18. Segments

Prior to the Sale, Loral had two operating segments: satellite manufacturing and satellite services. Our segment reporting data includes unconsolidated affiliates that meet the reportable segment criteria. The satellite services segment includes 100% of the results reported by Telesat for the years ended December 31, 2012, 2011 and 2010. Although we analyze Telesat’s revenue and expenses under the satellite services segment, we eliminate its results in our consolidated financial statements, where we report our 62.8% share of Telesat’s results as equity in net income of affiliates. Our ownership in XTAR, for which we use the equity method of accounting, is included in Corporate.

The common definition of EBITDA is “Earnings Before Interest, Taxes, Depreciation and Amortization.” In evaluating financial performance, we use revenues and operating income before depreciation, amortization and stock-based compensation (excluding stock-based compensation from SS/L Phantom SARs expected to be settled in cash), gain on disposition of net assets, directors’ indemnification expense and expense related to amounts payable to executives and certain employees of Telesat in connection with the special cash distribution paid to Telesat’s shareholders (“Adjusted EBITDA”) as the measure of a segment’s profit or loss. Adjusted EBITDA is equivalent to the common definition of EBITDA before: gain on disposition of net assets, directors’ indemnification expense, gains or losses on litigation not related to our operations; expense related to amounts payable to executives and certain employees of Telesat in connection with the special cash distribution paid to Telesat’s shareholders other expense; and equity in net income of affiliates.

Adjusted EBITDA allows us and investors to compare our operating results with those of competitors exclusive of depreciation and amortization, interest and investment income, interest expense, gain on disposition of net assets, directors’ indemnification expense, gains or losses on litigation not related to our operations, expense related to amounts payable to executives and certain employees of Telesat in connection with the special cash distribution paid to Telesat’s shareholders other expense and equity in net income of affiliates. Financial results of competitors in our industry have significant variations that can result from timing of capital expenditures, the amount of intangible assets recorded, the differences in assets’ lives, the timing and amount of investments, the effects of other expenses, which are typically for non-recurring transactions not related to the on-going business, and effects of investments not directly managed. The use of Adjusted EBITDA allows us and investors to compare operating results exclusive of these items. Competitors in our industry have significantly different capital structures. The use of Adjusted EBITDA maintains comparability of performance by excluding interest expense.

We believe the use of Adjusted EBITDA along with U.S. GAAP financial measures enhances the understanding of our operating results and is useful to us and investors in comparing performance with competitors, estimating enterprise value and making investment decisions. Adjusted EBITDA as used here may not be comparable to similarly titled measures reported by competitors. We also use Adjusted EBITDA to evaluate operating performance of our segments, to allocate resources and capital to such segments, to measure performance for incentive compensation programs and to evaluate future growth opportunities. Adjusted EBITDA should be used in conjunction with U.S. GAAP financial measures and is not presented as an alternative to cash flow from operations as a measure of our liquidity or as an alternative to net income as an indicator of our operating performance.

Intersegment revenues primarily consist of satellites under construction by satellite manufacturing for satellite services and the leasing of transponder capacity by satellite manufacturing from satellite services. Summarized financial information concerning the reportable segments is as follows (in thousands):

Segment Information



	Year Ended December 31,
	2012		2011		2010
Revenues
Satellite manufacturing:
External revenues	$	882,585	$	967,432	$	1,021,768
Intersegment revenues⁽¹⁾		57,762		140,763		143,318
Satellite manufacturing revenues		940,347		1,108,195		1,165,086
Satellite services revenues⁽²⁾		846,148		817,269		797,283
Operating segment revenues before eliminations		1,786,495		1,925,464		1,962,369
Intercompany eliminations⁽³⁾		—		(830)		(6,101)
Affiliate eliminations⁽²⁾		(846,148)		(817,269)		(797,283)
Total revenues		940,347		1,107,365		1,158,985
Revenues included in income from discontinued operations		(940,347)		(1,107,365)		(1,158,985)
Revenues reported	$	—	$	—	$	—
Segment Adjusted EBITDA⁽⁴⁾
Satellite manufacturing	$	31,233	$	137,659	$	143,076
Satellite services⁽²⁾		648,202		629,150		606,651
Corporate⁽⁵⁾		(27,640)		(17,170)		(17,866)
Adjusted EBITDA before eliminations		651,795		749,639		731,861
Intercompany eliminations⁽³⁾		—		(279)		(1,465)
Affiliate eliminations⁽²⁾		(648,202)		(629,150)		(606,651)
Adjusted EBITDA		3,593		120,210		123,745
Adjusted EBITDA from discontinued operations		(31,233)		(137,380)		(141,612)
Adjusted EBITDA from continuing operations		(27,640)		(17,170)		(17,867)
Reconciliation to Operating loss
Depreciation, Amortization and Stock-Based Compensation⁽⁴⁾
Satellite manufacturing		(27,792)		(32,514)		(34,675)
Satellite services⁽²⁾		(249,134)		(248,010)		(249,318)
Corporate		(1,134)		(1,175)		(1,605)
Segment depreciation before affiliate eliminations		(278,060)		(281,699)		(285,598)
Affiliate eliminations⁽²⁾		249,134		248,010		249,318
Depreciation, amortization and stock-based compensation		(28,926)		(33,689)		(36,280)
Depreciation, amortization and stock-based compensation from discontinued operations		27,792		32,514		34,675
Depreciation, amortization and stock-based compensation as reported		(1,134)		(1,175)		(1,605)
Gain on disposition of net assets⁽⁶⁾		—		5,118		—
Directors’ indemnification expense ⁽⁷⁾		—		—		(6,857)
Operating loss as reported	$	(28,774)	$	(13,227)	$	(26,329)
Capital Expenditures
Satellite manufacturing		40,873		36,615		35,378
Satellite services⁽²⁾		170,394		390,641		254,020
Corporate		4		350		18,679
Segment capital expenditures before affiliate eliminations⁽⁸⁾		211,271		427,606		308,077
Affiliate eliminations⁽²⁾		(170,394)		(390,641)		(254,020)
Total capital expenditures		40,877		36,965		54,057
Capital expenditures from discontinued operations		(40,873)		(36,615)		(35,378)
Capital expenditures as reported	$	4	$	350	$	18,679



	As of December 31,
	2012		2011
Total Assets⁽⁸⁾
Satellite manufacturing	$	—	$	929,408
Satellite services⁽⁹⁾		5,342,313		5,724,418
Corporate		378,992		529,501
Total assets before affiliate eliminations		5,721,305		7,183,327
Affiliate eliminations⁽²⁾		(5,342,313)		(5,347,174)
Total assets as reported	$	378,992	$	1,836,153

⁽¹⁾ Intersegment revenues include $58 million, $140 million and $137 million for the years ended December 31, 2012, 2011 and 2010, respectively, of revenue from affiliates.

⁽²⁾ Satellite services represents Telesat. Affiliate eliminations represent the elimination of amounts attributable to Telesat whose results are reported under the equity method of accounting in our consolidated statements of operations (see Note 8).

⁽³⁾ Represents the elimination of intercompany sales and intercompany Adjusted EBITDA for a satellite under construction by SS/L for Loral.

⁽⁴⁾ Compensation expense related to SS/L Phantom SARs and restricted stock units paid in cash or expected to be paid in cash is included in Adjusted EBITDA. Compensation expense related to SS/L Phantom SARs and restricted stock units paid in Loral common stock or expected to be paid in Loral common stock is included in depreciation, amortization and stock-based compensation.

⁽⁵⁾ Includes corporate expenses incurred in support of our operations and includes our equity investments in XTAR and Globalstar service providers.

⁽⁶⁾ Represents the gain included in continuing operations on the sale of Loral’s portion of the payload on the ViaSat-1 satellite and related net assets to Telesat adjusted for elimination of Loral’s ownership interest in Telesat (see Note 19).

⁽⁷⁾ Represents indemnification expense, net of insurance recovery, in connection with defense costs incurred by MHR affiliated directors in the Delaware shareholder derivative case.

⁽⁸⁾ Amounts are presented after the elimination of intercompany profit.

⁽⁹⁾ Includes $2.5 billion and $2.4 billion of satellite services goodwill related to Telesat as of December 31, 2012 and 2011, respectively.

Revenue by Customer Location

The following table presents our revenues, included in income from discontinued operations, by country based on customer location for the years ended December 31, 2012, 2011 and 2010 (in thousands):

	For the Year Ended December 31,
	2012	2011	2010
United States.....................................................................................................	$ 302,112	$ 397,389	$ 645,769
Canada.................................................................................................................	57,656	137,610	137,195
Brazil......................................................................................................................	63,039	−	−
Spain......................................................................................................................	52,477	113,546	85,161
Bermuda...............................................................................................................	47,513	83,600	−
Mexico...................................................................................................................	36,653	82,657	49,157
France...................................................................................................................	33,333	80,923	24,657
People’s Republic of China (including Hong Kong)..........................	99,039	47,967	44,135
United Kingdom................................................................................................	1,498	40,741	57,976
Australia...............................................................................................................	153,235	40,067	−
Luxembourg........................................................................................................	17,698	31,107	70,678
Norway.................................................................................................................	68,305	29,809	−
The Netherlands...............................................................................................	6,366	18,501	26,721
Other......................................................................................................................	1,423	3,448	17,536
Total revenue	$ 940,347	$ 1,107,365	$ 1,158,985

Revenue shown above is included in income from discontinued operations in our consolidated statements of operations.

During 2012, three of our customers accounted for approximately 17%, 12% and 11% of our consolidated revenues included in income from discontinued operations. During 2011, three of our customers accounted for approximately 13%, 12% and 10% of our consolidated revenues included in income from discontinued operations. During 2010, five of our customers accounted for approximately 19%, 13%, 12%, 12% and 11% of our consolidated revenues included in income from discontinued operations.