UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________
Form 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2018
Commission file number 1-14180
Loral Space & Communications Inc.
600 Fifth Avenue
New York, New York 10020
Telephone: (212) 697-1105
Jurisdiction of incorporation: Delaware
IRS identification number: 87-0748324
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. Yes þ No ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes þ No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ¨ | Accelerated filer | þ | |
| Non-accelerated filer | ¨ | Smaller reporting company | þ | |
| Emerging growth company | ¨ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2 of the Act). Yes ¨ No þ
As of November 5, 2018, 21,427,078 shares of the registrant’s voting common stock and 9,505,673 shares of the registrant’s non-voting common stock were outstanding.
LORAL SPACE & COMMUNICATIONS INC.
INDEX TO QUARTERLY REPORT ON FORM 10-Q
For the quarterly period ended September 30, 2018
| 2 |
FINANCIAL INFORMATION
LORAL SPACE & COMMUNICATIONS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
(Unaudited)
| September 30, | December 31, | |||||||
| 2018 | 2017 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 248,904 | $ | 255,139 | ||||
| Income taxes receivable | 10,818 | 11,105 | ||||||
| Other current assets | 3,780 | 3,099 | ||||||
| Total current assets | 263,502 | 269,343 | ||||||
| Income taxes receivable, non-current | 1,550 | 1,550 | ||||||
| Investments in affiliates | 84,363 | 53,430 | ||||||
| Deferred tax assets | 56,529 | 50,016 | ||||||
| Other assets | 52 | 372 | ||||||
| Total assets | $ | 405,996 | $ | 374,711 | ||||
| LIABILITIES AND SHAREHOLDERS' EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accrued employment costs | $ | 2,166 | $ | 2,573 | ||||
| Other current liabilities | 2,262 | 1,279 | ||||||
| Total current liabilities | 4,428 | 3,852 | ||||||
| Pension and other postretirement liabilities | 16,390 | 18,786 | ||||||
| Other liabilities | 63,390 | 61,475 | ||||||
| Total liabilities | 84,208 | 84,113 | ||||||
| Commitments and contingencies | ||||||||
| Shareholders' Equity: | ||||||||
| Preferred stock, 0.01 par value; 10,000,000 shares authorized, no shares issued and outstanding | — | — | ||||||
| Common Stock: | ||||||||
| Voting common stock, 0.01 par value; 50,000,000 shares authorized, 21,581,572 issued | 216 | 216 | ||||||
| Non-voting common stock, 0.01 par value; 20,000,000 shares authorized 9,505,673 issued and outstanding | 95 | 95 | ||||||
| Paid-in capital | 1,019,988 | 1,019,988 | ||||||
| Treasury stock (at cost), 154,494 shares of voting common stock | (9,592 | ) | (9,592 | ) | ||||
| Accumulated deficit | (654,003 | ) | (682,831 | ) | ||||
| Accumulated other comprehensive loss | (34,916 | ) | (37,278 | ) | ||||
| Total shareholders' equity | 321,788 | 290,598 | ||||||
| Total liabilities and shareholders' equity | $ | 405,996 | $ | 374,711 | ||||
See notes to condensed consolidated financial statements
| 3 |
LORAL SPACE & COMMUNICATIONS INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(In thousands, except per share amounts)
(Unaudited)
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2018 | 2017 | 2018 | 2017 | |||||||||||||
| General and administrative expenses | $ | (1,715 | ) | $ | (1,794 | ) | $ | (5,109 | ) | $ | (5,339 | ) | ||||
| Operating loss | (1,715 | ) | (1,794 | ) | (5,109 | ) | (5,339 | ) | ||||||||
| Interest and investment income | 1,263 | 728 | 3,340 | 1,754 | ||||||||||||
| Interest expense | (6 | ) | (11 | ) | (17 | ) | (22 | ) | ||||||||
| Other expense | (1,749 | ) | (1,206 | ) | (2,937 | ) | (3,519 | ) | ||||||||
| Loss from continuing operations before income taxes and equity in net income of affiliates | (2,207 | ) | (2,283 | ) | (4,723 | ) | (7,126 | ) | ||||||||
| Income tax provision | (6,669 | ) | (16,552 | ) | (1,014 | ) | (82,236 | ) | ||||||||
| Loss from continuing operations before equity in net income of affiliates | (8,876 | ) | (18,835 | ) | (5,737 | ) | (89,362 | ) | ||||||||
| Equity in net income of affiliates | 55,095 | 43,372 | 56,734 | 183,086 | ||||||||||||
| Income from continuing operations | 46,219 | 24,537 | 50,997 | 93,724 | ||||||||||||
| Loss from discontinued operations, net of tax | (25 | ) | — | (62 | ) | (5 | ) | |||||||||
| Net income | 46,194 | 24,537 | 50,935 | 93,719 | ||||||||||||
| Other comprehensive (loss) income, net of tax | (5,410 | ) | (12,356 | ) | 2,362 | (15,215 | ) | |||||||||
| Comprehensive income | $ | 40,784 | $ | 12,181 | $ | 53,297 | $ | 78,504 | ||||||||
| Net income per share: | ||||||||||||||||
| Basic | ||||||||||||||||
| Income from continuing operations | $ | 1.49 | $ | 0.79 | $ | 1.65 | $ | 3.03 | ||||||||
| Loss from discontinued operations, net of tax | — | — | — | — | ||||||||||||
| Net income | $ | 1.49 | $ | 0.79 | $ | 1.65 | $ | 3.03 | ||||||||
| Diluted | ||||||||||||||||
| Income from continuing operations | $ | 1.48 | $ | 0.77 | $ | 1.63 | $ | 2.98 | ||||||||
| Loss from discontinued operations, net of tax | — | — | — | — | ||||||||||||
| Net income | $ | 1.48 | $ | 0.77 | $ | 1.63 | $ | 2.98 | ||||||||
| Weighted average common shares outstanding: | ||||||||||||||||
| Basic | 30,933 | 30,933 | 30,933 | 30,933 | ||||||||||||
| Diluted | 31,008 | 31,008 | 31,008 | 31,008 | ||||||||||||
See notes to condensed consolidated financial statements
| 4 |
LORAL SPACE & COMMUNICATIONS INC.
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(In thousands)
(Unaudited)
| Common Stock | Treasury Stock | Accumulated | ||||||||||||||||||||||||||||||||||||||
| Voting | Non-Voting | Voting | Other | |||||||||||||||||||||||||||||||||||||
| Shares | Shares | Paid-In | Accumulated | Comprehensive | Shareholders' | |||||||||||||||||||||||||||||||||||
| Issued | Amount | Issued | Amount | Capital | Shares | Amount | Deficit | Loss | Equity | |||||||||||||||||||||||||||||||
| Balance, January 1, 2017 | 21,582 | $ | 216 | 9,506 | $ | 95 | $ | 1,019,988 | 154 | $ | (9,592 | ) | $ | (826,460 | ) | $ | (13,836 | ) | $ | 170,411 | ||||||||||||||||||||
| Net income | 93,719 | |||||||||||||||||||||||||||||||||||||||
| Other comprehensive loss | (15,215 | ) | ||||||||||||||||||||||||||||||||||||||
| Comprehensive income | 78,504 | |||||||||||||||||||||||||||||||||||||||
| Cumulative effect adjustment attributable to previously unrecognized excess tax benefits on stock-based compensation | 4,741 | 4,741 | ||||||||||||||||||||||||||||||||||||||
| Balance, September 30, 2017 | 21,582 | 216 | 9,506 | 95 | 1,019,988 | 154 | (9,592 | ) | (728,000 | ) | (29,051 | ) | 253,656 | |||||||||||||||||||||||||||
| Net income | 40,745 | |||||||||||||||||||||||||||||||||||||||
| Other comprehensive loss | (3,759 | ) | ||||||||||||||||||||||||||||||||||||||
| Comprehensive income | 36,986 | |||||||||||||||||||||||||||||||||||||||
| Tax cuts and Jobs Act, reclassification tax effect | 4,468 | (4,468 | ) | — | ||||||||||||||||||||||||||||||||||||
| Cumulative effect adjustment attributable to previously unrecognized excess tax benefits on stock-based compensation | (44 | ) | (44 | ) | ||||||||||||||||||||||||||||||||||||
| Balance, December 31, 2017 | 21,582 | 216 | 9,506 | 95 | 1,019,988 | 154 | (9,592 | ) | (682,831 | ) | (37,278 | ) | 290,598 | |||||||||||||||||||||||||||
| Net income | 50,935 | |||||||||||||||||||||||||||||||||||||||
| Other comprehensive income | 2,362 | |||||||||||||||||||||||||||||||||||||||
| Comprehensive income | 53,297 | |||||||||||||||||||||||||||||||||||||||
| Cumulative effect adjustment attributable to investment in Telesat, net of tax of $5.9 million | (22,107 | ) | (22,107 | ) | ||||||||||||||||||||||||||||||||||||
| Balance, September 30, 2018 | 21,582 | $ | 216 | 9,506 | $ | 95 | $ | 1,019,988 | 154 | $ | (9,592 | ) | $ | (654,003 | ) | $ | (34,916 | ) | $ | 321,788 | ||||||||||||||||||||
See notes to condensed consolidated financial statements
| 5 |
LORAL SPACE & COMMUNICATIONS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
| Nine Months Ended | ||||||||
| September 30, | ||||||||
| 2018 | 2017 | |||||||
| Operating activities: | ||||||||
| Net income | $ | 50,935 | $ | 93,719 | ||||
| Loss from discontinued operations, net of tax | 62 | 5 | ||||||
| Adjustments to reconcile net income to net cash used in operating activities: | ||||||||
| Non-cash operating items (Note 2) | (57,158 | ) | (155,628 | ) | ||||
| Changes in operating assets and liabilities: | ||||||||
| Other current assets and other assets | (377 | ) | (565 | ) | ||||
| Accrued employment costs and other current liabilities | 576 | 759 | ||||||
| Income taxes receivable and payable | 287 | 43,473 | ||||||
| Pension and other postretirement liabilities | (2,396 | ) | (1,576 | ) | ||||
| Other liabilities | 1,915 | 2,035 | ||||||
| Net cash used in operating activities – continuing operations | (6,156 | ) | (17,778 | ) | ||||
| Net cash used in operating activities – discontinued operations | (79 | ) | (2,809 | ) | ||||
| Net cash used in operating activities | (6,235 | ) | (20,587 | ) | ||||
| Investing activities: | ||||||||
| Capital expenditures | — | (39 | ) | |||||
| Distribution received from affiliate | — | 242,735 | ||||||
| Net cash provided by investing activities – continuing operations | — | 242,696 | ||||||
| Net cash provided by investing activities – discontinued operations | — | — | ||||||
| Net cash provided by investing activities | — | 242,696 | ||||||
| Cash, cash equivalents and restricted cash (Note 2) — period (decrease) increase | (6,235 | ) | 222,109 | |||||
| Cash, cash equivalents and restricted cash (Note 2) — beginning of year | 255,443 | 37,458 | ||||||
| Cash, cash equivalents and restricted cash — end of period | $ | 249,208 | $ | 259,567 | ||||
See notes to condensed consolidated financial statements
| 6 |
LORAL SPACE & COMMUNICATIONS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Organization and Principal Business
Loral Space & Communications Inc., together with its subsidiaries (“Loral,” the “Company,” “we,” “our” and “us”) is a leading satellite communications company engaged, through our ownership interests in affiliates, in satellite-based communications services.
Description of Business
Loral has one operating segment consisting of satellite-based communications services. Loral participates in satellite services operations primarily through its ownership interest in Telesat Canada (“Telesat”), a leading global satellite operator. Loral holds a 62.7% economic interest and a 32.6% voting interest in Telesat. We use the equity method of accounting for our ownership interest in Telesat (see Note 5).
Telesat owns and leases a satellite fleet that operates in geostationary earth orbit approximately 22,000 miles above the equator. In this orbit, satellites remain in a fixed position relative to points on the earth’s surface and provide reliable, high-bandwidth services anywhere in their coverage areas, serving as the backbone for many forms of telecommunications. On July 22, 2018, Telesat successfully launched a geostationary satellite, Telstar 19 VANTAGE, which entered commercial service in August 2018. On September 10, 2018, Telesat successfully launched another geostationary satellite, Telstar 18 VANTAGE, which entered commercial service in October 2018. Telesat is also developing a global constellation of low earth orbit (“LEO”) satellites. LEO satellites operate in a circular orbit around the earth with an altitude typically between 500 and 870 miles. Unlike geostationary orbit satellites that operate in a fixed orbital location above the equator, LEO satellites travel around the earth at high velocities requiring antennas on the ground to track their movement. LEO satellite systems have the potential to offer a number of advantages over geostationary orbit satellites to meet growing requirements for broadband services, both consumer and commercial, by providing increased data speeds and capacity, global coverage, and latency on par with, or potentially better than, terrestrial services.
2. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared pursuant to the rules of the Securities and Exchange Commission (“SEC”) and, in our opinion, include all adjustments (consisting of normal recurring accruals) necessary for a fair presentation of results of operations, financial position and cash flows as of the balance sheet dates presented and for the periods presented. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been condensed or omitted pursuant to SEC rules. We believe that the disclosures made are adequate to keep the information presented from being misleading. The results of operations for the three and nine months ended September 30, 2018 are not necessarily indicative of the results to be expected for the full year.
The December 31, 2017 balance sheet has been derived from the audited consolidated financial statements at that date. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements included in our latest Annual Report on Form 10-K filed with the SEC.
Discontinued Operations
On November 2, 2012, pursuant to the purchase agreement (the “Purchase Agreement”), dated as of June 26, 2012, as amended on October 30, 2012 and March 28, 2013, by and among Loral, Space Systems/Loral, LLC (formerly known as Space Systems/Loral, Inc.) (“SSL”), MacDonald, Dettwiler and Associates Ltd. (“MDA”) and MDA Communications Holdings, Inc. (“MDA Holdings”), a subsidiary of MDA, Loral completed the sale of SSL (the “SSL Sale”), its wholly-owned subsidiary, to MDA Holdings.
| 7 |
LORAL SPACE & COMMUNICATIONS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
Interest and other expenses that are directly related to the SSL Sale are classified as discontinued operations in the statements of operations for the three and nine months ended September 30, 2018 and 2017.
Investments in Affiliates
Our ownership interest in Telesat is accounted for using the equity method of accounting. Income and losses of Telesat are recorded based on our economic interest. 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 them 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. Non-refundable cash distributions received from Telesat in excess of our initial investment and our share of cumulative equity in comprehensive income of Telesat, net of cash distributions received in prior periods, are recorded as equity in net income of Telesat (“Excess Cash Distribution”) since we have no obligation to provide future financial support to Telesat. After receiving an Excess Cash Distribution, we do not record additional equity in net income of Telesat until our share of Telesat’s future net income exceeds the Excess Cash Distribution. Equity in losses of affiliates is not recognized after the carrying value of an investment, including advances and loans, has been reduced to zero, unless guarantees or other funding obligations exist. We had no guarantees or other funding obligations for our equity method investments as of September 30, 2018 and December 31, 2017. We use the nature of distribution approach to classify distributions from equity method investments on the statements of cash flows. The Company monitors its equity method investments for factors indicating other-than-temporary impairment. An impairment loss is recognized when there has been a loss in value of the affiliate that is other-than-temporary.
Use of Estimates in Preparation of Financial Statements
The preparation of financial statements in conformity with U.S. GAAP requires management 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 amount of income (loss) reported for the period. Actual results could materially differ from estimates.
Significant estimates also included the allowances for doubtful accounts, income taxes, including the valuation of deferred tax assets, the fair value of liabilities indemnified, the dilutive effect of Telesat stock options (see Note 10) and our pension liabilities.
Cash, Cash Equivalents and Restricted Cash
As of September 30, 2018, the Company had $248.9 million of cash and cash equivalents. Cash and cash equivalents include liquid investments, primarily money market funds, with maturities of less than 90 days at the time of purchase. Management determines the appropriate classification of its investments at the time of purchase and at each balance sheet date.
As of September 30, 2018 and December 31, 2017, the Company had restricted cash of $0.3 million. The restricted cash of $0.3 million represents the amount pledged as collateral to the issuer of a standby letter of credit (the “LC”). The LC, which expires in October 2018 and contains an automatic renewal period of one year, has been provided as a guaranty to the lessor of our corporate offices.
The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the condensed consolidated balance sheet to the condensed consolidated statement of cash flows (in thousands):
| September 30, | December 31, | |||||||
| 2018 | 2017 | |||||||
| Cash and cash equivalents | $ | 248,904 | 255,139 | |||||
| Restricted cash included in current assets | 304 | — | ||||||
| Restricted cash included in other assets | — | 304 | ||||||
| Cash, cash equivalents and restricted cash shown in the statement of cash flows | $ | 249,208 | 255,443 | |||||
| 8 |
LORAL SPACE & COMMUNICATIONS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
Concentration of Credit Risk
Financial instruments which potentially subject us to concentrations of credit risk consist principally of cash and cash equivalents and receivables. Our cash and cash equivalents are maintained with high-credit-quality financial institutions. As of September 30, 2018 and December 31, 2017, our cash and cash equivalents were invested primarily in several liquid Prime and Government AAA money market funds. Such funds are not insured by the Federal Deposit Insurance Corporation. The dispersion across funds reduces the exposure of a default at any one fund. As a result, management believes that its potential credit risks are minimal.
Fair Value Measurements
U.S. GAAP defines fair value as the price that would be received for an asset or the exit price that would be paid to transfer a liability in the principal or most advantageous market in an orderly transaction between market participants. U.S. GAAP also establishes a fair value hierarchy that gives the highest priority to observable inputs and the lowest priority to unobservable inputs. The three levels of the fair value hierarchy are described below:
Level 1: Inputs represent a fair value that is derived from unadjusted quoted prices for identical assets or liabilities traded in active markets at the measurement date.
Level 2: Inputs represent a fair value that is derived from quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, model-based valuation techniques for which all significant assumptions are observable in the market or can be corroborated by observable market data for substantially the full term of the assets or liabilities, and pricing inputs, other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date.
Level 3: Inputs are generally unobservable and typically reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability. The fair values are therefore determined using model-based techniques that include option pricing models, discounted cash flow models, and similar techniques.
Assets and Liabilities Measured at Fair Value
The following table presents our assets and liabilities measured at fair value on a recurring and non-recurring basis (in thousands):
| September 30, 2018 | December 31, 2017 | |||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Level 1 | Level 2 | Level 3 | |||||||||||||||||||
| Assets | ||||||||||||||||||||||||
| Cash and cash equivalents: | ||||||||||||||||||||||||
| Money market funds | $ | 247,237 | $ | — | $ | — | $ | 251,742 | $ | — | $ | — | ||||||||||||
| Other current assets: | ||||||||||||||||||||||||
| Indemnification - Sale of SSL | — | — | 2,410 | — | — | 2,410 | ||||||||||||||||||
| Liabilities | ||||||||||||||||||||||||
| Other liabilities: | ||||||||||||||||||||||||
| Indemnification - Globalstar do Brasil S.A. | $ | — | $ | — | $ | 190 | $ | — | $ | — | $ | 293 | ||||||||||||
The carrying amount of money market funds approximates fair value as of each reporting date because of the short maturity of those instruments.
The Company did not have any non-financial assets or non-financial liabilities that were recognized or disclosed at fair value as of September 30, 2018 and December 31, 2017.
| 9 |
LORAL SPACE & COMMUNICATIONS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
Assets and Liabilities Measured at Fair Value on a Non-recurring Basis
We review the carrying values of our equity method investments when events and circumstances warrant and consider all available evidence in evaluating when declines in fair value are other-than-temporary. The fair values of our investments are determined based on valuation techniques using the best information available and may include quoted market prices, market comparables and discounted cash flow projections. An impairment charge is recorded when the carrying amount of the investment exceeds its current fair value and is determined to be other-than-temporary.
The asset resulting from the indemnification of SSL is for certain pre-closing taxes and reflects the excess of payments since inception over the estimated liability, which was originally determined using the fair value objective approach. The estimated liability for indemnifications relating to Globalstar do Brasil S.A. (“GdB”), originally determined using expected value analysis, is net of payments since inception.
Contingencies
Contingencies by their nature relate to uncertainties that require management to exercise judgment both in assessing the likelihood that a liability has been incurred as well as in estimating the amount of potential loss, if any. We accrue for costs relating to litigation, claims and other contingent matters when such liabilities become probable and reasonably estimable. Such estimates may be based on advice from third parties or on management’s judgment, as appropriate. Actual amounts paid may differ from amounts estimated, and such differences will be charged to operations in the period in which the final determination of the liability is made.
Income Taxes
Loral and its subsidiaries are subject to U.S. federal, state and local income taxation on their worldwide income and foreign taxation on certain income from sources outside the United States. Telesat is subject to tax in Canada and other jurisdictions, and Loral will provide in operating earnings any additional U.S. current and deferred tax required on distributions received or deemed to be received from Telesat. Deferred income taxes reflect the future tax effect of temporary differences between the carrying amount of assets and liabilities for financial and income tax reporting and are measured by applying anticipated statutory tax rates in effect for the year during which the differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance to the extent it is more likely than not that the deferred tax assets will not be realized.
The tax benefit of an uncertain tax position (“UTP”) taken or expected to be taken in income tax returns is recognized only if it is “more likely than not” to be sustained on examination by the taxing authorities, based on its technical merits as of the reporting date. The tax benefit recognized in the financial statements from such a position is measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement. The Company recognizes interest and penalties related to income taxes in income tax expense on a quarterly basis.
The unrecognized tax benefit of a UTP is recognized in the period when the UTP is effectively settled. A previously recognized tax position is derecognized in the first period in which it is no longer more likely than not that such tax position would be sustained upon examination.
Earnings per Share
Basic earnings per share are computed based upon the weighted average number of shares of voting and non-voting common stock outstanding during each period. Shares of non-voting common stock are in all respects identical to and treated equally with shares of voting common stock except for the absence of voting rights (other than as provided in Loral’s Amended and Restated Certificate of Incorporation which was ratified by Loral’s stockholders on May 19, 2009). Diluted earnings per share are based on the weighted average number of shares of voting and non-voting common stock outstanding during each period, adjusted for the effect of unvested or unconverted restricted stock units. For diluted earnings per share, earnings are adjusted for the dilutive effect of Telesat stock options.
| 10 |
LORAL SPACE & COMMUNICATIONS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
Recent Accounting Pronouncements
In August 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2018-14, Compensation-Retirement Benefits-Defined Benefit Plans-General (Subtopic 715-20): Disclosure Framework – Changes to the Disclosure Requirements for Defined Benefit Plans. The amendments in ASU No. 2018-14 remove certain disclosures that are no longer considered cost beneficial, clarify the specific requirements of certain disclosures, and add disclosure requirements identified as relevant to improve effectiveness of disclosures related to employer sponsored defined benefit or other postretirement plans. The new guidance is effective for the Company on January 1, 2021, with earlier application permitted in any interim or annual period. The amendments in this ASU are to be applied on a retrospective basis to all periods presented. The Company is currently evaluating the impact of the new guidance on its condensed consolidated financial statements.
In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement. ASU No. 2018-13 eliminates, amends, and adds disclosure requirements to improve the effectiveness of fair value measurement disclosures. The new guidance is effective for the Company on January 1, 2020, with earlier application permitted in any interim or annual period. Companies may also choose to early adopt the eliminated and amended disclosures and wait to adopt the new disclosures until the effective date of the new guidance. While certain amendments are to be applied prospectively, all other amendments are to be applied retrospectively to all periods presented. The Company is currently evaluating the impact of the new guidance on its condensed consolidated financial statements.
In February 2018, the FASB issued ASU No. 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. On December 22, 2017, Public Law 115-97, known as the “Tax Cuts and Jobs Act” was signed into law. Among other things, the Tax Cuts and Jobs Act permanently reduced the U.S. federal corporate income tax rate from 35 percent to 21 percent effective for tax years commencing January 1, 2018. According to ASU 2018-02, an entity may elect either to (a) reclassify from accumulated other comprehensive income (loss) to retained earnings the stranded income tax effects of the federal tax rate change (the “Reclassification”) or (b) provide certain disclosures. The new guidance is effective for the Company on January 1, 2019, with earlier adoption permitted in any interim or annual period. The amendments in this update are to be applied either in the period of adoption or retrospectively to each period in which the effect of the tax rate change is recognized. The Company early adopted the new guidance in the fourth quarter of 2017 and elected the Reclassification approach. As a result of adopting the new guidance, we reclassified $4.5 million of stranded deferred federal income tax benefits from accumulated other comprehensive loss to accumulated deficit in the fourth quarter of 2017 related to the change in the federal corporate income tax rate.
In March 2017, the FASB issued ASU No. 2017-07, Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. ASU No. 2017-07, as it applies to the Company, amended the presentation of net periodic pension and postretirement cost (i.e. net benefit cost). The new guidance requires the service cost component to be presented separate from the non-service cost components of net benefit cost. While the service cost will be presented with other employee compensation costs within operations, the non-service cost components of net benefit cost, such as interest cost, amortization of prior service cost, and gains or losses, are required to be separately presented outside of operations, if income or loss from operations is presented. The guidance, to be applied retrospectively, is effective for the Company on January 1, 2018. Adoption of the new guidance on January 1, 2018, with retrospective effect, required us to restate the condensed consolidated statements of operations and comprehensive income for the prior-period presented. Accordingly, for the three and nine months ended September 30, 2017, of the net benefit cost of $0.4 million and $1.2 million, respectively, we reclassified the non-service cost components of $0.2 million and $0.7 million, respectively, from general and administrative expenses to other expense. Adoption of the new guidance did not affect previously reported financial position, earnings per share, or cash flows.
In February 2016, the FASB amended the ASC by creating ASC Topic 842, Leases. ASC Topic 842 requires a lessee to record a right-of-use asset and a lease liability for all leases with a lease term greater than 12 months. The main difference between previous U.S. GAAP and ASC Topic 842 is the recognition under ASC 842 of lease assets and lease liabilities by lessees for those leases classified as operating leases under previous U.S. GAAP. The new guidance, effective for the Company on January 1, 2019, with earlier application permitted, is not expected to have a material effect on our condensed consolidated financial statements.
| 11 |
LORAL SPACE & COMMUNICATIONS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
Additional Cash Flow Information
The following represents non-cash activities and supplemental information to the condensed consolidated statements of cash flows (in thousands):
| Nine Months Ended | ||||||||
| September 30, | ||||||||
| 2018 | 2017 | |||||||
| Non-cash operating items: | ||||||||
| Equity in net income of affiliates | $ | (56,734 | ) | $ | (183,086 | ) | ||
| Deferred taxes | (1,237 | ) | 26,655 | |||||
| Depreciation and amortization | 16 | 33 | ||||||
| Amortization of prior service credit and actuarial loss | 797 | 770 | ||||||
| Net non-cash operating items – continuing operations | $ | (57,158 | ) | $ | (155,628 | ) | ||
| Supplemental information: | ||||||||
| Interest paid – continuing operations | $ | 17 | $ | 22 | ||||
| Interest paid – discontinued operations | $ | — | $ | 55 | ||||
| Tax (refunds) payments, net - continuing operations | $ | (55 | ) | $ | 10,038 | |||
| 12 |
LORAL SPACE & COMMUNICATIONS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
3. Accumulated Other Comprehensive Loss
The components of accumulated other comprehensive loss, net of tax, are as follows (in thousands):
| Equity in | Accumulated | |||||||||||
| Telesat Other | Other | |||||||||||
| Postretirement | Comprehensive | Comprehensive | ||||||||||
| Benefits | Income (Loss) | Loss | ||||||||||
| Balance, January 1, 2017 | $ | (14,074 | ) | $ | 238 | $ | (13,836 | ) | ||||
| Other comprehensive loss before reclassification | (1,365 | ) | (18,280 | ) | (19,645 | ) | ||||||
| Amounts reclassified from accumulated other comprehensive loss | 671 | — | 671 | |||||||||
| Net current-period other comprehensive loss | (694 | ) | (18,280 | ) | (18,974 | ) | ||||||
| Tax Cuts and Jobs Act, reclassification of tax effect from accumulated other comprehensive loss to accumulated deficit | (1,686 | ) | (2,782 | ) | (4,468 | ) | ||||||
| Balance, December 31, 2017 | (16,454 | ) | (20,824 | ) | (37,278 | ) | ||||||
| Other comprehensive income before reclassification | — | 1,733 | 1,733 | |||||||||
| Amounts reclassified from accumulated other comprehensive loss | 629 | — | 629 | |||||||||
| Net current-period other comprehensive income | 629 | 1,733 | 2,362 | |||||||||
| Balance, September 30, 2018 | $ | (15,825 | ) | $ | (19,091 | ) | $ | (34,916 | ) | |||
The components of other comprehensive income (loss) and related tax effects are as follows (in thousands):
| Three Months Ended September 30, | ||||||||||||||||||||||||
| 2018 | 2017 | |||||||||||||||||||||||
| Before-Tax | Tax | Net-of-Tax | Before-Tax | Tax | Net-of-Tax | |||||||||||||||||||
| Amount | Provision | Amount | Amount | Provision | Amount | |||||||||||||||||||
| Amortization of prior service credits and net actuarial loss | $ | 265 | (a) | $ | (56 | ) | $ | 209 | $ | 257 | (a) | $ | (90 | ) | $ | 167 | ||||||||
| Equity in Telesat other comprehensive loss | (7,115 | ) | 1,496 | (5,619 | ) | (19,255 | ) | 6,732 | (12,523 | ) | ||||||||||||||
| Other comprehensive loss | $ | (6,850 | ) | $ | 1,440 | $ | (5,410 | ) | $ | (18,998 | ) | $ | 6,642 | $ | (12,356 | ) | ||||||||
| Nine Months Ended September 30, | ||||||||||||||||||||||||
| 2018 | 2017 | |||||||||||||||||||||||
| Before-Tax | Tax | Net-of-Tax | Before-Tax | Tax | Net-of-Tax | |||||||||||||||||||
| Amount | Provision | Amount | Amount | Provision | Amount | |||||||||||||||||||
| Amortization of prior service credits and net actuarial loss | $ | 797 | (a) | $ | (168 | ) | $ | 629 | $ | 770 | (a) | $ | (270 | ) | $ | 500 | ||||||||
| Equity in Telesat other comprehensive income (loss) | 2,194 | (461 | ) | 1,733 | (24,184 | ) | 8,469 | (15,715 | ) | |||||||||||||||
| Other comprehensive income (loss) | $ | 2,991 | $ | (629 | ) | $ | 2,362 | $ | (23,414 | ) | $ | 8,199 | $ | (15,215 | ) | |||||||||
| (a) | Reclassifications are included in other expense. |
| 13 |
LORAL SPACE & COMMUNICATIONS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
4. Other Current Assets
Other current assets consists of (in thousands):
| September 30, | December 31, | |||||||
| 2018 | 2017 | |||||||
| Indemnification receivable from SSL for pre-closing taxes (see Note 13) | $ | 2,410 | $ | 2,410 | ||||
| Restricted cash | 304 | — | ||||||
| Due from affiliates | 205 | 217 | ||||||
| Prepaid expenses | 443 | 198 | ||||||
| Other | 418 | 274 | ||||||
| $ | 3,780 | $ | 3,099 | |||||
5. Investments in Affiliates
Investments in affiliates consist of (in thousands):
| September 30, | December 31, | |||||||
| 2018 | 2017 | |||||||
| Telesat | $ | 84,363 | $ | 53,430 | ||||
Equity in net income of affiliates consists of (in thousands):
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2018 | 2017 | 2018 | 2017 | |||||||||||||
| Telesat | $ | 55,095 | $ | 43,372 | $ | 56,734 | $ | 183,086 | ||||||||
Telesat
As of September 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 $2.2 million for the nine months ended September 30, 2018.
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.
For the three months ended September 30, 2017, our share of equity in net income of Telesat, including elimination of affiliate transactions and related amortization, was $82.4 million. In the first quarter of 2017, we received a $242.7 million cash distribution from Telesat. As of June 30, 2017, 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 $39.0 million which we recognized as additional equity income during the six months ended June 30, 2017. For the three months ended September 30, 2017, we reduced our share of Telesat’s net income, including elimination of affiliate transactions and related amortization, of $82.4 million by the $39.0 million excess cash distribution resulting in the recognition of equity in net income of Telesat of $43.4 million.
| 14 |
LORAL SPACE & COMMUNICATIONS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
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 September 30, 2018, Telesat’s Total Leverage Ratio was 4.53:1.00. 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 nine months ended September 30, 2018 and 2017 and as of September 30, 2018 and December 31, 2017 (in thousands):
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2018 | 2017 | 2018 | 2017 | |||||||||||||
| Statement of Operations Data: | ||||||||||||||||
| Revenues | $ | 174,010 | $ | 170,151 | $ | 522,990 | $ | 514,800 | ||||||||
| Operating expenses | (34,268 | ) | (34,101 | ) | (91,804 | ) | (112,876 | ) | ||||||||
| Depreciation, amortization and stock-based compensation | (47,946 | ) | (49,741 | ) | (144,732 | ) | (145,875 | ) | ||||||||
| Other operating income (expense) | 848 | (204 | ) | 835 | (220 | ) | ||||||||||
| Operating income | 92,644 | 86,105 | 287,289 | 255,829 | ||||||||||||
| Interest expense | (43,063 | ) | (37,901 | ) | (130,671 | ) | (111,765 | ) | ||||||||
| Foreign exchange gain (loss) | 42,784 | 103,099 | (66,294 | ) | 193,259 | |||||||||||
| (Loss) gain on financial instruments | (202 | ) | (6,542 | ) | 30,414 | (17,471 | ) | |||||||||
| Other income | 3,204 | 1,531 | 7,795 | 1,305 | ||||||||||||
| Income tax provision | (7,605 | ) | (16,114 | ) | (39,190 | ) | (35,571 | ) | ||||||||
| Net income | $ | 87,762 | $ | 130,178 | $ | 89,343 | $ | 285,586 | ||||||||
| 15 |
LORAL SPACE & COMMUNICATIONS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
| September 30, | December 31, | |||||||
| 2018 | 2017 | |||||||
| Balance Sheet Data: | ||||||||
| Current assets | $ | 576,052 | $ | 445,104 | ||||
| Total assets | 4,054,930 | 4,082,472 | ||||||
| Current liabilities | 157,103 | 126,100 | ||||||
| Long-term debt, including current portion | 2,764,075 | 2,829,911 | ||||||
| Total liabilities | 3,474,619 | 3,538,656 | ||||||
| Shareholders’ equity | 580,311 | 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 September 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 September 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.
6. Other Current Liabilities
Other current liabilities consists of (in thousands):
| September 30, | December 31, | |||||||
| 2018 | 2017 | |||||||
| Due to affiliate | 443 | 9 | ||||||
| Accrued professional fees | 1,691 | 1,117 | ||||||
| Pension and other postretirement liabilities | 69 | 69 | ||||||
| Accrued liabilities | 59 | 84 | ||||||
| $ | 2,262 | $ | 1,279 | |||||
7. Income Taxes
The following summarizes our income tax provision (in thousands):
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2018 | 2017 | 2018 | 2017 | |||||||||||||
| Current income tax provision | $ | (863 | ) | $ | (1,592 | ) | $ | (2,251 | ) | $ | (55,581 | ) | ||||
| Deferred income tax (provision) benefit | (5,806 | ) | (14,960 | ) | 1,237 | (26,655 | ) | |||||||||
| Income tax provision | $ | (6,669 | ) | $ | (16,552 | ) | $ | (1,014 | ) | $ | (82,236 | ) | ||||
| 16 |
LORAL SPACE & COMMUNICATIONS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
For the nine month periods ended September 30, 2018 and 2017, our income tax provision is computed by applying an expected effective annual tax rate against the pre-tax results for each period (after adjusting for certain tax items that are discrete to each period). For the three month periods ended September 30, 2018 and 2017, this amount is then reduced by the tax benefit (provision) recorded for the six month periods ended June 30, 2018 and 2017, respectively. The current income tax provision for each period includes our anticipated income tax liability related to distributions received or deemed to be received from Telesat. The deferred income tax (provision) benefit for each period includes the impact of equity in net income of affiliates from our condensed consolidated statement of operations.
In accordance with the Securities and Exchange Commission Staff Accounting Bulletin No. 118, Income Tax- Accounting Implication of the Tax Cuts and Job Act (SAB 118), we recognized the preliminary income tax effects of the Tax Cuts and Jobs Act in our consolidated financial statements for the year ended December 31, 2017. The preliminary effect previously recorded may change in the future due to revisions in the interpretation of the Tax Cuts and Jobs Act or legislative action to clarify interpretation of the Tax Cuts and Jobs Act. The Company expects to finalize the effect of the Tax Cuts and Jobs Act and complete its accounting by December 31, 2018.
In addition to reducing the U.S. federal corporate income tax rate from 35 percent to 21 percent effective January 1, 2018, the Tax Cuts and Jobs Act included new Global Intangible Low-Taxed Income (“GILTI”) provisions effective for the first time during 2018 which require the Company to currently include in U.S. federal taxable income certain earnings of controlled foreign corporations, including Telesat. The GILTI provisions provided an incremental tax benefit of approximately $5.7 million and $12.5 million for the three and nine months ended September 30, 2018, respectively.
Subsequent to the SSL Sale, to the extent that profitability from operations is not sufficient to realize the benefit from our remaining net deferred tax assets, we would generate sufficient taxable income from the appreciated value of our Telesat investment in order to prevent federal net operating losses from expiring and realize the benefit of all remaining deferred tax assets.
The following summarizes amounts for UTPs included in our income tax provision (in thousands):
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2018 | 2017 | 2018 | 2017 | |||||||||||||
| Current provision for UTPs | $ | (791 | ) | $ | (704 | ) | $ | (2,018 | ) | $ | (2,069 | ) | ||||
| Deferred benefit for UTPs | 167 | 226 | 425 | 701 | ||||||||||||
| Tax provision for UTPs | $ | (624 | ) | $ | (478 | ) | $ | (1,593 | ) | $ | (1,368 | ) | ||||
As of September 30, 2018, we had unrecognized tax benefits relating to UTPs of $70 million. The Company recognizes interest and penalties related to income taxes in income tax expense on a quarterly basis. As of September 30, 2018, we have accrued no penalties and approximately $9.2 million for the potential payment of tax-related interest.
With few exceptions, the Company is no longer subject to U.S. federal, state or local income tax examinations by tax authorities for years prior to 2012. Earlier years related to certain foreign jurisdictions remain subject to examination. To the extent allowed by law, the tax authorities may have the right to examine prior periods where net operating losses were generated and carried forward, and make adjustments up to the amount of the net operating loss carryforward. While we intend to contest any future tax assessments for uncertain tax positions, no assurance can be provided that we would ultimately prevail. During the next twelve months, the statute of limitations for assessment of additional tax will expire with regard to certain UTPs related to our federal income tax return filed for 2012, potentially resulting in the recognition of $27.3 million of previously unrecognized tax benefits. Pursuant to the Purchase Agreement for the SSL Sale, we are obligated to indemnify SSL for taxes related to periods prior to the closing of the transaction.
The following summarizes the changes to our liabilities for UTPs included in other liabilities in the condensed consolidated balance sheets (in thousands):
| Nine Months Ended | ||||||||
| September 30, | ||||||||
| 2018 | 2017 | |||||||
| Liabilities for UTPs: | ||||||||
| Opening balance — January 1 | $ | 61,182 | $ | 68,658 | ||||
| Current provision for potential additional interest | 2,018 | 2,069 | ||||||
| Ending balance | $ | 63,200 | $ | 70,727 | ||||
| 17 |
LORAL SPACE & COMMUNICATIONS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
As of September 30, 2018, if our positions are sustained by the taxing authorities, the Company’s income tax provision from continuing operations would be reduced by approximately $46.9 million. Other than as described above, there were no significant changes to our UTPs during the nine months ended September 30, 2018 and 2017, and we do not anticipate any other significant changes to our unrecognized tax benefits during the next twelve months.
8. Other Liabilities
Other liabilities consists of (in thousands):
| September 30, | December 31, | |||||||
| 2018 | 2017 | |||||||
| Indemnification liabilities - other (see Note 13) | 190 | 293 | ||||||
| Liabilities for uncertain tax positions | 63,200 | 61,182 | ||||||
| $ | 63,390 | $ | 61,475 | |||||
9. Stock-Based Compensation
Stock Plans
The Loral amended and restated 2005 stock incentive plan (the “Stock Incentive Plan”) which allowed for the grant of several forms of stock-based compensation awards including stock options, stock appreciation rights, restricted stock, restricted stock units, stock bonuses and other stock-based awards, had a ten-year term and has expired. The Company granted 75,262 restricted stock units under the Stock Incentive Plan that do not expire and remained unconverted as of September 30, 2018 and December 31, 2017.
10. Earnings Per Share
Telesat has awarded employee stock options, which, if exercised, would result in dilution of Loral’s economic ownership interest in Telesat from 62.7% to approximately 62.3%.
The following table presents the dilutive impact of Telesat stock options on Loral’s reported income from continuing operations for the purpose of computing diluted earnings per share (in thousands):
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2018 | 2017 | 2018 | 2017 | |||||||||||||
| Income from continuing operations — basic | $ | 46,219 | $ | 24,537 | $ | 50,997 | $ | 93,724 | ||||||||
| Less: Adjustment for dilutive effect of Telesat stock options | (340 | ) | (713 | ) | (350 | ) | (1,346 | ) | ||||||||
| Income from continuing operations — diluted | $ | 45,879 | $ | 23,824 | $ | 50,647 | $ | 92,378 | ||||||||
Basic income per share is computed based upon the weighted average number of share of voting and non-voting common stock outstanding. The following is the computation of common shares outstanding for diluted earnings per share (in thousands):
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2018 | 2017 | 2018 | 2017 | |||||||||||||
| Weighted average common shares outstanding | 30,933 | 30,933 | 30,933 | 30,933 | ||||||||||||
| Unconverted restricted stock units | 75 | 75 | 75 | 75 | ||||||||||||
| Common shares outstanding for diluted earnings per share | 31,008 | 31,008 | 31,008 | 31,008 | ||||||||||||
| 18 |
LORAL SPACE & COMMUNICATIONS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
11. Pensions and Other Employee Benefit Plans
The following tables provide the components of net periodic cost for our qualified retirement plan (the “Pension Benefits”) and health care and life insurance benefits for retired employees and dependents (the “Other Benefits”) for the three and nine months ended September 30, 2018 and 2017 (in thousands):
| Pension Benefits | Other Benefits | |||||||||||||||
| Three Months Ended | Three Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2018 | 2017 | 2018 | 2017 | |||||||||||||
| Service cost (1) | $ | 179 | $ | 175 | $ | 1 | $ | - | ||||||||
| Interest cost (2) | 464 | 490 | 4 | 5 | ||||||||||||
| Expected return on plan assets (2) | (657 | ) | (531 | ) | — | — | ||||||||||
| Amortization of net actuarial loss (2) | 260 | 250 | — | 1 | ||||||||||||
| Amortization of prior service credits (2) | — | — | 5 | 6 | ||||||||||||
| Net periodic cost | $ | 246 | $ | 384 | $ | 10 | $ | 12 | ||||||||
| Pension Benefits | Other Benefits | |||||||||||||||
| Nine Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2018 | 2017 | 2018 | 2017 | |||||||||||||
| Service cost (1) | $ | 536 | $ | 526 | $ | 1 | $ | 1 | ||||||||
| Interest cost (2) | 1,391 | 1,470 | 12 | 14 | ||||||||||||
| Expected return on plan assets (2) | (1,971 | ) | (1,593 | ) | — | — | ||||||||||
| Amortization of net actuarial loss (2) | 780 | 749 | — | 3 | ||||||||||||
| Amortization of prior service credits (2) | — | — | 17 | 18 | ||||||||||||
| Net periodic cost | $ | 736 | $ | 1,152 | $ | 30 | $ | 36 | ||||||||
| (1) | Included in general and administrative expenses. |
| (2) | Included in other expense. |
12. 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.
Foreign Currency
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
There were no derivative instruments as of September 30, 2018 and December 31, 2017.
| 19 |
LORAL SPACE & COMMUNICATIONS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
13. Commitments and Contingencies
Financial Matters
In the fourth quarter of 2012, we sold our former subsidiary, SSL, to MDA pursuant to the Purchase Agreement. Under the terms of the Purchase Agreement, we are obligated to indemnify MDA and its affiliates from liabilities with respect to certain pre-closing taxes. Our consolidated balance sheets include an indemnification refund receivable of $2.4 million as of September 30, 2018 and December 31, 2017. This receivable represents payments to date net of the estimated fair value of the liability for our indemnification for our obligation with respect to certain pre-closing taxes. The final amounts for indemnification claims related to pre-closing taxes have not yet been determined. Where appropriate, we intend vigorously to contest the underlying tax assessments, but there can be no assurance that we will be successful. Although no assurance can be provided, we do not believe that these tax-related matters will have a material adverse effect on our financial position or results of operations.
In connection with the sale in 2008 by Loral and certain of its subsidiaries and DASA Globalstar LLC to Globalstar Inc. of their respective interests in GdB, the Globalstar Brazilian service provider, Loral agreed to indemnify Globalstar Inc. and GdB for certain GdB pre-closing liabilities, primarily related to Brazilian taxes. Our condensed consolidated balance sheets include liabilities of $0.2 million and $0.3 million as of September 30, 2018 and December 31, 2017, respectively, for indemnification liabilities relating to the sale of GdB.
See Note 14 — Related Party Transactions — Transactions with Affiliates — Telesat for commitments and contingencies relating to our agreement to indemnify Telesat for certain liabilities and our other arrangements with Telesat.
Legal Proceedings
We are not currently subject to any legal proceedings that, if decided adversely, could have a material adverse effect on our financial position or results of operations. In the future, however, we may become subject to legal proceedings and claims, either asserted or unasserted, that may arise in the ordinary course of business or otherwise.
14. Related Party Transactions
MHR Fund Management LLC
Mark H. Rachesky, President of MHR Fund Management LLC (“MHR”), and Janet T. Yeung, a principal and the General Counsel of MHR, are members of Loral’s board of directors.
Various funds affiliated with MHR and Dr. Rachesky held, as of September 30, 2018 and December 31, 2017, approximately 39.9% of the outstanding voting common stock and 58.4% of the combined outstanding voting and non-voting common stock of Loral.
Transactions with Affiliates
Telesat
As described in Note 5, we own 62.7% of Telesat and account for our ownership interest under the equity method of accounting.
In connection with the acquisition of our ownership interest in Telesat (which we refer to as the Telesat transaction), Loral and certain of its subsidiaries, our Canadian co-owner, Public Sector Pension Investment Board (“PSP”) and one of its subsidiaries, Telesat 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 and its subsidiaries will be conducted and the relationships among the parties thereto and future shareholders of Telesat. The Shareholders Agreement also contains an agreement by Loral not to engage in a competing satellite communications business and agreements by the parties to the Shareholders Agreement not to solicit employees of Telesat or any of its subsidiaries. Additionally, the Shareholders Agreement details the matters requiring the approval of the shareholders of Telesat (including veto rights for Loral over certain extraordinary actions) and provides for preemptive rights for certain shareholders upon the issuance of certain capital shares of Telesat. The Shareholders Agreement also (i) restricts the ability of holders of certain shares of Telesat to transfer such shares unless certain conditions are met or approval of the transfer is granted by the directors of Telesat, (ii) provides for a right of first offer to certain Telesat shareholders if a holder of equity shares of Telesat wishes to sell any such shares to a third party and (iii) provides for, in certain circumstances, tag-along rights in favor of shareholders that are not affiliated with Loral if Loral sells equity shares and drag-along rights in favor of Loral in case Loral or its affiliate enters into an agreement to sell all of its Telesat equity securities.
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LORAL SPACE & COMMUNICATIONS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
In addition, the Shareholders Agreement provides for either PSP or Loral to initiate the process of conducting an initial public offering of the equity shares of Telesat (a “Telesat IPO”). In connection with our exploration of strategic initiatives to alter the status quo in our ownership of Telesat, in July 2015, we exercised our right under the Shareholders Agreement to require Telesat to conduct a Telesat IPO. Specifically, we requested that Telesat issue not more than 25 million newly issued shares of Telesat voting common stock. We also requested the termination of the Shareholders Agreement and the elimination of certain provisions in Telesat’s Articles of Incorporation, both of which we believe are important for a successful public offering. If those provisions are eliminated, an impediment to the conversion of our non-voting Telesat shares to voting shares would be eliminated. Termination or modification of the Shareholders Agreement and conversion of our non-voting shares to voting shares would enable us, after a Telesat IPO and subject to the receipt of any necessary regulatory approvals, to obtain majority voting control of Telesat. To date, we and PSP have not reached agreement on governance matters following a Telesat IPO. In the event a strategic transaction to combine Loral and Telesat into one public company that we are pursuing is not likely to be achievable in a timely manner or on satisfactory terms, we may further pursue our right to a Telesat IPO. There can be no assurance as to whether, when or on what terms a Telesat IPO, termination or modification of the Shareholders Agreement or any requested changes to Telesat’s Articles of Incorporation may occur or that any particular economic, tax, structural or other objectives or benefits with respect to a Telesat IPO will be achieved. If a Telesat IPO is expected to proceed under unfavorable terms or at an unfavorable price, we may withdraw our demand for a Telesat IPO.
Depending upon the outcome of discussions with PSP relating to Telesat strategic matters, we may assert certain claims against PSP for actions we believe violated our rights relating to the affairs of Telesat under the Telesat Shareholders Agreement and otherwise. In response to our claims, PSP has informed us that it believes that it may have claims against us, although we are not aware of the legal or factual basis for any such claims. We and PSP have agreed that, pending the outcome of our discussions, it would be beneficial to delay the commencement of any action relating to either party’s claims and have entered into an agreement (the “Tolling Agreement”) which preserves the parties’ rights to assert against one another legal claims relating to Telesat. We also included Telesat as a party to the Tolling Agreement because, as a technical matter of Canadian law and for purposes of potentially seeking equitable relief, Telesat may be a necessary party. There can be no assurance that if the Tolling Agreement lapses that we and PSP will not pursue legal claims against one another relating to Telesat. If we pursue claims against PSP, there can be no assurance that our claims will be successful or that the relief we seek will be granted. If PSP pursues claims against us, there can be no assurance that PSP will not prevail on its claims.
Under the Shareholders Agreement, in the event that, except in certain limited circumstances, either (i) ownership or control, directly or indirectly, by Dr. Rachesky of Loral’s voting stock falls below certain levels other than in connection with certain specified circumstances, including an acquisition by a Strategic Competitor (as defined in the Shareholders Agreement) or (ii) there is a change in the composition of a majority of the members of the Loral Board of Directors over a consecutive two-year period without the approval of the incumbent directors, Loral will lose its veto rights relating to certain extraordinary actions by Telesat and its subsidiaries. In addition, after either of these events, PSP will have certain rights to enable it to exit from its investment in Telesat, including a right to cause Telesat to conduct an initial public offering in which PSP’s shares would be the first shares offered or, if no such offering has occurred within one year due to a lack of cooperation from Loral or Telesat, to cause the sale of Telesat and to drag along the other shareholders in such sale, subject to Loral’s right to call PSP’s shares at fair market value.
The Shareholders Agreement provides for a board of directors of Telesat consisting of 10 directors, three nominated by Loral, three nominated by PSP and four independent directors to be selected by a nominating committee comprised of one PSP nominee, one nominee of Loral and one of the independent directors then in office. Each party to the Shareholders Agreement is obligated to vote all of its Telesat shares for the election of the directors nominated by the nominating committee. Pursuant to action by the board of directors taken on October 31, 2007, Dr. Rachesky, who is non-executive Chairman of the Board of Directors of Loral, was appointed non-executive Chairman of the Board of Directors of Telesat. In addition, Michael B. Targoff, Loral’s Vice Chairman, serves on the board of directors of Telesat.
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LORAL SPACE & COMMUNICATIONS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
On October 31, 2007, Loral and Telesat entered into a consulting services agreement (the “Consulting Agreement”). Pursuant to the terms of the Consulting Agreement, Loral provides to Telesat certain non-exclusive consulting services in relation to the business of Loral Skynet which was transferred to Telesat as part of the Telesat transaction as well as with respect to certain aspects of the satellite communications business of Telesat. The Consulting Agreement has a term of seven-years with an automatic renewal for an additional seven-year term if Loral is not then in material default under the Shareholders Agreement. Upon expiration of the initial term on October 31, 2014, the Consulting Agreement was automatically renewed for the additional seven-year term. In exchange for Loral’s services under the Consulting Agreement, Telesat pays Loral an annual fee of $5.0 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. Our general and administrative expenses are net of income related to the Consulting Agreement of $1.25 million for each of the three-month periods ended September 30, 2018 and 2017 and $3.8 million for each of the nine-month periods ended September 30, 2018 and 2017, respectively. For each of the nine-month periods ended September 30, 2018 and 2017, Loral received payments in cash from Telesat, net of withholding taxes, of $3.6 million for consulting fees.
In connection with the acquisition of our ownership interest in Telesat in 2007, Loral retained the benefit of tax recoveries related to the transferred assets and indemnified Telesat (“Telesat Indemnification”) for certain liabilities, including Loral Skynet’s tax liabilities arising prior to January 1, 2007. The Telesat Indemnification includes certain tax disputes currently under review in various jurisdictions including Brazil. The Brazilian tax authorities challenged Loral Skynet’s historical characterization of its revenue generated in Brazil for the years 2003 to 2006. Telesat received and challenged, on Loral Skynet’s behalf, tax assessments from Brazil totaling approximately $0.8 million. The Company believes that Loral Skynet’s filing position will ultimately be sustained requiring no payment under the Telesat Indemnification. There can be no assurance that there will be no future claims under the Telesat Indemnification related to tax disputes.
Loral’s employees and retirees participate in certain welfare plans sponsored or managed by Telesat. Loral pays Telesat an annual administrative fee of $0.1 million and reimburses Telesat for the plan costs attributable to Loral participants.
Loral, along with Telesat, PSP and 4440480 Canada Inc., an indirect wholly-owned subsidiary of Loral (the “Special Purchaser”), entered into grant agreements (the “Grant Agreements”) with certain executives of Telesat (each, a “Participant” and collectively, the “Participants”). Each of the Participants is or was, at the time, an executive of Telesat.
The Grant Agreements confirm grants of Telesat stock options (including tandem SAR rights) to the Participants and provide for certain rights, obligations and restrictions related to such stock options, which include, among other things: (w) the possible obligation of the Special Purchaser to purchase the shares in the place of Telesat should Telesat be prohibited by applicable law or under the terms of any credit agreement applicable to Telesat from purchasing such shares, or otherwise default on such purchase obligation, pursuant to the terms of the Grant Agreements; and (x) the obligation of the Special Purchaser to purchase shares upon exercise by Telesat of its call right under Telesat's Management Stock Incentive Plan in the event of a Participant’s termination of employment; and, in the case of certain executives, (y) the right of each such Participant to require the Special Purchaser or Loral to purchase a portion of the shares in Telesat owned by him in the event of exercise after termination of employment to cover taxes that are greater than the minimum withholding amount; and (z) the right of each such Participant to require Telesat to cause the Special Purchaser or Loral to purchase a portion of the shares in Telesat owned by him, or that are issuable to him under Telesat's Management Stock Incentive Plan at the relevant time, in the event that more than 90% of Loral's common stock is acquired by an unaffiliated third party that does not also purchase all of PSP's and its affiliates' interest in Telesat.
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LORAL SPACE & COMMUNICATIONS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
The Grant Agreements further provide that, in the event the Special Purchaser is required to purchase shares, such shares, together with the obligation to pay for such shares, shall be transferred to a subsidiary of the Special Purchaser, which subsidiary shall be wound up into Telesat, with Telesat agreeing to the acquisition of such subsidiary by Telesat from the Special Purchaser for nominal consideration and with the purchase price for the shares being paid by Telesat within ten (10) business days after completion of the winding-up of such subsidiary into Telesat.
In the first quarter of 2017, Loral received a $242.7 million cash distribution from Telesat (see Note 5).
Other
As described in Note 5, we own 56% of XTAR, a joint venture between Loral and Hisdesat and account for our investment in XTAR under the equity method of accounting. SSL constructed XTAR’s satellite, which was successfully launched in February 2005. XTAR and Loral have entered into a management agreement whereby Loral provides general and specific services of a technical, financial and administrative nature to XTAR. For the services provided by Loral, XTAR, until December 31, 2013, was charged a quarterly management fee equal to 3.7% of XTAR’s quarterly gross revenues. Amounts due to Loral primarily due to the management agreement were $6.8 million as of September 30, 2018 and December 31, 2017. Beginning in 2008, Loral and XTAR agreed to defer amounts owed to Loral under this agreement, and XTAR has agreed that its excess cash balance (as defined), will be applied at least quarterly towards repayment of its payables owed to Loral, as well as to Hisdesat and Telesat. No cash was received under this agreement for the nine months ended September 30, 2018 and 2017, and we had an allowance of $6.6 million against receivables from XTAR as of September 30, 2018 and December 31, 2017. Loral and Hisdesat have agreed to waive future management fees for an indefinite period starting January 1, 2014.
Consulting Agreement
On December 14, 2012, Loral entered into a consulting agreement with Michael B. Targoff, Vice Chairman of the Company and former Chief Executive Officer and President. Pursuant to this agreement, Mr. Targoff is engaged as a part-time consultant to the Board to assist the Board with respect to the oversight of strategic matters relating to Telesat and XTAR. Under the agreement, Mr. Targoff receives consulting fees of $120,000 per month and reimburses the Company for certain expenses. For each of the three and nine month periods ended September 30, 2018 and 2017, Mr. Targoff earned $360,000 and $1,080,000 respectively, in consulting fees. For each of the three months ended September 30, 2018 and 2017, Mr. Targoff reimbursed Loral net expenses of $11,250 and for the nine months ended September 30, 2018 and 2017, Mr. Targoff reimbursed Loral net expenses of $33,750 and $42,750, respectively.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis should be read in conjunction with our unaudited condensed consolidated financial statements (the “financial statements”) included in Item 1 and our latest Annual Report on Form 10-K filed with the Securities and Exchange Commission.
INDEX
Loral Space & Communications Inc., a Delaware corporation, together with its subsidiaries (“Loral,” the “Company,” “we,” “our,” and “us”) is a leading satellite communications company engaged, through our ownership interests in affiliates, in satellite-based communications services.
Disclosure Regarding Forward-Looking Statements
Except for the historical information contained in the following discussion and analysis, the matters discussed below are not historical facts, but 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,” “project,” “intend” or “outlook” or other variations of these words. These statements, including without limitation, those relating to Telesat, 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 the Commitments and Contingencies section below and to our other periodic reports filed with the Securities and Exchange Commission (“SEC”). We operate in an industry sector in which the value of securities may be volatile and may be influenced by economic and other factors beyond our control. We undertake no obligation to update any forward-looking statements.
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Business
Loral has one operating segment consisting of satellite-based communications services. Loral participates in satellite services operations primarily through its ownership interest in Telesat Canada (“Telesat”), a leading global satellite operator. Telesat provides its satellite and communication services from a fleet of satellites that occupy Canadian and other orbital locations. Loral holds a 62.7% economic interest and a 32.6% voting interest in Telesat as of September 30, 2018.
At September 30, 2018, Telesat, with approximately $2.9 billion of backlog, provided satellite services to customers from its fleet of 16 in-orbit geostationary satellites, including Telstar 19 VANTAGE which was launched on July 22, 2018 and entered commercial service in August 2018. In addition, on September 10, 2018, Telesat successfully launched another geostationary satellite, Telstar 18 VANTAGE, which entered commercial service in October 2018. Telesat also owns the Canadian Ka-band payload on the ViaSat-1 satellite. In January 2018, a satellite was launched into low earth orbit as part of Telesat’s plan to deploy an advanced, global constellation of low earth orbit (“LEO”) satellites that will deliver low latency fiber-like broadband to commercial and government users worldwide. Telesat also manages the operations of satellites for third parties.
In October 2018, Telesat announced its participation, along with Intelsat, SES and Eutelsat, in the creation of the C-Band Alliance, a consortium formed to facilitate the potential repurposing of certain C-band spectrum in the United States for 5G.
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. Telesat has been able to generate a large contracted revenue backlog by entering into long-term contracts with some of its 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.
Telesat’s desirable spectrum rights, commitment to providing the highest level of customer service, deep technical expertise and culture of innovation have enabled it to successfully develop its business to date. Leveraging these strengths and building on its existing contractual revenue backlog, Telesat’s focus is on profitably growing its business by increasing the utilization of its in-orbit satellites and, in a disciplined manner, deploying expansion satellite capacity where strong market demand is anticipated.
Telesat believes that it is well positioned to serve its customers and the markets in which it participates. Telesat actively pursues 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. However, while Telesat regularly pursues these opportunities, it does not procure additional or replacement satellites until it believes there is a demonstrated need and a sound business plan for such satellite capacity.
Telesat remains focused on increasing utilization of its existing and recently launched satellites, the development of its global LEO constellation and identifying and pursuing opportunities to invest in expansion of satellite capacity, all while maintaining operating discipline.
Telesat’s operating results are subject to fluctuations as a result of exchange rate variations. For the nine months ended September 30, 2018, approximately 51% of Telesat’s revenues, 37% of its operating expenses, 100% of its interest expense and the majority of its capital expenditures were denominated in U.S. dollars. The most significant impact of variations in the exchange rate is on the U.S. dollar denominated indebtedness and cash and short term investments. As of September 30, 2018, Telesat’s U.S. dollar denominated debt totaled $2.83 billion. As of September 30, 2018, a five percent increase (decrease) in the Canadian dollar against the U.S. dollar would have increased (decreased) Telesat’s net income by approximately $119.6 million. This analysis assumes all other variables, in particular interest rates, remain constant.
General
Our principal asset is our majority economic ownership interest in Telesat. In an effort to maximize shareholder value, we have been exploring, and are in discussions with PSP regarding, potential strategic transactions to alter the status quo in our ownership of Telesat. Subject to market conditions and the cooperation of PSP, we continue to explore the combination of Loral and Telesat into one public company. Also, as described more fully below, we have exercised our right to require that Telesat initiate a public offering, and we may further pursue this right in the event a combination transaction or a sale of Telesat is not likely to be achievable in a timely manner or on satisfactory terms. There can be no assurance as to whether or when we will be able to conclude any strategic transaction or that any strategic initiatives or transaction involving Telesat or Loral may occur, or that any particular economic, tax, structural or other objectives or benefits with respect to any initiative or transaction involving Telesat or Loral’s interest therein will be achieved.
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In the first quarter of 2017, we received $242.7 million in cash from Telesat, representing our share of an aggregate approximately $400 million distribution from Telesat to its shareholders and stock option holders. We intend to use the proceeds of such distribution, net of reasonable reserves for working capital and other liabilities, to make a distribution to our stockholders. There can be no assurance as to the amount and timing of any such distribution, and such distribution may be impacted by the outcome of our discussions regarding, and the structure of, the strategic combination transaction that we are pursuing.
As mentioned above, we have the right under the Telesat Shareholders Agreement to require Telesat to conduct an initial public offering of its equity shares, and, in July 2015, we exercised this right. Specifically, we requested that Telesat issue not more than 25 million newly issued shares of Telesat voting common stock. We also requested the termination of the Shareholders Agreement and the elimination of certain provisions in Telesat’s Articles of Incorporation, both of which we believe are important for a successful public offering. If those provisions are eliminated, an impediment to the conversion of our non-voting Telesat shares to voting shares would be eliminated. Termination or modification of the Shareholders Agreement and conversion of our non-voting shares to voting shares would enable us, after a Telesat IPO and subject to the receipt of any necessary regulatory approvals, to obtain majority voting control of Telesat. To date, we and PSP have not reached agreement on governance matters following a Telesat IPO. In the event a transaction to combine Loral and Telesat into one public company that we are pursuing is not likely to be achievable in a timely manner or on satisfactory terms, we may further pursue our right to a Telesat IPO. There can be no assurance as to whether, when or on what terms a Telesat IPO, termination or modification of the Shareholders Agreement or any requested changes to Telesat’s Articles of Incorporation may occur or that any particular economic, tax, structural or other objectives or benefits with respect to a Telesat IPO will be achieved. If a Telesat IPO is expected to proceed under unfavorable terms or at an unfavorable price, we may withdraw our demand for a Telesat IPO.
Depending upon the outcome of the strategic initiatives discussed above, we may assert certain claims against PSP for actions we believe violated our rights relating to the affairs of Telesat under the Telesat Shareholders Agreement and otherwise. In response to our claims, PSP has informed us that it believes that it may have claims against us, although we are not aware of the legal or factual basis for any such claims. We and PSP have agreed that, pending the outcome of our discussions relating to Telesat, it would be beneficial to delay the commencement of any action relating to either party’s claims and have entered into an agreement (the “Tolling Agreement”) which preserves the parties’ rights to assert against one another legal claims relating to Telesat. We also included Telesat as a party to the Tolling Agreement because, as a technical matter of Canadian law and for purposes of potentially seeking equitable relief, Telesat may be a necessary party. There can be no assurance that if the Tolling Agreement lapses that we and PSP will not pursue legal claims against one another relating to Telesat. If we pursue claims against PSP, there can be no assurance that our claims will be successful or that the relief we seek will be granted. If PSP pursues claims against us, there can be no assurance that PSP will not prevail on its claims.
Loral may, from time to time, explore and evaluate other possible strategic transactions and alliances which may include joint ventures and strategic relationships as well as business combinations or the acquisition or disposition of assets. In order to pursue certain of these opportunities, additional funds are likely to be required. There can be no assurance that we will enter into additional strategic transactions or alliances, nor do we know if we will be able to obtain the necessary financing for transactions that require additional funds on favorable terms, if at all.
In connection with the acquisition of our ownership interest in Telesat in 2007, Loral has agreed that, subject to certain exceptions described in the Shareholders Agreement, for so long as Loral has an interest in Telesat, it will not compete in the business of leasing, selling or otherwise furnishing fixed satellite service, broadcast satellite service or audio and video broadcast direct to home service using transponder capacity in the C-band, Ku-band and Ka-band (including in each case extended band) frequencies and the business of providing end-to-end data solutions on networks comprised of earth terminals, space segment, and, where appropriate, networking hubs.
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Consolidated Operating Results
See Critical Accounting Matters in our latest Annual Report on Form 10-K filed with the SEC and Note 2 to the financial statements.
Changes in Critical Accounting Policies — There have been no changes in our critical accounting policies during the nine months ended September 30, 2018.
Three Months Ended September 30, 2018 Compared with Three Months Ended September 30, 2017
The following compares our consolidated results for the three months ended September 30, 2018 and 2017 as presented in our financial statements:
General and Administrative Expenses
| Three Months Ended | ||||||||
| September 30, | ||||||||
| 2018 | 2017 | |||||||
| (In thousands) | ||||||||
| General and administrative expenses | $ | 1,715 | $ | 1,794 | ||||
General and administrative expenses were comparable for the three months ended September 30, 2018 and 2017.
Interest and Investment Income
| Three Months Ended | ||||||||
| September 30, | ||||||||
| 2018 | 2017 | |||||||
| (In thousands) | ||||||||
| Interest and investment income | $ | 1,263 | $ | 728 | ||||
Interest and investment income increased by $0.5 million for the three months ended September 30, 2018 as compared to the three months ended September 30, 2017 primarily due to higher interest rates earned on investments during the third quarter of 2018 as compared to 2017.
Other Expense
| Three Months Ended | ||||||||
| September 30, | ||||||||
| 2018 | 2017 | |||||||
| (In thousands) | ||||||||
| Other expense | $ | 1,749 | $ | 1,206 | ||||
Other expense for the three months ended September 30, 2018 and 2017 was primarily related to strategic initiatives.
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Income Tax Provision
| Three Months Ended | ||||||||
| September 30, | ||||||||
| 2018 | 2017 | |||||||
| (In thousands) | ||||||||
| Income tax provision | $ | (6,669 | ) | $ | (16,552 | ) | ||
For the three months ended September 30, our income tax provision is summarized as follows: (i) for 2018, we recorded a current tax provision of $0.9 million and a deferred tax provision of $5.8 million, resulting in a total tax provision of $6.7 million and (ii) for 2017, we recorded a current tax provision of $1.6 million and a deferred tax provision of $15.0 million, resulting in a total tax provision of $16.6 million.
Our income tax provision for each period is computed by applying an expected effective annual tax rate against the pre-tax results for the nine month periods ended September 30, 2018 and 2017 (after adjusting for certain tax items that are discrete to each period). This amount is then reduced by the tax benefit (provision) recorded for the six month periods ended June 30, 2018 and 2017. The current income tax provision for each period includes our anticipated income tax liability related to distributions received or deemed to be received from Telesat. The deferred income tax (provision) benefit for each period includes the impact of equity in net income of affiliates from our condensed consolidated statement of operations and for 2018 includes an incremental tax benefit of approximately $5.7 million from the new Global Intangible Low-Taxed Income (“GILTI”) provisions of the Tax Cuts and Jobs Act. The GILTI provisions require the Company to currently include in U.S. federal taxable income certain earnings of controlled foreign corporations, including Telesat.
Subsequent to the sale of Space Systems/Loral, LLC (formerly known as Space Systems/Loral, Inc.) (“SSL”) to MDA Communications Holdings, Inc., a subsidiary of MacDonald, Dettwiler and Associates Ltd. (“MDA”) in 2012 (the “SSL Sale”), to the extent that profitability from operations is not sufficient to realize the benefit from our remaining net deferred tax assets, we would generate sufficient taxable income from the appreciated value of our Telesat investment in order to prevent federal net operating losses from expiring and realize the benefit of all remaining deferred tax assets.
Equity in Net Income of Affiliates
| Three Months Ended | ||||||||
| September 30, | ||||||||
| 2018 | 2017 | |||||||
| (In thousands) | ||||||||
| Telesat | $ | 55,095 | $ | 43,372 | ||||
Loral’s equity in net income of Telesat is based on our proportionate share of Telesat’s results in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and in U.S. dollars. The amortization of Telesat fair value adjustments applicable to the Loral Skynet assets and liabilities acquired by Telesat in 2007 is proportionately eliminated in determining our share of the net income of Telesat. Our equity in net income 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.
For the three months ended September 30, 2017, our share of equity in net income of Telesat, including elimination of affiliate transactions and related amortization, was $82.4 million. In the first quarter of 2017, we received a $242.7 million cash distribution from Telesat. As of June 30, 2017, 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 $39.0 million which we recognized as additional equity income during the six months ended June 30, 2017. For the three months ended September 30, 2017, we reduced our share of Telesat’s net income, including elimination of affiliate transactions and related amortization, of $82.4 million by the $39.0 million excess cash distribution resulting in the recognition of equity in net income of Telesat of $43.4 million.
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Summary financial information for Telesat in accordance with U.S. GAAP and in Canadian dollars and U.S. dollars for the three months ended September 30, 2018 and 2017 follows (in thousands):
| Three Months Ended | Three Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2018 | 2017 | 2018 | 2017 | |||||||||||||
| (In Canadian dollars) | (In U.S. dollars) | |||||||||||||||
| Statement of Operations Data: | ||||||||||||||||
| Revenues | 227,161 | 214,443 | 174,010 | 170,151 | ||||||||||||
| Operating expenses | (44,615 | ) | (42,732 | ) | (34,268 | ) | (34,101 | ) | ||||||||
| Depreciation, amortization and stock-based compensation | (62,598 | ) | (62,806 | ) | (47,946 | ) | (49,741 | ) | ||||||||
| Other operating income (expense) | 1,089 | (267 | ) | 848 | (204 | ) | ||||||||||
| Operating income | 121,037 | 108,638 | 92,644 | 86,105 | ||||||||||||
| Interest expense | (56,231 | ) | (47,841 | ) | (43,063 | ) | (37,901 | ) | ||||||||
| Foreign exchange gain | 53,748 | 132,949 | 42,784 | 103,099 | ||||||||||||
| Gain (loss) on financial instruments | 72 | (8,304 | ) | (202 | ) | (6,542 | ) | |||||||||
| Other income | 4,165 | 2,013 | 3,204 | 1,531 | ||||||||||||
| Income tax provision | (10,103 | ) | (20,642 | ) | (7,605 | ) | (16,114 | ) | ||||||||
| Net income | 112,688 | 166,813 | 87,762 | 130,178 | ||||||||||||
| Average exchange
rate for translating Canadian dollars to U.S. dollars ( 1 U.S. dollar equals) | 1.3060 | 1.2642 | ||||||||||||||
Telesat’s revenue increased by $3.9 million for the three months ended September 30, 2018 as compared to the three months ended September 30, 2017 due primarily to short-term enterprise services provided to another satellite operator, revenue related to the Telstar 19 VANTAGE satellite, which entered commercial service in August 2018 and the impact of the adoption in the first quarter of 2018 of Accounting Standards Codification 606 (“ASC 606”), Revenue from Contracts with Customers. These increases were partially offset by a service reduction for a North American broadcast customer, lower consulting activity and the impact of the change in the U.S. dollar/Canadian dollar exchange rate on Canadian dollar denominated revenue. Telesat’s revenue excluding foreign exchange impact would have increased by $6.6 million for the three months ended September 30, 2018 as compared to the three months ended September 30, 2017.
Telesat’s operating expenses increased by $0.2 million for the three months ended September 30, 2018 as compared to the three months ended September 30, 2017 primarily due to higher wages and benefits, higher professional fees, higher costs of equipment and installation primarily associated with the Telstar 19 VANTAGE satellite. These increases were partially offset by higher engineering costs capitalized to satellites, property and other equipment, lower compensation following the disposition of a subsidiary in the third quarter of 2017, the impact on cost of sales of the adoption of ASC 606 in the first quarter of 2018, lower consulting expenses and the impact of the change in the U.S. dollar/Canadian exchange rate on Canadian dollar denominated expenses. Telesat’s operating expenses excluding foreign exchange impact would have increased by $0.9 million for the three months ended September 30, 2018 as compared to the three months ended September 30, 2017.
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Nine Months Ended September 30, 2018 Compared with Nine Months Ended September 30, 2017
The following compares our consolidated results for the nine months ended September 30, 2018 and 2017 as presented in our financial statements:
General and Administrative Expenses
| Nine Months Ended | ||||||||
| September 30, | ||||||||
| 2018 | 2017 | |||||||
| (In thousands) | ||||||||
| General and administrative expenses | $ | 5,109 | $ | 5,339 | ||||
General and administrative expenses decreased by $0.2 million for the nine months ended September 30, 2018 as compared to the nine months ended September 30, 2017 primarily from lower professional fees during the nine months ended September 30, 2018.
Interest and Investment Income
| Nine Months Ended | ||||||||
| September 30, | ||||||||
| 2018 | 2017 | |||||||
| (In thousands) | ||||||||
| Interest and investment income | $ | 3,340 | $ | 1,754 | ||||
Interest and investment income increased by $1.6 million for the nine months ended September 30, 2018 as compared to the nine months ended September 30, 2017 primarily due to interest income earned on the cash distribution of $242.7 million for the full nine months in 2018 compared with a partial period in 2017 and higher interest rates earned on investments during the first nine months of 2018 as compared to 2017.
Other Expense
| Nine Months Ended | ||||||||
| September 30, | ||||||||
| 2018 | 2017 | |||||||
| (In thousands) | ||||||||
| Other expense | $ | 2,937 | $ | 3,519 | ||||
Other expense for the nine months ended September 30, 2018 and 2017 was primarily related to strategic initiatives.
Income Tax Provision
| Nine Months Ended | ||||||||
| September 30, | ||||||||
| 2018 | 2017 | |||||||
| (In thousands) | ||||||||
| Income tax provision | $ | (1,014 | ) | $ | (82,236 | ) | ||
For the nine months ended September 30, our income tax provision is summarized as follows: (i) for 2018, we recorded a current tax provision of $2.2 million and a deferred tax benefit of $1.2 million, resulting in a total tax provision of $1.0 million and (ii) for 2017, we recorded a current tax provision of $55.6 million and a deferred tax provision of $26.6 million, resulting in a total tax provision of $82.2 million.
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Our income tax provision for each period is computed by applying an expected effective annual tax rate against the pre-tax results for the nine month periods ended September 30, 2018 and 2017 (after adjusting for certain tax items that are discrete to each period). The current income tax provision for each period includes our anticipated income tax liability related to distributions received or deemed to be received from Telesat. The deferred income tax (provision) benefit for each period includes the impact of equity in net income of affiliates from our condensed consolidated statement of operations and for 2018 includes an incremental tax benefit of approximately $12.5 million from the new GILTI provisions of the Tax Cuts and Jobs Act.
Subsequent to the SSL Sale, to the extent that profitability from operations is not sufficient to realize the benefit from our remaining net deferred tax assets, we would generate sufficient taxable income from the appreciated value of our Telesat investment in order to prevent federal net operating losses from expiring and realize the benefit of all remaining deferred tax assets.
Equity in Net Income of Affiliates
| Nine Months Ended | ||||||||
| September 30, | ||||||||
| 2018 | 2017 | |||||||
| (In thousands) | ||||||||
| Telesat | $ | 56,734 | $ | 183,086 | ||||
The following is a reconciliation of the changes in our investment in Telesat for the nine months ended September 30, 2018:
| Nine Months Ended | ||||||||
| September 30, 2018, | ||||||||
| (In thousands) | ||||||||
| Balance, January 1, 2018 | $ | 53,430 | ||||||
| Components of equity in net income of Telesat: | ||||||||
| Equity in net income of Telesat | $ | 56,002 | ||||||
| Eliminations of affiliate transactions and related amortization | 732 | 56,734 | ||||||
| Components of equity in other comprehensive income of Telesat: | ||||||||
| Equity in other comprehensive income of Telesat | 2,194 | |||||||
| Cumulative effect adjustment of accounting change (1) | (27,995 | ) | ||||||
| Balance, September 30, 2018 | $ | 84,363 | ||||||
| (1) | 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 guidance 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 of $28.0 million by reducing our investment in Telesat. Comparative summary financial information of Telesat presented below has not been restated and continues to be reported under the accounting standards in effect for those periods presented. |
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Summary financial information for Telesat in accordance with U.S. GAAP and in Canadian dollars and U.S. dollars for the nine months ended September 30, 2018 and 2017 and as of September 30, 2018 and December 31, 2017 follows (in thousands):
| Nine Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2018 | 2017 | 2018 | 2017 | |||||||||||||
| (In Canadian dollars) | (In U.S. dollars) | |||||||||||||||
| Statement of Operations Data: | ||||||||||||||||
| Revenues | 671,403 | 675,276 | 522,990 | 514,800 | ||||||||||||
| Operating expenses | (117,856 | ) | (148,064 | ) | (91,804 | ) | (112,876 | ) | ||||||||
| Depreciation, amortization and stock-based compensation | (185,804 | ) | (191,347 | ) | (144,732 | ) | (145,875 | ) | ||||||||
| Other operating income (expense) | 1,072 | (288 | ) | 835 | (220 | ) | ||||||||||
| Operating income | 368,815 | 335,577 | 287,289 | 255,829 | ||||||||||||
| Interest expense | (167,753 | ) | (146,605 | ) | (130,671 | ) | (111,765 | ) | ||||||||
| Foreign exchange (loss) gain | (85,106 | ) | 253,503 | (66,294 | ) | 193,259 | ||||||||||
| Gain (loss) on financial instruments | 39,045 | (22,917 | ) | 30,414 | (17,471 | ) | ||||||||||
| Other income | 10,008 | 1,711 | 7,795 | 1,305 | ||||||||||||
| Income tax provision | (50,310 | ) | (46,659 | ) | (39,190 | ) | (35,571 | ) | ||||||||
| Net income | 114,699 | 374,610 | 89,343 | 285,586 | ||||||||||||
| Average exchange
rate for translating Canadian dollars to U.S. dollars (1 U.S. dollar equals) | 1.2842 | 1.3130 | ||||||||||||||
| September 30, | December 31, | September 30, | December 31, | |||||||||||||
| 2018 | 2017 | 2018 | 2017 | |||||||||||||
| (In Canadian dollars) | (In U.S. dollars) | |||||||||||||||
| Balance Sheet Data: | ||||||||||||||||
| Current assets | 743,567 | 559,540 | 576,052 | 445,104 | ||||||||||||
| Total assets | 5,234,104 | 5,132,075 | 4,054,930 | 4,082,472 | ||||||||||||
| Current liabilities | 202,787 | 158,520 | 157,103 | 126,100 | ||||||||||||
| Long-term debt, including current portion | 3,567,867 | 3,557,481 | 2,764,075 | 2,829,911 | ||||||||||||
| Total liabilities | 4,485,039 | 4,448,443 | 3,474,619 | 3,538,656 | ||||||||||||
| Shareholders’ equity | 749,065 | 683,632 | 580,311 | 543,816 | ||||||||||||
| Period end exchange
rate for translating Canadian dollars to U.S. dollars (1 U.S. dollar equals) | 1.2908 | 1.2571 | ||||||||||||||
Telesat’s revenue increased by $8.2 million for the nine months ended September 30, 2018 as compared to the nine months ended September 30, 2017 due primarily to services provided to other satellite operators, revenue related to the Telstar 19 VANTAGE satellite, which entered commercial service in August 2018, the impact of the adoption in the first quarter of 2018 of ASC 606 and the impact of the change in the U.S. dollar/Canadian dollar exchange rate on Canadian dollar denominated revenue. These increases were partially offset by a service reduction for a North American broadcast customer, lower enterprise revenue following disposition of a subsidiary in the third quarter of 2017 and lower consulting activity. Telesat’s revenue excluding foreign exchange impact would have increased by $2.6 million for the nine months ended September 30, 2018 as compared to the nine months ended September 30, 2017.
Telesat’s operating expenses decreased by $21.1 million for the September 30, 2018 as compared to the nine months ended September 30, 2017 primarily due to a special payment made to stock option holders in the prior year in connection with a cash distribution made to Telesat shareholders, the impact on cost of sales of the adoption of ASC 606 in the first quarter of 2018 and lower expenses following the disposition of a subsidiary in the third quarter of 2017. These decreases were partially offset by higher wages and benefits during the nine months ended September 30, 2018, higher professional fees, higher costs of equipment and installation primarily associated with the Telstar 19 VANTAGE satellite and the impact of the change in the U.S. dollar/Canadian exchange rate on Canadian dollar denominated expenses. Telesat’s operating expenses excluding foreign exchange impact would have decreased by $22.4 million for the nine months ended September 30, 2018 as compared to the nine months ended September 30, 2017.
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Backlog
Telesat’s backlog as of September 30, 2018 and December 31, 2017 was $2.9 billion and $3.0 billion, respectively.
Liquidity and Capital Resources
As described above, Loral’s principal asset is a 62.7% economic interest in Telesat. The operations of Telesat are not consolidated but are presented using the equity method of accounting. Loral has no debt. Telesat has third party debt with financial institutions. Cash is maintained at Loral and Telesat to support the operating needs of each respective entity. 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 relating to its debt and its shareholder agreement.
Cash and Available Credit
At September 30, 2018, Loral had $248.9 million of cash and cash equivalents and no debt. The Company’s cash and cash equivalents as of September 30, 2018 decreased by $6.2 million from December 31, 2017 due primarily to corporate expenses of $4.7 million, adjusted for changes in working capital and net of consulting fees from Telesat, postretirement benefits funding of $2.4 million and payments of $2.3 million related to strategic initiatives, partially offset by $3.2 million of interest and investment income, net. A discussion of cash changes by activity is set forth in the sections, “Net Cash Used in Operating Activities” and “Net Cash Provided by Investing Activities.”
Loral did not have a credit facility as of September 30, 2018 and December 31, 2017.
Cash Management
We have a cash management investment program that seeks a competitive return while maintaining a conservative risk profile. Our cash management investment policy establishes what we believe to be conservative guidelines relating to the investment of surplus cash. The policy allows us to invest in commercial paper, money market funds and other similar short-term investments but does not permit us to engage in speculative or leveraged transactions, nor does it permit us to hold or issue financial instruments for trading purposes. The cash management investment policy was designed to preserve capital and safeguard principal, to meet all of our liquidity requirements and to provide a competitive rate of return for similar risk categories of investment. The policy addresses dealer qualifications, lists approved securities, establishes minimum acceptable credit ratings, sets concentration limits, defines a maturity structure, requires all firms to safe keep securities on our behalf, requires certain mandatory reporting activity and discusses review of the portfolio. We operate the cash management investment program under the guidelines of our investment policy and continuously monitor the investments to avoid risks.
We currently invest our cash in several liquid Prime and Government AAA money market funds. The dispersion across funds reduces the exposure of a default at one fund.
Liquidity
We believe that our cash and cash equivalents will be sufficient to fund projected expenditures for the next 12 months. We expect that our major cash outlays for the next 12 months will include general corporate expenses net of consulting fees from Telesat.
In the first quarter of 2017, we received $242.7 million in cash from Telesat, representing our share of an aggregate approximately $400 million distribution from Telesat to its shareholders and stock option holders. We intend to use the proceeds of such distribution, net of reasonable reserves for working capital and other liabilities, to make a distribution to our stockholders. There can be no assurance as to the amount and timing of any such distribution, and such distribution may be impacted by the outcome of our discussions regarding, and the structure of, the strategic combination transaction that we are pursuing.
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Risks to Cash Flow
In the fourth quarter of 2012, we sold our former subsidiary, SSL, to MDA. We are obligated to indemnify MDA from liabilities with respect to certain pre-closing taxes the total amount of which has not yet been determined. Where appropriate, we intend vigorously to contest the underlying tax assessments, but there can be no assurance that we will be successful. Although no assurance can be provided, we do not believe that these tax-related matters will have a material adverse effect on our financial position or results of operations.
Cash and Available Credit
As of September 30, 2018, Telesat had CAD 637 million of cash and short-term investments as well as approximately $200 million of borrowing availability under its revolving credit facility.
Liquidity
A large portion of Telesat’s 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. Telesat believes its cash and short-term investments as of September 30, 2018, cash flows from operating activities, and drawings on the revolving credit facility under its senior secured credit facilities will be adequate to meet Telesat’s expected cash requirements for at least the next 12 months for activities in the normal course of business, including capital requirements and required interest and principal payments on debt.
The construction of any satellite replacement or expansion program will require significant capital expenditures. Telesat may choose to invest in new satellites to further grow its business. Cash required for current and future satellite construction programs 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 through borrowings on the revolving credit facility under Telesat’s senior secured credit facilities. In addition, Telesat may sell certain satellite assets and, in accordance with the terms and conditions of Telesat’s senior secured credit facilities, reinvest the proceeds in replacement satellites or pay down indebtedness under Telesat’s senior secured credit facilities. Subject to market conditions and subject to compliance with the terms and conditions of its senior secured credit facilities and the financial leverage covenant tests therein, Telesat may also have the ability to obtain additional secured or unsecured financing to fund current or future satellite construction. Telesat’s ability to access these sources of funding, however, is not guaranteed, and therefore, Telesat may not be able to fully fund additional replacement or new satellite construction programs.
Debt
Telesat’s debt as of September 30, 2018 and December 31, 2017 was as follows:
| September 30, | December 31, | |||||||||||||
| Maturity | Currency | 2018 | 2017 | |||||||||||
| (In thousands) | ||||||||||||||
| Senior Secured Credit Facilities: | ||||||||||||||
| Revolving credit facility | November 2021 | USD or CAD equivalent | $ | — | $ | — | ||||||||
| Term Loan B - U.S. facility | November 2023 | USD | 2,331,908 | 2,399,686 | ||||||||||
| 8.875% Senior notes | November 2024 | USD | 500,000 | 500,000 | ||||||||||
| 2,831,908 | 2,899,686 | |||||||||||||
| Less: Deferred financing costs, interest rate floors and prepayment options | (105,051 | ) | (80,994 | ) | ||||||||||
| Total debt under international financial reporting standards | 2,726,857 | 2,818,692 | ||||||||||||
| U.S. GAAP adjustments | 37,218 | 11,219 | ||||||||||||
| Total debt under U.S. GAAP | 2,764,075 | 2,829,911 | ||||||||||||
| Current portion | 11,659 | 13,551 | ||||||||||||
| Long-term portion | $ | 2,752,416 | $ | 2,816,360 | ||||||||||
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Senior Secured Credit Facilities
The obligations under Telesat’s new 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 and certain of its subsidiaries (the “Guarantors”). The credit agreement contains covenants that restrict the ability of Telesat 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 and the Guarantors to comply with a maximum first lien leverage ratio and contains customary events of default and affirmative covenants, including an excess cash sweep, that may require Telesat to repay a portion of the outstanding principal under its senior secured credit facilities prior to the stated maturity.
Telesat’s senior secured credit facilities are comprised of the following facilities:
| i | — Revolving Credit Facility |
Telesat’s revolving credit facility (“Revolving Facility”) is a $200 million loan facility available in either U.S. dollar or Canadian dollar equivalent, maturing on November 17, 2021. Loans under the Revolving Facility bear interest at a floating interest rate. For Canadian Prime Rate and Alternative Base Rate (“ABR”) loans, an applicable margin ranging from 1.5% to 2.00% is applied to the Prime Rate and ABR as these interest rates are defined in the senior credit facilities. For Bankers Acceptance (“BA”) Loans and Eurodollar Loans, an applicable margin ranging from 2.50% to 3.00% is applied to either the BA interest rate or LIBOR. The rates on the Revolving Facility vary depending upon the results of the first lien leverage ratio. Telesat’s Revolving Facility currently has an unused commitment fee of 40 basis points. As at September 30, 2018, other than approximately CAD 0.3 million in drawings related to letters of credit, there were no borrowings under this facility.
| ii | — Term Loan B — U.S. Facility |
Telesat’s term loan B — U.S. facility (“U.S. TLB Facility”) is a $2.430 billion loan maturing on November 17, 2023. As of September 30, 2018, $2.332 billion of this facility was outstanding, which represents the full amount available following mandatory repayments.
As of September 30, 2018, the terms of the outstanding borrowings under the U.S. TLB Facility bear interest at a floating rate of either: (i) LIBOR as periodically determined for interest rate periods selected by Telesat in accordance with the terms of the senior secured credit facilities, but not less than 0.75%, plus an initial applicable margin of 2.50%; or (ii) Alternative Base Rate as determined in accordance with the terms of the senior secured credit facilities plus an applicable margin of 1.50%.
On February 1, 2017, Telesat amended the Senior Secured Credit Facilities to reduce the applicable margin to 3.00% from 3.75% on the then outstanding $2.424 billion. On March 29, 2018, a voluntary payment of $50 million was made on the U.S. TLB Facility. On April 26, 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% on the then outstanding $2.344 billion. As at April 26, 2018, the mandatory principal repayments on the U.S. TLB Facility are one quarter of 1.00% of the value of the loan at the time of the amendment, which must be paid on the last day of each quarter.
Senior Notes
Telesat’s senior notes of $500 million bear interest at an annual rate of 8.875% and are due November 17, 2024. They include covenants or terms that restrict Telesat’s 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 Telesat’s satellite insurance, effect mergers with another entity, and redeem Telesat’s senior notes, without penalty, before November 15, 2022, in each case subject to exceptions provided in the senior notes indenture.
| 35 |
As of September 30, 2018 Telesat was in compliance with the financial covenants of its senior secured credit facilities and the indenture governing the senior notes.
Debt Service Cost
Telesat’s interest expense for the year ending December 31, 2018 is expected to be approximately CAD 200 million.
Derivatives
Telesat uses, from time to time, interest rate and currency derivatives to manage its exposure to changes in interest rates and foreign exchange rates.
As of September 30, 2018, Telesat had four outstanding interest rate swaps which hedge the interest rate risk on $1.8 billion of U.S. denominated Term Loan B borrowings. As of September 30, 2018, the fair value of the interest rate swaps was an asset of $46.4 million. These contracts, which mature between September 2019 and September 2022, are at fixed interest rates ranging from 1.72% to 2.04%, excluding applicable margin.
Telesat also has foreign currency embedded derivatives in its purchase contracts with suppliers and sales contracts with customers as a result of some of these contracts being denominated in a currency other than the functional currency of the substantial parties to the respective contract. The fair value of these foreign currency embedded derivatives as of September 30, 2018 was CAD 6.3 million.
Capital Expenditures
Telesat has entered into contracts for the construction and launch of satellites and other capital expenditures. The outstanding commitments associated with these contracts were approximately CAD 45 million as of September 30, 2018. 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 the Revolving Facility.
Net Cash Used in Operating Activities
Net cash used in operating activities by continuing operations was $6.2 million for the nine months ended September 30, 2018, consisting primarily of a $6.2 million cash use attributable to income from continuing operations adjusted for non-cash operating items and a $2.4 million decrease in pension and post retirement liabilities primarily due to pension funding, partially offset by a $1.9 million increase in other liabilities, primarily due to an increase in the liability for uncertain tax positions and a $0.6 million increase in accrued employment costs and other current liabilities.
Net cash used in operations was $20.6 million for the nine months ended September 30, 2017.
Net cash used in operating activities by continuing operations was $17.8 million for the nine months ended September 30, 2017, consisting primarily of a $61.9 million cash use attributable to income from continuing operations adjusted for non-cash operating items and a $1.6 million decrease in pension and other postretirement liabilities, partially offset by a $43.5 million increase in income taxes payable primarily related to the cash distribution received from Telesat in the first quarter of 2017 and a $2.0 million increase in long-term liabilities.
Net cash used by operating activities from discontinued operations was $2.8 million for the nine months ended September 30, 2017 representing the final payment to ViaSat pursuant to the Settlement Agreement and the Allocation Agreement.
Net Cash Provided by Investing Activities
Net cash provided by investing activities by continuing operations for the nine months ended September 30, 2017 was $242.7 million representing the cash distribution received from Telesat.
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Loral has made certain investments in joint ventures in the satellite services business that are accounted for under the equity method of accounting (see Note 5 to our financial statements for further information on affiliate matters).
Our business and operations are subject to a number of significant risks, the most significant of which are summarized in Part II, Item 1A — Risk Factors and also in Note 13 to our condensed consolidated financial statements.
Recent Accounting Pronouncements
There are no accounting pronouncements that have been issued but not yet adopted that we believe will have a significant impact on our financial statements.
Item 4. Disclosure Controls and Procedures
(a) Disclosure Controls and Procedures. Our president and our chief financial officer, after evaluating the effectiveness of our “disclosure controls and procedures” (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act of 1934, as amended (the “Exchange Act”)) as of September 30, 2018, have concluded that our disclosure controls and procedures were effective and designed to ensure that information relating to Loral and its consolidated subsidiaries required to be disclosed in our filings under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities Exchange Commission rules and forms.
(b) Internal control over financial reporting. There were no changes in our internal control over financial reporting (as defined in the Securities and Exchange Act of 1934 Rules 13a-15(f) and 15-d-15(f)) during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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OTHER INFORMATION
We are not currently subject to any legal proceedings that, if decided adversely, could have a material adverse effect on our financial position or results of operations. In the future, however, we may become subject to legal proceedings and claims, either asserted or unasserted, that may arise in the ordinary course of business or otherwise.
Our business and operations are subject to a significant number of risks. The most significant of these risks are summarized in, and the reader’s attention is directed to, the section of our Annual Report on Form 10-K for the year ended December 31, 2017 in “Item 1A. Risk Factors.” There are no material changes to those risk factors.
The risks described in our Annual Report on Form 10-K are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.
The following exhibits are filed as part of this report:
| Exhibit 31.1 | — | Certification of President pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 302 of the Sarbanes-Oxley Act of 2002 |
| Exhibit 31.2 | — | Certification of Chief Financial Officer pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 302 of the Sarbanes-Oxley Act of 2002 |
| Exhibit 32.1 | — | Certification of President pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002 |
| Exhibit 32.2 | — | Certification of Chief Financial Officer pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002 |
| Exhibit 101 | — | Interactive Data Files |
| (101.INS) XBRL Instance Document | ||
| (101.SCH) XBRL Taxonomy Extension Schema Document | ||
| (101.CAL) XBRL Taxonomy Extension Calculation Linkbase Document | ||
| (101.DEF) XBRL Taxonomy Extension Definition Linkbase Document | ||
| (101.LAB) XBRL Taxonomy Extension Label Linkbase Document | ||
| (101.PRE) XBRL Taxonomy Extension Presentation Linkbase Document |
| 38 |
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| Registrant | |
| Loral Space & Communications Inc. | |
| /s/ John Capogrossi | |
| John Capogrossi | |
| Vice President, Chief Financial Officer and Treasurer | |
| (Principal Financial Officer) | |
| and Registrant’s Authorized Officer |
Date: November 7, 2018
| 39 |
Exhibit 31.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Avi Katz, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Loral Space & Communications Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| /s/ Avi Katz | |
| Avi Katz | |
| President, General Counsel & Secretary |
November 7, 2018
Exhibit 31.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, John Capogrossi, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Loral Space & Communications Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| /s/ John Capogrossi | |
| John Capogrossi | |
| Vice President, Chief Financial Officer and Treasurer |
November 7, 2018
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Loral Space & Communications Inc. (the “Company”) on Form 10-Q for the period ending September 30, 2018 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Avi Katz, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
| /s/ Avi Katz | |
| Avi Katz | |
| President, General Counsel & Secretary |
November 7, 2018
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Loral Space & Communications Inc. (the “Company”) on Form 10-Q for the period ending September 30, 2018 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, John Capogrossi, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
| /s/ John Capogrossi | |
| John Capogrossi | |
| Vice President, Chief Financial Officer and Treasurer |
November 7, 2018
Document and Entity Information - shares |
9 Months Ended | |
|---|---|---|
Sep. 30, 2018 |
Nov. 05, 2018 |
|
| Entity Information [Line Items] | ||
| Document Type | 10-Q | |
| Amendment Flag | false | |
| Document Period End Date | Sep. 30, 2018 | |
| Document Fiscal Year Focus | 2018 | |
| Document Fiscal Period Focus | Q3 | |
| Trading Symbol | lorl | |
| Entity Registrant Name | LORAL SPACE & COMMUNICATIONS INC. | |
| Entity Central Index Key | 0001006269 | |
| Current Fiscal Year End Date | --12-31 | |
| Entity Filer Category | Smaller Reporting Accelerated Filer | |
| Voting Common Stock [Member] | ||
| Entity Information [Line Items] | ||
| Entity Common Stock, Shares Outstanding | 21,427,078 | |
| Nonvoting Common Stock [Member] | ||
| Entity Information [Line Items] | ||
| Entity Common Stock, Shares Outstanding | 9,505,673 |
Condensed Consolidated Balance Sheets (Parenthetical) - $ / shares |
Sep. 30, 2018 |
Dec. 31, 2017 |
|---|---|---|
| Preferred stock, par value | $ 0.01 | $ 0.01 |
| Preferred stock, shares authorized | 10,000,000 | 10,000,000 |
| Preferred stock, shares issued | 0 | 0 |
| Preferred stock, shares outstanding | 0 | 0 |
| Voting Common Stock [Member] | ||
| Common stock, par value | $ 0.01 | $ 0.01 |
| Common stock, shares authorized | 50,000,000 | 50,000,000 |
| Common stock, shares issued | 21,581,572 | 21,581,572 |
| Treasury stock, shares | 154,494 | 154,494 |
| Nonvoting Common Stock [Member] | ||
| Common stock, par value | $ 0.01 | $ 0.01 |
| Common stock, shares authorized | 20,000,000 | 20,000,000 |
| Common stock, shares issued | 9,505,673 | 9,505,673 |
| Common stock, shares outstanding | 9,505,673 | 9,505,673 |
Condensed Consolidated Statements of Shareholders' Equity - USD ($) shares in Thousands, $ in Thousands |
Voting Common Stock [Member]
Common Stock [Member]
|
Nonvoting Common Stock [Member]
Common Stock [Member]
|
Paid-In Capital [Member] |
Treasury Stock [Member] |
Retained Earnings (Accumulated Deficit) [Member] |
Accumulated Other Comprehensive Loss [Member] |
Total |
|---|---|---|---|---|---|---|---|
| Balance at Dec. 31, 2016 | $ 216 | $ 95 | $ 1,019,988 | $ (9,592) | $ (826,460) | $ (13,836) | $ 170,411 |
| Balance, shares at Dec. 31, 2016 | 21,582 | 9,506 | 154 | ||||
| Net income (loss) | 93,719 | 93,719 | |||||
| Other comprehensive income (loss) | (15,215) | (15,215) | |||||
| Comprehensive income (loss) | 78,504 | ||||||
| Cumulative effect adjustment attributable to previously unrecognized excess tax benefits on stock-based compensation | 4,741 | 4,741 | |||||
| Balance at Sep. 30, 2017 | $ 216 | $ 95 | 1,019,988 | $ (9,592) | (728,000) | (29,051) | 253,656 |
| Balance, shares at Sep. 30, 2017 | 21,582 | 9,506 | 154 | ||||
| Balance at Dec. 31, 2016 | $ 216 | $ 95 | 1,019,988 | $ (9,592) | (826,460) | (13,836) | 170,411 |
| Balance, shares at Dec. 31, 2016 | 21,582 | 9,506 | 154 | ||||
| Other comprehensive income (loss) | (18,974) | ||||||
| Tax cuts and Jobs Act, reclassification tax effect | (4,468) | ||||||
| Balance at Dec. 31, 2017 | $ 216 | $ 95 | 1,019,988 | $ (9,592) | (682,831) | (37,278) | 290,598 |
| Balance, shares at Dec. 31, 2017 | 21,582 | 9,506 | 154 | ||||
| Balance at Sep. 30, 2017 | $ 216 | $ 95 | 1,019,988 | $ (9,592) | (728,000) | (29,051) | 253,656 |
| Balance, shares at Sep. 30, 2017 | 21,582 | 9,506 | 154 | ||||
| Net income (loss) | 40,745 | ||||||
| Other comprehensive income (loss) | (3,759) | ||||||
| Comprehensive income (loss) | 36,986 | ||||||
| Tax cuts and Jobs Act, reclassification tax effect | 4,468 | (4,468) | |||||
| Cumulative effect adjustment attributable to previously unrecognized excess tax benefits on stock-based compensation | (44) | (44) | |||||
| Balance at Dec. 31, 2017 | $ 216 | $ 95 | 1,019,988 | $ (9,592) | (682,831) | (37,278) | 290,598 |
| Balance, shares at Dec. 31, 2017 | 21,582 | 9,506 | 154 | ||||
| Net income (loss) | 50,935 | 50,935 | |||||
| Other comprehensive income (loss) | 2,362 | 2,362 | |||||
| Comprehensive income (loss) | 53,297 | ||||||
| Cumulative effect adjustment attributable to investment in Telesat, net of tax of $5.9 million | (22,107) | (22,107) | |||||
| Balance at Sep. 30, 2018 | $ 216 | $ 95 | $ 1,019,988 | $ (9,592) | $ (654,003) | $ (34,916) | $ 321,788 |
| Balance, shares at Sep. 30, 2018 | 21,582 | 9,506 | 154 |
Condensed Consolidated Statements of Shareholders' Equity (Parenthetical) $ in Millions |
9 Months Ended |
|---|---|
|
Sep. 30, 2018
USD ($)
| |
| Condensed Consolidated Statements of Shareholders' Equity [Abstract] | |
| Cumulative effect adjustment attributable to investment in Telesat, tax expense (benefit) | $ (5.9) |
Organization and Principal Business |
9 Months Ended |
|---|---|
Sep. 30, 2018 | |
| Organization and Principal Business [Abstract] | |
| Organization and Principal Business | 1. Organization and Principal Business Loral Space & Communications Inc., together with its subsidiaries (“Loral,” the “Company,” “we,” “our” and “us”) is a leading satellite communications company engaged, through our ownership interests in affiliates, in satellite-based communications services. Description of Business Loral has one operating segment consisting of satellite-based communications services. Loral participates in satellite services operations primarily through its ownership interest in Telesat Canada (“Telesat”), a leading global satellite operator. Loral holds a 62.7% economic interest and a 32.6% voting interest in Telesat. We use the equity method of accounting for our ownership interest in Telesat (see Note 5). Telesat owns and leases a satellite fleet that operates in geostationary earth orbit approximately 22,000 miles above the equator. In this orbit, satellites remain in a fixed position relative to points on the earth’s surface and provide reliable, high-bandwidth services anywhere in their coverage areas, serving as the backbone for many forms of telecommunications. On July 22, 2018, Telesat successfully launched a geostationary satellite, Telstar 19 VANTAGE, which entered commercial service in August 2018. On September 10, 2018, Telesat successfully launched another geostationary satellite, Telstar 18 VANTAGE, which entered commercial service in October 2018. Telesat is also developing a global constellation of low earth orbit (“LEO”) satellites. LEO satellites operate in a circular orbit around the earth with an altitude typically between 500 and 870 miles. Unlike geostationary orbit satellites that operate in a fixed orbital location above the equator, LEO satellites travel around the earth at high velocities requiring antennas on the ground to track their movement. LEO satellite systems have the potential to offer a number of advantages over geostationary orbit satellites to meet growing requirements for broadband services, both consumer and commercial, by providing increased data speeds and capacity, global coverage, and latency on par with, or potentially better than, terrestrial services.
|
Basis of Presentation |
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Sep. 30, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Basis of Presentation [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Basis of Presentation | 2. Basis of Presentation The accompanying unaudited condensed consolidated financial statements have been prepared pursuant to the rules of the Securities and Exchange Commission (“SEC”) and, in our opinion, include all adjustments (consisting of normal recurring accruals) necessary for a fair presentation of results of operations, financial position and cash flows as of the balance sheet dates presented and for the periods presented. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been condensed or omitted pursuant to SEC rules. We believe that the disclosures made are adequate to keep the information presented from being misleading. The results of operations for the three and nine months ended September 30, 2018 are not necessarily indicative of the results to be expected for the full year. The December 31, 2017 balance sheet has been derived from the audited consolidated financial statements at that date. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements included in our latest Annual Report on Form 10-K filed with the SEC. Discontinued Operations On November 2, 2012, pursuant to the purchase agreement (the “Purchase Agreement”), dated as of June 26, 2012, as amended on October 30, 2012 and March 28, 2013, by and among Loral, Space Systems/Loral, LLC (formerly known as Space Systems/Loral, Inc.) (“SSL”), MacDonald, Dettwiler and Associates Ltd. (“MDA”) and MDA Communications Holdings, Inc. (“MDA Holdings”), a subsidiary of MDA, Loral completed the sale of SSL (the “SSL Sale”), its wholly‑owned subsidiary, to MDA Holdings.
Interest and other expenses that are directly related to the SSL Sale are classified as discontinued operations in the statements of operations for the three and nine months ended September 30, 2018 and 2017. Investments in Affiliates Our ownership interest in Telesat is accounted for using the equity method of accounting. Income and losses of Telesat are recorded based on our economic interest. 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 them 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. Non-refundable cash distributions received from Telesat in excess of our initial investment and our share of cumulative equity in comprehensive income of Telesat, net of cash distributions received in prior periods, are recorded as equity in net income of Telesat (“Excess Cash Distribution”) since we have no obligation to provide future financial support to Telesat. After receiving an Excess Cash Distribution, we do not record additional equity in net income of Telesat until our share of Telesat’s future net income exceeds the Excess Cash Distribution. Equity in losses of affiliates is not recognized after the carrying value of an investment, including advances and loans, has been reduced to zero, unless guarantees or other funding obligations exist. We had no guarantees or other funding obligations for our equity method investments as of September 30, 2018 and December 31, 2017. We use the nature of distribution approach to classify distributions from equity method investments on the statements of cash flows. The Company monitors its equity method investments for factors indicating other-than-temporary impairment. An impairment loss is recognized when there has been a loss in value of the affiliate that is other‑than-temporary. Use of Estimates in Preparation of Financial Statements The preparation of financial statements in conformity with U.S. GAAP requires management 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 amount of income (loss) reported for the period. Actual results could materially differ from estimates. Significant estimates also included the allowances for doubtful accounts, income taxes, including the valuation of deferred tax assets, the fair value of liabilities indemnified, the dilutive effect of Telesat stock options (see Note 10) and our pension liabilities. Cash, Cash Equivalents and Restricted Cash As of September 30, 2018, the Company had $248.9 million of cash and cash equivalents. Cash and cash equivalents include liquid investments, primarily money market funds, with maturities of less than 90 days at the time of purchase. Management determines the appropriate classification of its investments at the time of purchase and at each balance sheet date. As of September 30, 2018 and December 31, 2017, the Company had restricted cash of $0.3 million. The restricted cash of $0.3 million represents the amount pledged as collateral to the issuer of a standby letter of credit (the “LC”). The LC, which expires in October 2018 and contains an automatic renewal period of one year, has been provided as a guaranty to the lessor of our corporate offices. The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the condensed consolidated balance sheet to the condensed consolidated statement of cash flows (in thousands):
Concentration of Credit Risk Financial instruments which potentially subject us to concentrations of credit risk consist principally of cash and cash equivalents and receivables. Our cash and cash equivalents are maintained with high-credit-quality financial institutions. As of September 30, 2018 and December 31, 2017, our cash and cash equivalents were invested primarily in several liquid Prime and Government AAA money market funds. Such funds are not insured by the Federal Deposit Insurance Corporation. The dispersion across funds reduces the exposure of a default at any one fund. As a result, management believes that its potential credit risks are minimal. Fair Value Measurements U.S. GAAP defines fair value as the price that would be received for an asset or the exit price that would be paid to transfer a liability in the principal or most advantageous market in an orderly transaction between market participants. U.S. GAAP also establishes a fair value hierarchy that gives the highest priority to observable inputs and the lowest priority to unobservable inputs. The three levels of the fair value hierarchy are described below: Level 1: Inputs represent a fair value that is derived from unadjusted quoted prices for identical assets or liabilities traded in active markets at the measurement date. Level 2: Inputs represent a fair value that is derived from quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, model-based valuation techniques for which all significant assumptions are observable in the market or can be corroborated by observable market data for substantially the full term of the assets or liabilities, and pricing inputs, other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date. Level 3: Inputs are generally unobservable and typically reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability. The fair values are therefore determined using model-based techniques that include option pricing models, discounted cash flow models, and similar techniques. Assets and Liabilities Measured at Fair Value The following table presents our assets and liabilities measured at fair value on a recurring and non-recurring basis (in thousands):
The carrying amount of money market funds approximates fair value as of each reporting date because of the short maturity of those instruments. The Company did not have any non-financial assets or non-financial liabilities that were recognized or disclosed at fair value as of September 30, 2018 and December 31, 2017.
Assets and Liabilities Measured at Fair Value on a Non-recurring Basis We review the carrying values of our equity method investments when events and circumstances warrant and consider all available evidence in evaluating when declines in fair value are other-than-temporary. The fair values of our investments are determined based on valuation techniques using the best information available and may include quoted market prices, market comparables and discounted cash flow projections. An impairment charge is recorded when the carrying amount of the investment exceeds its current fair value and is determined to be other-than-temporary. The asset resulting from the indemnification of SSL is for certain pre-closing taxes and reflects the excess of payments since inception over the estimated liability, which was originally determined using the fair value objective approach. The estimated liability for indemnifications relating to Globalstar do Brasil S.A. (“GdB”), originally determined using expected value analysis, is net of payments since inception. Contingencies Contingencies by their nature relate to uncertainties that require management to exercise judgment both in assessing the likelihood that a liability has been incurred as well as in estimating the amount of potential loss, if any. We accrue for costs relating to litigation, claims and other contingent matters when such liabilities become probable and reasonably estimable. Such estimates may be based on advice from third parties or on management’s judgment, as appropriate. Actual amounts paid may differ from amounts estimated, and such differences will be charged to operations in the period in which the final determination of the liability is made. Income Taxes Loral and its subsidiaries are subject to U.S. federal, state and local income taxation on their worldwide income and foreign taxation on certain income from sources outside the United States. Telesat is subject to tax in Canada and other jurisdictions, and Loral will provide in operating earnings any additional U.S. current and deferred tax required on distributions received or deemed to be received from Telesat. Deferred income taxes reflect the future tax effect of temporary differences between the carrying amount of assets and liabilities for financial and income tax reporting and are measured by applying anticipated statutory tax rates in effect for the year during which the differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance to the extent it is more likely than not that the deferred tax assets will not be realized. The tax benefit of an uncertain tax position (“UTP”) taken or expected to be taken in income tax returns is recognized only if it is “more likely than not” to be sustained on examination by the taxing authorities, based on its technical merits as of the reporting date. The tax benefit recognized in the financial statements from such a position is measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement. The Company recognizes interest and penalties related to income taxes in income tax expense on a quarterly basis. The unrecognized tax benefit of a UTP is recognized in the period when the UTP is effectively settled. A previously recognized tax position is derecognized in the first period in which it is no longer more likely than not that such tax position would be sustained upon examination. Earnings per Share Basic earnings per share are computed based upon the weighted average number of shares of voting and non-voting common stock outstanding during each period. Shares of non-voting common stock are in all respects identical to and treated equally with shares of voting common stock except for the absence of voting rights (other than as provided in Loral’s Amended and Restated Certificate of Incorporation which was ratified by Loral’s stockholders on May 19, 2009). Diluted earnings per share are based on the weighted average number of shares of voting and non-voting common stock outstanding during each period, adjusted for the effect of unvested or unconverted restricted stock units. For diluted earnings per share, earnings are adjusted for the dilutive effect of Telesat stock options.
Recent Accounting Pronouncements In August 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2018-14, Compensation-Retirement Benefits-Defined Benefit Plans-General (Subtopic 715-20): Disclosure Framework – Changes to the Disclosure Requirements for Defined Benefit Plans. The amendments in ASU No. 2018-14 remove certain disclosures that are no longer considered cost beneficial, clarify the specific requirements of certain disclosures, and add disclosure requirements identified as relevant to improve effectiveness of disclosures related to employer sponsored defined benefit or other postretirement plans. The new guidance is effective for the Company on January 1, 2021, with earlier application permitted in any interim or annual period. The amendments in this ASU are to be applied on a retrospective basis to all periods presented. The Company is currently evaluating the impact of the new guidance on its condensed consolidated financial statements. In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement. ASU No. 2018-13 eliminates, amends, and adds disclosure requirements to improve the effectiveness of fair value measurement disclosures. The new guidance is effective for the Company on January 1, 2020, with earlier application permitted in any interim or annual period. Companies may also choose to early adopt the eliminated and amended disclosures and wait to adopt the new disclosures until the effective date of the new guidance. While certain amendments are to be applied prospectively, all other amendments are to be applied retrospectively to all periods presented. The Company is currently evaluating the impact of the new guidance on its condensed consolidated financial statements. In February 2018, the FASB issued ASU No. 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. On December 22, 2017, Public Law 115-97, known as the “Tax Cuts and Jobs Act” was signed into law. Among other things, the Tax Cuts and Jobs Act permanently reduced the U.S. federal corporate income tax rate from 35 percent to 21 percent effective for tax years commencing January 1, 2018. According to ASU 2018-02, an entity may elect either to (a) reclassify from accumulated other comprehensive income (loss) to retained earnings the stranded income tax effects of the federal tax rate change (the “Reclassification”) or (b) provide certain disclosures. The new guidance is effective for the Company on January 1, 2019, with earlier adoption permitted in any interim or annual period. The amendments in this update are to be applied either in the period of adoption or retrospectively to each period in which the effect of the tax rate change is recognized. The Company early adopted the new guidance in the fourth quarter of 2017 and elected the Reclassification approach. As a result of adopting the new guidance, we reclassified $4.5 million of stranded deferred federal income tax benefits from accumulated other comprehensive loss to accumulated deficit in the fourth quarter of 2017 related to the change in the federal corporate income tax rate. In March 2017, the FASB issued ASU No. 2017-07, Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. ASU No. 2017-07, as it applies to the Company, amended the presentation of net periodic pension and postretirement cost (i.e. net benefit cost). The new guidance requires the service cost component to be presented separate from the non-service cost components of net benefit cost. While the service cost will be presented with other employee compensation costs within operations, the non-service cost components of net benefit cost, such as interest cost, amortization of prior service cost, and gains or losses, are required to be separately presented outside of operations, if income or loss from operations is presented. The guidance, to be applied retrospectively, is effective for the Company on January 1, 2018. Adoption of the new guidance on January 1, 2018, with retrospective effect, required us to restate the condensed consolidated statements of operations and comprehensive income for the prior-period presented. Accordingly, for the three and nine months ended September 30, 2017, of the net benefit cost of $0.4 million and $1.2 million, respectively, we reclassified the non-service cost components of $0.2 million and $0.7 million, respectively, from general and administrative expenses to other expense. Adoption of the new guidance did not affect previously reported financial position, earnings per share, or cash flows. In February 2016, the FASB amended the ASC by creating ASC Topic 842, Leases. ASC Topic 842 requires a lessee to record a right-of-use asset and a lease liability for all leases with a lease term greater than 12 months. The main difference between previous U.S. GAAP and ASC Topic 842 is the recognition under ASC 842 of lease assets and lease liabilities by lessees for those leases classified as operating leases under previous U.S. GAAP. The new guidance, effective for the Company on January 1, 2019, with earlier application permitted, is not expected to have a material effect on our condensed consolidated financial statements.
Additional Cash Flow Information The following represents non-cash activities and supplemental information to the condensed consolidated statements of cash flows (in thousands):
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Accumulated Other Comprehensive Loss |
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| Accumulated Other Comprehensive Loss [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Accumulated Other Comprehensive Loss | 3. Accumulated Other Comprehensive Loss The components of accumulated other comprehensive loss, net of tax, are as follows (in thousands):
The components of other comprehensive income (loss) and related tax effects are as follows (in thousands):
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Other Current Assets |
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| Other Current Assets [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other Current Assets | 4. Other Current Assets Other current assets consists of (in thousands):
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Investments in Affiliates |
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| Investments in Affiliates [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Investments in Affiliates | 5. Investments in Affiliates Investments in affiliates consist of (in thousands):
Equity in net income of affiliates consists of (in thousands):
Telesat As of September 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 $2.2 million for the nine months ended September 30, 2018. 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. For the three months ended September 30, 2017, our share of equity in net income of Telesat, including elimination of affiliate transactions and related amortization, was $82.4 million. In the first quarter of 2017, we received a $242.7 million cash distribution from Telesat. As of June 30, 2017, 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 $39.0 million which we recognized as additional equity income during the six months ended June 30, 2017. For the three months ended September 30, 2017, we reduced our share of Telesat’s net income, including elimination of affiliate transactions and related amortization, of $82.4 million by the $39.0 million excess cash distribution resulting in the recognition of equity in net income of Telesat of $43.4 million. 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 September 30, 2018, Telesat’s Total Leverage Ratio was 4.53:1.00. 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 nine months ended September 30, 2018 and 2017 and as of September 30, 2018 and December 31, 2017 (in thousands):
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 September 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 September 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.
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Other Current Liabilities |
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| Other Current Liabilities | 6. Other Current Liabilities Other current liabilities consists of (in thousands):
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Income Taxes |
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| Income Taxes [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Income Taxes | 7. Income Taxes The following summarizes our income tax provision (in thousands):
For the nine month periods ended September 30, 2018 and 2017, our income tax provision is computed by applying an expected effective annual tax rate against the pre-tax results for each period (after adjusting for certain tax items that are discrete to each period). For the three month periods ended September 30, 2018 and 2017, this amount is then reduced by the tax benefit (provision) recorded for the six month periods ended June 30, 2018 and 2017, respectively. The current income tax provision for each period includes our anticipated income tax liability related to distributions received or deemed to be received from Telesat. The deferred income tax (provision) benefit for each period includes the impact of equity in net income of affiliates from our condensed consolidated statement of operations.
In accordance with the Securities and Exchange Commission Staff Accounting Bulletin No. 118, Income Tax- Accounting Implication of the Tax Cuts and Job Act (SAB 118), we recognized the preliminary income tax effects of the Tax Cuts and Jobs Act in our consolidated financial statements for the year ended December 31, 2017. The preliminary effect previously recorded may change in the future due to revisions in the interpretation of the Tax Cuts and Jobs Act or legislative action to clarify interpretation of the Tax Cuts and Jobs Act. The Company expects to finalize the effect of the Tax Cuts and Jobs Act and complete its accounting by December 31, 2018. In addition to reducing the U.S. federal corporate income tax rate from 35 percent to 21 percent effective January 1, 2018, the Tax Cuts and Jobs Act included new Global Intangible Low-Taxed Income (“GILTI”) provisions effective for the first time during 2018 which require the Company to currently include in U.S. federal taxable income certain earnings of controlled foreign corporations, including Telesat. The GILTI provisions provided an incremental tax benefit of approximately $5.7 million and $12.5 million for the three and nine months ended September 30, 2018, respectively. Subsequent to the SSL Sale, to the extent that profitability from operations is not sufficient to realize the benefit from our remaining net deferred tax assets, we would generate sufficient taxable income from the appreciated value of our Telesat investment in order to prevent federal net operating losses from expiring and realize the benefit of all remaining deferred tax assets. The following summarizes amounts for UTPs included in our income tax provision (in thousands):
As of September 30, 2018, we had unrecognized tax benefits relating to UTPs of $70 million. The Company recognizes interest and penalties related to income taxes in income tax expense on a quarterly basis. As of September 30, 2018, we have accrued no penalties and approximately $9.2 million for the potential payment of tax-related interest. With few exceptions, the Company is no longer subject to U.S. federal, state or local income tax examinations by tax authorities for years prior to 2012. Earlier years related to certain foreign jurisdictions remain subject to examination. To the extent allowed by law, the tax authorities may have the right to examine prior periods where net operating losses were generated and carried forward, and make adjustments up to the amount of the net operating loss carryforward. While we intend to contest any future tax assessments for uncertain tax positions, no assurance can be provided that we would ultimately prevail. During the next twelve months, the statute of limitations for assessment of additional tax will expire with regard to certain UTPs related to our federal income tax return filed for 2012, potentially resulting in the recognition of $27.3 million of previously unrecognized tax benefits. Pursuant to the Purchase Agreement for the SSL Sale, we are obligated to indemnify SSL for taxes related to periods prior to the closing of the transaction.
The following summarizes the changes to our liabilities for UTPs included in other liabilities in the condensed consolidated balance sheets (in thousands):
As of September 30, 2018, if our positions are sustained by the taxing authorities, the Company’s income tax provision from continuing operations would be reduced by approximately $46.9 million. Other than as described above, there were no significant changes to our UTPs during the nine months ended September 30, 2018 and 2017, and we do not anticipate any other significant changes to our unrecognized tax benefits during the next twelve months.
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Other Liabilities |
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| Other Liabilities [Abstract] | |||||||||||||||||||||||||||||||||||||
| Other Liabilities | 8. Other Liabilities Other liabilities consists of (in thousands):
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Stock-Based Compensation |
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| Stock-Based Compensation [Abstract] | |
| Stock-Based Compensation | 9. Stock-Based Compensation Stock Plans The Loral amended and restated 2005 stock incentive plan (the “Stock Incentive Plan”) which allowed for the grant of several forms of stock-based compensation awards including stock options, stock appreciation rights, restricted stock, restricted stock units, stock bonuses and other stock-based awards, had a ten-year term and has expired. The Company granted 75,262 restricted stock units under the Stock Incentive Plan that do not expire and remained unconverted as of September 30, 2018 and December 31, 2017.
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Earnings Per Share |
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| Earnings Per Share [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Earnings Per Share | 10. Earnings Per Share Telesat has awarded employee stock options, which, if exercised, would result in dilution of Loral’s economic ownership interest in Telesat from 62.7% to approximately 62.3%. The following table presents the dilutive impact of Telesat stock options on Loral’s reported income from continuing operations for the purpose of computing diluted earnings per share (in thousands):
Basic income per share is computed based upon the weighted average number of share of voting and non-voting common stock outstanding. The following is the computation of common shares outstanding for diluted earnings per share (in thousands):
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Pensions and Other Employee Benefit Plans |
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| Pensions and Other Employee Benefit Plans [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Pensions and Other Employee Benefit Plans | 11. Pensions and Other Employee Benefit Plans The following tables provide the components of net periodic cost for our qualified retirement plan (the “Pension Benefits”) and health care and life insurance benefits for retired employees and dependents (the “Other Benefits”) for the three and nine months ended September 30, 2018 and 2017 (in thousands):
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Financial Instruments, Derivative Instruments and Hedging |
9 Months Ended |
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Sep. 30, 2018 | |
| Financial Instruments, Derivative Instruments and Hedging [Abstract] | |
| Financial Instruments, Derivative Instruments and Hedging | 12.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. Foreign Currency 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 There were no derivative instruments as of September 30, 2018 and December 31, 2017.
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Commitments and Contingencies |
9 Months Ended |
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Sep. 30, 2018 | |
| Commitments and Contingencies [Abstract] | |
| Commitments and Contingencies | 13. Commitments and Contingencies Financial Matters In the fourth quarter of 2012, we sold our former subsidiary, SSL, to MDA pursuant to the Purchase Agreement. Under the terms of the Purchase Agreement, we are obligated to indemnify MDA and its affiliates from liabilities with respect to certain pre-closing taxes. Our consolidated balance sheets include an indemnification refund receivable of $2.4 million as of September 30, 2018 and December 31, 2017. This receivable represents payments to date net of the estimated fair value of the liability for our indemnification for our obligation with respect to certain pre-closing taxes. The final amounts for indemnification claims related to pre-closing taxes have not yet been determined. Where appropriate, we intend vigorously to contest the underlying tax assessments, but there can be no assurance that we will be successful. Although no assurance can be provided, we do not believe that these tax-related matters will have a material adverse effect on our financial position or results of operations. In connection with the sale in 2008 by Loral and certain of its subsidiaries and DASA Globalstar LLC to Globalstar Inc. of their respective interests in GdB, the Globalstar Brazilian service provider, Loral agreed to indemnify Globalstar Inc. and GdB for certain GdB pre-closing liabilities, primarily related to Brazilian taxes. Our condensed consolidated balance sheets include liabilities of $0.2 million and $0.3 million as of September 30, 2018 and December 31, 2017, respectively, for indemnification liabilities relating to the sale of GdB. See Note 14 — Related Party Transactions — Transactions with Affiliates — Telesat for commitments and contingencies relating to our agreement to indemnify Telesat for certain liabilities and our other arrangements with Telesat.
Legal Proceedings We are not currently subject to any legal proceedings that, if decided adversely, could have a material adverse effect on our financial position or results of operations. In the future, however, we may become subject to legal proceedings and claims, either asserted or unasserted, that may arise in the ordinary course of business or otherwise.
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Related Party Transactions |
9 Months Ended |
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Sep. 30, 2018 | |
| Related Party Transactions [Abstract] | |
| Related Party Transactions | 14. Related Party Transactions MHR Fund Management LLC Mark H. Rachesky, President of MHR Fund Management LLC (“MHR”), and Janet T. Yeung, a principal and the General Counsel of MHR, are members of Loral’s board of directors. Various funds affiliated with MHR and Dr. Rachesky held, as of September 30, 2018 and December 31, 2017, approximately 39.9% of the outstanding voting common stock and 58.4% of the combined outstanding voting and non-voting common stock of Loral. Transactions with Affiliates Telesat As described in Note 5, we own 62.7% of Telesat and account for our ownership interest under the equity method of accounting. In connection with the acquisition of our ownership interest in Telesat (which we refer to as the Telesat transaction), Loral and certain of its subsidiaries, our Canadian co-owner, Public Sector Pension Investment Board (“PSP”) and one of its subsidiaries, Telesat 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 and its subsidiaries will be conducted and the relationships among the parties thereto and future shareholders of Telesat. The Shareholders Agreement also contains an agreement by Loral not to engage in a competing satellite communications business and agreements by the parties to the Shareholders Agreement not to solicit employees of Telesat or any of its subsidiaries. Additionally, the Shareholders Agreement details the matters requiring the approval of the shareholders of Telesat (including veto rights for Loral over certain extraordinary actions) and provides for preemptive rights for certain shareholders upon the issuance of certain capital shares of Telesat. The Shareholders Agreement also (i) restricts the ability of holders of certain shares of Telesat to transfer such shares unless certain conditions are met or approval of the transfer is granted by the directors of Telesat, (ii) provides for a right of first offer to certain Telesat shareholders if a holder of equity shares of Telesat wishes to sell any such shares to a third party and (iii) provides for, in certain circumstances, tag-along rights in favor of shareholders that are not affiliated with Loral if Loral sells equity shares and drag-along rights in favor of Loral in case Loral or its affiliate enters into an agreement to sell all of its Telesat equity securities. In addition, the Shareholders Agreement provides for either PSP or Loral to initiate the process of conducting an initial public offering of the equity shares of Telesat (a “Telesat IPO”). In connection with our exploration of strategic initiatives to alter the status quo in our ownership of Telesat, in July 2015, we exercised our right under the Shareholders Agreement to require Telesat to conduct a Telesat IPO. Specifically, we requested that Telesat issue not more than 25 million newly issued shares of Telesat voting common stock. We also requested the termination of the Shareholders Agreement and the elimination of certain provisions in Telesat’s Articles of Incorporation, both of which we believe are important for a successful public offering. If those provisions are eliminated, an impediment to the conversion of our non-voting Telesat shares to voting shares would be eliminated. Termination or modification of the Shareholders Agreement and conversion of our non-voting shares to voting shares would enable us, after a Telesat IPO and subject to the receipt of any necessary regulatory approvals, to obtain majority voting control of Telesat. To date, we and PSP have not reached agreement on governance matters following a Telesat IPO. In the event a strategic transaction to combine Loral and Telesat into one public company that we are pursuing is not likely to be achievable in a timely manner or on satisfactory terms, we may further pursue our right to a Telesat IPO. There can be no assurance as to whether, when or on what terms a Telesat IPO, termination or modification of the Shareholders Agreement or any requested changes to Telesat’s Articles of Incorporation may occur or that any particular economic, tax, structural or other objectives or benefits with respect to a Telesat IPO will be achieved. If a Telesat IPO is expected to proceed under unfavorable terms or at an unfavorable price, we may withdraw our demand for a Telesat IPO. Depending upon the outcome of discussions with PSP relating to Telesat strategic matters, we may assert certain claims against PSP for actions we believe violated our rights relating to the affairs of Telesat under the Telesat Shareholders Agreement and otherwise. In response to our claims, PSP has informed us that it believes that it may have claims against us, although we are not aware of the legal or factual basis for any such claims. We and PSP have agreed that, pending the outcome of our discussions, it would be beneficial to delay the commencement of any action relating to either party’s claims and have entered into an agreement (the “Tolling Agreement”) which preserves the parties’ rights to assert against one another legal claims relating to Telesat. We also included Telesat as a party to the Tolling Agreement because, as a technical matter of Canadian law and for purposes of potentially seeking equitable relief, Telesat may be a necessary party. There can be no assurance that if the Tolling Agreement lapses that we and PSP will not pursue legal claims against one another relating to Telesat. If we pursue claims against PSP, there can be no assurance that our claims will be successful or that the relief we seek will be granted. If PSP pursues claims against us, there can be no assurance that PSP will not prevail on its claims. Under the Shareholders Agreement, in the event that, except in certain limited circumstances, either (i) ownership or control, directly or indirectly, by Dr. Rachesky of Loral’s voting stock falls below certain levels other than in connection with certain specified circumstances, including an acquisition by a Strategic Competitor (as defined in the Shareholders Agreement) or (ii) there is a change in the composition of a majority of the members of the Loral Board of Directors over a consecutive two-year period without the approval of the incumbent directors, Loral will lose its veto rights relating to certain extraordinary actions by Telesat and its subsidiaries. In addition, after either of these events, PSP will have certain rights to enable it to exit from its investment in Telesat, including a right to cause Telesat to conduct an initial public offering in which PSP’s shares would be the first shares offered or, if no such offering has occurred within one year due to a lack of cooperation from Loral or Telesat, to cause the sale of Telesat and to drag along the other shareholders in such sale, subject to Loral’s right to call PSP’s shares at fair market value. The Shareholders Agreement provides for a board of directors of Telesat consisting of 10 directors, three nominated by Loral, three nominated by PSP and four independent directors to be selected by a nominating committee comprised of one PSP nominee, one nominee of Loral and one of the independent directors then in office. Each party to the Shareholders Agreement is obligated to vote all of its Telesat shares for the election of the directors nominated by the nominating committee. Pursuant to action by the board of directors taken on October 31, 2007, Dr. Rachesky, who is non-executive Chairman of the Board of Directors of Loral, was appointed non-executive Chairman of the Board of Directors of Telesat. In addition, Michael B. Targoff, Loral’s Vice Chairman, serves on the board of directors of Telesat.
On October 31, 2007, Loral and Telesat entered into a consulting services agreement (the “Consulting Agreement”). Pursuant to the terms of the Consulting Agreement, Loral provides to Telesat certain non-exclusive consulting services in relation to the business of Loral Skynet which was transferred to Telesat as part of the Telesat transaction as well as with respect to certain aspects of the satellite communications business of Telesat. The Consulting Agreement has a term of seven-years with an automatic renewal for an additional seven-year term if Loral is not then in material default under the Shareholders Agreement. Upon expiration of the initial term on October 31, 2014, the Consulting Agreement was automatically renewed for the additional seven-year term. In exchange for Loral’s services under the Consulting Agreement, Telesat pays Loral an annual fee of $5.0 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. Our general and administrative expenses are net of income related to the Consulting Agreement of $1.25 million for each of the three‑month periods ended September 30, 2018 and 2017 and $3.8 million for each of the nine-month periods ended September 30, 2018 and 2017, respectively. For each of the nine-month periods ended September 30, 2018 and 2017, Loral received payments in cash from Telesat, net of withholding taxes, of $3.6 million for consulting fees. In connection with the acquisition of our ownership interest in Telesat in 2007, Loral retained the benefit of tax recoveries related to the transferred assets and indemnified Telesat (“Telesat Indemnification”) for certain liabilities, including Loral Skynet’s tax liabilities arising prior to January 1, 2007. The Telesat Indemnification includes certain tax disputes currently under review in various jurisdictions including Brazil. The Brazilian tax authorities challenged Loral Skynet’s historical characterization of its revenue generated in Brazil for the years 2003 to 2006. Telesat received and challenged, on Loral Skynet’s behalf, tax assessments from Brazil totaling approximately $0.8 million. The Company believes that Loral Skynet’s filing position will ultimately be sustained requiring no payment under the Telesat Indemnification. There can be no assurance that there will be no future claims under the Telesat Indemnification related to tax disputes. Loral’s employees and retirees participate in certain welfare plans sponsored or managed by Telesat. Loral pays Telesat an annual administrative fee of $0.1 million and reimburses Telesat for the plan costs attributable to Loral participants. Loral, along with Telesat, PSP and 4440480 Canada Inc., an indirect wholly-owned subsidiary of Loral (the “Special Purchaser”), entered into grant agreements (the “Grant Agreements”) with certain executives of Telesat (each, a “Participant” and collectively, the “Participants”). Each of the Participants is or was, at the time, an executive of Telesat. The Grant Agreements confirm grants of Telesat stock options (including tandem SAR rights) to the Participants and provide for certain rights, obligations and restrictions related to such stock options, which include, among other things: (w) the possible obligation of the Special Purchaser to purchase the shares in the place of Telesat should Telesat be prohibited by applicable law or under the terms of any credit agreement applicable to Telesat from purchasing such shares, or otherwise default on such purchase obligation, pursuant to the terms of the Grant Agreements; and (x) the obligation of the Special Purchaser to purchase shares upon exercise by Telesat of its call right under Telesat's Management Stock Incentive Plan in the event of a Participant’s termination of employment; and, in the case of certain executives, (y) the right of each such Participant to require the Special Purchaser or Loral to purchase a portion of the shares in Telesat owned by him in the event of exercise after termination of employment to cover taxes that are greater than the minimum withholding amount; and (z) the right of each such Participant to require Telesat to cause the Special Purchaser or Loral to purchase a portion of the shares in Telesat owned by him, or that are issuable to him under Telesat's Management Stock Incentive Plan at the relevant time, in the event that more than 90% of Loral's common stock is acquired by an unaffiliated third party that does not also purchase all of PSP's and its affiliates' interest in Telesat. The Grant Agreements further provide that, in the event the Special Purchaser is required to purchase shares, such shares, together with the obligation to pay for such shares, shall be transferred to a subsidiary of the Special Purchaser, which subsidiary shall be wound up into Telesat, with Telesat agreeing to the acquisition of such subsidiary by Telesat from the Special Purchaser for nominal consideration and with the purchase price for the shares being paid by Telesat within ten (10) business days after completion of the winding-up of such subsidiary into Telesat. In the first quarter of 2017, Loral received a $242.7 million cash distribution from Telesat (see Note 5). Other As described in Note 5, we own 56% of XTAR, a joint venture between Loral and Hisdesat and account for our investment in XTAR under the equity method of accounting. SSL constructed XTAR’s satellite, which was successfully launched in February 2005. XTAR and Loral have entered into a management agreement whereby Loral provides general and specific services of a technical, financial and administrative nature to XTAR. For the services provided by Loral, XTAR, until December 31, 2013, was charged a quarterly management fee equal to 3.7% of XTAR’s quarterly gross revenues. Amounts due to Loral primarily due to the management agreement were $6.8 million as of September 30, 2018 and December 31, 2017. Beginning in 2008, Loral and XTAR agreed to defer amounts owed to Loral under this agreement, and XTAR has agreed that its excess cash balance (as defined), will be applied at least quarterly towards repayment of its payables owed to Loral, as well as to Hisdesat and Telesat. No cash was received under this agreement for the nine months ended September 30, 2018 and 2017, and we had an allowance of $6.6 million against receivables from XTAR as of September 30, 2018 and December 31, 2017. Loral and Hisdesat have agreed to waive future management fees for an indefinite period starting January 1, 2014. Consulting Agreement On December 14, 2012, Loral entered into a consulting agreement with Michael B. Targoff, Vice Chairman of the Company and former Chief Executive Officer and President. Pursuant to this agreement, Mr. Targoff is engaged as a part-time consultant to the Board to assist the Board with respect to the oversight of strategic matters relating to Telesat and XTAR. Under the agreement, Mr. Targoff receives consulting fees of $120,000 per month and reimburses the Company for certain expenses. For each of the three and nine month periods ended September 30, 2018 and 2017, Mr. Targoff earned $360,000 and $1,080,000 respectively, in consulting fees. For each of the three months ended September 30, 2018 and 2017, Mr. Targoff reimbursed Loral net expenses of $11,250 and for the nine months ended September 30, 2018 and 2017, Mr. Targoff reimbursed Loral net expenses of $33,750 and $42,750, respectively.
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Basis of Presentation (Policy) |
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| Basis of Presentation [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Discontinued Operations | Discontinued Operations On November 2, 2012, pursuant to the purchase agreement (the “Purchase Agreement”), dated as of June 26, 2012, as amended on October 30, 2012 and March 28, 2013, by and among Loral, Space Systems/Loral, LLC (formerly known as Space Systems/Loral, Inc.) (“SSL”), MacDonald, Dettwiler and Associates Ltd. (“MDA”) and MDA Communications Holdings, Inc. (“MDA Holdings”), a subsidiary of MDA, Loral completed the sale of SSL (the “SSL Sale”), its wholly‑owned subsidiary, to MDA Holdings.
Interest and other expenses that are directly related to the SSL Sale are classified as discontinued operations in the statements of operations for the three and nine months ended September 30, 2018 and 2017.
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| Investments in Affiliates | Investments in Affiliates Our ownership interest in Telesat is accounted for using the equity method of accounting. Income and losses of Telesat are recorded based on our economic interest. 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 them 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. Non-refundable cash distributions received from Telesat in excess of our initial investment and our share of cumulative equity in comprehensive income of Telesat, net of cash distributions received in prior periods, are recorded as equity in net income of Telesat (“Excess Cash Distribution”) since we have no obligation to provide future financial support to Telesat. After receiving an Excess Cash Distribution, we do not record additional equity in net income of Telesat until our share of Telesat’s future net income exceeds the Excess Cash Distribution. Equity in losses of affiliates is not recognized after the carrying value of an investment, including advances and loans, has been reduced to zero, unless guarantees or other funding obligations exist. We had no guarantees or other funding obligations for our equity method investments as of September 30, 2018 and December 31, 2017. We use the nature of distribution approach to classify distributions from equity method investments on the statements of cash flows. The Company monitors its equity method investments for factors indicating other-than-temporary impairment. An impairment loss is recognized when there has been a loss in value of the affiliate that is other‑than-temporary.
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| Use of Estimates in Preparation of Financial Statements | Use of Estimates in Preparation of Financial Statements The preparation of financial statements in conformity with U.S. GAAP requires management 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 amount of income (loss) reported for the period. Actual results could materially differ from estimates. Significant estimates also included the allowances for doubtful accounts, income taxes, including the valuation of deferred tax assets, the fair value of liabilities indemnified, the dilutive effect of Telesat stock options (see Note 10) and our pension liabilities.
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| Cash, Cash Equivalents and Restricted Cash | Cash, Cash Equivalents and Restricted Cash As of September 30, 2018, the Company had $248.9 million of cash and cash equivalents. Cash and cash equivalents include liquid investments, primarily money market funds, with maturities of less than 90 days at the time of purchase. Management determines the appropriate classification of its investments at the time of purchase and at each balance sheet date. As of September 30, 2018 and December 31, 2017, the Company had restricted cash of $0.3 million. The restricted cash of $0.3 million represents the amount pledged as collateral to the issuer of a standby letter of credit (the “LC”). The LC, which expires in October 2018 and contains an automatic renewal period of one year, has been provided as a guaranty to the lessor of our corporate offices. The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the condensed consolidated balance sheet to the condensed consolidated statement of cash flows (in thousands):
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| Concentration of Credit Risk | Concentration of Credit Risk Financial instruments which potentially subject us to concentrations of credit risk consist principally of cash and cash equivalents and receivables. Our cash and cash equivalents are maintained with high-credit-quality financial institutions. As of September 30, 2018 and December 31, 2017, our cash and cash equivalents were invested primarily in several liquid Prime and Government AAA money market funds. Such funds are not insured by the Federal Deposit Insurance Corporation. The dispersion across funds reduces the exposure of a default at any one fund. As a result, management believes that its potential credit risks are minimal.
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| Fair Value Measurements | Fair Value Measurements U.S. GAAP defines fair value as the price that would be received for an asset or the exit price that would be paid to transfer a liability in the principal or most advantageous market in an orderly transaction between market participants. U.S. GAAP also establishes a fair value hierarchy that gives the highest priority to observable inputs and the lowest priority to unobservable inputs. The three levels of the fair value hierarchy are described below: Level 1: Inputs represent a fair value that is derived from unadjusted quoted prices for identical assets or liabilities traded in active markets at the measurement date. Level 2: Inputs represent a fair value that is derived from quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, model-based valuation techniques for which all significant assumptions are observable in the market or can be corroborated by observable market data for substantially the full term of the assets or liabilities, and pricing inputs, other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date. Level 3: Inputs are generally unobservable and typically reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability. The fair values are therefore determined using model-based techniques that include option pricing models, discounted cash flow models, and similar techniques. Assets and Liabilities Measured at Fair Value The following table presents our assets and liabilities measured at fair value on a recurring and non-recurring basis (in thousands):
The carrying amount of money market funds approximates fair value as of each reporting date because of the short maturity of those instruments. The Company did not have any non-financial assets or non-financial liabilities that were recognized or disclosed at fair value as of September 30, 2018 and December 31, 2017.
Assets and Liabilities Measured at Fair Value on a Non-recurring Basis We review the carrying values of our equity method investments when events and circumstances warrant and consider all available evidence in evaluating when declines in fair value are other-than-temporary. The fair values of our investments are determined based on valuation techniques using the best information available and may include quoted market prices, market comparables and discounted cash flow projections. An impairment charge is recorded when the carrying amount of the investment exceeds its current fair value and is determined to be other-than-temporary. The asset resulting from the indemnification of SSL is for certain pre-closing taxes and reflects the excess of payments since inception over the estimated liability, which was originally determined using the fair value objective approach. The estimated liability for indemnifications relating to Globalstar do Brasil S.A. (“GdB”), originally determined using expected value analysis, is net of payments since inception.
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| Contingencies | Contingencies Contingencies by their nature relate to uncertainties that require management to exercise judgment both in assessing the likelihood that a liability has been incurred as well as in estimating the amount of potential loss, if any. We accrue for costs relating to litigation, claims and other contingent matters when such liabilities become probable and reasonably estimable. Such estimates may be based on advice from third parties or on management’s judgment, as appropriate. Actual amounts paid may differ from amounts estimated, and such differences will be charged to operations in the period in which the final determination of the liability is made.
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| Income Taxes | Income Taxes Loral and its subsidiaries are subject to U.S. federal, state and local income taxation on their worldwide income and foreign taxation on certain income from sources outside the United States. Telesat is subject to tax in Canada and other jurisdictions, and Loral will provide in operating earnings any additional U.S. current and deferred tax required on distributions received or deemed to be received from Telesat. Deferred income taxes reflect the future tax effect of temporary differences between the carrying amount of assets and liabilities for financial and income tax reporting and are measured by applying anticipated statutory tax rates in effect for the year during which the differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance to the extent it is more likely than not that the deferred tax assets will not be realized. The tax benefit of an uncertain tax position (“UTP”) taken or expected to be taken in income tax returns is recognized only if it is “more likely than not” to be sustained on examination by the taxing authorities, based on its technical merits as of the reporting date. The tax benefit recognized in the financial statements from such a position is measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement. The Company recognizes interest and penalties related to income taxes in income tax expense on a quarterly basis. The unrecognized tax benefit of a UTP is recognized in the period when the UTP is effectively settled. A previously recognized tax position is derecognized in the first period in which it is no longer more likely than not that such tax position would be sustained upon examination.
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| Earnings Per Share | Earnings per Share Basic earnings per share are computed based upon the weighted average number of shares of voting and non-voting common stock outstanding during each period. Shares of non-voting common stock are in all respects identical to and treated equally with shares of voting common stock except for the absence of voting rights (other than as provided in Loral’s Amended and Restated Certificate of Incorporation which was ratified by Loral’s stockholders on May 19, 2009). Diluted earnings per share are based on the weighted average number of shares of voting and non-voting common stock outstanding during each period, adjusted for the effect of unvested or unconverted restricted stock units. For diluted earnings per share, earnings are adjusted for the dilutive effect of Telesat stock options.
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Basis of Presentation (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Basis of Presentation [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Reconciliation of Cash, Cash Equivalents and Restricted Cash | The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the condensed consolidated balance sheet to the condensed consolidated statement of cash flows (in thousands):
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| Assets and Liabilities Measured at Fair Value | The following table presents our assets and liabilities measured at fair value on a recurring and non-recurring basis (in thousands):
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| Additional Cash Flow Information | The following represents non-cash activities and supplemental information to the condensed consolidated statements of cash flows (in thousands):
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Accumulated Other Comprehensive Loss (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Accumulated Other Comprehensive Loss [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Components of Accumulated Other Comprehensive Loss | The components of accumulated other comprehensive loss, net of tax, are as follows (in thousands):
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| Schedule of Other Comprehensive Income (Loss) and Related Income Tax Effects | The components of other comprehensive income (loss) and related tax effects are as follows (in thousands):
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Other Current Assets (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other Current Assets [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Other Current Assets | Other current assets consists of (in thousands):
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Investments in Affiliates (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Investments in and Advances to Affiliates [Line Items] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Investments in Affiliates | Investments in affiliates consist of (in thousands):
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| Equity in Net (Loss) Income of Affiliates | Equity in net income of affiliates consists of (in thousands):
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| Telesat Canada [Member] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Investments in and Advances to Affiliates [Line Items] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Summary Financial Data, Equity Method Investment | The following table presents summary financial data for Telesat in accordance with U.S. GAAP, for the three and nine months ended September 30, 2018 and 2017 and as of September 30, 2018 and December 31, 2017 (in thousands):
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Other Current Liabilities (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Other Current Liabilities [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Other Current Liabilities | Other current liabilities consists of (in thousands):
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Income Taxes (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Income Taxes [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Summary of Income Tax Benefit (Provision) | The following summarizes our income tax provision (in thousands):
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| Summary of Uncertain Tax Positions Included in Income Tax Provision | The following summarizes amounts for UTPs included in our income tax provision (in thousands):
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| Summary of Changes to Company's Liabilities for UTPs |
The following summarizes the changes to our liabilities for UTPs included in other liabilities in the condensed consolidated balance sheets (in thousands):
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Other Liabilities (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2018 | |||||||||||||||||||||||||||||||||||||
| Other Liabilities [Abstract] | |||||||||||||||||||||||||||||||||||||
| Schedule of Other Liabilities | Other liabilities consists of (in thousands):
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Earnings Per Share (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Earnings Per Share [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Dilutive Impact of Equity Method Investee Stock Options | The following table presents the dilutive impact of Telesat stock options on Loral’s reported income from continuing operations for the purpose of computing diluted earnings per share (in thousands):
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| Schedule of Weighted Average Number of Shares for Calculating Diluted Earnings per Share | The following is the computation of common shares outstanding for diluted earnings per share (in thousands):
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Pensions and Other Employee Benefit Plans (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Pensions and Other Employee Benefit Plans [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Components of Net Periodic Cost | The following tables provide the components of net periodic cost for our qualified retirement plan (the “Pension Benefits”) and health care and life insurance benefits for retired employees and dependents (the “Other Benefits”) for the three and nine months ended September 30, 2018 and 2017 (in thousands):
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Organization and Principal Business (Narrative) (Details) - segment |
9 Months Ended | |
|---|---|---|
Sep. 30, 2018 |
Dec. 31, 2017 |
|
| Organization and Principal Business [Line Items] | ||
| Number of operating segments | 1 | |
| Telesat Canada [Member] | ||
| Organization and Principal Business [Line Items] | ||
| Economic interest in affiliate | 62.70% | 62.70% |
| Voting interest in affiliate | 32.60% | 32.60% |
Basis of Presentation (Narrative) (Details) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | 12 Months Ended | ||
|---|---|---|---|---|---|
Dec. 31, 2017 |
Sep. 30, 2017 |
Sep. 30, 2018 |
Sep. 30, 2017 |
Dec. 31, 2017 |
|
| Cash and cash equivalents | $ 255,139 | $ 248,904 | $ 255,139 | ||
| Restricted cash, current | $ 304 | ||||
| Restricted cash | 304 | $ 304 | |||
| Federal statutory tax rate | 21.00% | 35.00% | |||
| Guarantees or other funding obligations | 0 | $ 0 | $ 0 | ||
| Defined Benefit Plan Net Periodic Benefit Cost | $ 400 | $ 1,200 | |||
| Other Expense [Member] | Adjustments for New Accounting Pronouncement [Member] | |||||
| Defined Benefit Plan Net Periodic Benefit Cost | $ 200 | $ 700 | |||
| Retained Earnings (Accumulated Deficit) [Member] | |||||
| Tax cuts and Jobs Act, reclassification tax effect | 4,468 | ||||
| Accumulated Other Comprehensive Loss [Member] | |||||
| Tax cuts and Jobs Act, reclassification tax effect | $ (4,468) | $ (4,468) | |||
Basis of Presentation (Reconciliation of Cash, Cash Equivalents and Restricted Cash) (Details) - USD ($) $ in Thousands |
Sep. 30, 2018 |
Dec. 31, 2017 |
Sep. 30, 2017 |
Dec. 31, 2016 |
|---|---|---|---|---|
| Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents [Abstract] | ||||
| Cash and cash equivalents | $ 248,904 | $ 255,139 | ||
| Restricted cash included in current assets | 304 | |||
| Restricted cash included in other assets | 304 | |||
| Cash, cash equivalents and restricted cash shown in the statement of cash flows | $ 249,208 | $ 255,443 | $ 259,567 | $ 37,458 |
Basis of Presentation (Assets and Liabilities Measured at Fair Value) (Details) - USD ($) $ in Thousands |
Sep. 30, 2018 |
Dec. 31, 2017 |
|---|---|---|
| Assets and Liabilities | ||
| Indemnification receivable from SS/L for pre-closing taxes (see Note 13) | $ 2,410 | $ 2,410 |
| Money Market Funds [Member] | Level 1 [Member] | ||
| Assets and Liabilities | ||
| Cash equivalents | 247,237 | 251,742 |
| Money Market Funds [Member] | Level 2 [Member] | ||
| Assets and Liabilities | ||
| Cash equivalents | ||
| Sale of SS/L, Nov. 02, 2012 [Member] | Level 2 [Member] | ||
| Assets and Liabilities | ||
| Indemnification receivable from SS/L for pre-closing taxes (see Note 13) | ||
| Sale of SS/L, Nov. 02, 2012 [Member] | Level 3 [Member] | ||
| Assets and Liabilities | ||
| Indemnification receivable from SS/L for pre-closing taxes (see Note 13) | 2,410 | 2,410 |
| Globalstar do Brasil S.A. [Member] | Level 2 [Member] | ||
| Assets and Liabilities | ||
| Indemnification liabilities | ||
| Globalstar do Brasil S.A. [Member] | Level 3 [Member] | ||
| Assets and Liabilities | ||
| Indemnification liabilities | $ 190 | $ 293 |
Basis of Presentation (Additional Cash Flow Information) (Details) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Sep. 30, 2018 |
Sep. 30, 2017 |
Sep. 30, 2018 |
Sep. 30, 2017 |
|
| Non-cash operating items: | ||||
| Equity in net (income) loss of affiliates | $ (55,095) | $ (43,372) | $ (56,734) | $ (183,086) |
| Deferred taxes | (1,237) | 26,655 | ||
| Depreciation and amortization | 16 | 33 | ||
| Amortization of prior service credit and actuarial (gain) loss | 797 | 770 | ||
| Net non-cash operating items - continuing operations | (57,158) | (155,628) | ||
| Continuing Operations [Member] | ||||
| Supplemental information: | ||||
| Interest paid | 17 | 22 | ||
| Tax payments (refunds) | $ (55) | 10,038 | ||
| Discontinued Operations [Member] | ||||
| Supplemental information: | ||||
| Interest paid | $ 55 | |||
Other Current Assets (Schedule of Other Current Assets) (Details) - USD ($) $ in Thousands |
Sep. 30, 2018 |
Dec. 31, 2017 |
|---|---|---|
| Other Current Assets [Abstract] | ||
| Indemnification receivable from SS/L for pre-closing taxes (see Note 13) | $ 2,410 | $ 2,410 |
| Restricted cash, current | 304 | |
| Due from affiliates | 205 | 217 |
| Prepaid expenses | 443 | 198 |
| Other | 418 | 274 |
| Total other current assets | $ 3,780 | $ 3,099 |
Investments in Affiliates (Narrative) (Details) - USD ($) $ in Thousands |
1 Months Ended | 3 Months Ended | 6 Months Ended | 9 Months Ended | |||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
Apr. 30, 2018 |
Mar. 31, 2018 |
Feb. 28, 2017 |
Jan. 31, 2017 |
Sep. 30, 2018 |
Sep. 30, 2017 |
Mar. 31, 2017 |
Jun. 30, 2017 |
Sep. 30, 2018 |
Sep. 30, 2017 |
Dec. 31, 2017 |
|
| Investments in and Advances to Affiliates [Line Items] | |||||||||||
| Distribution received from affiliate | $ 242,735 | ||||||||||
| Equity in net income (loss) of affiliates | $ 55,095 | $ 43,372 | $ 56,734 | 183,086 | |||||||
| Cumulative effect adjustment attributable to investment in Telesat, tax expense (benefit) | (5,900) | ||||||||||
| Cumulative effect adjustment attributable to investment in Telesat, net of tax | (22,107) | ||||||||||
| Investments in affiliates | $ 84,363 | $ 84,363 | $ 53,430 | ||||||||
| Telesat Canada [Member] | |||||||||||
| Investments in and Advances to Affiliates [Line Items] | |||||||||||
| Economic interest in affiliate | 62.70% | 62.70% | 62.70% | ||||||||
| Voting interest in affiliate | 32.60% | 32.60% | 32.60% | ||||||||
| Distribution received from affiliate | $ 242,700 | ||||||||||
| Equity method investment, share of equity in net income (loss) of investee | 82,400 | ||||||||||
| Equity in net income (loss) of affiliates | $ 55,095 | 43,372 | $ 56,734 | $ 183,086 | |||||||
| Equity method investment, excess cash distribution recognized as equity income | $ 39,000 | ||||||||||
| Investments in affiliates | 84,363 | 84,363 | $ 53,430 | ||||||||
| Equity method investment, excess equity income previously recognized recovered | $ 39,000 | ||||||||||
| Equity method investment, share of equity in other comprehensive income of investee | 2,200 | ||||||||||
| Consulting fees payable in cash | 5,000 | ||||||||||
| Telesat Canada [Member] | Adjustments for New Accounting Pronouncement [Member] | |||||||||||
| Investments in and Advances to Affiliates [Line Items] | |||||||||||
| Equity method investment, cumulative effect adjustment on retained earnings | (44,600) | ||||||||||
| Cumulative effect adjustment attributable to investment in Telesat, tax expense (benefit) | (5,900) | ||||||||||
| Cumulative effect adjustment attributable to investment in Telesat, net of tax | (22,100) | ||||||||||
| Investments in affiliates | $ (28,000) | $ (28,000) | |||||||||
| Telesat Canada [Member] | Term Loan B - U.S. Facility [Member] | |||||||||||
| Investments in and Advances to Affiliates [Line Items] | |||||||||||
| Equity method investment, applicable margin on senior credit facility | 2.50% | 3.00% | 3.75% | ||||||||
| Equity method investment, debt repayment | $ 50,000 | ||||||||||
| Telesat Canada [Member] | Equity Method Investment Senior Secured Credit Facility [Member] | |||||||||||
| Investments in and Advances to Affiliates [Line Items] | |||||||||||
| Minimum total leverage ratio | 4.50 | 4.50 | |||||||||
| Actual Total Leverage Ratio to incur debt and make payments | 4.53 | 4.53 | |||||||||
| XTAR, LLC [Member] | |||||||||||
| Investments in and Advances to Affiliates [Line Items] | |||||||||||
| Investments in affiliates | $ 0 | $ 0 | $ 0 | ||||||||
| Percentage of ownership interest | 56.00% | 56.00% | |||||||||
Investments in Affiliates (Investments in Affiliates) (Details) - USD ($) $ in Thousands |
Sep. 30, 2018 |
Dec. 31, 2017 |
|---|---|---|
| Schedule of Equity Method Investments [Line Items] | ||
| Investments in affiliates | $ 84,363 | $ 53,430 |
| Telesat Canada [Member] | ||
| Schedule of Equity Method Investments [Line Items] | ||
| Investments in affiliates | $ 84,363 | $ 53,430 |
Investments in Affiliates (Equity in Net Income (Losses) of Affiliates) (Details) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Sep. 30, 2018 |
Sep. 30, 2017 |
Sep. 30, 2018 |
Sep. 30, 2017 |
|
| Schedule of Equity Method Investments [Line Items] | ||||
| Equity in net income (loss) of affiliates | $ 55,095 | $ 43,372 | $ 56,734 | $ 183,086 |
| Telesat Canada [Member] | ||||
| Schedule of Equity Method Investments [Line Items] | ||||
| Equity in net income (loss) of affiliates | $ 55,095 | $ 43,372 | $ 56,734 | $ 183,086 |
Investments in Affiliates (Equity Method Investment, Summarized Financial Data) (Details) - Telesat Canada [Member] - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | |||
|---|---|---|---|---|---|
Sep. 30, 2018 |
Sep. 30, 2017 |
Sep. 30, 2018 |
Sep. 30, 2017 |
Dec. 31, 2017 |
|
| Statement of Operations Data: | |||||
| Revenues | $ 174,010 | $ 170,151 | $ 522,990 | $ 514,800 | |
| Operating expenses | (34,268) | (34,101) | (91,804) | (112,876) | |
| Depreciation, amortization and stock-based compensation | (47,946) | (49,741) | (144,732) | (145,875) | |
| Gain (loss) on disposition of long lived asset | 848 | (204) | 835 | (220) | |
| Operating income (loss) | 92,644 | 86,105 | 287,289 | 255,829 | |
| Interest expense | (43,063) | (37,901) | (130,671) | (111,765) | |
| Foreign exchange gains (loss) | 42,784 | 103,099 | (66,294) | 193,259 | |
| Gain (loss) on financial instruments | (202) | (6,542) | 30,414 | (17,471) | |
| Other income (expense) | 3,204 | 1,531 | 7,795 | 1,305 | |
| Income tax provision | (7,605) | (16,114) | (39,190) | (35,571) | |
| Net income (loss) | 87,762 | $ 130,178 | 89,343 | $ 285,586 | |
| Current assets | 576,052 | 576,052 | $ 445,104 | ||
| Total assets | 4,054,930 | 4,054,930 | 4,082,472 | ||
| Current liabilities | 157,103 | 157,103 | 126,100 | ||
| Long-term debt, including current portion | 2,764,075 | 2,764,075 | 2,829,911 | ||
| Total liabilities | 3,474,619 | 3,474,619 | 3,538,656 | ||
| Shareholders' equity/Members' equity (deficit) | $ 580,311 | $ 580,311 | $ 543,816 | ||
Other Current Liabilities (Schedule of Other Current Liabilities) (Details) - USD ($) $ in Thousands |
Sep. 30, 2018 |
Dec. 31, 2017 |
|---|---|---|
| Other Current Liabilities [Abstract] | ||
| Due to affiliate | $ 443 | $ 9 |
| Accrued professional fees | 1,691 | 1,117 |
| Pension and other postretirement liabilities | 69 | 69 |
| Accrued liabilities | 59 | 84 |
| Other current liabilities, total | $ 2,262 | $ 1,279 |
Income Taxes (Narrative) (Details) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | 12 Months Ended | ||
|---|---|---|---|---|---|
Sep. 30, 2018 |
Sep. 30, 2017 |
Sep. 30, 2018 |
Sep. 30, 2017 |
Dec. 31, 2017 |
|
| Income Tax Contingency [Line Items] | |||||
| Unrecognized tax benefits relating to UTPs | $ 70,000 | $ 70,000 | |||
| Unrecognized tax benefits, income tax penalties accrued | 0 | 0 | |||
| Unrecognized tax benefits, interest on income taxes accrued | 9,200 | $ 9,200 | |||
| Federal statutory tax rate | 21.00% | 35.00% | |||
| Deferred income tax (benefit) provision | 5,806 | $ 14,960 | $ (1,237) | $ 26,655 | |
| Potential change in unrecognized tax benefits during next twelve months | 27,300 | 27,300 | |||
| Unrecognized tax benefits that would reduce the income tax provision | 46,900 | 46,900 | |||
| Global Intangible Low-Taxed Income ("GILTI") [Member] | |||||
| Income Tax Contingency [Line Items] | |||||
| Deferred income tax (benefit) provision | $ (5,700) | $ (12,500) | |||
Income Taxes (Summary of Income Tax Benefit (Provision)) (Details) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Sep. 30, 2018 |
Sep. 30, 2017 |
Sep. 30, 2018 |
Sep. 30, 2017 |
|
| Income Taxes [Abstract] | ||||
| Total current income tax (provision) benefit | $ (863) | $ (1,592) | $ (2,251) | $ (55,581) |
| Total deferred income tax (provision) benefit | (5,806) | (14,960) | 1,237 | (26,655) |
| Income tax (provision) benefit | $ (6,669) | $ (16,552) | $ (1,014) | $ (82,236) |
Income Taxes (Summary of Uncertain Tax Positions Included in Income Tax Provision) (Details) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Sep. 30, 2018 |
Sep. 30, 2017 |
Sep. 30, 2018 |
Sep. 30, 2017 |
|
| Income Taxes [Abstract] | ||||
| Current (provision) benefit for UTPs | $ (791) | $ (704) | $ (2,018) | $ (2,069) |
| Deferred benefit (provision) for UTPs | 167 | 226 | 425 | 701 |
| Tax (provision) benefit for UTPs | $ (624) | $ (478) | $ (1,593) | $ (1,368) |
Income Taxes (Summary of Changes to Company's Liabilities For UTPs) (Details) - USD ($) $ in Thousands |
9 Months Ended | |
|---|---|---|
Sep. 30, 2018 |
Sep. 30, 2017 |
|
| Income Taxes [Abstract] | ||
| Opening balance - January 1 | $ 61,182 | $ 68,658 |
| Current provision for potential additional interest | 2,018 | 2,069 |
| Ending balance | $ 63,200 | $ 70,727 |
Other Liabilities (Schedule of Other Liabilities) (Details) - USD ($) $ in Thousands |
Sep. 30, 2018 |
Dec. 31, 2017 |
Sep. 30, 2017 |
Dec. 31, 2016 |
|---|---|---|---|---|
| Other Liabilities [Abstract] | ||||
| Indemnification liabilities - other (see Note 13) | $ 190 | $ 293 | ||
| Liabilities for uncertain tax positions | 63,200 | 61,182 | $ 70,727 | $ 68,658 |
| Other liabilities | $ 63,390 | $ 61,475 |
Stock-Based Compensation (Narrative) (Details) - shares |
9 Months Ended | 12 Months Ended |
|---|---|---|
Sep. 30, 2018 |
Dec. 31, 2017 |
|
| Stock-Based Compensation [Abstract] | ||
| Unconverted restricted stock units | 75,262 | 75,262 |
Earnings Per Share (Narrative) (Details) - Telesat Canada [Member] |
9 Months Ended | |
|---|---|---|
Sep. 30, 2018 |
Dec. 31, 2017 |
|
| Equity Method Investment Economic Ownership Percentage | 62.70% | 62.70% |
| Percentage of economic interest as result of dilution upon exercise of stock options | 62.30% |
Earnings Per Share (Schedule of Dilutive Impact of Equity Method Investee Stock Options) (Details) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Sep. 30, 2018 |
Sep. 30, 2017 |
Sep. 30, 2018 |
Sep. 30, 2017 |
|
| Earnings Per Share [Abstract] | ||||
| Income (loss) from continuing operations - basic | $ 46,219 | $ 24,537 | $ 50,997 | $ 93,724 |
| Less: Adjustment for dilutive effect of Telesat stock options | (340) | (713) | (350) | (1,346) |
| Income (loss) from continuing operations - diluted | $ 45,879 | $ 23,824 | $ 50,647 | $ 92,378 |
Earnings Per Share (Schedule of Weighted Average Number of Shares for Calculating Diluted Earnings Per Share) (Details) - shares shares in Thousands |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Sep. 30, 2018 |
Sep. 30, 2017 |
Sep. 30, 2018 |
Sep. 30, 2017 |
|
| Earnings Per Share [Abstract] | ||||
| Weighted average common shares outstanding | 30,933 | 30,933 | 30,933 | 30,933 |
| Unconverted restricted stock units | 75 | 75 | 75 | 75 |
| Common shares outstanding for diluted earnings per share | 31,008 | 31,008 | 31,008 | 31,008 |
Pensions and Other Employee Benefits Plans (Components of Net Periodic Cost) (Details) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | |||||||
|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2018 |
Sep. 30, 2017 |
Sep. 30, 2018 |
Sep. 30, 2017 |
||||||
| Defined Benefit Plan Disclosure [Line Items] | |||||||||
| Net periodic cost | $ 400 | $ 1,200 | |||||||
| Pension Benefits [Member] | |||||||||
| Defined Benefit Plan Disclosure [Line Items] | |||||||||
| Service cost | [1] | $ 179 | 175 | $ 536 | 526 | ||||
| Interest cost | [2] | 464 | 490 | 1,391 | 1,470 | ||||
| Expected return on plan assets | [2] | (657) | (531) | (1,971) | (1,593) | ||||
| Amortization of net actuarial loss | [2] | 260 | 250 | 780 | 749 | ||||
| Net periodic cost | 246 | 384 | 736 | 1,152 | |||||
| Other Benefits [Member] | |||||||||
| Defined Benefit Plan Disclosure [Line Items] | |||||||||
| Service cost | [1] | 1 | 1 | 1 | |||||
| Interest cost | [2] | 4 | 5 | 12 | 14 | ||||
| Amortization of net actuarial loss | [2] | 1 | 3 | ||||||
| Amortization of prior service credits | [2] | 5 | 6 | 17 | 18 | ||||
| Net periodic cost | $ 10 | $ 12 | $ 30 | $ 36 | |||||
| |||||||||
Financial Instruments, Derivative Instruments and Hedging (Narrative) (Details) - USD ($) $ in Millions |
Sep. 30, 2018 |
Dec. 31, 2017 |
|---|---|---|
| Financial Instruments, Derivative Instruments and Hedging [Abstract] | ||
| Derivative instruments | $ 0 | $ 0 |
Commitments and Contingencies (Narrative) (Details) - USD ($) $ in Thousands |
Sep. 30, 2018 |
Dec. 31, 2017 |
|---|---|---|
| Contingencies And Commitments [Line Items] | ||
| Indemnification receivable from SS/L for pre-closing taxes (see Note 13) | $ 2,410 | $ 2,410 |
| Globalstar do Brasil S.A. [Member] | ||
| Contingencies And Commitments [Line Items] | ||
| Loss contingency accrual | $ 200 | $ 300 |
Related Party Transactions (Narrative) (Details) - USD ($) |
3 Months Ended | 9 Months Ended | 12 Months Ended | |||||
|---|---|---|---|---|---|---|---|---|
Sep. 30, 2018 |
Sep. 30, 2017 |
Mar. 31, 2017 |
Dec. 31, 2013 |
Sep. 30, 2018 |
Sep. 30, 2017 |
Dec. 31, 2009 |
Dec. 31, 2017 |
|
| Related Party Transaction [Line Items] | ||||||||
| Distribution received from affiliate | $ 242,735,000 | |||||||
| Transaction, Consulting Agreement [Member] | Director [Member] | ||||||||
| Related Party Transaction [Line Items] | ||||||||
| Related party transaction, date | Dec. 14, 2012 | |||||||
| Transaction fee | $ 360,000 | $ 360,000 | $ 1,080,000 | 1,080,000 | ||||
| Transaction income during the period | $ 11,250 | 11,250 | 33,750 | 42,750 | ||||
| Monthly Fee [Member] | Transaction, Consulting Agreement [Member] | Director [Member] | ||||||||
| Related Party Transaction [Line Items] | ||||||||
| Transaction fee | $ 120,000 | |||||||
| Telesat Canada [Member] | ||||||||
| Related Party Transaction [Line Items] | ||||||||
| Economic interest in affiliate | 62.70% | 62.70% | 62.70% | |||||
| Common stock, percentage acquired by an unaffiliated third party | 90.00% | |||||||
| Duration for shares to be paid, days | 10 days | |||||||
| Distribution received from affiliate | $ 242,700,000 | |||||||
| Telesat Canada [Member] | Transaction, Consulting Agreement [Member] | ||||||||
| Related Party Transaction [Line Items] | ||||||||
| Related party transaction, date | Oct. 31, 2007 | |||||||
| Transaction income during the period | $ 1,250,000 | $ 1,250,000 | $ 3,800,000 | 3,800,000 | ||||
| Transaction payments received during the period | 3,600,000 | $ 3,600,000 | ||||||
| Telesat Canada [Member] | Annual Fee [Member] | Transaction, Consulting Agreement [Member] | ||||||||
| Related Party Transaction [Line Items] | ||||||||
| Transaction fee | 5,000,000 | |||||||
| Telesat Canada [Member] | Annual Fee [Member] | Transaction, Welfare Plan Participation Administrative Fee [Member] | ||||||||
| Related Party Transaction [Line Items] | ||||||||
| Transaction fee | $ 100,000 | |||||||
| Telesat Canada [Member] | Years 2003 to 2006 [Member] | Brazil [Member] | ||||||||
| Related Party Transaction [Line Items] | ||||||||
| Tax assessment imposed audit | $ 800,000 | |||||||
| XTAR, LLC [Member] | ||||||||
| Related Party Transaction [Line Items] | ||||||||
| Percentage of ownership interest | 56.00% | 56.00% | ||||||
| XTAR, LLC [Member] | Transaction, Management Agreement [Member] | ||||||||
| Related Party Transaction [Line Items] | ||||||||
| Allowance for doubtful accounts receivable, noncurrent | $ 6,600,000 | $ 6,600,000 | $ 6,600,000 | |||||
| Due from Affiliates | $ 6,800,000 | $ 6,800,000 | $ 6,800,000 | |||||
| Management fee charged as a percentage of revenue | 3.70% | |||||||
| MHR Funds [Member] | ||||||||
| Related Party Transaction [Line Items] | ||||||||
| Percentage of outstanding voting common stock | 39.90% | 39.90% | 39.90% | |||||
| Percentage of combined ownership of voting and non-voting common stock | 58.40% | 58.40% | 58.40% | |||||