Transactions

All derivative instruments were recorded at fair value as either assets or liabilities in our consolidated balance sheets as of December 31, 2011. Each derivative instrument was generally designated and accounted for as either a hedge of a recognized asset or a liability (“fair value hedge”) or a hedge of a forecasted transaction (“cash flow hedge”). Certain of these derivatives were not designated as hedging instruments and were used as “economic hedges” to manage certain risks in our business.

As a result of the use of derivative instruments, the Company is exposed to the risk that counterparties to derivative contracts will fail to meet their contractual obligations. The Company does not hold collateral or other security from its counterparties supporting its derivative instruments. In addition, there are no netting arrangements in place with the counterparties. To mitigate the counterparty credit risk, the Company has a policy of entering into contracts only with carefully selected major financial institutions based upon their credit ratings and other factors.

There were no derivative instruments as of December 31, 2012.

Cash Flow Hedges

SS/L entered into long-term construction contracts with customers and vendors, some of which were denominated in foreign currencies. Hedges of expected foreign currency denominated contract revenues and related purchases were designated as cash flow hedges and evaluated for effectiveness at least quarterly. Effectiveness was tested using regression analysis. The effective portion of the gain or loss on a cash flow hedge was recorded as a component of other comprehensive income (“OCI”) and reclassified to income in the same period or periods in which the hedged transaction affected income. The ineffective portion of a cash flow hedge gain or loss was included in income.

In June 2010, SS/L was awarded a satellite contract denominated in euros and entered into a series of foreign exchange forward contracts with maturities through 2013, respectively, to hedge associated foreign currency exchange risk because our costs are denominated principally in U.S. dollars. These foreign exchange forward contracts were designated as cash flow hedges of future euro denominated receivables.

Other Foreign Exchange Contracts

In March 2012, Telesat declared a special cash distribution denominated in Canadian dollars to be paid in two tranches (see Note 8). Loral entered into a foreign exchange forward contract to hedge foreign exchange risk associated with the payment of the second tranche in July 2012. This foreign exchange forward contract was not designated as a hedging instrument.

Balance Sheet Classification

The following summarizes the fair values and location in our consolidated balance sheet of all derivatives held by SS/L as of December 31, 2011 (in thousands):

	Asset Derivatives			Liability Derivatives
	Balance Sheet			Balance Sheet
	Location	Fair Value		Location			Fair Value
Derivatives designated as hedging instruments
Foreign exchange contracts					Other current liabilities	$	$ 2,381
					Other liabilities		2,185
							4,566
Derivatives not designated as hedging instruments
Foreign exchange contracts	Other current assets	$	1
					Other liabilities		56
Total derivatives		$	1			$	$ 4,622

Cash Flow Hedge Gains (Losses) Recognition

The following summarizes the gains (losses) recognized in the consolidated statements of operations and in accumulated other comprehensive loss for all derivatives for the years ended December 31, 2012, 2011 and 2010 (in thousands):

			Gain (Loss) Reclassified from				Gain (Loss) on Derivative
	Loss Recognized		Accumulated				Ineffectiveness and
Derivatives in Cash Flow	in OCI on Derivatives		OCI into Income				Amounts Excluded from
Hedging Relationships	(Effective Portion)		(Effective Portion)				Effectiveness Testing
				Location		Amount		Location	Amount
Year ended December 31, 2012
Foreign exchange contracts	$	(694)		Revenue	$	(6,502)		Revenue	$	242
								Interest income	$	-
Year ended December 31, 2011
Foreign exchange contracts	$	(8,821)		Revenue	$	(17,935)		Revenue	$	(411)
								Interest income	$	(1)
Year ended December 31, 2010
Foreign exchange contracts	$	(15,790)		Revenue	$	6,054		Revenue	$	636
								Interest income	$	(13)

Cash Flow Derivatives Not Designated as	Gain (Loss) Recognized in Income
Hedging Instruments	on Derivatives
	Location		Amount
Year ended December 31, 2012
Foreign exchange contracts		Revenue	$	55
		Other income		1,316
Year ended December 31, 2011
Foreign exchange contracts		Revenue	$	(254)
Year ended December 31, 2010
Foreign exchange contracts		Revenue	$	33

All gains (losses) from derivatives in cash flow hedging relationships and all gains (losses) from cash flow derivatives not designated as hedging instruments that were attributable to revenue were included in income from discontinued operations in our consolidated statements of operations.