5. Investments in Affiliates

Investments in affiliates consist of (in thousands):


	June 30,		December 31,
	2015		2014
Telesat Holdings Inc.	$	29,231	$	74,329
XTAR, LLC		25,121		30,463
	$	54,352	$	104,792

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


	Three Months Ended June 30,				Six Months Ended June 30,
	2015		2014		2015		2014
Telesat Holdings Inc.	$	27,913	$	66,150	$	(46,416)	$	65,466
XTAR, LLC		(2,826)		(1,787)		(5,342)		(3,272)
	$	25,087	$	64,363	$	(51,758)	$	62,194

Telesat

As of December 31, 2014 and June 30, 2015, we held a 62.8% economic interest and a 32.7% voting interest in Telesat. We use the equity method of accounting for our majority economic interest in Telesat because we own 32.7% of the voting stock and do not exercise control by other means to satisfy the U.S. GAAP requirement for treatment as a consolidated subsidiary. We have also concluded that Telesat is not a variable interest entity for which we are the primary beneficiary. Loral’s equity in net income or loss of Telesat is based on our proportionate share of Telesat’s results in accordance with U.S. GAAP and in U.S. dollars. Our proportionate share of Telesat’s net income or loss is based on our economic interest as our holdings consist of common stock and non-voting participating preferred shares that have all the rights of common stock with respect to dividends, return of capital and surplus distributions, but have no voting rights.

As of March 31, 2015, our share of loss in Telesat exceeded our recorded cumulative equity in net income of Telesat and our initial investment by $27.6 million. In following the equity method of accounting, our investment balance in Telesat was reduced to zero as of March 31, 2015. In addition, for the three months ended March 31, 2015, we did not record our equity of $5.6 million in Telesat’s other comprehensive income. During the three months ended June 30, 2015, we recognized the $27.6 million loss that was previously unrecorded and also recorded our share in the equity of Telesat’s other comprehensive income.

The ability of Telesat to pay dividends or certain other restricted payments as well as consulting fees in cash to Loral is governed by applicable covenants in Telesat’s debt and shareholder agreements. Under Telesat’s credit agreement and the indenture for Telesat’s 6% senior notes, dividends or certain other restricted payments may be paid only if there is a sufficient capacity under a restricted payment basket, which is based on a formula of cumulative consolidated EBITDA less 1.4 times cumulative consolidated interest expense. Under the 6% senior note indenture and credit agreement, Telesat is generally permitted to pay consulting fees to Loral in cash. Our general and administrative expenses are net of income related to consulting fees of $1.25 million for each of the three month periods ended June 30, 2015 and 2014 and $2.5 million for each of the six month periods ended June 30, 2015 and 2014. For each of the six month periods ended June 30, 2015 and 2014, Loral received payments in cash from Telesat, net of withholding taxes, of $2.4 million for consulting fees.

The contribution of Loral Skynet, a wholly owned subsidiary of Loral prior to its contribution to Telesat in 2007, was recorded by Loral at the historical book value of our retained interest combined with the gain recognized on the contribution. However, the contribution was recorded by Telesat at fair value. Accordingly, the amortization of Telesat fair value adjustments applicable to the Loral Skynet assets and liabilities is proportionately eliminated in determining our share of the net income or losses of Telesat. Our equity in net income or loss of Telesat also reflects amortization of profits eliminated, to the extent of our economic interest in Telesat, on satellites we constructed for Telesat while we owned SS/L and on Loral’s sale to Telesat in April 2011 of its portion of the payload on the ViaSat-1 satellite and related assets.

In connection with the acquisition of our ownership interest in Telesat in 2007, Loral retained the benefit of tax recoveries related to transferred assets and indemnified Telesat (“Telesat Indemnification”) for certain liabilities including Loral Skynet’s tax liabilities arising prior to January 1, 2007. During the three months ended March 31, 2014, Loral and Telesat settled several of the Telesat Indemnification tax disputes (see Note 15) resulting in a net cash recovery of $5.4 million which was received from Telesat in April 2014. Our investment in Telesat was reduced by $5.0 million as a result of this recovery.

The following table presents summary financial data for Telesat in accordance with U.S. GAAP, for the three and six months ended June 30, 2015 and 2014 and as of June 30, 2015 and December 31, 2014 (in thousands):


	Three Months Ended June 30,				Six Months Ended June 30,
	2015		2014		2015		2014
Statement of Operations Data:
Revenues	$	183,133	$	205,790	$	369,376	$	426,389
Operating expenses		(34,264)		(39,245)		(68,886)		(79,575)
Depreciation, amortization and stock-based compensation		(48,642)		(58,277)		(98,828)		(116,758)
Loss on disposition of long lived asset		(6)		(3)		(21)		(62)
Operating income		100,221		108,265		201,641		229,994
Interest expense		(35,068)		(47,501)		(70,271)		(95,016)
Foreign exchange gain (loss)		45,393		92,665		(168,841)		(9,084)
(Loss) gain on financial instruments		(3,657)		(30,979)		1,196		16,371
Other income		568		1,427		1,375		2,166
Income tax provision		(18,518)		(18,007)		(38,079)		(39,156)
Net income (loss)	$	88,939	$	105,870	$	(72,979)	$	105,275


	June 30,		December 31,
	2015		2014
Balance Sheet Data:
Current assets	$	531,034	$	497,287
Total assets		4,265,251		4,552,613
Current liabilities		170,593		227,200
Long-term debt, including current portion		3,038,656		3,102,635
Total liabilities		3,745,551		3,921,887
Shareholders’ equity		519,700		630,726

Telesat had capital expenditures of $50.9 million and $33.5 million for the six months ended June 30, 2015 and 2014, respectively.

XTAR

We own 56% of XTAR, a joint venture between us and Hisdesat Servicios Estrategicos, S.A. (“Hisdesat”) of Spain. We account for our ownership interest in XTAR under the equity method of accounting because we do not control certain of its significant operating decisions.

XTAR owns and operates an X-band satellite, XTAR-EUR, located at 29° E.L., which is designed to provide X-band communications services exclusively to United States, Spanish and allied government users throughout the satellite’s coverage area, including Europe, the Middle East and Asia. XTAR also leases 7.2 72MHz X-band transponders on the Spainsat satellite located at 30° W.L., owned by Hisdesat. These transponders, designated as XTAR-LANT, provide capacity to XTAR for additional X-band services and greater coverage and flexibility.

We regularly evaluate our investment in XTAR to determine whether there has been a decline in fair value that is other-than-temporary. During the fourth quarter of 2014, we recorded a non-cash impairment charge of $18.7 million related to a decline in fair value of our investment that was determined to be other-than-temporary. We performed an impairment test for our investment in XTAR as of June 30, 2015, using XTAR’s most recent forecast, and concluded that there was no additional impairment to our investment in XTAR. Any decline in XTAR’s projected revenues or increase in the discount rate used in estimating the fair value of our investment in XTAR may result in a future impairment charge.

XTAR’s lease obligation to Hisdesat for the XTAR-LANT transponders requires payments by XTAR of $26 million in 2015, with increases thereafter to a maximum of $28 million per year through the end of the useful life of the satellite which is estimated to be in 2022. Under this lease agreement, Hisdesat may also be entitled under certain circumstances to a share of the revenues generated on the XTAR-LANT transponders. In March 2009, XTAR entered into an agreement with Hisdesat pursuant to which the past due balance on XTAR-LANT transponders of $32.3 million as of December 31, 2008, together with a deferral of $6.7 million in payments due in 2009, is payable to Hisdesat over 12 years through annual payments of $5 million (the “Catch Up Payments”). XTAR has a right to prepay, at any time, all unpaid Catch Up Payments discounted at 9%. Cumulative amounts paid to Hisdesat for Catch-Up Payments through June 30, 2015 were $29.2 million. XTAR has also agreed that XTAR’s excess cash balance (as defined) will be applied towards making limited payments on future lease obligations, as well as payments of other amounts owed to Hisdesat, Telesat and Loral for services provided by them to XTAR (see Note 15). The ability of XTAR to pay dividends and management fees in cash to Loral is governed by XTAR’s operating agreement.

The following table presents summary financial data for XTAR for the three and six months ended June 30, 2015 and 2014 and as of June 30, 2015 and December 31, 2014 (in thousands):


	Three Months Ended June 30,				Six Months Ended June 30,
	2015		2014		2015		2014
Statement of Operations Data:
Revenues	$	6,669	$	7,675	$	12,697	$	15,721
Operating expenses		(8,171)		(8,006)		(16,106)		(15,813)
Depreciation and amortization		(2,189)		(2,314)		(4,492)		(4,629)
Operating loss		(3,691)		(2,645)		(7,901)		(4,721)
Net loss		(4,664)		(3,302)		(9,267)		(6,064)


	June 30,		December 31,
	2015		2014
Balance Sheet Data:
Current assets	$	9,054	$	4,992
Total assets		50,670		53,508
Current liabilities		36,718		28,585
Total liabilities		65,348		59,342
Members’ equity		(14,678)		(5,834)

Other

As of June 30, 2015 and December 31, 2014, the Company held various indirect ownership interests in two foreign companies that currently serve as exclusive service providers for Globalstar service in Mexico and Russia. The Company accounts for these ownership interests using the equity method of accounting. Loral has written-off its investments in these companies, and, because we have no future funding requirements relating to these investments, there is no requirement for us to provide for our allocated share of these companies’ net losses.