Segments

6 Months Ended

Jun. 30, 2012

Segments [Abstract]

Segments

19. Segments

Prior to the agreement to sell SS/L, Loral had two operating segments: satellite manufacturing and satellite services. Our segment reporting data includes unconsolidated affiliates that meet the reportable segment criteria. The satellite services segment includes 100% of the results reported by Telesat for the three and six months ended June 30, 2012 and 2011. Although we analyze Telesat’s revenue and expenses under the satellite services segment, we eliminate its results in our consolidated financial statements, where we report our 64% share of Telesat’s results as equity in net income of affiliates. Our ownership in XTAR, for which we use the equity method of accounting, is included in Corporate.

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

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

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

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

	Three Months Ended June 30,						Six Months Ended June 30,
	2012			2011			2012			2011
Revenues
Satellite manufacturing:
External revenues	$	271,871		$	218,832		$	534,367		$	456,487
Intersegment revenues (1)		22,506			33,590			46,723			76,664
Satellite manufacturing revenues		294,377			252,422			581,090			533,151
Satellite services revenues (2)		199,852			207,139			395,875			412,861
Operating segment revenues before eliminations		494,229			459,561			976,965			946,012
Intercompany eliminations (3)		—			—			—			(830	)
Affiliate eliminations (2)		(199,852	)		(207,139	)		(395,875	)		(412,861	)
Total revenues		294,377			252,422			581,090			532,321
Revenues included in income from discontinued operations		(294,377	)		(252,422	)		(581,090	)		(532,321	)
Revenues reported	$	—		$	—		$	—		$	—
Segment Adjusted EBITDA (4)
Satellite manufacturing	$	17,244		$	28,097		$	27,537		$	68,613
Satellite services (2)		153,866			160,098			303,274			319,045
Corporate (5)		(3,965	)		(3,396	)		(8,303	)		(8,195	)
Adjusted EBITDA before eliminations		167,145			184,799			322,508			379,463
Intercompany eliminations (3)		—			—			—			(279	)
Affiliate eliminations (2)		(153,866	)		(160,098	)		(303,274	)		(319,045	)
Adjusted EBITDA		13,279			24,701			19,234			60,139
Adjusted EBITDA from discontinued operations		(17,244	)		(28,097	)		(27,537	)		(68,334	)
Adjusted EBITDA from continuing operations		(3,965	)		(3,396	)		(8,303	)		(8,195	)
Reconciliation to Operating Income
Depreciation, Amortization and Stock-Based Compensation (4)
Satellite manufacturing		(8,479	)		(7,853	)		(16,415	)		(15,544	)
Satellite services (2)		(61,009	)		(62,768	)		(121,497	)		(124,959	)
Corporate		(299	)		(277	)		(572	)		(572	)
Segment depreciation before affiliate eliminations		(69,787	)		(70,898	)		(138,484	)		(141,075	)
Affiliate eliminations (2)		61,009			62,768			121,497			124,959
Depreciation, amortization and stock-based compensation		(8,778	)		(8,130	)		(16,987	)		(16,116	)
Depreciation, amortization and stock-based compensation from discontinued operations		8,479			7,853			16,415			15,544
Depreciation, amortization and stock-based compensation as reported		(299	)		(278	)		(572	)		(572	)
Gain on disposition of net assets (6)		—			5,118			—			5,118
Operating (loss) income as reported		(4,264	)		1,444			(8,875	)		(3,649	)

	June 30, 2012			December 31, 2011
Total Assets (7)
Satellite manufacturing	$	—		$	929,408
Satellite services (2) (8)		5,253,525			5,724,418
Corporate		453,924			529,501
Total assets before affiliate eliminations		5,707,449			7,183,327
Affiliate eliminations (2)		(5,253,525	)		(5,347,174	)
Total assets excluding assets held for sale		453,924			1,836,153
Total assets classified as assets held for sale		1,005,309			—
Total assets as reported	$	1,459,233		$	1,836,153

⁽¹⁾  Intersegment revenues include $22.5 million and $33.6 million for the three months ended June 30, 2012 and 2011, respectively, and $46.7 million and $75.8 million for the six months ended June 30, 2012 and 2011, respectively, of revenue from affiliates.

⁽²⁾  Satellite services represents Telesat. Affiliate eliminations represent the elimination of amounts attributable to Telesat whose results are reported under the equity method of accounting in our condensed consolidated statements of operations (see Note 10).

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

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

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

⁽⁶⁾  Represents the gain included in continuing operations on the sale of Loral’s portion of the payload on the ViaSat-1 satellite and related net assets to Telesat adjusted for elimination of Loral’s 64% ownership interest in Telesat.

⁽⁷⁾  Amounts are presented after the elimination of intercompany profit.

⁽⁸⁾  Includes $2.4 billion of satellite services goodwill related to Telesat as of June 30, 2012 and December 31, 2011.