5. Investments in Affiliates

Investments in affiliates consist of (in thousands):


	June 30,		December 31,
	2018		2017
Telesat	$	36,383	$	53,430

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


	Three Months Ended June 30,				Six Months Ended June 30,
	2018		2017		2018		2017
Telesat	$	(3,455)	$	—	$	1,639	$	139,714

Telesat

As of June 30, 2018 and December 31, 2017, we held a 62.7% economic interest and a 32.6% voting interest in Telesat. We use the equity method of accounting for our majority economic interest in Telesat because we own 32.6% of the voting stock and do not exercise control by other means to satisfy the U.S. GAAP requirement for treatment as a consolidated subsidiary. We have also concluded that Telesat is not a variable interest entity for which we are the primary beneficiary. Loral’s equity in net income or loss of Telesat is based on our proportionate share of Telesat’s results in accordance with U.S. GAAP and in U.S. dollars. Our proportionate share of Telesat’s net income or loss is based on our economic interest as our holdings consist of common stock and non-voting participating preferred shares that have all the rights of common stock with respect to dividends, return of capital and surplus distributions, but have no voting rights.

In addition to recording our share of equity in net income of Telesat, we also recorded our share of equity in other comprehensive income of Telesat of $9.3 million for the six months ended June 30, 2018.

For the three and six months ended June 30, 2017, our share of equity in net income of Telest was $64.8 million and $100.7 million, respectively. In the first quarter of 2017, we received a $242.7 million cash distribution from Telesat. The cash distribution we received from Telesat exceeded our initial investment and our share of cumulative equity in comprehensive income of Telesat, net of cash distributions received from Telesat in prior periods, by $103.8 million which we recognized as additional equity income during the three months ended March 31, 2017. For the three months ended June 30, 2017, we did not recognize equity income in Telesat of $64.8 million and instead we reduced by $64.8 million the excess equity income of $103.8 million. For the six months ended June 30, 2017, additional equity income recognized as a result of the excess cash distribution was $39.0 million.

On January 1, 2018, Telesat adopted ASC 606, Revenue from Contracts with Customers, for its U.S. GAAP reporting which we use to record our equity income in Telesat. Telesat adopted the new standard using the modified retrospective approach with a cumulative effect adjustment to reduce Telesat’s retained earnings by $44.6 million. As a result, we recorded our share of the cumulative effect adjustment by reducing our investment in Telesat by $28.0 million, increasing our deferred tax assets by $5.9 million and increasing our accumulated deficit by $22.1 million. Comparative summary financial data of Telesat presented below has not been restated and continues to be reported under the accounting standards in effect for those periods presented.

On January 1, 2018, Telesat adopted ASU No. 2017-07, Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Costs, for its U.S. GAAP reporting. Comparative summary financial data of Telesat presented below has been restated as the new guidance is to be applied retrospectively. Adoption of the new guidance did not affect Telesat’s previously reported financial position or net income.

In February 2017, Telesat amended its senior secured credit facilities. The amendment to the senior secured credit facilities reduced the applicable margin on the term loan B – U.S. facility (“U.S. TLB Facility”) from 3.75% to 3.0%.

In March 2018, Telesat made a $50 million voluntary payment on the U.S. TLB Facility.

In April 2018, Telesat amended the senior secured credit facilities, resulting in a reduction of the margin on the U.S. TLB Facility to 2.5% from 3.0%.

The ability of Telesat to pay dividends or certain other restricted payments in cash to Loral is governed by applicable covenants in Telesat’s debt and shareholder agreements. Telesat’s credit agreement governing its senior secured credit facilities limits, among other items, Telesat’s ability to incur debt and make dividend payments if the total leverage ratio (“Total Leverage Ratio”) is above 4.50:1.00, with certain exceptions. As of June 30, 2018, Telesat’s Total Leverage Ratio was 4.73:1.00. Telesat is, however, permitted to pay annual consulting fees of $5.0 million to Loral in cash (see Note 14).

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 SSL and on Loral’s sale to Telesat in April 2011 of its portion of the payload on the ViaSat-1 satellite and related assets.

The following table presents summary financial data for Telesat in accordance with U.S. GAAP, for the three and six months ended June 30, 2018 and 2017 and as of June 30, 2018 and December 31, 2017 (in thousands):


	Three Months Ended June 30,				Six Months Ended June 30,
	2018		2017		2018		2017
Statement of Operations Data:
Revenues	$	164,114	$	167,538	$	348,980	$	344,649
Operating expenses		(26,933)		(36,788)		(57,536)		(78,776)
Depreciation, amortization and stock-based compensation		(48,287)		(47,637)		(96,786)		(96,134)
(Loss) gain on disposition of long lived asset		(15)		2		(13)		(16)
Operating income		88,879		83,115		194,645		169,723
Interest expense		(42,520)		(37,071)		(87,608)		(73,864)
Foreign exchange (loss) gain		(45,777)		72,309		(109,078)		90,160
(Loss) gain on financial instruments		(1,767)		(7,316)		30,616		(10,929)
Other income (expense)		2,973		(686)		4,591		(225)
Income tax provision		(7,815)		(9,619)		(31,585)		(19,457)
Net (loss) income	$	(6,027)	$	100,732	$	1,581	$	155,408


	June 30,		December 31,
	2018		2017
Balance Sheet Data:
Current assets	$	498,819	$	445,104
Total assets		3,963,123		4,082,472
Current liabilities		141,182		126,100
Long-term debt, including current portion		2,768,248		2,829,911
Total liabilities		3,468,143		3,538,656
Shareholders’ equity		494,980		543,816

Other

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. We have also concluded that XTAR is not a variable interest entity for which we are the primary beneficiary. As of June 30, 2018 and December 31, 2017, the carrying value of our investment in XTAR was zero. Beginning January 1, 2016, we discontinued providing for our allocated share of XTAR’s net losses as our investment was reduced to zero and we have no commitment to provide further financial support to XTAR.

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.

As of June 30, 2018 and December 31, 2017, the Company also held an indirect ownership interest in a foreign company that currently serves as the exclusive service provider for Globalstar service in Mexico. The Company accounts for this ownership interest using the equity method of accounting. Loral has written-off its investment in this company, and, because we have no future funding requirements relating to this investment, there is no requirement for us to provide for our allocated share of this company’s net losses.