EX-99.10 16 dex9910.htm PRO FORMA FINANCIAL INFORMATION OF LORAL SKYNET AND TELESAT CANADA Pro Forma Financial Information of Loral Skynet and Telesat Canada

Exhibit 99.10

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED

FINANCIAL INFORMATION

PRO FORMA COMBINATION OF LORAL SKYNET AND TELESAT CANADA

Unaudited Pro Forma Condensed Consolidated Financial Information

On December 16, 2006, a joint venture company (“Acquireco”) formed by Loral Space & Communication Inc. (“Loral”) and its Canadian partner, the Public Sector Pension Investment Board (“PSP”) entered into a definitive agreement with BCE Inc. (“BCE”) to acquire 100% of the stock of Telesat Canada. On October 31, 2007, Acquireco completed the Telesat Canada acquisition and substantially all of Loral Skynet Corporation’s (“Loral Skynet”) assets and related liabilities were transferred to a subsidiary of Acquireco. This subsidiary was combined with Telesat Canada. The parent company of Acquireco (“Telesat Holding” or “Telesat”) financed the acquisition through debt from a group of financial institutions.

The following unaudited pro forma condensed consolidated statements of operations of Telesat Holding for the six month period ended June 30, 2007 and for the year ended December 31, 2006 and the unaudited pro forma condensed consolidated balance sheet of Telesat Holding as of June 30, 2007 are based on the historical financial statements of Telesat Canada and Loral Skynet Corporation after giving effect to Telesat Holding’s acquisitions of Telesat Canada and Loral Skynet and the related transactions (collectively, the “Transactions”). The unaudited pro forma condensed consolidated statements of operations present the acquisitions as if they had occurred on January 1, 2006. The unaudited pro forma condensed consolidated balance sheet presents the Transactions as if they had occurred on June 30, 2007. Where applicable, all information has been translated from United States dollars ($) to Canadian dollars (CAD). Income statement information of Loral Skynet Corporation has been translated using the average exchange rate of $1.00/CAD 1.1349 for the six month period ended June 30, 2007 and $1.00/CAD 1.1344 for the year ended December 31, 2006. Balance sheet information has been translated using the June 30, 2007 exchange rate of $1.00/CAD 1.0654. The unaudited pro forma condensed consolidated financial information is presented in accordance with Canadian GAAP. A reconciliation to United States GAAP is also provided.

The Transactions have been reflected by Telesat Holding using the purchase method of accounting and the assets of Loral Skynet and Telesat Canada are presented at their estimated fair value. The unaudited pro forma condensed consolidated financial information presented, including the allocation of the purchase price, is based on preliminary estimates of the fair values of assets acquired and liabilities assumed. These preliminary estimates are based on available information, certain assumptions and preliminary valuation work performed by independent appraisers. These preliminary estimates will change upon finalization of the fair value of acquired assets and liabilities.

Assumptions underlying the pro forma adjustments are described in the accompanying notes, which should be read in conjunction with this unaudited pro forma condensed consolidated financial information. You should read the unaudited pro forma condensed consolidated financial information and the related notes thereto in conjunction with the historical consolidated financial statements and related notes thereto of Telesat Canada and Loral Skynet Corporation, included elsewhere herein or previously filed with the Securities and Exchange Commission (“SEC”) in Loral’s Current Report on Form 8-K filed on August 9, 2007.

The unaudited pro forma condensed consolidated statements of operations do not include any assumptions regarding cost savings synergies which may be achievable subsequent to the close of the transactions, or the full year benefit expected as a result of the successful launch of Anik F3 in April 2007. Nor does the unaudited pro forma condensed consolidated statement of operations include the effect of certain non-recurring transactions such as payments under retention plans to employees of Telesat Canada or Loral Skynet and redemption premiums relating to the early extinguishment of debt. The unaudited pro forma condensed consolidated financial information is not necessarily indicative of the financial position or results of operations that would actually have occurred had the Transactions been consummated as of the dates or at the beginning of the periods presented, nor is it necessarily indicative of future operating results or financial position.

 

1


Telesat Holding

Unaudited Pro Forma Condensed Consolidated Statement of Operations (1)

For the Year Ended December 31, 2006

 

    

Historical
Loral

Skynet
Corporation

   

Historical
Loral

Skynet
Corporation

   

Historical
Telesat

Canada

    Pro Forma Adjustments    

Pro

Forma

 
         Acquisition     Financing    
     (US$)     (CAD)     (CAD)     (CAD)     (CAD)     (CAD)  
     (in millions)  

Service revenues

   163.7     185.7     435.1         620.8  

Equipment sales revenues

       43.9         43.9  
                            

Total operating revenues

   163.7     185.7     479.0         664.7  
                            

Amortization

   45.6     51.7     120.7     19.5 (a)     191.9  

Operations and administration

   97.0     110.0     183.4     (2.0 )(a)     291.4  

Cost of equipment sales

       34.6         34.6  

Corporate allocations and management fees

   9.9     11.2       (5.6 )(i)     5.6  
                                

Total operating expenses

   152.5     172.9     338.7     11.9       523.5  
                                

Operating income

   11.2     12.8     140.3     (11.9 )     141.2  

Interest and investment income

   8.7     9.9       (8.1 )(a2)      
         (1.8 )(j)    

Interest expense

   (17.6 )   (20.0 )   (24.6 )   (4.1 )(j)   (11.2 )(d)   (333.5 )
           (301.4 )(e)  
           (2.5 )(e)  
           (7.3 )(f)  
           37.6 (g)  

Other (expense) income

   (4.7 )   (5.3 )   10.0     5.9 (j)     10.6  
                                    

(Loss) income before taxes

   (2.4 )   (2.6 )   125.7     (20.0 )   (284.8 )   (181.7 )

Income tax (provision) benefit

   (5.4 )   (6.1 )   (21.7 )   7.1 (k)   96.9 (k)   76.2  
                                    

(Loss) income after tax

   (7.8 )   (8.7 )   104.0     (12.9 )   (187.9 )   (105.5 )

Equity losses of affiliates

   (7.1 )   (8.1 )       8.1 (a2)        
                                    

Net (loss) income

   (14.9 )   (16.8 )   104.0     (4.8 )   (187.9 )   (105.5 )
                                    

  (1) The Pro Forma column is presented in accordance with Canadian GAAP.

 

2


Telesat Holding

Unaudited Pro Forma Condensed Consolidated Statement of Operations (1)

For the Six Months Ended June 30, 2007

 

    

Historical
Loral

Skynet

Corporation

   

Historical
Loral

Skynet
Corporation

   

Historical
Telesat

Canada

    Pro Forma Adjustments        
         Acquisition     Financing     Pro Forma  
     (US$)     (CAD)     (CAD)     (CAD)     (CAD)     (CAD)  
     (in millions)  

Service revenues

   69.0     78.3     224.3         302.6  

Equipment sales revenues

       26.1         26.1  

Sales-type lease revenues

       32.6         32.6  
                            

Total operating revenues

   69.0     78.3     283.0         361.3  
                            

Amortization

   26.4     30.0     61.4     9.8 (a)     101.2  

Operations and administration

   43.4     49.3     86.5         135.8  

Cost of equipment sales

       21.2         21.2  

Cost of sales-type lease

       15.5         15.5  

Corporate allocations and management fees

   5.9     6.7       (3.9 )(i)     2.8  
                                

Total operating expenses

   75.7     86.0     184.6     5.9       276.5  
                                

Operating (loss) income

   (6.7 )   (7.7 )   98.4     (5.9 )     84.8  

Interest and investment income

   2.9     3.3       (0.5 )(j)      
         (2.8 )(a2)    

Interest expense

   (6.3 )   (7.1 )   (10.6 )   (7.3 )(j)   (5.6 )(d)   (169.2 )
           (150.8 )(e)  
           (1.4 )(e)  
           (3.9 )(f)  
           17.5 (g)  

Unrealized gain on foreign exchange contracts

   65.5     74.3           74.3  

Other income

   0.1     0.1     6.5     7.8 (j)     14.4  
                                    

Income (loss) before taxes

   55.5     62.9     94.3     (8.7 )   (144.2 )   4.3  

Income tax (provision) benefit

   (23.7 )   (26.9 )   (29.8 )   3.1 (k)   48.9 (k)   (4.7 )
                                    

Income (loss) after tax

   31.8     36.0     64.5     (5.6 )   (95.3 )   (0.4 )

Equity losses of affiliates

   (4.6 )   (5.2 )       5.2 (a2)        
                                    

Net income loss

   27.2     30.8     64.5     (0.4 )   (95.3 )   (0.4 )
                                    

  (1) The Pro Forma column is presented in accordance with Canadian GAAP.

 

3


Telesat Holding

Unaudited Pro Forma Condensed Consolidated Balance Sheet (1)

June 30, 2007

 

    

Historical

Loral
Skynet
Corporation

   

Historical

Loral
Skynet
Corporation

   

Historical
Telesat

Canada

    Pro Forma Adjustments        
         Acquisition     Financing     Pro Forma  
     (US$)     (CAD)     (CAD)     (CAD)     (CAD)     (CAD)  
     (in millions)  

Assets:

            

Cash and cash equivalents

   14.7     15.7     44.4     (3,277.1 )(a)   513.5 (d)   70.2  
         (34.3 )(a)   3,231.6 (e)    
         (5.2 )(h)   (67.9 )(f)  
           (350.5 )(g)  

Accounts receivable, net

   12.2     13.0     247.2     (201.0 )(a)     59.2  

Other current assets

   85.1     90.6     43.3     (10.3 )(a)   (63.6 )(e)   59.5  
         (0.5 )(a)    

Deferred tax asset—current

           5.5         5.5  
                                    

Total current assets

   112.0     119.3     340.4     (3,528.4 )   3,263.1     194.4  

Property, plant and equipment—net

   464.5     494.9     1,446.4     (46.6 )(a)     1,894.7  

Investments in and advances to affiliates

   95.6     101.8     15.1     (101.8 )(a)     0.6  
         (14.5 )(a)    

Goodwill

   72.7     77.4     53.5     (130.9 )(a)     2,192.3  
         2,192.3 (a)    

Other assets

   61.5     65.5     40.5     (3.8 )(a)   (6.0 )(g)   1,027.5  
         930.4 (a)    
         0.9 (a)    
                                    

Total assets

   806.3     858.9     1,895.9     (702.4 )   3,257.1     5,309.5  
                                    

Liabilities and Shareholders’ Equity

            

Current portion of debt

           3.3       21.2 (e)   24.5  

Accounts payable

   5.3     5.6     32.3         37.9  

Accrued employment costs

   4.9     5.2             5.2  

Customer advances

   8.8     9.4     50.2         59.6  

Income taxes payable

   3.0     3.2     12.3     (3.2 )(a)     12.3  

Accrued interest and preferred dividends

   20.7     22.1           (22.1 )(b)    

Other current liabilities

   0.3     0.3     58.7     (21.2 )(a)     37.5  
         (0.3 )(a)    

Due to related parties

   64.7     68.9         (63.6 )(a)     5.3  
                                    

Total current liabilities

   107.7     114.7     156.8     (88.3 )   (0.9 )   182.3  

Pension and other postretirement liabilities

   19.1     20.3     10.7     (9.4 )(a)     26.5  
         4.9 (a)    

Long-term debt

   128.0     136.4     211.2       3044.4 (e)   2,954.8  
           (23.8 )(e)  
           (345.5 )(g)  
           (67.9 )(f)  

Long-term liabilities

   72.3     77.0     350.7     (24.8 )(a)   99.9 (e)   502.8  

Deferred tax liability—long-term

           197.6     115.9 (a)     313.5  

Preferred stock, mandatorily redeemable

           159.8 (d)   159.8  
                                    

Total liabilities

   327.1     348.4     927.0     (1.7 )   2,866.0     4,139.7  
                                    

Shareholders’ equity

            

Parent company investment

   289.2     308.1         (548.1 )(c)   240.0 (b)    

Common stock

           341.1     (341.1 )(c)   35.5 (b)   1,199.4  
         783.9 (a)   353.7 (d)  
           26.3 (e)  

Series A preferred stock

   225.3     240.0         (240.0 )(b)    

Paid-in capital

           184.6     (184.6 )(c)      

(Accumulated deficit) retained earnings

   (43.8 )   (46.7 )   450.5     (403.8 )(c)   (13.4 )(b)   (29.6 )
         (5.2 )(h)   (5.0 )(g)  
           (6.0 )(g)  

Accumulated other comprehensive income (loss)

   8.5     9.1     (7.3 )   (1.8 )(c)      
                                    

Total shareholders’ equity

   479.2     510.5     968.9     (700.7 )   391.1     1,169.8  
                                    

Total liabilities and shareholders’ equity

   806.3     858.9     1,895.9     (702.4 )   3,257.1     5,309.5  
                                    

  (1)   The Pro Forma column is presented in accordance with Canadian GAAP.

 

4


Telesat Holding

Notes to Unaudited Pro Forma Condensed Consolidated Financial Information

(amounts in millions)

(a) Reflects the preliminary estimate of the allocation of the purchase price for Telesat Canada and Loral Skynet (CAD in millions).

The fair value of Loral Skynet reflects the negotiated value between Loral and PSP (as adjusted for the expenditures through June 30, 2007 on Telstar 11N), of which US$25.5 (CAD 27.1) was paid via the transfer of marketable securities to Loral and the balance in common stock of Telesat. The historical amounts for Loral Skynet Corporation are based on the fair values determined in connection with Loral Skynet Corporation’s adoption of fresh-start accounting effective October 1, 2005.

 

     Loral
Skynet
    Telesat     Total                   

Purchase price (translated at $1.00/CAD 1.0654)

   27.1     3,250.0     3,277.1         

Balance of fair value of Loral Skynet

   783.9       783.9         

Estimated acquisition costs(1)

       34.3     34.3         
                         

Total purchase price to be allocated

   811.0     3,284.3     4,095.3         
                         

Historical net assets

   510.5     968.9     1,479.4         

Less, historical goodwill

   (77.4 )   (53.5 )   (130.9 )       

Less excluded assets and liabilities:

             

Investment in XTAR(2)

   (101.8 )     (101.8 )       

Globalstar securities(2)

   (10.3 )     (10.3 )       

Due to related parties

   63.6       63.6         

Tax liabilities

   27.8       27.8         

Pension liabilities

   9.4       9.4         

Promissory notes receivable–BCE(3)

     (201.0 )   (201.0 )       

Promissory notes receivable–TMI(3)

     (3.8 )   (3.8 )       

Promissory notes payable–BCE(3)

     21.2     21.2         

Investment in WildBlue(3)

     (14.5 )   (14.5 )       
                         

Acquired historical net assets

   421.8     717.3     1,139.1         
                         
                      

Estimated
Useful Life

(years)

  

Amortization

Expense

 
            Annual     Six Months  

Estimated fair value increments:

             

Fixed assets

   (31.3 )   (15.3 )   (46.6 )   6.9    (6.8 )   (3.4 )

Intangible assets:

             

Orbital locations

   16.4     494.1     510.5     Indefinite     

Backlog, net

   6.2     207.8     214.0     13.0    16.5     8.3  

Customer relationships

   51.2     138.6     189.8     19.4    9.8     4.9  

Trade names

   (3.9 )   20.0     16.1     Indefinite     
                                 

Total intangible assets

   69.9     860.5     930.4        26.3     13.2  
                     

Total adjustment to amortization

            19.5     9.8  
                     

Pension asset

     0.9     0.9        (1.4 )    

Other benefits liability

     (4.9 )   (4.9 )      (0.6 )    
                     

Total adjustment to operations and administration

            (2.0 )    
                                 

Total estimated fair value increments

   38.6     841.2     879.8         

Less related deferred tax impact(4)

     (115.9 )   (115.9 )       
                         

Identifiable net assets at fair value

   460.4     1,442.6     1,903.0         
                         

Goodwill

   350.6     1,841.7     2,192.3         
                         

  (1) Represents estimated merger and acquisition, legal, valuation, accounting fees and expenses.

 

5


  (2) Income associated with excluded assets has also been adjusted. Accordingly, equity losses of affiliates, relating to XTAR, of CAD 5.2, for the six months ended June 30, 2007 and CAD 8.1 for the year ended December 31, 2006 and the gain on sale of Globalstar securities realized of CAD 2.8 for the six months ended June 30, 2007 and CAD 8.1 for the year ended December 31, 2006, have also been eliminated.
  (3) Pursuant to the definitive share purchase agreements with BCE, certain assets and liabilities of Telesat Canada are excluded from the sale. Refer to the financial statements of Telesat Canada for a description of these assets and liabilities.
  (4) Represents a deferred tax adjustment on the Telesat fair market value increments, other than assets with indefinite lives, at the future tax rate of 31.86% and an additional valuation allowance on the tax benefit from capital losses to be incurred at the acquisition date.

The unaudited pro forma condensed consolidated financial information reflects our preliminary allocation of the purchase price to goodwill and other assets and liabilities. The final purchase price allocation may result in a different allocation of these other assets and liabilities, including intangible assets, presented in this note. An increase or decrease in the amount of purchase price allocation to amortizable assets would affect the amount of annual amortization expense. Amortizable intangible assets have been amortized on a straight-line basis in the accompanying unaudited pro forma condensed consolidated statement of operations. The fair value reflected for satellites under construction is equal to the amount of costs incurred as of June 30, 2007.

(b) Reflects the cash payments by Loral Skynet Corporation, concurrent with the close of the Transactions, to fund the redemption of the Loral Skynet Corporation Series A Preferred Stock, as well as to pay all interest, redemption premium and any other amounts that may be due in respect of Loral Skynet Corporation’s senior secured notes (see Note g) (CAD in millions):

 

Loral Skynet Corporation Series A Preferred Stock

      240.0

Accrued dividends on the Loral Skynet Corporation Series A Preferred Stock

   13.4   

Accrued interest on the Loral Skynet Corporation senior secured notes

   8.7   
       

Total accrued interest and accrued dividends

   22.1   

Redemption premium on the Loral Skynet Corporation senior secured notes

   13.4   
       

Total accrued interest, preferred dividends and redemption premium to be paid

      35.5
       

Total cash to be paid by Loral Skynet Corporation

      275.5
       

The charge for the redemption premium on the Loral Skynet Corporation senior secured notes has not been included in the unaudited pro forma condensed consolidated statement of operations because it is a non-recurring charge directly attributable to the Transactions.

(c) Reflects the elimination of the historical shareholders’ equity as follows (CAD in millions):

 

     Loral
Skynet
Corporation
    Telesat     Total

Parent company investment

   548.1       548.1

Common stock

     341.1     341.1

Paid-in capital

     184.6     184.6

(Accumulated deficit) retained earnings

   (46.7 )   450.5     403.8

Accumulated other comprehensive income (loss)

   9.1     (7.3 )   1.8
                
   510.5     968.9     1,479.4
                

 

6


(d) Reflects the cash equity contributions by PSP and reimbursement to Loral to effect the 64% / 36% economic ownership (CAD in millions).

The cash equity contributions reflect a true-up between Telesat, PSP and Loral under the Ancillary Agreement to reflect the amounts of our relative contributions, after giving effect to among other things, the exchange rate then in effect, gains and/or losses on hedging transactions, the spending on Telstar 11N and interim taxes.

 

Common Equity

       

PSP

   399.5       

Loral

   (45.8 )     
           

Total common equity

   353.7       
           
           Dividends @ 7%
           Annual    Six Months

PSP Preferred Equity

   159.8     11.2    5.6
               

Total cash to Telesat

   513.5       
           

The PSP preferred equity has been reflected as a liability because it is mandatorily redeemable at the option of the holders on or after the twelfth anniversary of its issuance date and the dividends have been reflected as interest expense. The dividends on the preferred equity are assumed to be paid in kind (i.e. in additional shares of preferred stock) until certain financial conditions are achieved.

(e) Reflects the assumption of debt by Telesat to finance the Transactions (CAD in millions):

 

     Principal  

Revolver (based on June 30, 2007 exchange rate of $1.00/CAD 1.0654)

   26.3  

Term loan A (CAD denominated)

   200.0  

Term loan B (based on June 30, 2007 exchange rate of $1.00/CAD 1.0654)

   1,869.8  

Bridge facility (based on June 30, 2007 exchange rate of $1.00/CAD 1.0654)

   969.5  
      

Total debt

   3,065.6  

Less, current portion

   21.2  
      

Long-term debt

   3,044.4  
      

Total debt on balance sheet

   3,065.6  

Original issue discount on senior secured facilities

   (23.8 )

Net gain on derivatives recorded by Loral Skynet Corporation in other current assets

   63.6  

Value of hedges contributed by PSP

   26.3  

Reclassification of liability for fair value of remaining basis swap derivative

   99.9  
      

Total debt proceeds received

   3,231.6  
      

Interest expense, including commitment fees and amounts to compensate lenders for Canadian withholding tax, is estimated to be CAD 150.8 for the six months ended June 30, 2007 and CAD 301.4 for the year ended December 31, 2006 based on the estimated weighted average effective interest rate for the Telesat debt of approximately 9.8%. This estimated weighted average interest rate is estimated based on rates established in the credit and bridge facility agreements at closing, as affected by exchange rates as of and for the period ended June 30, 2007 and the currency basis swap on a portion of Term loan B. The loans will typically bear interest at a floating rate of the Bankers Acceptance rate or an Alternative Base Rate, as applicable, or LIBOR plus an applicable margin. The annual pretax effect of a 1/8% variance in interest rates would be approximately CAD 4.

 

7


The senior secured debt is being issued with an all-in original issue discount of 1.0%, which equates to CAD 23.8. These amounts have been reflected as debt discount on the accompanying unaudited pro forma condensed consolidated balance sheet. Amortization of these fees was estimated using the effective interest method based on the term of the respective loans. Such amortization is estimated to be CAD 1.4, for the six months ended June 30, 2007 and CAD 2.5 for the year ended December 31, 2006.

(f) Reflects estimated financing fees and expenses in connection with the debt financing of CAD 67.9.

These amounts have been reflected as debt discount on the accompanying unaudited pro forma condensed consolidated balance sheet. Amortization of these fees was estimated using the effective interest method based on the term of the respective loans. Such amortization is estimated to be CAD 3.9, for the six months ended June 30, 2007 and CAD 7.3 for the year ended December 31, 2006.

(g) Reflects the repayment of the existing Loral Skynet Corporation senior secured notes, Telesat Canada bank debt and the Telesat Canada 8.2% Senior Notes (CAD in millions):

 

                   

            Interest Expense            

    

Debt

  

Redemption

Premium

  

Total

   Six Months Ended
June 30, 2007
  

Year Ended

December 31,
2006

Loral Skynet Corporation

   136.4    (see (b) above)    136.4    10.1    20.2

Telesat Canada—long term

   209.1    5.0    214.1    7.4    17.4
                        
   345.5    5.0    350.5    17.5    37.6
                        

Write-off of Loral Skynet’s Corporation’s deferred financing cost relating to the 14% senior secured notes

   6.0      
                

The charges for the redemption premium on the Loral Skynet Corporation senior secured notes and the Telesat Canada long-term notes, as well as the write-off of the deferred financing cost relating to the Loral Skynet Corporation senior secured notes, have not been included in the unaudited pro forma condensed consolidated statement of operations because they are nonrecurring charges directly attributable to the Transactions.

(h) Reflects the estimated payments under retention plans to Telesat Canada and Loral Skynet employees of CAD 5.2.

The charges for these payments have not been included in the unaudited pro forma condensed consolidated statement of operations because they are non-recurring charges directly attributable to the Transactions. In addition, there are transaction related payments that are due to employees of Telesat Canada that are the responsibility of BCE. BCE has elected to have Telesat Canada make these payments, and as a result there will be a corresponding decrease to the purchase price.

(i) Reflects the provisions of the agreement entered into between Loral and Telesat to pay Loral US$5 annually for consulting services to be provided to Telesat (in millions):

 

     Six Months Ended
June 30,2007
  

Year Ended

December 31,
2006

Consulting services per agreement to be entered into with Loral

   US$ 2.5    US$ 5.0

Historical Loral Corporate expenses allocated to Loral Skynet Corporation

     5.9      9.9
             

Reduction to operating expenses

   US$ 3.4    US$ 4.9
             

Reduction to operating expenses (translated at the average period exchange rate)

     CAD 3.9      CAD 5.6
             

 

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We do not believe that Telesat will incur replacement costs as a result of this arrangement.

Cash payments to Loral earned under this arrangement are assumed to be deferred with interest until a total leverage ratio is achieved under the senior secured credit facilities and notes described in Note (e) above.

(j) The Loral Skynet Corporation financial information presented herein is in accordance with Canadian GAAP in all material respects. The following reclassifications have been made to Loral Skynet’s Corporation’s historical financial statements to conform with the presentation used by Telesat Canada (CAD in millions):

 

    

Six Months Ended

June 30,

2007

  

Year Ended

December 31,
2006

Reclassification of the balance of interest and investment income not eliminated in (a1) above, to other income

   0.5    1.8

Reclassification of the interest expense capitalized by Loral Skynet Corporation to other income

   7.3    4.1
         
   7.8    5.9
         

(k) Reflects a tax benefit on the pro forma adjustments, excluding a tax benefit on the preferred dividends described in Note (d) above, utilizing the Telesat Canada historical rate of 35.3% for the six months ended June 30, 2007 and 35.4% for the year ended December 31, 2006.

(l) The following summarizes the non-recurring charges directly attributable to the Transactions that have not been included in the accompanying unaudited pro forma condensed consolidated statement of operations as more fully described in the notes above (CAD in millions):

 

Note Reference

      

Year Ended

December 31,
2006

    

(b)

  Redemption premium on the Loral Skynet Corporation senior secured notes    13.4

(g)

  Write-off of deferred financing cost relating to the Loral Skynet Corporation
senior secured notes
   6.0

(g)

  Redemption premium on the Telesat Canada long-term notes    5.0

(h)

  Estimated payments under retention plans to employees of both companies    5.2
      
  Total non-recurring charges directly attributable to the Transactions not included in the pro forma statement of operations    29.6
      

(m) The unaudited pro forma condensed consolidated financial information has been presented in accordance with Canadian GAAP. The following reconciles the differences according to Canadian GAAP and United States GAAP (CAD in millions):

 

     

Six Months

Ended

June 30,

2007

   

Year

Ended

December 31,

2006

 

Reconciliation of Pro Forma Net Loss

    

Canadian GAAP—Net income (loss)

   (0.4 )   (105.5 )

Gains (losses) on derivatives

   (12.4 )   (1.0 )

Sales-type lease—operating lease for United States GAAP

   (29.3 )  

Capital lease—operating lease for United States GAAP

   13.6    

Tax effect of above adjustments

   9.5     0.3  

Accounting for uncertain tax positions

   1.8     —    
            

United States GAAP—Net Loss

   (17.2 )   (106.2 )
            

 

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