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, 2019
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 ☑ 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 ☑ 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 |
☑ |
Non-accelerated filer ☐ |
|
Smaller reporting company |
☑ |
|
|
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 ☑
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered |
Voting Common Stock |
LORL |
Nasdaq Global Select Market |
As of November 4, 2019, 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, 2019
2
FINANCIAL INFORMATION
LORAL SPACE & COMMUNICATIONS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
(Unaudited)
|
September 30, |
|
December 31, |
||
|
2019 |
|
2018 |
||
ASSETS |
|
|
|
|
|
Current assets: |
|
|
|
|
|
Cash and cash equivalents |
$ |
257,319 |
|
$ |
256,947 |
Income tax refund receivable |
|
938 |
|
|
3,903 |
Other current assets |
|
2,070 |
|
|
3,232 |
Total current assets |
|
260,327 |
|
|
264,082 |
Right-of-use asset |
|
501 |
|
|
— |
Income tax refund receivable, non-current |
|
774 |
|
|
774 |
Investments in affiliates |
|
86,725 |
|
|
24,574 |
Deferred tax assets |
|
37,568 |
|
|
40,520 |
Other assets |
|
38 |
|
|
350 |
Total assets |
$ |
385,933 |
|
$ |
330,300 |
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS' EQUITY |
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
Accrued employment costs |
$ |
2,145 |
|
$ |
2,573 |
Other current liabilities |
|
1,791 |
|
|
1,495 |
Total current liabilities |
|
3,936 |
|
|
4,068 |
Pension and other postretirement liabilities |
|
14,792 |
|
|
15,167 |
Other liabilities |
|
15,962 |
|
|
13,499 |
Total liabilities |
|
34,690 |
|
|
32,734 |
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 |
|
(612,531) |
|
|
(695,521) |
Accumulated other comprehensive loss |
|
(46,933) |
|
|
(17,620) |
Total shareholders' equity |
|
351,243 |
|
|
297,566 |
Total liabilities and shareholders' equity |
$ |
385,933 |
|
$ |
330,300 |
See notes to condensed consolidated financial statements
3
LORAL SPACE & COMMUNICATIONS INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND
(In thousands, except per share amounts)
(Unaudited)
|
Three Months Ended |
|
Nine Months Ended |
||||||||
|
September 30, |
|
September 30, |
||||||||
|
2019 |
|
2018 |
|
2019 |
|
2018 |
||||
General and administrative expenses |
$ |
(1,615) |
|
$ |
(1,715) |
|
$ |
(5,115) |
|
$ |
(5,109) |
Operating loss |
|
(1,615) |
|
|
(1,715) |
|
|
(5,115) |
|
|
(5,109) |
Interest and investment income |
|
1,406 |
|
|
1,263 |
|
|
4,574 |
|
|
3,340 |
Interest expense |
|
(5) |
|
|
(6) |
|
|
(15) |
|
|
(17) |
Other expense |
|
(1,048) |
|
|
(1,749) |
|
|
(3,019) |
|
|
(2,937) |
Loss from continuing operations before income taxes |
|
|
|
|
|
|
|
|
|
|
|
and equity in net income of affiliates |
|
(1,262) |
|
|
(2,207) |
|
|
(3,575) |
|
|
(4,723) |
Income tax provision |
|
(1,275) |
|
|
(6,669) |
|
|
(5,501) |
|
|
(1,014) |
Loss from continuing operations before |
|
|
|
|
|
|
|
|
|
|
|
equity in net income of affiliates |
|
(2,537) |
|
|
(8,876) |
|
|
(9,076) |
|
|
(5,737) |
Equity in net income of affiliates |
|
8,784 |
|
|
55,095 |
|
|
92,066 |
|
|
56,734 |
Income from continuing operations |
|
6,247 |
|
|
46,219 |
|
|
82,990 |
|
|
50,997 |
Loss from discontinued operations, net of tax |
|
— |
|
|
(25) |
|
|
— |
|
|
(62) |
Net income |
|
6,247 |
|
|
46,194 |
|
|
82,990 |
|
|
50,935 |
Other comprehensive (loss) income, net of tax |
|
(16,261) |
|
|
(5,410) |
|
|
(29,313) |
|
|
2,362 |
Comprehensive (loss) income |
$ |
(10,014) |
|
$ |
40,784 |
|
$ |
53,677 |
|
$ |
53,297 |
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
$ |
0.20 |
|
$ |
1.49 |
|
$ |
2.68 |
|
$ |
1.65 |
Loss from discontinued operations, net of tax |
|
— |
|
|
— |
|
|
— |
|
|
— |
Net income |
$ |
0.20 |
|
$ |
1.49 |
|
$ |
2.68 |
|
$ |
1.65 |
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
$ |
0.20 |
|
$ |
1.48 |
|
$ |
2.66 |
|
$ |
1.63 |
Loss from discontinued operations, net of tax |
|
— |
|
|
— |
|
|
— |
|
|
— |
Net income |
$ |
0.20 |
|
$ |
1.48 |
|
$ |
2.66 |
|
$ |
1.63 |
|
|
|
|
|
|
|
|
|
|
|
|
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, 2018 |
21,582 |
|
$ |
216 |
|
9,506 |
|
$ |
95 |
|
$ |
1,019,988 |
|
154 |
|
$ |
(9,592) |
|
$ |
(682,831) |
|
$ |
(37,278) |
|
$ |
290,598 |
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,741 |
|
|
|
|
|
|
Other comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,772 |
|
|
|
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,513 |
Cumulative effect adjustment attributable to |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
investment in Telesat |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(22,107) |
|
|
|
|
|
(22,107) |
Balance, June 30, 2018 |
21,582 |
|
|
216 |
|
9,506 |
|
|
95 |
|
|
1,019,988 |
|
154 |
|
|
(9,592) |
|
|
(700,197) |
|
|
(29,506) |
|
|
281,004 |
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
46,194 |
|
|
|
|
|
|
Other comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,410) |
|
|
|
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40,784 |
Balance, September 30, 2018 |
21,582 |
|
|
216 |
|
9,506 |
|
|
95 |
|
|
1,019,988 |
|
154 |
|
|
(9,592) |
|
|
(654,003) |
|
|
(34,916) |
|
|
321,788 |
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(41,321) |
|
|
|
|
|
|
Other comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21,469 |
|
|
|
Comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(19,852) |
Tax cuts and Jobs Act, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
reclassification tax effect |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,173 |
|
|
(4,173) |
|
|
— |
Cumulative effect adjustment attributable to |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
investment in Telesat |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,370) |
|
|
|
|
|
(4,370) |
Balance, December 31, 2018 |
21,582 |
|
|
216 |
|
9,506 |
|
|
95 |
|
|
1,019,988 |
|
154 |
|
|
(9,592) |
|
|
(695,521) |
|
|
(17,620) |
|
|
297,566 |
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
76,743 |
|
|
|
|
|
|
Other comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(13,052) |
|
|
|
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
63,691 |
Balance, June 30, 2019 |
21,582 |
|
|
216 |
|
9,506 |
|
|
95 |
|
|
1,019,988 |
|
154 |
|
|
(9,592) |
|
|
(618,778) |
|
|
(30,672) |
|
|
361,257 |
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,247 |
|
|
|
|
|
|
Other comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(16,261) |
|
|
|
Comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,014) |
Balance, September 30, 2019 |
21,582 |
|
$ |
216 |
|
9,506 |
|
$ |
95 |
|
$ |
1,019,988 |
|
154 |
|
$ |
(9,592) |
|
$ |
(612,531) |
|
$ |
(46,933) |
|
$ |
351,243 |
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, |
||||
|
2019 |
|
2018 |
||
Operating activities: |
|
|
|
|
|
Net income |
$ |
82,990 |
|
$ |
50,935 |
Loss from discontinued operations, net of tax |
|
— |
|
|
62 |
Adjustments to reconcile net income to net cash provided by (used in) operating activities: |
|
|
|
|
|
Non-cash operating items (Note 2) |
|
(88,491) |
|
|
(57,158) |
Changes in operating assets and liabilities: |
|
|
|
|
|
Other current assets |
|
(347) |
|
|
(377) |
Accrued employment costs and other current liabilities |
|
(645) |
|
|
576 |
Income tax refund receivable |
|
2,965 |
|
|
287 |
Pension and other postretirement liabilities |
|
(375) |
|
|
(2,396) |
Other liabilities |
|
2,463 |
|
|
1,915 |
Net cash used in operating activities - continuing operations |
|
(1,440) |
|
|
(6,156) |
Net cash provided by (used in) operating activities – discontinued operations |
|
1,812 |
|
|
(79) |
Net cash provided by (used in) operating activities |
|
372 |
|
|
(6,235) |
Cash, cash equivalents and restricted cash (Note 2) — period increase (decrease) |
|
372 |
|
|
(6,235) |
Cash, cash equivalents and restricted cash (Note 2) — beginning of year |
|
257,251 |
|
|
255,443 |
Cash, cash equivalents and restricted cash — end of period |
$ |
257,623 |
|
$ |
249,208 |
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. 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, 2019 are not necessarily indicative of the results to be expected for the full year.
The December 31, 2018 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.
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. 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 acquired by Telesat in 2007 is proportionately eliminated in determining our share of the net income 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 Space Systems/Loral, LLC (formerly known as Space Systems/Loral, Inc.) (“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
7
LORAL SPACE & COMMUNICATIONS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
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, 2019 and December 31, 2018. 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, 2019, the Company had $257.3 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, 2019 and December 31, 2018, other current assets and other assets, respectively, included restricted cash of $0.3 million, which represents the amount pledged as collateral to the issuer of a standby letter of credit (the “LC”). The LC, which currently expires in August 2020, 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 statements of cash flows (in thousands):
|
September 30, |
|
September 30, |
||
|
2019 |
|
2018 |
||
Cash and cash equivalents |
$ |
257,319 |
|
$ |
248,904 |
Restricted cash included in other current assets |
|
304 |
|
|
304 |
Cash, cash equivalents and restricted cash shown in the statement of cash flows |
$ |
257,623 |
|
$ |
249,208 |
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, 2019 and December 31, 2018, 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.
8
LORAL SPACE & COMMUNICATIONS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
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, 2019 |
|
December 31, 2018 |
||||||||||||||
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Level 1 |
|
Level 2 |
|
Level 3 |
||||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds |
$ |
255,185 |
|
$ |
— |
|
$ |
— |
|
$ |
254,552 |
|
$ |
— |
|
$ |
— |
Other current assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Indemnification - Sale of SSL |
|
— |
|
|
— |
|
|
598 |
|
|
— |
|
|
— |
|
|
2,410 |
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Indemnification - Globalstar do Brasil S.A. |
$ |
— |
|
$ |
— |
|
$ |
159 |
|
$ |
— |
|
$ |
— |
|
$ |
184 |
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, 2019 and December 31, 2018.
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 refunds and 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.
9
LORAL SPACE & COMMUNICATIONS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
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 each period any additional U.S. current and deferred tax required on actual or deemed distributions from Telesat, including Global Intangible Low Taxed Income (“GILTI”). 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. Previously recognized tax positions are derecognized in the first period in which it is no longer more likely than not that the 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 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. 2018-13, 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.
10
LORAL SPACE & COMMUNICATIONS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
In February 2016, the FASB amended the Accounting Standards Codification (“ASC”) by creating ASC Topic 842, Leases (“ASC 842”). 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 was effective for the Company on January 1, 2019. We adopted ASC 842 in the first quarter of 2019 utilizing the modified retrospective method with a practical expedient through a cumulative-effect adjustment at the beginning of the first quarter of 2019. As a result, on January 1, 2019, we recognized a right-of-use asset and lease liability for an operating lease of approximately $0.3 million on our condensed consolidated balance sheet.
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, |
||||
|
2019 |
|
2018 |
||
Non-cash operating items: |
|
|
|
|
|
Equity in net income of affiliates |
$ |
(92,066) |
|
$ |
(56,734) |
Deferred taxes |
|
2,802 |
|
|
(1,237) |
Depreciation and amortization |
|
9 |
|
|
16 |
Right-of-use asset, net of lease liability |
|
12 |
|
|
— |
Amortization of prior service credit and actuarial loss |
|
752 |
|
|
797 |
Net non-cash operating items |
$ |
(88,491) |
|
$ |
(57,158) |
Supplemental information: |
|
|
|
|
|
Interest paid |
$ |
15 |
|
$ |
17 |
Income tax refunds |
$ |
2,980 |
|
$ |
255 |
Income tax payments |
$ |
226 |
|
$ |
200 |
0
11
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):
|
|
|
|
Proportionate |
|
|
|
|
|
|
|
|
Share of |
|
Accumulated |
||
|
|
|
|
Telesat-related |
|
Other |
||
|
|
|
|
Other |
|
|
|
|
|
Postretirement |
|
Comprehensive |
|
Comprehensive |
|||
|
Benefits |
|
Income (Loss) |
|
Loss |
|||
Balance, January 1, 2018 |
$ |
(16,454) |
|
$ |
(20,824) |
|
$ |
(37,278) |
Other comprehensive income before reclassification |
|
953 |
|
|
22,033 |
|
|
22,986 |
Amounts reclassified from accumulated other comprehensive loss |
|
845 |
|
|
— |
|
|
845 |
Net current-period other comprehensive income |
|
1,798 |
|
|
22,033 |
|
|
23,831 |
Tax Cuts and Jobs Act, reclassification of tax effect from |
|
|
|
|
|
|
|
|
accumulated other comprehensive loss to accumulated deficit |
|
— |
|
|
(4,173) |
|
|
(4,173) |
Balance, December 31, 2018 |
|
(14,656) |
|
|
(2,964) |
|
|
(17,620) |
|
|
|
|
|
|
|
|
|
Other comprehensive loss before reclassification |
|
|
|
|
|
|
|
|
Prior periods (see Note 5) |
|
— |
|
|
(22,050) |
|
|
(22,050) |
Current period |
|
— |
|
|
(7,857) |
|
|
(7,857) |
Amounts reclassified from accumulated other comprehensive loss |
|
594 |
|
|
— |
|
|
594 |
Net current-period other comprehensive loss |
|
594 |
|
|
(29,907) |
|
|
(29,313) |
Balance, September 30, 2019 |
$ |
(14,062) |
|
$ |
(32,871) |
|
$ |
(46,933) |
The components of other comprehensive (loss) income and related tax effects are as follows (in thousands):
|
Three Months Ended September 30, |
|||||||||||||||||
|
2019 |
|
|
2018 |
||||||||||||||
|
Before-Tax |
|
Tax (Provision) |
|
Net-of-Tax |
|
|
Before-Tax |
|
Tax (Provision) |
|
Net-of-Tax |
||||||
|
Amount |
|
Benefit |
|
Amount |
|
|
Amount |
|
Benefit |
|
Amount |
||||||
Amortization of prior service credits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and net actuarial loss |
$ |
251 |
(a) |
$ |
(52) |
|
$ |
199 |
|
|
$ |
265 |
(a) |
$ |
(56) |
|
$ |
209 |
Equity in Telesat-related other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
comprehensive loss: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior periods (see Note 5) |
|
(14,946) |
|
|
4 |
|
|
(14,942) |
|
|
|
— |
|
|
— |
|
|
— |
Current period |
|
(1,519) |
|
|
1 |
|
|
(1,518) |
|
|
|
(7,115) |
|
|
1,496 |
|
|
(5,619) |
Other comprehensive loss |
$ |
(16,214) |
|
$ |
(47) |
|
$ |
(16,261) |
|
|
$ |
(6,850) |
|
$ |
1,440 |
|
$ |
(5,410) |
|
Nine Months Ended September 30, |
|||||||||||||||||
|
2019 |
|
|
2018 |
||||||||||||||
|
Before-Tax |
|
Tax (Provision) |
|
Net-of-Tax |
|
|
Before-Tax |
|
Tax |
|
Net-of-Tax |
||||||
|
Amount |
|
Benefit |
|
Amount |
|
|
Amount |
|
Provision |
|
Amount |
||||||
Amortization of prior service credits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and net actuarial loss |
$ |
752 |
(a) |
$ |
(158) |
|
$ |
594 |
|
|
$ |
797 |
(a) |
$ |
(168) |
|
$ |
629 |
Equity in Telesat-related other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
comprehensive (loss) income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior periods (see Note 5) |
|
(22,056) |
|
|
6 |
|
|
(22,050) |
|
|
|
— |
|
|
— |
|
|
— |
Current period |
|
(7,859) |
|
|
2 |
|
|
(7,857) |
|
|
|
2,194 |
|
|
(461) |
|
|
1,733 |
Other comprehensive (loss) income |
$ |
(29,163) |
|
$ |
(150) |
|
$ |
(29,313) |
|
|
$ |
2,991 |
|
$ |
(629) |
|
$ |
2,362 |
(a)Reclassifications are included in other expense.
12
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, |
||
|
2019 |
|
2018 |
||
Restricted Cash (see Note 2) |
$ |
304 |
|
$ |
— |
Indemnification receivable from SSL for pre-closing taxes (see Note 13) |
|
598 |
|
|
2,410 |
Due from affiliates |
|
229 |
|
|
161 |
Prepaid expenses |
|
489 |
|
|
151 |
Other |
|
450 |
|
|
510 |
|
$ |
2,070 |
|
$ |
3,232 |
5. Investments in Affiliates
Investments in affiliates consist of (in thousands):
|
September 30, |
|
December 31, |
||
|
2019 |
|
2018 |
||
Telesat |
$ |
86,725 |
|
$ |
24,574 |
Equity in net income of affiliates consists of (in thousands):
|
Three Months Ended |
|
Nine Months Ended |
||||||||
|
September 30, |
|
September 30, |
||||||||
|
2019 |
|
2018 |
|
2019 |
|
2018 |
||||
Telesat |
$ |
8,784 |
|
$ |
55,095 |
|
$ |
92,066 |
|
$ |
56,734 |
Telesat
As of September 30, 2019 and December 31, 2018, 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 for the three and nine months ended September 30, 2019, we also recorded our share of equity in other comprehensive loss of Telesat of $16.5 million and $29.9 million, for the three and nine months ended September 30, 2019, respectively.
13
LORAL SPACE & COMMUNICATIONS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
During the quarter ended September 30, 2019, we recorded an out of period correction to decrease our investment in Telesat and increase other comprehensive loss by $14.9 million and $22.1 million for the three and nine months ended September 30, 2019, respectively. This non-cash adjustment was made to record the cumulative translation adjustment on our investment in Telesat beginning in November 2007 when we first acquired our ownership interest in Telesat. The adjustment resulted from translating our share of Telesat’s equity as of September 30, 2019 from Canadian dollars to U.S. dollars at historical foreign exchange rates in accordance with ASC 830, Foreign Currency Matters, as required by ASC 323, Investments – Equity Method and Joint Ventures. Previously, we translated our share of Telesat’s equity from Canadian dollars to U.S. dollars at current foreign exchange rates at each balance sheet date. This adjustment had no effect on our equity in net income (loss) of Telesat for any current or prior reporting period. The Company has not revised its financial statements for prior periods for this adjustment based on its belief that the effect of such adjustment is not material to the financial statements taken as a whole.
On January 1, 2019, Telesat adopted ASC 842, Leases, 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 the cumulative effect of initially applying the standard being recorded on the balance sheet. As a result, on January 1, 2019, Telesat recognized a right-of-use asset of $19.6 million and lease liability of $20.0 million on its condensed consolidated balance sheet. 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.
On September 26, 2019, Telesat issued a conditional notice of redemption to the holders of its 8.875% senior notes. On October 11, 2019, Telesat issued, through a private placement, $550 million of 6.5% senior notes which mature on October 15, 2027. The 6.5% senior notes are subordinated to Telesat’s existing and future secured indebtedness, including obligations under its senior secured facilities.
On October 11, 2019, Telesat used the net proceeds from the 6.5% senior notes offering together with available cash on hand to redeem its $500 million 8.875% senior notes due November 15, 2024 by repaying all outstanding amounts, including principal, redemption premium and discounted interest to November 15, 2019.
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, 2019, Telesat’s Total Leverage Ratio was 4.74:1.00. Telesat is, however, permitted to pay annual consulting fees of $5.0 million to Loral in cash (see Note 14).
14
LORAL SPACE & COMMUNICATIONS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
The following table presents summary financial data for Telesat in accordance with U.S. GAAP as of September 30, 2019 and December 31, 2018 and for the three and nine months ended September 30, 2019 and 2018 (in thousands):
|
September 30, |
|
December 31, |
||
|
2019 |
|
2018 |
||
Balance Sheet Data: |
|
|
|
|
|
Current assets |
$ |
808,838 |
|
$ |
628,125 |
Total assets |
|
4,050,816 |
|
|
3,942,847 |
Current liabilities |
|
118,149 |
|
|
139,401 |
Long-term debt, including current portion |
|
2,753,787 |
|
|
2,764,599 |
Total liabilities |
|
3,437,807 |
|
|
3,474,504 |
Shareholders’ equity |
|
613,009 |
|
|
468,343 |
|
Three Months Ended |
|
Nine Months Ended |
||||||||
|
September 30, |
|
September 30, |
||||||||
|
2019 |
|
2018 |
|
2019 |
|
2018 |
||||
Statement of Operations Data: |
|
|
|
|
|
|
|
|
|
|
|
Revenues |
$ |
180,180 |
|
$ |
174,010 |
|
$ |
520,819 |
|
$ |
522,990 |
Operating expenses |
|
(26,443) |
|
|
(34,268) |
|
|
(94,827) |
|
|
(91,804) |
Depreciation, amortization and stock-based compensation |
|
(54,854) |
|
|
(47,946) |
|
|
(162,745) |
|
|
(144,732) |
Other operating (expense) income |
|
(45) |
|
|
848 |
|
|
(110) |
|
|
835 |
Operating income |
|
98,838 |
|
|
92,644 |
|
|
263,137 |
|
|
287,289 |
Interest expense |
|
(46,239) |
|
|
(43,063) |
|
|
(139,574) |
|
|
(130,671) |
Foreign exchange (loss) gain |
|
(24,702) |
|
|
42,784 |
|
|
73,713 |
|
|
(66,294) |
(Loss) gain on financial instruments |
|
(4,244) |
|
|
(202) |
|
|
(40,619) |
|
|
30,414 |
Other income |
|
4,497 |
|
|
3,204 |
|
|
12,603 |
|
|
7,795 |
Income tax provision |
|
(15,548) |
|
|
(7,605) |
|
|
(26,584) |
|
|
(39,190) |
Net income |
$ |
12,602 |
|
$ |
87,762 |
|
$ |
142,676 |
|
$ |
89,343 |
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, 2019 and December 31, 2018, 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, 2019 and December 31, 2018, 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. As of September 30, 2019 and December 31, 2018, the carrying value of this investment was zero. Because Loral has written-off its investment in this company and has 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.
15
LORAL SPACE & COMMUNICATIONS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
6. Other Current Liabilities
Other current liabilities consists of (in thousands):
|
September 30, |
|
December 31, |
||
|
2019 |
|
2018 |
||
Operating lease liability |
$ |
513 |
|
$ |
— |
Due to affiliate |
|
9 |
|
|
164 |
Accrued professional fees |
|
1,142 |
|
|
1,206 |
Pension and other postretirement liabilities |
|
69 |
|
|
69 |
Accrued liabilities |
|
58 |
|
|
56 |
|
$ |
1,791 |
|
$ |
1,495 |
7. Income Taxes
The following summarizes our income tax provision (in thousands):
|
Three Months Ended |
|
Nine Months Ended |
||||||||
|
September 30, |
|
September 30, |
||||||||
|
2019 |
|
2018 |
|
2019 |
|
2018 |
||||
Current income tax provision |
$ |
(1,781) |
|
$ |
(863) |
|
$ |
(2,699) |
|
$ |
(2,251) |
Deferred income tax benefit (provision) |
|
506 |
|
|
(5,806) |
|
|
(2,802) |
|
|
1,237 |
Income tax provision |
$ |
(1,275) |
|
$ |
(6,669) |
|
$ |
(5,501) |
|
$ |
(1,014) |
For the nine month periods ended September 30, 2019 and 2018, 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, 2019 and 2018, this amount is then reduced by the tax recorded for the six months ended June 30, 2019 and 2018. The current income tax provision for each period includes our anticipated income tax liability related to GILTI from Telesat and our provision for UTPs. The deferred income tax benefit (provision) for each period includes the impact of equity in net income of affiliates from our condensed consolidated statement of operations and the periodic effect of our accounting for GILTI.
Subsequent to the sale of SSL to MDA Communications Holdings, Inc., a subsidiary of Maxar Technologies Ltd. (formerly known as 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.
The following summarizes amounts for UTPs included in our income tax provision (in thousands):
|
Three Months Ended |
|
Nine Months Ended |
||||||||
|
September 30, |
|
September 30, |
||||||||
|
2019 |
|
2018 |
|
2019 |
|
2018 |
||||
Current provision for UTPs |
$ |
(1,751) |
|
$ |
(791) |
|
$ |
(2,488) |
|
$ |
(2,018) |
Deferred benefit for UTPs |
|
86 |
|
|
167 |
|
|
239 |
|
|
425 |
Tax provision for UTPs |
$ |
(1,665) |
|
$ |
(624) |
|
$ |
(2,249) |
|
$ |
(1,593) |
As of September 30, 2019, we had unrecognized tax benefits relating to UTPs of $43 million. The Company recognizes interest and penalties related to income taxes in income tax expense on a quarterly basis. As of September 30, 2019, we have accrued no penalties and approximately $1.6 million for the potential payment of tax-related interest.
16
LORAL SPACE & COMMUNICATIONS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
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 2014. 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. Pursuant to the purchase agreement for the SSL Sale, we are obligated to indemnify SSL for certain 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 sheet (in thousands):
|
Nine Months Ended |
|
|
September 30, 2019 |
|
Liabilities for UTPs: |
|
|
Opening balance — January 1 |
$ |
13,315 |
Increase to unrecognized tax benefits |
|
1,348 |
Current provision for potential additional interest |
|
1,140 |
Ending balance |
$ |
15,803 |
As of September 30, 2019, if our positions are sustained by the taxing authorities, the Company’s income tax provision would be reduced by approximately $7.0 million. Other than as described above, there were no significant changes to our UTPs during the nine months ended September 30, 2019 and 2018, 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, |
||
|
2019 |
|
2018 |
||
Indemnification liabilities - other (see Note 13) |
$ |
159 |
|
$ |
184 |
Liabilities for uncertain tax positions |
|
15,803 |
|
|
13,315 |
|
$ |
15,962 |
|
$ |
13,499 |
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, 2019 and December 31, 2018.
17
LORAL SPACE & COMMUNICATIONS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
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, |
||||||||
|
2019 |
|
2018 |
|
2019 |
|
2018 |
||||
Income from continuing operations — basic |
$ |
6,247 |
|
$ |
46,219 |
|
$ |
82,990 |
|
$ |
50,997 |
Less: Adjustment for dilutive effect of Telesat stock options |
|
(51) |
|
|
(340) |
|
|
(535) |
|
|
(350) |
Income from continuing operations — diluted |
$ |
6,196 |
|
$ |
45,879 |
|
$ |
82,455 |
|
$ |
50,647 |
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, |
||||||||
|
2019 |
|
2018 |
|
2019 |
|
|
2018 | |||
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 |
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, 2019 and 2018 (in thousands):
|
Pension Benefits |
|
Other Benefits |
||||||||
|
Three Months Ended |
|
Three Months Ended |
||||||||
|
September 30, |
|
September 30, |
||||||||
|
2019 |
|
2018 |
|
2019 |
|
2018 |
||||
Service cost (1) |
$ |
180 |
|
$ |
179 |
|
$ |
1 |
|
$ |
1 |
Interest cost (2) |
|
504 |
|
|
464 |
|
|
4 |
|
|
4 |
Expected return on plan assets (2) |
|
(608) |
|
|
(657) |
|
|
— |
|
|
— |
Amortization of net actuarial loss (2) |
|
252 |
|
|
260 |
|
|
(1) |
|
|
— |
Amortization of prior service credits (2) |
|
— |
|
|
— |
|
|
— |
|
|
5 |
Net periodic cost |
$ |
328 |
|
$ |
246 |
|
$ |
4 |
|
$ |
10 |
18
LORAL SPACE & COMMUNICATIONS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
|
Pension Benefits |
|
Other Benefits |
||||||||
|
Nine Months Ended |
|
Nine Months Ended |
||||||||
|
September 30, |
|
September 30, |
||||||||
|
2019 |
|
2018 |
|
2019 |
|
2018 |
||||
Service cost (1) |
$ |
541 |
|
$ |
536 |
|
$ |
1 |
|
$ |
1 |
Interest cost (2) |
|
1,513 |
|
|
1,391 |
|
|
14 |
|
|
12 |
Expected return on plan assets (2) |
|
(1,824) |
|
|
(1,971) |
|
|
— |
|
|
— |
Amortization of net actuarial loss (2) |
|
755 |
|
|
780 |
|
|
(3) |
|
|
— |
Amortization of prior service credits (2) |
|
— |
|
|
— |
|
|
— |
|
|
17 |
Net periodic cost |
$ |
985 |
|
$ |
736 |
|
$ |
12 |
|
$ |
30 |
(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, 2019 and December 31, 2018.
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 for the SSL Sale. 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 $0.6 million and $2.4 million as of September 30, 2019 and December 31, 2018, respectively. Certain tax assessments against SSL for 2007 to 2010 have been settled, resulting in our having received during the second and third quarters of 2019 refunds of prior indemnification payments totaling $1.8 million. The remaining receivable as of September 30, 2019 represents payments to date over the estimated fair value of our remaining liability for our indemnification of SSL pre-closing taxes where the final amounts 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.
19
LORAL SPACE & COMMUNICATIONS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
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 as of September 30, 2019 and December 31, 2018 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.
Lease Arrangements
We lease certain facilities and equipment under agreements expiring at various dates. We may renew, extend or modify a lease covering facilities as needed. We have no sublease income in any of the periods presented.
We changed our method of accounting for leases in the first quarter of 2019 due to the adoption of ASC 842. We adopted ASC 842 as of January 1, 2019 using the modified retrospective transition method and elected to apply the transition as of the beginning of the period of adoption. Accordingly, financial information as of and for the three and nine months ended September 30, 2019 is presented under ASC 842, whereas the financial information for the three and nine months ended September 30, 2018 and as of December 31, 2018 is presented under ASC 840, Leases.
Upon adoption of ASC 842, we recognized a right-of-use asset and lease liability of $0.3 million for an operating lease on our condensed consolidated balance sheet as of January 1, 2019. In March 2019, the operating lease was modified by extending the lease termination date from June 30, 2019 to June 30, 2020 and increasing the rent for the extension period. Lease costs expensed for the three and nine months ended September 30, 2019 and 2018 were as follows (in thousands):
|
Three Months Ended |
|
Nine Months Ended |
||||||||
|
September 30, |
|
September 30, |
||||||||
|
2019 |
|
2018 |
|
2019 |
|
2018 |
||||
Rent Expense |
$ |
171 |
|
$ |
159 |
|
$ |
505 |
|
$ |
477 |
Lease payments for the nine months ended September 30, 2019 were $0.5 million. The remaining lease term as of September 30, 2019 is 9 months, and we used a discount rate of 7.5% to compute the lease liability.
The following is a reconciliation of the lease liability to future lease payments as of September 30, 2019 (in thousands):
|
2019 |
|
2020 |
|
Total |
|||
Operating lease liability, current |
$ |
168 |
|
$ |
345 |
|
$ |
513 |
Future interest |
|
7 |
|
|
5 |
|
|
12 |
Future lease payments |
$ |
175 |
|
$ |
350 |
|
$ |
525 |
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.
20
LORAL SPACE & COMMUNICATIONS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
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, 2019 and December 31, 2018, 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.
21
LORAL SPACE & COMMUNICATIONS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
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, 2019 and 2018 and $3.8 million for each of the nine-month periods ended September 30, 2019 and 2018. For each of the nine-month periods ended September 30, 2019 and 2018, 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.
22
LORAL SPACE & COMMUNICATIONS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
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 stock option grant agreements (the “Stock Option Grant Agreements”) and a restricted stock unit grant agreement (the “RSU Grant Agreement,” and, together with the Stock Option Grant Agreements, the “Grant Agreements”) with respect to shares in Telesat 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.
On November 7, 2019, Loral, Telesat, PSP and the Special Purchaser entered into a Stock Option Grant Agreement with Telesat executive, Michael C. Schwartz, which documents a grant previously made and approved in March 2019.
The Stock Option Grant Agreements document grants to the Participants of Telesat stock options (including tandem SAR rights) 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 Stock Option 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 RSU Grant Agreement documents a grant to the Participant of restricted stock units with respect to shares in Telesat and provides for certain rights, obligations and restrictions related to such restricted stock units, which include, among other things: (x) 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 RSU Grant Agreement; and (y) 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 the termination of the Participant’s employment.
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.
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. The amount due to Loral primarily due to the management agreement was $6.8 million and $6.7 million as of September 30, 2019 and December 31, 2018, respectively. 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, 2019 and 2018, and we had an allowance of $6.6 million against receivables from XTAR as of September 30, 2019 and December 31, 2018. Loral and Hisdesat have agreed to waive future management fees for an indefinite period starting January 1, 2014.
23
LORAL SPACE & COMMUNICATIONS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
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, 2019 and 2018, Mr. Targoff earned consulting fees of $360,000 and $1,080,000, respectively, and reimbursed Loral net expenses of $11,250 and $33,750, respectively.
24
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.
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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.
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, 2019.
At September 30, 2019, Telesat, with approximately $2.6 billion of backlog, provided satellite services to customers from its fleet of 16 in-orbit geostationary satellites and the Canadian Ka-band payload on the ViaSat‑1 satellite. Telesat is also developing a global constellation of low earth orbit (“LEO”) satellites. In January 2018, Telesat launched a Ka-band satellite into low earth orbit as part of its plan to deploy a high capacity LEO constellation that is expected to deliver low latency, fiber-like broadband to commercial and government users worldwide.
25
On July 24, 2019, Telesat announced that it had entered into a memorandum of understanding with the Government of Canada (the “GoC”) regarding a partnership that would ensure access to affordable high-speed internet connectivity across rural and remote areas of Canada through the development of the Telesat LEO constellation. The partnership is expected to generate CAD 1.2 billion in revenue for Telesat over 10 years, which includes a contribution of up to CAD 600 million from the GoC.
In May 2019, Telesat entered into an agreement with the GoC pursuant to which the GoC will contribute up to CAD 85 million through July 31, 2023 to support the development of the Telesat LEO constellation (the “Government Grant”). As of September 30, 2019, Telesat recorded CAD 5.2 million relating to the agreement.
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 contractual revenue backlog by entering into long-term contracts with some of its customers, in some cases 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 and orbital 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.
In 2019, Telesat remains focused on increasing utilization of its existing 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, 2019, approximately 52% of Telesat’s revenues, 39% of its operating expenses, 100% of its interest expense on debt 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, 2019, Telesat’s U.S. dollar denominated debt totaled $2.8 billion. As of September 30, 2019, a five percent increase (decrease) in the Canadian dollar against the U.S. dollar on financial assets and liabilities would have increased (decreased) Telesat’s net income by approximately $132.5 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 our Canadian co-owner in Telesat, Public Sector Pension Investment Board (“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 that the combination transaction that we are pursuing 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.
26
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 or return capital to our stockholders. There can be no assurance as to the amount and timing of any such distribution or return of capital, and such distribution or return of capital 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.
27
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, 2019.
Three Months Ended September 30, 2019 Compared with Three Months Ended September 30, 2018
The following compares our consolidated results for the three months ended September 30, 2019 and 2018 as presented in our financial statements:
General and Administrative Expenses
|
Three Months Ended |
||||
|
September 30, |
||||
|
|
2019 |
|
|
2018 |
|
(In thousands) |
||||
General and administrative expenses |
$ |
1,615 |
|
$ |
1,715 |
General and administrative expenses decreased by $0.1 million for the three months ended September 30, 2019 as compared to the three months ended September 30, 2018 due to lower professional fees during the third quarter of 2019.
Interest and Investment Income
|
Three Months Ended |
||||
|
September 30, |
||||
|
|
2019 |
|
|
2018 |
|
(In thousands) |
||||
Interest and investment income |
$ |
1,406 |
|
$ |
1,263 |
Interest and investment income increased by $0.1 million for the three months ended September 30, 2019 as compared to the three months ended September 30, 2018 due to higher interest rates earned on the cash balance during the third quarter of 2019 as compared to 2018.
Other Expense
|
Three Months Ended |
||||
|
September 30, |
||||
|
|
2019 |
|
|
2018 |
|
(In thousands) |
||||
Other expense |
$ |
1,048 |
|
$ |
1,749 |
Other expense for the three months ended September 30, 2019 and 2018 was primarily related to strategic initiatives.
28
Income Tax Provision
|
Three Months Ended |
||||
|
September 30, |
||||
|
|
2019 |
|
|
2018 |
|
(In thousands) |
||||
Income tax provision |
$ |
(1,275) |
|
$ |
(6,669) |
For the three month periods ended September 30, our income tax provision is summarized as follows: (i) for 2019, we recorded a current tax provision of $1.8 million and a deferred tax benefit of $0.5 million resulting in a net tax provision of $1.3 million and (ii) for 2018, we recorded a current and deferred tax provision of $0.9 million and $5.8 million, respectively, resulting in a total tax provision of $6.7 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, 2019 and 2018 (after adjusting for certain tax items that are discrete to each period). This amount is then reduced by the tax recorded for the six months ended June 30, 2019 and 2018. The current income tax provision for each period includes our anticipated income tax liability related to Global Intangible Low Taxed Income (“GILTI”) from Telesat and our provision for uncertain tax positions (“UTPs”). The deferred income tax benefit (provision) for each period includes the impact of equity in net income of affiliates from our condensed consolidated statement of operations and the periodic effect of our accounting for GILTI.
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 Maxar Technologies Ltd. (formerly known as 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, |
||||
|
|
2019 |
|
|
2018 |
|
(In thousands) |
||||
Telesat |
$ |
8,784 |
|
$ |
55,095 |
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.
29
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, 2019 and 2018 follows (in thousands):
|
Three Months Ended |
|
Three Months Ended |
||||
|
September 30, |
|
September 30, |
||||
|
2019 |
|
2018 |
|
2019 |
|
2018 |
|
(In Canadian dollars) |
|
(In U.S. dollars) |
||||
Statement of Operations Data: |
|
|
|
|
|
|
|
Revenues |
237,894 |
|
227,161 |
|
180,180 |
|
174,010 |
Operating expenses |
(34,811) |
|
(44,615) |
|
(26,443) |
|
(34,268) |
Depreciation, amortization and stock-based compensation |
(72,400) |
|
(62,598) |
|
(54,854) |
|
(47,946) |
Other operating income |
(60) |
|
1,089 |
|
(45) |
|
848 |
Operating income |
130,623 |
|
121,037 |
|
98,838 |
|
92,644 |
Interest expense |
(61,018) |
|
(56,231) |
|
(46,239) |
|
(43,063) |
Foreign exchange gain |
(33,412) |
|
53,748 |
|
(24,702) |
|
42,784 |
(Loss) gain on financial instruments |
(5,447) |
|
72 |
|
(4,244) |
|
(202) |
Other income |
5,939 |
|
4,165 |
|
4,497 |
|
3,204 |
Income tax provision |
(20,628) |
|
(10,103) |
|
(15,548) |
|
(7,605) |
Net income |
16,057 |
|
112,688 |
|
12,602 |
|
87,762 |
Average exchange rate for translating Canadian dollars to |
1.3199 |
|
1.3060 |
|
|
|
|
Telesat’s revenue increased by $6.2 million for the three months ended September 30, 2019 as compared to the three months ended September 30, 2018 due primarily to higher revenue from the Telstar 18 VANTAGE and Telstar 19 VANTAGE satellites, which entered commercial service in October 2018 and August 2018, respectively, and an increase in short-term services provided to another satellite operator, partially offset by lower equipment sales to enterprise customers. The foreign exchange rate change decreased Telesat’s revenue by $0.9 million for the three months ended September 30, 2019 as compared to the three months ended September 30, 2018.
Telesat’s operating expenses decreased by $7.8 million for the three months ended September 30, 2019 as compared to the three months ended September 30, 2018 primarily due to lower expenses related to development of Telesat’s planned LEO constellation, net of amounts to be reimbursed under the Government Grant, lower cost of sales from lower equipment sales, lower rent expense and lower fees associated with professional services. The foreign exchange rate change decreased Telesat’s operating expenses by $0.2 million for the three months ended September 30, 2019 as compared to the three months ended September 30, 2018.
Telesat’s depreciation, amortization and stock-based compensation increased by $6.9 million for the three months ended September 30, 2019 as compared to the three months ended September 30, 2018 primarily due to depreciation on the Telstar 18 VANTAGE and Telstar 19 VANTAGE satellites and higher stock-based compensation.
30
Nine months ended September 30, 2019 Compared with Nine months ended September 30, 2018
The following compares our consolidated results for the nine months ended September 30, 2019 and 2018 as presented in our financial statements:
General and Administrative Expenses
|
Nine Months Ended |
||||
|
September 30, |
||||
|
|
2019 |
|
|
2018 |
|
(In thousands) |
||||
General and administrative expenses |
$ |
5,115 |
|
$ |
5,109 |
General and administrative expenses were comparable for the nine months ended September 30, 2019 and 2018. During the nine months ended September 30, 2019, severance expense increased by $0.2 million and professional fees decreased by $0.2 million as compared to the nine months ended September 30, 2018.
Interest and Investment Income
|
Nine Months Ended |
||||
|
September 30, |
||||
|
|
2019 |
|
|
2018 |
|
(In thousands) |
||||
Interest and investment income |
$ |
4,574 |
|
$ |
3,340 |
Interest and investment income increased by $1.2 million for the nine months ended September 30, 2019 as compared to the nine months ended September 30, 2018 primarily due to higher interest rates earned on the cash balance during the first nine months of 2019 as compared to 2018.
Other Expense
|
Nine Months Ended |
||||
|
September 30, |
||||
|
|
2019 |
|
|
2018 |
|
(In thousands) |
||||
Other expense |
$ |
3,019 |
|
$ |
2,937 |
Other expense for the nine months ended September 30, 2019 and 2018 was primarily related to strategic initiatives.
Income Tax Provision
|
Nine Months Ended |
||||
|
September 30, |
||||
|
|
2019 |
|
|
2018 |
|
(In thousands) |
||||
Income tax provision |
$ |
(5,501) |
|
$ |
(1,014) |
For the nine month periods ended September 30, our income tax provision is summarized as follows: (i) for 2019, we recorded a current and deferred tax provision of $2.7 million and $2.8 million, respectively, resulting in a total tax provision of $5.5 million and (ii) for 2018, we recorded a current tax provision of $2.2 million and a deferred tax benefit of $1.2 million, resulting in a net tax provision of $1.0 million.
31
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, 2019 and 2018 (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 GILTI from Telesat and our provision for UTPs. 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 the periodic effect of our accounting for GILTI.
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, |
||||
|
|
2019 |
|
|
2018 |
|
(In thousands) |
||||
Telesat |
$ |
92,066 |
|
$ |
56,734 |
The following is a reconciliation of the changes in our investment in Telesat for the nine months ended September 30, 2019:
|
Nine Months Ended |
||||
|
September 30, 2019 |
||||
|
(In thousands) |
||||
Balance, January 1, 2019 |
|
|
|
$ |
24,574 |
Components of equity in net income of Telesat: |
|
|
|
|
|
Equity in net income of Telesat |
$ |
89,415 |
|
|
|
Eliminations of affiliate transactions and related amortization |
|
2,651 |
|
|
92,066 |
Proportionate share of Telesat-related other comprehensive loss |
|
|
|
|
(29,915) |
Balance, September 30, 2019 |
|
|
|
$ |
86,725 |
During the quarter ended September 30, 2019, we recorded an out of period correction to decrease our investment in Telesat and increase other comprehensive loss by $14.9 million and $22.1 million for the three and nine months ended September 30, 2019, respectively. This non-cash adjustment was made to record the cumulative translation adjustment on our investment in Telesat beginning in November 2007 when we first acquired our ownership interest in Telesat. The adjustment resulted from translating our share of Telesat’s equity as of September 30, 2019 from Canadian dollars to U.S. dollars at historical foreign exchange rates in accordance with ASC 830, Foreign Currency Matters, as required by ASC 323, Investments – Equity Method and Joint Ventures. Previously, we translated our share of Telesat’s equity from Canadian dollars to U.S. dollars at current foreign exchange rates at each balance sheet date. This adjustment had no effect on our equity in net income (loss) of Telesat for any current or prior reporting period. The Company has not revised its financial statements for prior periods for this adjustment based on its belief that the effect of such adjustment is not material to the financial statements taken as a whole.
32
Summary financial information for Telesat in accordance with U.S. GAAP and in Canadian dollars and U.S. dollars as of September 30, 2019 and December 31, 2018 and for the nine months ended September 30, 2019 and 2018 follows (in thousands):
|
September 30, |
|
December 31, |
|
September 30, |
|
December 31, |
|
2019 |
|
2018 |
|
2019 |
|
2018 |
|
(In Canadian dollars) |
|
(In U.S. dollars) |
||||
Balance Sheet Data: |
|
|
|
|
|
|
|
Current assets |
1,070,984 |
|
856,575 |
|
808,838 |
|
628,125 |
Total assets |
5,363,687 |
|
5,376,860 |
|
4,050,816 |
|
3,942,847 |
Current liabilities |
156,441 |
|
190,100 |
|
118,149 |
|
139,401 |
Long-term debt, including current portion |
3,646,290 |
|
3,770,084 |
|
2,753,787 |
|
2,764,599 |
Total liabilities |
4,552,000 |
|
4,738,181 |
|
3,437,807 |
|
3,474,504 |
Shareholders’ equity |
811,687 |
|
638,679 |
|
613,009 |
|
468,343 |
Period end exchange rate for translating Canadian |
1.3241 |
|
1.3637 |
|
|
|
|
|
Nine Months Ended |
|
Nine Months Ended |
||||
|
September 30, |
|
September 30, |
||||
|
2019 |
|
2018 |
|
2019 |
|
2018 |
|
(In Canadian dollars) |
|
(In U.S. dollars) |
||||
Statement of Operations Data: |
|
|
|
|
|
|
|
Revenues |
693,059 |
|
671,403 |
|
520,819 |
|
522,990 |
Operating expenses |
(126,187) |
|
(117,856) |
|
(94,827) |
|
(91,804) |
Depreciation, amortization and stock-based compensation |
(216,566) |
|
(185,804) |
|
(162,745) |
|
(144,732) |
Other operating (expense) income |
(147) |
|
1,072 |
|
(110) |
|
835 |
Operating income |
350,159 |
|
368,815 |
|
263,137 |
|
287,289 |
Interest expense |
(185,733) |
|
(167,753) |
|
(139,574) |
|
(130,671) |
Foreign exchange gain (loss) |
98,091 |
|
(85,106) |
|
73,713 |
|
(66,294) |
(Loss) gain on financial instruments |
(54,052) |
|
39,045 |
|
(40,619) |
|
30,414 |
Other income |
16,771 |
|
10,008 |
|
12,603 |
|
7,795 |
Income tax provision |
(35,375) |
|
(50,310) |
|
(26,584) |
|
(39,190) |
Net income |
189,861 |
|
114,699 |
|
142,676 |
|
89,343 |
Average exchange rate for translating Canadian dollars |
1.3309 |
|
1.2842 |
|
|
|
|
On January 1, 2019, Telesat adopted Accounting Standards Codification (“ASC”) 842, Leases, 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 the cumulative effect of initially applying the standard being recorded on the balance sheet. As a result, on January 1, 2019, Telesat recognized a right-of-use asset of $19.6 million and lease liability of $20.0 million on its condensed consolidated balance sheet. Comparative summary financial information of Telesat presented above has not been restated and continues to be reported under the accounting standards in effect for those periods presented.
Telesat’s revenue decreased by $2.2 million for the nine months ended September 30, 2019 as compared to the nine months ended September 30, 2018 due primarily to the impact of the change in the U.S. dollar/Canadian dollar exchange rate on Canadian dollar denominated revenue, the reduction of services and non-renewals for certain North American broadcast customers, lower equipment sales to enterprise customers and lower revenue from certain enterprise customers in the resource sector. These decreases were partially offset by revenue from the Telstar 18 VANTAGE and Telstar 19 VANTAGE satellites. The foreign exchange rate change decreased Telesat’s revenue by $9.1 million for the nine months ended September 30, 2019 as compared to the nine months ended September 30, 2018.
33
Telesat’s operating expenses increased by $3.0 million for the nine months ended September 30, 2019 as compared to the nine months ended September 30, 2018 primarily due to higher expenses related to development of Telesat’s planned LEO constellation, net of amounts to be reimbursed under the Government Grant. This increase was partially offset by lower cost of sales principally due to lower equipment sales, lower rent expense, lower fees associated with professional services and the impact of the change in the U.S. dollar/Canadian exchange rate on Canadian dollar denominated expenses. The foreign exchange rate change decreased Telesat’s operating expenses by $2.1 million for the nine months ended September 30, 2019 as compared to the nine months ended September 30, 2018.
Telesat’s depreciation, amortization and stock-based compensation increased by $18.0 million for the nine months ended September 30, 2019 as compared to the nine months ended September 30, 2018 primarily due to depreciation on the Telstar 18 VANTAGE and Telstar 19 VANTAGE satellites and higher stock-based compensation.
Backlog
Telesat’s backlog as of September 30, 2019 and December 31, 2018 was $2.6 billion.
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, 2019, Loral had $257.3 million of cash and cash equivalents and no debt. The Company’s cash and cash equivalents as of September 30, 2019 increased by $0.4 million from December 31, 2018 due primarily to $4.6 million of interest and investment income, $2.8 million of income tax refunds, net of income tax payments, and a $1.8 million recovery of our tax indemnification receivable from SSL, partially offset by corporate expenses of $5.8 million, adjusted for changes in working capital and net of consulting fees from Telesat, postretirement benefits funding of $0.6 million and payments of $2.4 million related to strategic initiatives. A discussion of cash changes by activity is set forth in the section “Net Cash Provided by (Used in) Operating Activities.”
Loral did not have a credit facility as of September 30, 2019 and December 31, 2018.
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.
34
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 or return capital to our stockholders. There can be no assurance as to the amount and timing of any such distribution or return of capital, and such distribution or return of capital may be impacted by the outcome of our discussions regarding, and the structure of, the strategic combination transaction with respect to our interest in Telesat that we are pursuing.
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, 2019, Telesat had CAD 978.3 million of cash and short-term investments as well as approximately $200 million (or the Canadian dollar equivalent) 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, 2019, 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 required interest and principal payments on debt.
The construction of any satellite replacement or expansion program, including the planned LEO constellation, will require significant capital expenditures. Cash required for any future satellite programs may be funded by Telesat from a range of sources including: cash and short-term investments; cash flows from operating activities; cash flows from customer prepayments; through borrowings on the revolving credit facility under Telesat’s senior secured credit facilities; vendor financing; equity investments; export credit agency financing; additional secured or unsecured financing; and from government sources. In addition, Telesat may sell certain satellite assets and, in accordance with the terms and conditions of its senior secured credit facilities, reinvest the proceeds in replacement satellites or pay down indebtedness under the senior secured credit facilities. 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 programs. Telesat is developing its planned LEO constellation in an unrestricted subsidiary and expects to complete the development of, fund, and operate its planned LEO constellation through a current or future unrestricted subsidiary.
35
Debt
Telesat’s debt as of September 30, 2019 and December 31, 2018 was as follows:
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
Maturity |
|
Currency |
|
|
2019 |
|
|
2018 |
|
|
|
|
|
|
(In thousands) |
|||
Senior Secured Credit Facilities: |
|
|
|
|
|
|
|
|
|
Revolving credit facility |
November 2021 |
|
USD or CAD |
|
$ |
— |
|
$ |
— |
Term Loan B - U.S. facility |
November 2023 |
|
USD |
|
|
2,308,472 |
|
|
2,326,049 |
8.875% Senior notes |
November 2024 |
|
USD |
|
|
500,000 |
|
|
500,000 |
|
|
|
|
|
|
2,808,472 |
|
|
2,826,049 |
Less: Deferred financing costs, interest rate |
|
|
|
|
|
|
|
|
|
floors and prepayment options |
|
|
|
|
|
(84,344) |
|
|
(95,076) |
Total debt under international financial |
|
|
|
|
|
|
|
|
|
reporting standards |
|
|
|
|
|
2,724,128 |
|
|
2,730,973 |
U.S. GAAP adjustments |
|
|
|
|
|
29,659 |
|
|
33,626 |
Total debt under U.S. GAAP |
|
|
|
|
|
2,753,787 |
|
|
2,764,599 |
Current portion |
|
|
|
|
|
(11,295) |
|
|
(5,784) |
Long-term portion |
|
|
|
|
$ |
2,742,492 |
|
$ |
2,758,815 |
Senior Secured Credit Facilities
The obligations under Telesat’s 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 of September 30, 2019, other than approximately CAD 0.1 million in drawings related to letters of credit, there were no borrowings under this facility.
36
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, 2019, $2.31 billion of this facility was outstanding, which represents the full amount available following mandatory repayments.
As of September 30, 2019, 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 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. The mandatory principal repayments on the U.S. TLB Facility which must be paid on the last day of each quarter are one quarter of 1.00% of the value of the loan as of April 26, 2018.
Senior Notes
Telesat’s senior notes of $500 million bore interest at an annual rate of 8.875% and were due November 17, 2024. They included covenants or terms that restricted 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 8.875% senior notes, without penalty, before November 15, 2022, in each case subject to exceptions provided in the 8.875% senior notes indenture.
On October 11, 2019, Telesat issued, through a private placement, $550 million of 6.5% senior notes which mature on October 15, 2027. The 6.5% senior notes are subordinated to Telesat’s existing and future secured indebtedness, including obligations under its senior secured facilities, and are governed under the 6.5% senior notes indenture.
On October 11, 2019, Telesat used the net proceeds from the 6.5% senior notes offering together with available cash on hand to redeem its $500 million 8.875% senior notes due November 15, 2024 by repaying all outstanding amounts, including principal, redemption premium and discounted interest to November 15, 2019.
As of September 30, 2019 Telesat was in compliance with the financial covenants of its senior secured credit facilities and the indenture governing the 8.875% senior notes.
Debt Service Cost
Telesat’s interest expense for the year ending December 31, 2019 is expected to be approximately CAD 205 million. The estimate includes the impact of the payment of Telesat’s 8.875% senior notes and issuance of Telesat’s 6.5% senior notes completed on October 11, 2019.
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, 2019, Telesat had three outstanding interest rate swaps which hedge the interest rate risk associated with the variable interest rate on $1.35 billion of U.S. denominated Term Loan B borrowings. These contracts, which mature between September 2020 and September 2022, are at fixed interest rates ranging from 1.84% to 2.04%, excluding applicable margin. As of September 30, 2019, the fair value of the interest rate swaps was a net liability of $7.6 million.
37
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, 2019 was $2.5 million.
Development Costs and Capital Expenditures
Telesat has entered into contracts for the development of its LEO system and capital expenditures. The outstanding commitments associated with these contracts were approximately CAD 46 million as of September 30, 2019. 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 Provided by (Used in) Operating Activities
Net cash provided by operating activities was $0.4 million for the nine months ended September 30, 2019.
Net cash used by operating activities from continuing operations was $1.4 million for the nine months ended September 30, 2019, consisting primarily of a $5.5 million cash use attributable to net income adjusted for non-cash operating items, a $0.6 million decrease in accrued employment costs and other current liabilities, a $0.4 million decrease in pension and other postretirement liabilities and a $0.3 million increase in other current assets, partially offset by a $3.0 million decrease in income tax refund receivable, primarily due to the receipt of refunds, and a $2.5 million increase in other liabilities.
Net cash provided by operating activities from discontinued operations was $1.8 million for the nine months ended September 30, 2019 attributable to a tax indemnification recovery related to the SSL Sale.
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.
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.
38
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, 2019, have concluded that our disclosure controls and procedures were not effective as a result of the material weakness in our internal control over financial reporting discussed below. |
The material weakness in internal control over financial reporting resulted from the lack of controls which allowed historical misapplication of ASC 830, Foreign Currency Matters, in accounting for our ownership interest in Telesat using the equity method of accounting as required by ASC 323, Investments – Equity Method and Joint Ventures. Specifically, we did not record our share of the cumulative translation adjustment (“CTA”) upon translation of Telesat’s equity from Canadian dollars to U.S. dollars. Previously, we translated our share of Telesat’s equity from Canadian dollars to U.S. dollars at current foreign exchange rates, whereas, it should have been translated at historical foreign exchange rates thereby generating CTA.
To remediate the material weakness described above, we have calculated and recorded the CTA from the date of the acquisition of our ownership interest in Telesat through September 30, 2019. Furthermore, we have instituted a process for calculating and recording the CTA in future periods. The material weakness will not be considered remediated until the applicable remedial controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively. We expect that the remediation of this material weakness will be completed prior to the end of year 2019.
Our president and our chief financial officer have concluded that, notwithstanding the material weakness discussed above, the condensed consolidated financial statements in in our Quarterly Report on Form 10-Q for the quarter ended September 30, 2019 present fairly, in all material respects, our financial position, results of operations and cash flows for the periods presented.
(b) |
Internal control over financial reporting. Except as noted above, 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. |
39
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, 2018 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 10.1 |
— |
|
|
|
|
Exhibit 31.1 |
— |
|
|
|
|
Exhibit 31.2 |
— |
|
|
|
|
Exhibit 32.1 |
— |
|
|
|
|
Exhibit 32.2 |
— |
|
|
|
|
Exhibit 99.1 |
— |
|
|
|
|
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 |
‡Management contract or compensatory plan, contract or arrangement with directors or named executive officers.
40
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 8, 2019 |
|
41
Exhibit 10.1
GRANT AGREEMENT
(Non-Qualified Share Options/Tandem SARs)
THIS AGREEMENT (this “Agreement”), effective as of the 18th day of March 2019 by and among Telesat Canada. (the “Company”), Michael Schwartz (the “Participant”), and for the purposes of Sections 11, 12, 13, 15, 16 and 18 only, Loral Space & Communications Inc. (“Loral”), and for the purposes of Sections 11, 12, and 13 only, the Public Sector Pension Investment Board (“PSP”), and only for the purposes of Sections 16, 17(b) and 21, 4440480 Canada Inc. (the “Special Purchaser”, collectively with the Company, the Participant, Loral and PSP, the “Parties”).
WHEREAS, the Company has adopted and maintains the Telesat 2013 Amended & Restated Management Stock Incentive Plan (the “Plan”) to promote the interests of the Company and its Affiliates and shareholders by providing the Company and its Affiliates’ key employees with an appropriate incentive to encourage them to continue in the employ of and provide services for the Company or its Affiliates and to improve the growth and profitability of the Company and its Affiliates;
WHEREAS, the Plan provides for the Grant to participants in the Plan of Non-Qualified Share Options and Tandem SARs to purchase Shares of the Company; and
WHEREAS, a Grant was awarded to the Participant.
NOW, THEREFORE, in consideration of the premises and the mutual covenants hereinafter set forth, the parties hereto agree, as follows:
1. Incorporation of Plan. All terms, conditions and restrictions of the Plan, including the Accession Agreement, and the Employment Agreement are incorporated herein and made part hereof as if stated herein and the terms hereof are incorporated in the Plan as it applies to the Participant. If there is any express conflict between the terms and conditions of the Plan and this Grant Agreement, the terms and conditions of this Agreement shall govern. All capitalized terms used and not defined herein shall have the meaning given to such terms in the Plan. |
2. Grant of Options. Pursuant to, and subject to, the terms and conditions set forth herein and in the Plan, the Company hereby grants to the Participant a NON-QUALIFIED SHARE OPTION with respect to 500,000 Shares (the “Option”). |
3. Grant of Tandem SARs. |
(a) Each Option shall be accompanied by a TANDEM SAR at the SAR Base Price (per Share). The Tandem SAR constitutes an unfunded and unsecured promise of the Company to deliver (or cause to be delivered) to the Participant a combination of Shares and cash (as determined by the Committee, in its discretion, subject to the provisions of this Section 3) at the time such Tandem SAR is exercised, equal in value to the excess, if any, of the Fair Market Value per Share over the SAR Base Price per Share of the Tandem SAR. In no event shall the amount of such excess that the Company shall deliver (or cause to be delivered) to the Participant in cash exceed the minimum mandatory statutory amount of withholding taxes due to the |
applicable Canadian federal and provincial and applicable United States federal, state and local taxing authorities with respect to the exercise of the Tandem SAR (the "Minimum Withholding Amount"). |
(b) The Participant may exercise the Tandem SAR, in whole or in part, pursuant to the terms of the Plan and the Grant Agreement provided that, if Section 3(c) below applies no less than fifteen (15) business days (and no more than thirty (30) business days) in advance of the effective date of the proposed exercise the Participant shall give the Committee written notice of his intention to exercise the Tandem SAR, in whole or in part, and the number of Shares underlying the Option involved. Upon receipt of such notice, the Committee shall promptly notify the Participant whether the Company is prohibited by applicable law or prohibited under any credit agreement (or other debt agreement) applicable to the Company from (x) permitting such exercise of the Tandem SAR, in whole or in part, or (y) from making the payment of the amounts in accordance with Section 3(c) below (an “Applicable Restriction”) at the time the Participant provides the notice of an intent to exercise. In the case of an Applicable Restriction, the Participant shall not be permitted to exercise the Tandem SAR, in whole or in part, to the extent restricted by the Applicable Restriction, but may, but shall not be obligated to, exercise all or part of the Option and utilize the Special Purchase Rights (as described in Section 17(b)) with regard to the amounts necessary to pay the Exercise Price and the Minimum Withholding Amount (provided that the Special Purchase Rights shall not be available if both (x) the Company’s public common shares are publicly traded and (y) Participant is otherwise free to sell the Shares acquired under the Option). Any exercise of all or part of the Tandem SAR or use of the Special Purchase Rights shall be accomplished within thirty (30) business days after notification by the Committee that exercise of the Tandem SAR is or is not permitted. If the exercise or utilization is to occur thereafter, a new notice of intent to exercise shall be required. |
(c) Notwithstanding Section 3(a) but subject to Section 3(b), if exercise of a Tandem SAR, in whole or in part, occurs during employment (while Cause does not exist and there is no current intent to voluntarily resign without “Good Reason” (as defined in the Participant’s Employment Agreement)) or following a Termination of Employment other than a termination for Cause or a voluntary termination without Good Reason, and is not prohibited by Section 3(b), the Minimum Withholding Amount shall be delivered in cash. The remainder of such excess shall be delivered in Shares. Fractional Shares will not be delivered and the number of Shares to be delivered upon any exercise by the Participant of the Tandem SAR, in whole or in part, granted herein shall be rounded up to the nearest whole Share and the amount of cash to be delivered to the Participant upon such exercise shall be rounded down. Until such delivery, the Participant has only the rights of a general unsecured creditor and no rights as a shareholder of the Company in respect to such Shares. |
4. Option/Tandem SAR: The Tandem SAR shall vest, become exercisable, and terminate at the same times and under the same terms as the Option granted herein. The exercise of all or part of the Option shall cause the same proportion of the Tandem SAR to automatically terminate and the exercise of all or part of the Tandem SAR shall cause the same proportion of the Option to automatically terminate. Only the Option or the Tandem SAR, and not both, may be exercised in whole or in part at any time. |
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5. Grant Date. The Grant Date of the Award hereby granted is March 18, 2019. |
6. Exercise Price. The Exercise Price of each Share underlying the Option hereby granted is CAD $25.94. |
7. Grant Term. Subject to the terms of the Plan and Section 14 hereof as to earlier termination of the exercise period of the Award, the exercise period of the Award shall expire ten (10) years from the Grant Date. |
8. Vesting. Notwithstanding Section 5 of the Plan, the Option shall become vested and exercisable as to twenty percent (20%) of the Shares underlying the Option on each of the first five (5) anniversaries of Grant Date, subject in all cases to the Participant’s continued Employment as of such anniversary as provided in the Plan, except as modified by Section 14 of this Grant Agreement. |
9. Delays or Omissions. No delay or omission to exercise any right, power or remedy accruing to any party hereto, upon any breach or default of any party under this Grant Agreement, shall impair any such right, power or remedy of such party nor shall it be construed to be a waiver of any such breach or default, or an acquiescence therein, or of or in any similar breach or default thereafter occurring, nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default theretofore or thereafter occurring. Any waiver, permit, consent or approval of any kind or character on the part of any party of any breach or default under this Grant Agreement, or any waiver on the part of any party or any provisions or conditions of this Grant Agreement, shall be in writing and shall be effective only to the extent specifically set forth in such writing. |
10. Limitation on Transfer. No Shares obtained pursuant to the exercise of the Award granted herein shall be transferred except subject to the terms set forth in Schedule A hereto. |
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the number of Equity Shares (on a fully diluted basis) as is proposed to be sold by the Selling Shareholder(s) and the denominator of which is the aggregate number of Equity Shares (on a fully diluted basis) owned as of the date of the Drag-Along Notice (as defined below) by all Relevant Shareholder(s), and (y) the number of Shares then owned by the Participant and issued upon the exercise of the Award plus the number of Shares issuable upon the exercise of the Award whether or not vested, as of the date of the Drag-Along Notice, at the purchase price and upon the other terms and subject to the conditions of the Drag-Along Sale (including the kind and amount of consideration to be paid for such Equity Shares), all of which shall be set forth in the Drag-Along Notice. To the extent that the number of Shares issued upon exercise of any vested portion of any Award that is held by the Participant is less than the number calculated pursuant to the preceding sentence, a portion of the Award not otherwise vested and exercisable shall become vested and exercisable based on the earliest thereafter vesting tranches being vested before later vesting tranches and the Participant shall be required, conditioned on the closing of the Drag-Along Sale, to exercise such portion of such Award and Transfer the resulting Shares in the manner provided in the previous sentence. The Participant shall be responsible to the Selling Shareholders for the Participant’s pro rata share of a reasonable estimate of the out-of-pocket transactional expenses to be paid by the Selling Shareholders, as determined by the Selling Shareholders, incurred in connection with the Drag-Along Sale. Without limiting the foregoing liability, the Selling Shareholders shall be entitled to agree with the purchaser for the payment of such pro rata share directly, to the Selling Shareholders out of sale proceedings. |
(b) The rights set forth in Section 11(a) shall be exercised by the Selling Shareholder giving written notice by delivery of a true and complete copy of the offer to purchase from the Drag-Along Transferee together with all relevant agreements (the “Drag-Along Notice”) to each Participant which shall specifically identify the identity of the proposed Drag-Along Transferee, the number of Equity Shares proposed to be sold to the Drag-Along Transferee, the purchase price therefor, the material terms and conditions of the proposed Drag-Along Sale and the proposed closing date of the Drag-Along Sale. |
(c) The Selling Shareholders may assign to the Drag-Along Transferee the rights under this Section 11 and Section 12 hereof, and in such event, the Drag-Along Transferee shall be treated as if it is the Selling Shareholder thereafter. |
(d) This Section 11 shall not apply to sales made in connection with an Initial Public Offering or other sales made into the public market. |
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Unanimous Shareholder Agreement, (vi) in a PSP Sell-Down (as defined in the Unanimous Shareholder Agreement) or (vii) sales aggregated with all other Transfers by Relevant Shareholders of less than 5% of Equity Shares collectively owned by all Relevant Shareholders as of the Grant Date), unless the applicable offer is in writing and provides, as a condition precedent to its completion, that the proposed purchaser grants to the Participant the right to require the proposed purchaser to purchase, at the discretion of the Participant, some or all of that proportion of the Shares owned by the Participant and issued upon exercise of the Award, plus Shares of the Participant issuable upon exercise of the Award whether or not vested, as is equal to the product of (x) the Tag-Along Percentage, and (y) the number of Shares then owned by the Participant and issued upon the exercise of the Award plus the number of Shares issuable upon the exercise of the Award whether or not vested, as of the date of the Tag-Along Notice, at a price per Share, and upon the other terms and subject to the other conditions (including kind and amount of consideration) as is set forth in the offer to the Selling Shareholder(s) (a “Tag-Along Sale”); provided, however, that (without limiting the rights of Loral or PSP under this Agreement, including, without limitation, Sections 11 and 15) the obligations of each Relevant Shareholder set forth in this Section 12(a) shall cease in the event that, subject to the prior written consent of Loral and PSP, the Participant enters into a separate agreement or arrangement with the proposed purchaser or the Company regarding the treatment of the Shares owned by the Participant and issued upon exercise of the Award in connection with any such sale (or proposed sale) by a Relevant Shareholder. The “Tag-Along Percentage“ means a fraction, the numerator of which is the number of Equity Shares as is proposed to be sold by the Relevant Shareholder(s) who are proposing such sale (for purposes of this Section 12 only, such Relevant Shareholder, a “Selling Shareholder”) and the denominator of which is the aggregate number of Equity Shares then owned by all Relevant Shareholders; provided that if the Tag-Along Sale is for all of PSP’s and its Affiliates’ Equity Shares (a “Qualifying Tag-Along Sale”) and is entered into in connection with, or contemporaneously with, a Loral Transaction (as defined herein), then the Tag-Along Percentage shall equal 100%. |
(b) Notwithstanding Section 12(a) above, in the event of a Qualifying Tag-Along Sale, with respect to the Applicable Percentage of the Participant’s Shares (whether issued or issuable upon exercise of his Award and whether vested or unvested): (i) the purchase price per Share shall be the Implicit Loral Purchase Price Per Telesat Share, and (ii) the consideration payable by the buyer in the Qualifying Tag-Along Sale shall, except as otherwise consented to by Loral and the Participant, be the same Non-Cash/Mixed Consideration as is paid to the holders of Loral Common Stock in the Loral Transaction; provided that the consent of the Participant shall not be required where some or all of the Non-Cash/Mixed Consideration is replaced with cash consideration. “Applicable Percentage” means the number of Equity Shares owned by Loral immediately prior to the Qualifying Tag-Along Sale, divided by the number of Equity Shares outstanding immediately prior to the Qualifying Tag-Along Sale excluding Equity Shares issued or issuable upon the exercise of any Award, such result expressed as a percentage. “Implicit Loral Purchase Price Per Telesat Share” means the Loral Stake FMV divided by the number of Equity Shares owned by Loral immediately prior to the transaction with respect to which the calculation is being made. In addition, if the Participant fails to exercise his tag along rights in the event of a Qualifying Tag-Along Sale, Loral shall have a Loral Call as provided in Section 15(f) and the Relevant Shareholders (as applicable) shall have drag-along rights as provided in Section 11. |
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(c) The Selling Shareholder(s) shall give notice of any proposed sale to the Participant (the “Tag-Along Notice”) and shall permit the Participant to have not less than 20 days to accept such offer in a manner which permits the Participant to specify the number of Shares which the Participant wishes to sell. To the extent necessary in order to effect the Tag-Along Sale (and only to such extent), and conditional upon the closing of the Tag-Along Sale, any portion of the Award of the Participant not vested and exercisable shall become vested and exercisable to the extent that the Shares issuable upon such exercise may be included in the Tag-Along Sale based on the earliest unvested tranches vesting first. The completion of the sale of such Shares by the Participant shall be subject to completion of the sale of Equity Shares by the Selling Shareholder(s) and vice versa. If the Participant exercises tag-along rights pursuant to this Section 12, the Participant shall be responsible to the Selling Shareholders for his pro rata share of a reasonable estimate of the transactional expenses of the Selling Shareholders, as determined by the Selling Shareholders, in connection with the Tag-Along Sale, and the Selling Shareholders shall be entitled to agree with the purchaser for the payment of such pro rata share of the reasonable estimate of the transactional expenses, as determined by the Selling Shareholders, to the Selling Shareholders. |
(d) If any transfer of Equity Shares to a Permitted Transferee or Affiliate is exempt from this Section 12, as set forth above, as a condition of such Transfer, the transferee shall agree that any subsequent Transfer of such Equity Shares shall be subject to this Section 12. |
(e) In the case of any initial public offering in which a Selling Shareholder transfers its Equity Shares, Participant shall be entitled to the vesting acceleration described in this Section 12 as though such transfer were subject to this Section 12, with regard to the unvested Awards necessary to be vested and exercised to sell the Shares in the initial public offering pursuant to item (iv) of Schedule A and Participant shall have no rights to tag along on any public offering under this Section 12 (but shall have the rights under item (iv) of Schedule A). |
13. Sale Procedures |
(a) In connection with any Drag-Along Sale, or any Tag-Along Sale which the Participant agrees to accept, all Participants shall be obligated, if applicable and if permitted by law, to vote (or consent in writing, as the case may be, in respect of) all Shares held by them in favour of any Drag-Along Sale or Tag-Along Sale being effected by merger, amalgamation, consolidation, plan of arrangement, share sale, asset sale or other type of business combination requiring shareholder approval and the Participant shall in all other respects support the transaction contemplated by the Drag-Along Sale or Tag-Along Sale and shall be obligated to take all reasonable actions and to reasonably cooperate in the consummation of the transaction contemplated thereby and shall execute all documents, including a sale, purchase, amalgamation, reorganization or merger agreement, reasonably requested by the Selling Shareholder(s) containing the terms and conditions of the Drag-Along Sale or Tag-Along Sale; provided, however, that such terms and conditions shall include the following: (i) any representations and warranties from the Participants shall be on a several and not joint basis; and (ii) the maximum liability of each Participant (other than for fraud or intentional misrepresentation as to ownership or the existence of a lien) under such Drag-Along Sale or Tag-Along Sale transaction shall be limited to the purchase price received by such Participant. |
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(b) No Participant shall exercise any rights of appraisal or dissent rights that such Participant may have (whether under applicable law or otherwise) or could potentially have or acquire in connection with any Drag-Along Sale or Tag-Along Sale or any proposal that is necessary or desirable to consummate the Drag-Along Sale or Tag-Along Sale. |
(c) All Transfers of Shares, including Shares issuable upon exercise of the Award to the Drag-Along Transferee pursuant to Section 11 or the Tag-Along Transferee pursuant to Section 12, shall be consummated contemporaneously on the closing date specified in the Drag-Along Notice or offer of Tag-Along Sale and, if any Participant shall not have taken such steps as are necessary to Transfer Shares and/or exercise the Award to be exercised as provided above in Section 11, in order for the Shares to be so Transferred, such Participant shall be deemed to have appointed each Selling Shareholder as his true and lawful attorney in fact to take all such actions and to sign all such documents as are necessary or, in the reasonable view of the Selling Shareholder, desirable in order to effect such Transfer. In such event, the Selling Shareholder shall hold the purchase price for such Shares in trust for the Participant, pending acknowledgement in writing of the Transfer by the Participant. |
14. Revised Vesting and Exercise Time Period. |
(a) The Award will vest, in full, immediately prior to either a Change of Control or a Loral Only Change of Control (as defined in Section 15). |
(b) Instead of the provisions set forth in Section 5.4.2 of the Plan, the following provisions will apply: |
(i) (A) upon termination of the Participant’s employment by the Participant without Good Reason at any time (x) before March 18, 2021, (y) between March 19, 2021 and March 18, 2022, if Daniel Goldberg ceases to be employed by the Company for any reason within six (6) months prior to such termination or (z) if Cause exists at the time of such termination or (B) upon termination of the Participant’s employment by the Company for Cause at any time, the Award, whether vested and exercisable on or prior to the date of such termination, or not, shall immediately as of such date of termination be forfeited. |
(ii) upon termination of the Participant’s Employment by the Company at any time without Cause, or by the Participant for Good Reason, the portion of the Award that would have become vested in the one-year period immediately following the date of termination shall immediately become vested and exercisable, in full, and shall continue to be exercisable for a period of 180 days following such date, and thereafter shall be forfeited. |
(iii) if the Participant’s Employment terminates as a result of death or Disability of the Participant, the portion of the Award that would vest within one year of the date of termination of employment shall immediately vest. |
(iv) in the event of the death or Disability Termination of the Participant, the vested portion of the Award shall continue to be exercisable for a |
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period of one year from the Participant’s termination of employment as a result of death or Disability, and thereafter shall be forfeited. |
(v) upon termination of the Participant’s Employment by the Participant without Good Reason at any time on or after March 18, 2021 (except as provided in Section 14(b)(i)(A)(y) or (z)), the vested portion of the Award shall be exercisable for a period of 90 days following such date, and thereafter shall be forfeited. |
(c) The provisions of Section 14(b) above shall be subject to Section 5.8.2 of the Plan as to termination of exercise periods to the extent not based on termination of Employment. |
15. Loral Transaction. |
(a) Loral Only Change of Control Defined. A “Loral Only Change of Control” shall have occurred when both (i) the holders of 90% or more of the shares of each class of common stock (the “Common Stock”) of Loral outstanding at the relevant time, sell, transfer, exchange or otherwise dispose of such shares pursuant to a transaction or series of related transactions as a result of which any person or group (as such terms are defined in Section 13(d) or Section 14(d) of the Securities Exchange Act of 1934 (the “Exchange Act”) or any successor provision to either of the foregoing) of persons (the “Acquiror”), acquires and becomes the beneficial owner (as the term “beneficial owner” is defined under Rule 13d-3 or any successor rule or regulation promulgated under the Exchange Act) directly or indirectly, of 90% or more of each class of Common Stock; provided that such Acquiror is not and does not include, or act in concert with, the MHR Fund (as defined in the Unanimous Shareholders Agreement) (a “Loral Transaction”); and (ii) a Qualifying Tag-Along Sale is not entered into in connection with or contemporaneous with, the Loral Transaction. |
(b) Initial Public Offering. If the Company completes an Initial Public Offering, then, from and after the later of a Loral Only Change of Control or the Initial Public Offering, the Sell Down Percentage shall be deemed to be the greater of 64% or as calculated pursuant to Schedule A. In addition, following the completion of an Initial Public Offering, the following provisions of this Agreement shall be inapplicable: the proviso in the last sentence of Section 12(a), Section 12(b), and Sections 15(c), (d) and (e). |
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overcome or have waived a Loral Notification Restriction it shall deliver the Loral Notification as soon as reasonably practicable after such Loral Notification Restriction no longer restricts Loral from providing the Loral Notification. If there shall be a material change in the Loral Only Change of Control Consideration (a “Material Change”) from that set forth in the Loral Notification, Loral shall promptly give Participant notice of such change and give him an opportunity to confirm or revoke his LCC Put Notice (such notification being deemed to be a new Loral Notification and the date set forth therein for confirmation or revocation of Participant’s LCC Put Notice, the new and applicable date contained in the Loral Notification (which date shall not be less than seven (7) days following the earlier of (i) the date of the new Loral Notification and (ii) public disclosure of such change)). In addition, as soon as reasonably practicable following such time as Loral enters into an agreement or arrangement that would reasonably be expected to result in a Loral Transaction that is not a Loral Only Change of Control, Loral shall inform the Participant of the existence of such Loral Transaction and a description of the consideration to be received by Loral shareholders holding Common Stock in such Loral Transaction. |
(d) LCC Put Right. Upon a Loral Only Change of Control, Participant shall have the right (the “LCC Put Right”) exercised by providing written notice (the “LCC Put Notice”) to the Company, Loral and PSP, delivered within the timeframes set forth in Section 15(c), to require that the Company cause the Special Purchaser to purchase (pursuant to Section 17(b)) from Participant up to a number of shares equal to the product of the Total Shares and the Loral Ownership Percent (which number of shares shall be the “LCC Put Shares” and shall be specified in the LCC Put Notice) for cash in an amount per Share equal to the Implicit Loral Purchase Price per Telesat Share (the “Cash Consideration”). “Total Shares” are the Shares owned by the Participant and issued upon exercise of the Award, plus Shares of the Participant issuable upon exercise of the Award whether or not vested. The “Loral Ownership Percent” shall be a fraction the numerator of which is the number of Equity Shares owned by Loral and its Affiliates as of the date immediately preceding the Loral Only Change of Control and the denominator of which is the aggregate number of all Equity Shares as of such date excluding Equity Shares issued or issuable upon the exercise of any Award. Participant’s LCC Put Right shall expire unless Participant shall have delivered an LCC Put Notice in accordance with the provisions of this Section 15. Upon the expiration of Participant’s LCC Put Right, neither the Company, the Special Purchaser, Loral nor PSP shall have any further obligation to affect the purchase or Exchange of the LCC Put Shares. Participant acknowledges and agrees that because of the nature of these matters and the transactions any LCC Put Notice shall be, subject to the penultimate sentence of Section 15(c), irrevocable and binding on the part of Participant. |
(e) Company Put Restriction. Should the Company and/or the Special Purchaser be prohibited by applicable law or prohibited under any credit agreement (or other debt agreement) applicable to the Company from effecting the purchase pursuant to Sections 15(d) and 17(b) (a “Company Put Restriction”) (provided that a credit or other debt agreement shall not be considered to create a Company Put Restriction if the payment of the Cash Consideration can be effected by application of any provision, election or “basket” available under the agreement, in which case the Company shall be required to cause the Special Purchaser to effect the purchase of the LCC Put Shares to the extent permitted under such agreement), then the Company shall notify Loral, PSP and the Participant in writing (a “Company Restriction Notice”) and shall not be obligated to cause the Special Purchaser to purchase the LCC Put Shares to the extent prohibited |
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by the Company Put Restriction. The Company shall use commercially reasonable efforts to overcome (or obtain a waiver of) any Company Put Restriction and shall send a subsequent written notice (the “Company Restriction Elimination Notice”) to Loral and PSP and, unless a Loral Call or Shareholder Backstop with respect to all of the LCC Put Shares shall have previously closed, the Participant, promptly after the Company determines that the Company Put Restriction no longer applies. In such event, Participant shall once again have the right, within seven (7) days from the date of the Company Restriction Elimination Notice to exercise the LCC Put Right by delivering a new LCC Put Notice for the LCC Put Shares, less the Shares, if any, acquired by Loral pursuant to the Loral Call, in which event the LCC Put Right shall be effected subject to and in accordance with the provisions of this Section 15 (provided that if the Implicit Loral Purchase Price per Telesat Share has already been determined in response to Participant’s original LCC Put Notice and there has not been a subsequent Material Change, such determination shall remain valid and the Implicit Loral Purchase Price per Telesat Share will not be determined again in response to any subsequent LCC Put Notice given pursuant to this sentence). In the event of a Company Put Restriction or a default by the Special Purchaser in purchasing the LCC Put Shares upon exercise of the LCC Put Right, then Loral shall purchase all of the LCC Put Shares; provided, however, that PSP shall have the right, but not the obligation, exercisable upon written notice to Loral and the Participant not more than five (5) days after PSP’s receipt of the Company Restriction Notice, to purchase a percentage of the LCC Put Shares determined by dividing the number of Equity Shares owned by PSP immediately prior to the Loral Only Change of Control by the total number of Equity Shares owned collectively by Loral and PSP at such time, in which case upon any such exercise by PSP the number of LCC Put Shares to be purchased by Loral shall be reduced accordingly (any such purchase of LCC Put Shares by Loral and/or PSP, a “Shareholder Backstop”). The consideration paid to the Participant by Loral upon a Shareholder Backstop shall at the election of Loral, be either (i) Cash Consideration or (ii) if in connection with the Loral Only Change of Control the holders of Loral Common Stock receive consideration for their shares in a form other than solely cash (“Non-Cash/Mixed Consideration”), the Non-Cash/Mixed Consideration (to the extent the Non-Cash/Mixed Consideration consists of more than one type of consideration (e.g. cash and notes), the consideration paid to the Participant shall be the same types of consideration in the same proportion as received by the holders of Loral Common Stock); provided that Loral may, at its option, deliver cash to the Participant in place of some or all of the Non-Cash/Mixed Consideration. The consideration paid to the Participant by PSP in the event that it elects to participate in a Shareholder Backstop shall be in the form of cash. Notwithstanding anything to the contrary contained in this Section 15(e), the obligation of Loral to effect a Shareholder Backstop, and PSP’s right to effect a Shareholder Backstop, shall cease in the event that, subject to the prior written consent of Loral and PSP, the Participant enters into a separate agreement or arrangement with the purchaser under a Loral Only Change of Control or the Company regarding the treatment of the LCC Put Shares owned by the Participant and issued upon exercise of the Award in connection with any such Loral Only Change of Control. |
(f) Exercise of the Loral Call. Loral shall have the right to purchase from the Participant some or all of that number of Shares equal to the product of the Total Shares and the Loral Ownership Percent upon either (i) a Loral Only Change of Control, and whether or not Participant exercises his LLC Put Right pursuant to this Section 15, or (ii) a Qualifying Tag-Along Sale in which the Participant does not exercise his tag-along rights pursuant to Section 12 in full (the “Loral Call”). The Loral Call is exercisable: (i) in the case of a Loral Only Change of Control, by written notice delivered to the Participant and PSP not more than seven (7) days after |
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the last day by which the Participant may exercise the LCC Put under Section 15(d) or (e) above or the Loral Restriction Elimination Call under Section 15(h), and (ii) in the case of a Qualifying Tag-Along Sale, by written notice delivered to the Participant and PSP not more than seven (7) days after the last day by which the Participant may exercise his tag along rights with respect to the Qualifying Tag-Along Sale (the last day on which the written notice may be delivered being, the “Call Notice Deadline”). Loral may at its election, assign some or all of the Loral Call to the Company. In the event that Loral exercises a Loral Call, PSP shall have the right, exercisable at PSP’s written election delivered to Loral and the Participant not more than five (5) days after PSP’s receipt of Loral’s notice pursuant to the immediately preceding sentence, to purchase from the Participant a percentage of the Shares that are subject to the Loral Call determined by dividing the number of Equity Shares owned by PSP immediately prior to the Loral Only Change of Control or Qualifying Tag-Along Sale (as the case may be) pursuant to which the Loral Call shall have been exercised by the total number of Equity Shares owned collectively by Loral and PSP at such time, which Shares shall be purchased by PSP upon the same terms and conditions as the Loral Call, except that the consideration paid by PSP for such Shares shall be in cash. To the extent that a Loral Call closes, the Company shall be discharged from satisfying the LCC Put Right in respect of the Shares subject to the Loral Call. |
(g) Closing of the Loral Call. Upon closing of the Loral Call, Loral shall exchange (x) Exchange Consideration (as defined below) equal to the Implicit Loral Purchase Price Per Telesat Share multiplied by the number of Shares subject to the Loral Call, for (y) the number of Shares subject to the Loral Call. The “Exchange Consideration” shall, at the election of Loral, be either (i) Cash Consideration or (ii) if in connection with the Loral Only Change of Control the holders of Loral Common Stock received Non-Cash/Mixed Consideration, the Non-Cash/Mixed Consideration (to the extent the Non-Cash/Mixed Consideration consists of more than one type of consideration (e.g. cash and notes), the consideration paid to the Participant shall be the same types of consideration in the same proportion as received by the holders of Loral Common Stock); provided that Loral may, at its option, deliver cash to the Participant in place of some or all of the Non-Cash/Mixed Consideration. |
(h) Loral Call Restriction. Should Loral be prohibited by applicable law or prohibited under any agreement (including any credit or other debt agreement) applicable to Loral from paying the Exchange Consideration or acquiring the LCC Put Shares (a “Loral Call Restriction”) (provided that a credit or other debt agreement shall not be considered to create a Loral Call Restriction if the payment of the Exchange Consideration can be effected by application of any provision, election or “basket” available under the agreement, in which case Loral shall be required to effect the exchange of the LCC Put Shares to the extent permitted under such agreement), then Loral shall notify Participant in writing (a “Loral Restriction Notice”) and Loral shall not be obligated to exchange the number of Shares subject to the Loral Call or the Shareholder Backstop to the extent prohibited by the Loral Call Restriction. Until such time, if any, as the LCC Put Right is closed, Loral shall use commercially reasonable efforts to overcome (or obtain a waiver of) any Loral Call Restriction and shall send a subsequent written notice (the “Loral Restriction Elimination Notice”) to the Participant, promptly after Loral determines that the Loral Call Restriction no longer applies. In the case of a Shareholder Backstop, Participant shall then have the right, within seven (7) days from the date of the Loral Restriction Elimination Notice to require Loral to purchase its pro rata share of the LCC Put Shares by delivering a written notice therefor to Loral (the “Loral Restriction Elimination Call”). Upon receipt of any such |
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notice, Loral shall close the Loral Call or its portion of the Shareholder Backstop, as applicable, subject to and in accordance with the provisions of this Section 15 (provided that if Implicit Loral Purchase Price per Telesat Share has already been determined in response to Participant’s original LCC Put Notice and there has not been a subsequent Material Change, such determination shall remain valid and the Implicit Loral Purchase Price per Telesat Share will not be determined again). |
(i) Closing. The closing of the purchase of the LCC Put Shares, Shareholder Backstop or the Loral Call, as applicable, shall occur as close to contemporaneously with the Loral Only Change of Control as is reasonably practicable. In the case of the Loral Call, Participant shall be deemed to have appointed Loral as his true and lawful attorney in fact to take all such actions and to sign all such documents as are necessary or, in the reasonable view of Loral, desirable in order to effect the closing of the Loral Call, in which case, Loral shall hold the purchase price for such Shares in trust for the Participant, pending acknowledgement in writing of the exchange by the Participant. |
(j) Reservation of Rights; Confidentiality. Participant acknowledges and agrees that neither the provision of the Loral Notification nor any communications related thereto between Loral and Participant, nor Participant’s delivery of an Exchange Notice in response to the Loral Notification, may affect the right of Loral or the holders of its Common Stock to subsequently determine not to pursue or enter into any agreement or arrangement relating to a Loral Only Change of Control on any terms, or to change the Loral Only Change of Control Consideration. Participant further agrees that Participant (i) will keep the Loral Notification and the matters stated therein or related thereto strictly confidential and not disclose them to any third party, and (ii) upon request from Loral, enter into a customary confidentiality agreement with Loral relating to any information provided in the Loral Notification or otherwise provided by Loral that is related thereto. |
16. Special Exercise and Repurchase. In the event that the Participant’s employment terminates, other than for Cause or voluntarily without Good Reason, at a time when the Company’s common equity securities are not publicly-traded, if the Participant notifies the Company and Loral of his intent to exercise the Tandem SAR at a specific date fifteen (15) to thirty (30) business days after such notice of intent to exercise (with such exercise date being while the Tandem SAR is still exercisable) and the estimated amount of Canadian and United States taxes (with an estimated calculation) that would be due upon such exercise is greater than the Minimum Withholding Amount, the Committee shall promptly notify the Participant of its calculation of the Fair Market Value of the underlying Shares and the number of Shares (the “Gap Shares”) that would be necessary to be purchased by the Company or its Affiliate to enable a Participant to pay additional taxes due in addition to the Minimum Withholding Amount, assuming the date of the giving of the notice was the exercise date (the amount of additional taxes being the “Gap Taxes” and the additional Options that would be need to be exercised to obtain the Gap Shares being the “Gap Taxes Options”). The exercise period on the Gap Taxes Options shall be automatically extended until the earliest of (w) the end of the exercise period for the Option without regard to the termination of employment, (x) sixty (60) days after Special Purchaser or Loral notifies the Participant that it will purchase the underlying Shares of the Gap Taxes Option from the Participant on the date that is six (6) months and one (1) day after the exercise of the Tandem SAR with regard to the Gap Taxes Option (and provides a Confirmation (as defined |
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below) (y) nine (9) months after the Company’s common equity securities are publicly-traded, and (z) the Participant’s commencement of employment with a Competitor; provided that the foregoing extension shall not apply if, upon receipt of the notice of intent to exercise from the Participant, either (i) the Company confirms in writing (a “Company Confirmation”) that it will have the ability (without creating a default) under its credit agreement (or other debt agreements) to have the Gap Shares purchased (and the subsequent steps taken) through the Special Purchase Right (as described below in Section 17(b)) six (6) months and one (1) day after the date of the exercise or (ii) if it is then a shareholder of the Company, Loral confirms in writing (a “Loral Confirmation” together with a Company Confirmation, a “Confirmation” ) that, if the Gap Shares cannot be timely purchased through the Special Purchase Right (as described below in Section 17(b)), it will purchase the Gap Shares six (6) months and one (1) day after the exercise without violating Canadian or other applicable laws regarding its securities ownership of the Company and compliance with other relevant legal requirements or its credit agreements (or other debt agreements). Any Confirmation shall only be effective if delivered by the Company or Loral to the Participant at least five (5) days prior to the proposed exercise date. If a Confirmation is so delivered, the Gap Shares shall be purchased six (6) months and one (1) day after the exercise pursuant to the Special Purchase Right (as described below in Section 17(b)) or by Loral, as the case may be; provided that the Special Purchaser shall not be required to effect such purchase if, as a result of a change in circumstances beyond the reasonable control of the Company, the Special Purchaser is prohibited from making such purchase (or subsequent steps specified in Section 17(b) hereof) by applicable law or such purchase (or subsequent steps) would create a default under a credit agreement (or other debt agreements) of the Special Purchaser or the Company (and Loral shall instead make such purchase, unless Loral is similarly prohibited or would have such a default and was also prohibited or would have had such a default at the time the Confirmation was delivered). If neither Loral nor the Special Purchaser completes the purchase of the GAP Shares as a result of such a prohibition, then the Special Purchaser shall be required to repurchase the GAP Shares as provided above as soon as such restrictions have lapsed (and the Special Purchaser shall provide written notice to the Participant promptly upon such lapse). |
17. Restriction on Call Rights and Purchase. |
(a) Notwithstanding Section 5.9.3 of the Plan, the call rights of the Company as set out in Section 5.9.3 of the Plan generally shall not apply if the Participant is terminated by the Company without Cause or the Participant’s Employment is terminated by the Participant for Good Reason; provided, that (a) such call rights shall fully apply to Shares that have become issuable upon the exercise of the portion of the Award which has vested and become exercisable solely as a consequence of such termination of employment (on the terms specified in Section 5.9.3 of the Plan) and (b) such call rights may be exercised in respect of any Shares held by the Participant during the six-month and one day period commencing on the later of: (i) the date the Board, acting in good faith, becomes aware that the Participant has become employed by, or is otherwise providing services to, a Competitor (as defined in Schedule “A” hereto) with the date of such determination by the Board being treated under Section 5.9.3 of the Plan as if it was the date of termination of employment (in such case, the call right may be exercised at the Fair Market Value of the Shares on the date of exercise) or (ii) the exercise date of the Award. Notwithstanding Section 5.9.3 of the Plan, in the event that the Participant’s employment terminates, other than for Cause or voluntarily without Good Reason, the Company may not satisfy the purchase price under the call rights by issuing a promissory note to Participant. |
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Notwithstanding anything to the contrary in the Plan, any reference to “Grant Date” in Section 5.9.3 of the Plan shall be deemed to refer to “March 18, 2019.” In the event the Participant voluntarily terminates employment between March 19, 2021 and March 18, 2022 and if Daniel Goldberg ceased to be employed by the Company for any reason within six (6) months prior to such termination, the provisions of Section 5.9.3 of the Plan shall apply as if the termination was prior to March 19, 2021 Upon exercise of the Company of its call right, such call right shall immediately be deemed to have been assigned to, and exercised by, the Special Purchaser (as described in Section 17(b)). |
(b) In the event that (i) the Gap Tax Shares are purchased by the Special Purchaser, or (ii) the Committee delivers to the Participant a notice that the Company is subject to an Applicable Restriction, but the Company gives the Participant written confirmation that the purchase by the Special Purchaser of the Shares represented by the Tandem SAR is permitted, and does not create a default under its or the Company’s credit agreement (or other debt agreements), or (iii) the call right of the Company is available pursuant to Section 17(a) and the Company exercises such right pursuant to Section 5.9.3 of the Plan, or (iv) Shares are to be purchased pursuant to Section 15(d), the Special Purchaser shall purchase from the Participant all Shares issuable upon exercise of the Gap Tax Option, or all of the Shares represented by that portion of the Tandem SAR which cannot be exercised pursuant to Section 3(b), or all Shares in respect of which such call rights have been exercised pursuant to Section 5.9.3 of the Plan, or all of the Shares to be purchased as provided in Section 15(d), as the case may be, on the date set out for such purchase in Section 16, or as provided in Section 3(b), or as provided in Section 5.9.3 of the Plan, or as provided in Section 15(d), as the case may be, and for the purchase price therein provided. On such date, the Shares shall be purchased by the Special Purchaser, and shall thereafter be transferred, along with the obligation of the Special Purchaser to pay for the Shares, to a subsidiary of the Special Purchaser, which shall be wound up into the Company. The Company agrees to the acquisition of such subsidiary by the Company from the Special Purchaser for nominal consideration and to the winding up of such subsidiary into the Company. The purchase price for the Shares shall be paid by the Company within ten (10) business days after completion of the winding-up of such subsidiary into the Company, which shall occur promptly after exercising the call right. |
18. Fair Market Value. |
(a) For purposes of this Agreement, “Fair Market Value” means (a) with respect to Equity Shares, Fair Market Value as defined in the Plan, and for any purposes, including for any call and for purposes of Section 3, Section 12 and Section 15, shall be determined without any discount for minority interest or illiquidity, (b) with respect to any other asset means the amount for which a willing buyer and willing seller would purchase and sell the asset in an efficient market, and (c) with respect to any liability means the amount which a willing creditor would accept to discharge such liability and which a willing debtor would pay to discharge such liability in an efficient market. |
(b) The “Loral Stake FMV” means: (i) the Fair Market Value of the total consideration that is to be paid to the holders of Loral equity in the Loral Transaction, plus (ii) the Fair Market Value immediately prior to closing on the date of the closing of a Loral Transaction of any indebtedness of Loral incurred to fund cash distributions to the holders of Loral |
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equity, less (iii) the amount, if any, by which the Fair Market Value of Loral’s assets (excluding the Equity Shares) exceeds the Fair Market Value of Loral’s liabilities (other than liabilities included in clause (ii) above). Loral shall cooperate with the Board in its determination of Fair Market Value for purposes of Sections 12, 15 and 18. |
(c) If the Participant or Loral (with respect to Fair Market Determinations for the purposes of Section 12, 15 and/or 18) does not agree with the Fair Market Value as determined by the Board pursuant to the Plan and this Section 18, the Participant or Loral, as the case may be (the “Objector”) shall notify the Board in writing of such objection within fifteen (15) days of receipt of written notice of such Fair Market Value, and shall provide to the Board his own determination of Fair Market Value in writing no later than thirty (30) days of such receipt. The Board shall submit the determinations of Fair Market Value to an investment banker or valuation service agreed upon in good faith by the Board, Loral and the Participant (an “Appraiser”) to choose one of the determinations as the most appropriate valuation of the Fair Market Value of the Shares. All fees of the Appraiser shall be paid (a) by the Company if the Appraiser chooses an Objector’s determination of Fair Market Value, and (b) by the Objector if the Appraiser chooses the Board’s determination of Fair Market Value. For the avoidance of doubt, the provisions of this paragraph (c) shall also apply to the determination of the Loral Stake FMV. |
19. Dividends. In the event that the Company pays a dividend to the holders of its Equity Shares, the Board will provide for the crediting of a notional account established on the books and records of the Company (the “Notional Account”) for the Participant (but such Notional Account shall not be established and the Participant shall have no rights hereunder to the extent it would not be permitted under Section 409A of the Code) an amount equal to (a) the per-share dividend payable to holders of its Equity Shares multiplied by (b) the number of Shares subject to the Award on the payment date; provided, that, notwithstanding the foregoing, the Participant may elect, upon notice of an impending dividend, and in lieu of some or all of the amount credited to the Notional Account, to have the Board adjust in its good faith determination the (i) Exercise Price with respect to the Option, (ii) the SAR Base Price with respect to the Tandem SAR, and/or (iii) the number of Shares subject to the Award, or to have the Board otherwise substitute such Award, in any case so as to prevent dilution or enlargement of rights, and provided that such adjustment or substitution, and any election to adjust or substitute, is done in accordance with and only to the extent permitted by the provisions of (1) Sections 409A and 424 of the Code, to the extent the Participant is subject to taxation in the U.S., and/or (2) Sections 7(1.4) or proposed Sections 110(1.7) and (1.8), to the extent such Sections become effective and apply to any such adjustment or substitution, of the Income Tax Act (Canada), to the extent the Participant is subject to taxation in Canada. Amounts credited to the Participant’s Notional Account will be distributed at the time of vesting of the Award. On the date and to the extent a portion of the Award is forfeited, a Participant will forfeit any amounts remaining in his Notional Account and which are attributable to such forfeited portion of the Award. |
20. Share Repurchasing. In the event the Company repurchases or offers to repurchase its Shares from both Loral or PSP or their respective Affiliates, or their respective permitted transferees, on a substantially pro rata basis, the Company shall also offer to repurchase Shares from Participant on the same basis to the extent such offer is legally permitted. Such pro rata portion shall be based on all Shares issued to Participant and all Awards outstanding that |
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were granted to Participant, whether vested or unvested. Participant shall accept such offer within ten (10) business days of its being made or shall be deemed to have rejected such offer and, if accepted, the sale and purchase shall close at the same time as the closing of the stock purchase from Loral and PSP or their respective Affiliates. To the extent necessary to permit the sale, additional Awards shall vest in order of the next vesting tranches. |
21. Taxes and Withholding. No later than the date of exercise of the Award granted hereunder, the Participant shall pay to the Company or make arrangements satisfactory to the Board regarding payment of any Canadian federal, provincial, and local taxes, and any U.S. taxes applicable to the Participant, of any kind required by law to be withheld upon the exercise of such Award. In the event the Participant exercises the Tandem SAR, then the Participant shall satisfy the Minimum Withholding Amount due upon exercise of the Tandem SAR by having the Company remit to the appropriate taxing authority the cash to which the Participant is entitled upon exercise of the Tandem SAR pursuant to Section 3 above. Notwithstanding the foregoing, the Company shall, to the extent permitted or required by law, have the right to deduct from any payment of any kind otherwise due to the Participant any Canadian federal, provincial, and local taxes and any applicable U.S. taxes of any kind required by law to be withheld upon the exercise of such Award. |
22. Integration. This Grant Agreement, and the other documents referred to herein or delivered pursuant hereto which form a part hereof, including the Employment Agreement, contain the entire understanding of the parties with respect to its subject matter. There are no restrictions, agreements, promises, representations, warranties, covenants or undertakings with respect to the subject matter hereof other than those expressly set forth in this Grant Agreement, in the Employment Agreement and in the Plan. This Grant Agreement, the Employment Agreement and the Plan, supersede all prior agreements and understandings between the parties with respect to its subject matter. |
23. Counterparts. This Grant Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same instrument. |
24. Governing Law. This Grant Agreement shall be governed by and construed and enforced in accordance with the laws of the Province of Ontario, Canada without regard to the provisions governing conflict of laws. |
25. Participant Acknowledgment. The Participant hereby acknowledges receipt of a copy of the Plan, including the Accession Agreement attached thereto as Exhibit A. The Participant hereby acknowledges that all reasonable decisions, determinations and interpretations of the Board in respect of the Plan, this Grant Agreement and the Award shall be final and conclusive. The Participant further acknowledges that, prior to the existence of a Public Market, no exercise of the Award or any portion thereof shall be effective unless and until the Participant has executed an Accession Agreement and the Participant hereby agrees to be bound thereby. The Participant acknowledges that, among other provisions, the Plan contains a “call-right” and agrees that such “call-right” may be exercised by the Company or its designee (with the Company having the right to enforce the right of the designee). |
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26. Limitation on Liability. The Participant acknowledges that only the Special Purchaser, its subsidiary to which the Share and the obligations to pay for the Shares are transferred and the Company shall be liable or responsible to the Participant in respect of the purchase of the Shares under the provisions of this Agreement related to actions of the Company, the Special Purchaser and its subsidiary, and no direct or indirect shareholder of the Special Purchaser or any director or officer of the Special Purchaser or such subsidiary shall be liable with respect thereof (except as expressly provided hereunder). |
IN WITNESS WHEREOF, the Company, the Participant, Loral, and PSP have each caused this Grant Agreement to be duly executed by its duly authorized officer and said Participant has hereunto signed this Grant Agreement on his own behalf, thereby representing that he has carefully read and understands this Grant Agreement, the Plan and the Accession Agreement as of the day and year first written above.
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Telesat Canada |
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Date: August 2, 2019 |
By: |
/s/ Chris DiFrancesco |
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Loral Space & Communications Inc. |
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Date: November 7, 2019 |
By: |
/s/ Avi Katz |
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Public Sector Pension Investment Board |
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Date: October 3, 2019 |
By: |
/s/ Guthrie Stewart |
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Date: October 3, 2019 |
By: |
/s/ David Morin |
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4440480 Canada Inc. |
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Date: November 7, 2019 |
By: |
/s/ Avi Katz |
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Date: August 6, 2019 |
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/s/ Michael Schwartz |
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Michael Schwartz |
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SCHEDULE “A”
TO THE GRANT AGREEMENT
The Participant may not transfer any Shares or other securities received upon the exercise of the Award, or Shares resulting from the conversion of the Shares into other Equity Shares, or any interest therein, (in this Schedule A, “Shares”) to any person except as permitted herein:
(i) |
The Participant may transfer Shares to a Permitted Transferee as defined in Section 5.5 of the Plan (with the prior consent of the Board, which consent may be withheld in the Board’s sole discretion), or to a Canadian immigration trust, subject to compliance with the conditions precedent set out in Section 5.6 of the Plan, modified as need be to contemplate a transfer of Shares, instead of a transfer of an Award; |
(ii) |
Prior to the completion by the Company of an Initial Public Offering for Equity Shares of the Company, there shall be no transfer of Shares except as provided in (i) above, or as otherwise expressly provided in the Grant Agreement. |
(iii) |
After the completion of an Initial Public Offering for Equity Shares of the Company, the Participant shall be entitled to sell without restriction the Selldown Percentage of Shares acquired by the Participant upon exercise of the Award (and Shares subject to the Award which have vested). The “Selldown Percentage” shall equal (a) the percentage of all Equity Shares as shall have been sold by PSP or Loral (and their Permitted Transferees as defined in the Accession Agreement) in the Initial Public Offering or after the Initial Public Offering (other than sales to PSP, Loral or a Permitted Transferee as defined in the Accession Agreement) relative to the number of Equity Shares held by PSP and Loral immediately prior to the Initial Public Offering or (b) 100% if PSP, Loral and their Permitted Transferees (as defined in the Accession Agreement) cease to hold at least 70% of all Equity Shares following the Initial Public Offering. |
(iv) |
The Participant shall be entitled to participate in any public offering of Common Shares of the Company including an initial public offering in the manner provided in Sections 6.03 and 6.04 of the Unanimous Shareholders Agreement, but with the status only of “Included Holder” as defined in Section 6.03, provided that in no event shall the number of shares subject to such participation exceed the Selldown Percentage. |
(v) |
References on this Schedule to PSP or Loral shall also include their respective subsidiaries owning Equity Shares. |
(vi) |
Definitions: |
“Competitor” is any corporation, firm, partnership, proprietorship or other entity which engages in the Satellite Business (as defined below) in any of the same countries, states, provinces or other political subdivisions of countries in which the Company or its
Subsidiaries are engaged in the Satellite Business as of the date of Participant’s termination of employment and is a material competitor of the Company (or its Subsidiaries) in such countries, states, provinces or other political subdivisions of countries with respect to a material amount of Satellite Business of the Company and its Subsidiaries (what is material being determined based on the 5-year business plan in effect for the Company and its Subsidiaries as of the date of Participant’s termination of employment).
“Satellite Business” shall mean the business of communication of electronic video, data, voice or other information by transmission by satellite operating in the Fixed Satellite Service frequencies for hire in any of the geographic areas in which the Company or its Subsidiaries operate such Fixed Satellite Service frequencies as of the date of Participant’s termination of employment.
Schedule A – Page 2
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.
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/S/ AVI KATZ |
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Avi Katz |
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President, General Counsel & Secretary |
November 8, 2019
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.
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/S/ JOHN CAPOGROSSI |
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John Capogrossi |
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Vice President, Chief Financial Officer and Treasurer |
November 8, 2019
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, 2019 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.
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/S/ AVI KATZ |
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Avi Katz |
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President, General Counsel & Secretary |
November 8, 2019
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, 2019 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.
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/S/ JOHN CAPOGROSSI |
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John Capogrossi |
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Vice President, Chief Financial Officer and Treasurer |
November 8, 2019
Basis of Presentation (Policy) |
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Basis of Presentation [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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. 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 acquired by Telesat in 2007 is proportionately eliminated in determining our share of the net income 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 Space Systems/Loral, LLC (formerly known as Space Systems/Loral, Inc.) (“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, 2019 and December 31, 2018. 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, 2019, the Company had $257.3 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, 2019 and December 31, 2018, other current assets and other assets, respectively, included restricted cash of $0.3 million, which represents the amount pledged as collateral to the issuer of a standby letter of credit (the “LC”). The LC, which currently expires in August 2020, 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 statements 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, 2019 and December 31, 2018, 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, 2019 and December 31, 2018.
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 refunds and 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 each period any additional U.S. current and deferred tax required on actual or deemed distributions from Telesat, including Global Intangible Low Taxed Income (“GILTI”). 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. Previously recognized tax positions are derecognized in the first period in which it is no longer more likely than not that the 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 unconverted restricted stock units. For diluted earnings per share, earnings are adjusted for the dilutive effect of Telesat stock options.
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Condensed Consolidated Statements of Shareholders' Equity - USD ($) shares in Thousands, $ in Thousands |
Voting Common Stock [Member]
Common Stock [Member]
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Non-Voting Common Stock [Member]
Common Stock [Member]
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Paid-In Capital [Member] |
Treasury Stock [Member] |
Accumulated Deficit [Member] |
Accumulated Other Comprehensive Loss [Member] |
Total |
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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) | 4,741 | ||||||
Other comprehensive income (loss) | 7,772 | ||||||
Comprehensive income (loss) | 12,513 | ||||||
Cumulative effect adjustment attributable to investment in Telesat | (22,107) | (22,107) | |||||
Balance at Jun. 30, 2018 | $ 216 | $ 95 | 1,019,988 | $ (9,592) | (700,197) | (29,506) | 281,004 |
Balance, shares at Jun. 30, 2018 | 21,582 | 9,506 | 154 | ||||
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 | ||||||
Other comprehensive income (loss) | 2,362 | ||||||
Comprehensive income (loss) | 53,297 | ||||||
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 | ||||
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 | ||||
Other comprehensive income (loss) | 23,831 | ||||||
Balance at Dec. 31, 2018 | $ 216 | $ 95 | 1,019,988 | $ (9,592) | (695,521) | (17,620) | 297,566 |
Balance, shares at Dec. 31, 2018 | 21,582 | 9,506 | 154 | ||||
Balance at Jun. 30, 2018 | $ 216 | $ 95 | 1,019,988 | $ (9,592) | (700,197) | (29,506) | 281,004 |
Balance, shares at Jun. 30, 2018 | 21,582 | 9,506 | 154 | ||||
Net income (loss) | 46,194 | 46,194 | |||||
Other comprehensive income (loss) | (5,410) | (5,410) | |||||
Comprehensive income (loss) | 40,784 | ||||||
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 | ||||
Net income (loss) | (41,321) | ||||||
Other comprehensive income (loss) | 21,469 | ||||||
Comprehensive income (loss) | (19,852) | ||||||
Tax Cuts and Jobs Act, reclassification tax effect | 4,173 | (4,173) | |||||
Cumulative effect adjustment attributable to investment in Telesat | (4,370) | (4,370) | |||||
Balance at Dec. 31, 2018 | $ 216 | $ 95 | 1,019,988 | $ (9,592) | (695,521) | (17,620) | 297,566 |
Balance, shares at Dec. 31, 2018 | 21,582 | 9,506 | 154 | ||||
Net income (loss) | 76,743 | ||||||
Other comprehensive income (loss) | (13,052) | ||||||
Comprehensive income (loss) | 63,691 | ||||||
Balance at Jun. 30, 2019 | $ 216 | $ 95 | 1,019,988 | $ (9,592) | (618,778) | (30,672) | 361,257 |
Balance, shares at Jun. 30, 2019 | 21,582 | 9,506 | 154 | ||||
Balance at Dec. 31, 2018 | $ 216 | $ 95 | 1,019,988 | $ (9,592) | (695,521) | (17,620) | 297,566 |
Balance, shares at Dec. 31, 2018 | 21,582 | 9,506 | 154 | ||||
Net income (loss) | 82,990 | ||||||
Other comprehensive income (loss) | (29,313) | (29,313) | |||||
Comprehensive income (loss) | 53,677 | ||||||
Balance at Sep. 30, 2019 | $ 216 | $ 95 | 1,019,988 | $ (9,592) | (612,531) | (46,933) | 351,243 |
Balance, shares at Sep. 30, 2019 | 21,582 | 9,506 | 154 | ||||
Balance at Jun. 30, 2019 | $ 216 | $ 95 | 1,019,988 | $ (9,592) | (618,778) | (30,672) | 361,257 |
Balance, shares at Jun. 30, 2019 | 21,582 | 9,506 | 154 | ||||
Net income (loss) | 6,247 | 6,247 | |||||
Other comprehensive income (loss) | (16,261) | (16,261) | |||||
Comprehensive income (loss) | (10,014) | ||||||
Balance at Sep. 30, 2019 | $ 216 | $ 95 | $ 1,019,988 | $ (9,592) | $ (612,531) | $ (46,933) | $ 351,243 |
Balance, shares at Sep. 30, 2019 | 21,582 | 9,506 | 154 |
Document and Entity Information - shares |
9 Months Ended | |
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Sep. 30, 2019 |
Nov. 04, 2019 |
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Entity Information [Line Items] | ||
Document Type | 10-Q | |
Amendment Flag | false | |
Document Period End Date | Sep. 30, 2019 | |
Document Fiscal Year Focus | 2019 | |
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 | Accelerated Filer | |
Entity Current Reporting Status | Yes | |
Entity Interactive Data Current | Yes | |
Entity Small Business | true | |
Entity Emerging Growth Company | false | |
Entity Shell Company | false | |
Title of 12(b) Security | Voting Common Stock | |
Security Exchange Name | NASDAQ | |
Voting Common Stock [Member] | ||
Entity Information [Line Items] | ||
Entity Common Stock, Shares Outstanding | 21,427,078 | |
Non-Voting Common Stock [Member] | ||
Entity Information [Line Items] | ||
Entity Common Stock, Shares Outstanding | 9,505,673 |
Investments in Affiliates (Tables) |
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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] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Summary Financial Data, Equity Method Investment |
The following table presents summary financial data for Telesat in accordance with U.S. GAAP as of September 30, 2019 and December 31, 2018 and for the three and nine months ended September 30, 2019 and 2018 (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 (loss) income and related tax effects are as follows (in thousands):
(a)Reclassifications are included in other expense. |
Earnings Per Share (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2019 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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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Income Taxes (Summary of Changes to Company's Liabilities For UTPs) (Details) $ in Thousands |
9 Months Ended |
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Sep. 30, 2019
USD ($)
| |
Income Taxes [Abstract] | |
Opening balance - January 1 | $ 13,315 |
Increase to unrecognized tax benefits | 1,348 |
Current provision for potential additional interest | 1,140 |
Ending balance | $ 15,803 |
Other Current Liabilities (Schedule of Other Current Liabilities) (Details) - USD ($) $ in Thousands |
Sep. 30, 2019 |
Dec. 31, 2018 |
---|---|---|
Other Current Liabilities [Abstract] | ||
Operating lease liability, current | $ 513 | |
Operating Lease, Liability, Statement of Financial Position [Extensible List] | Liabilities Current | |
Due to affiliate | $ 9 | $ 164 |
Accrued professional fees | 1,142 | 1,206 |
Pension and other postretirement liabilities | 69 | 69 |
Accrued liabilities | 58 | 56 |
Other current liabilities, total | $ 1,791 | $ 1,495 |
Earnings Per Share (Narrative) (Details) - Telesat Canada [Member] |
9 Months Ended |
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Sep. 30, 2019 | |
Economic interest in affiliate | 62.70% |
Percentage of economic interest as result of dilution upon exercise of stock options | 62.30% |
Financial Instruments, Derivative Instruments and Hedging (Details) - USD ($) $ in Millions |
Sep. 30, 2019 |
Dec. 31, 2018 |
---|---|---|
Financial Instruments, Derivative Instruments and Hedging [Abstract] | ||
Derivative instruments | $ 0 | $ 0 |
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, 2019 and 2018, 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, 2019 and 2018, this amount is then reduced by the tax recorded for the six months ended June 30, 2019 and 2018. The current income tax provision for each period includes our anticipated income tax liability related to GILTI from Telesat and our provision for UTPs. The deferred income tax benefit (provision) for each period includes the impact of equity in net income of affiliates from our condensed consolidated statement of operations and the periodic effect of our accounting for GILTI.
Subsequent to the sale of SSL to MDA Communications Holdings, Inc., a subsidiary of Maxar Technologies Ltd. (formerly known as 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.
The following summarizes amounts for UTPs included in our income tax provision (in thousands):
As of September 30, 2019, we had unrecognized tax benefits relating to UTPs of $43 million. The Company recognizes interest and penalties related to income taxes in income tax expense on a quarterly basis. As of September 30, 2019, we have accrued no penalties and approximately $1.6 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 2014. 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. Pursuant to the purchase agreement for the SSL Sale, we are obligated to indemnify SSL for certain 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 sheet (in thousands):
As of September 30, 2019, if our positions are sustained by the taxing authorities, the Company’s income tax provision would be reduced by approximately $7.0 million. Other than as described above, there were no significant changes to our UTPs during the nine months ended September 30, 2019 and 2018, and we do not anticipate any other significant changes to our unrecognized tax benefits during the next twelve months. |
Pensions and Other Employee Benefit Plans |
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Pensions and Other Employee Benefit Plans [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Pensions and Other Employee Benefit Plans | 11. Pensions and Other Employee Benefit Plans The following tables provide the components of net periodic cost for our qualified retirement plan (the “Pension Benefits”) and health care and life insurance benefits for retired employees and dependents (the “Other Benefits”) for the three and nine months ended September 30, 2019 and 2018 (in thousands):
(1)Included in general and administrative expenses. (2)Included in other expense.
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Basis of Presentation (Reconciliation of Cash, Cash Equivalents and Restricted Cash) (Details) - USD ($) $ in Thousands |
Sep. 30, 2019 |
Dec. 31, 2018 |
Sep. 30, 2018 |
Dec. 31, 2017 |
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Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents [Abstract] | ||||
Cash and cash equivalents | $ 257,319 | $ 256,947 | $ 248,904 | |
Restricted cash included in other current assets | 304 | 304 | ||
Restricted cash | 304 | |||
Cash, cash equivalents and restricted cash shown in the statement of cash flows | $ 257,623 | $ 257,251 | $ 249,208 | $ 255,443 |
Pensions and Other Employee Benefit Plans (Tables) |
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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, 2019 and 2018 (in thousands):
(1)Included in general and administrative expenses. (2)Included in other expense.
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Commitments and Contingencies (Schedule of Future Minimum Payments) (Details) $ in Thousands |
Sep. 30, 2019
USD ($)
|
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Stock-Based Compensation [Abstract] | |
Operating lease liability, current, 2019 | $ 168 |
Future interest, 2019 | 7 |
Future Lease payments, 2019 | 175 |
Operating lease liability, current, 2020 | 345 |
Future interest, 2020 | 5 |
Future Lease payments, 2020 | 350 |
Operating lease liability, current, Total | $ 513 |
Operating Lease, Liability, Statement of Financial Position [Extensible List] | Liabilities Current |
Future interest, Total | $ 12 |
Future Lease payments, Total | $ 525 |
Stock-Based Compensation (Narrative) (Details) |
9 Months Ended |
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Sep. 30, 2019
shares
| |
Stock-Based Compensation [Abstract] | |
Unconverted restricted stock units | 75,262 |
Pensions and Other Employee Benefits Plans (Components of Net Periodic Cost) (Details) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | |||||||
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Sep. 30, 2019 |
Sep. 30, 2018 |
Sep. 30, 2019 |
Sep. 30, 2018 |
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Pension Benefits [Member] | |||||||||
Defined Benefit Plan Disclosure [Line Items] | |||||||||
Service cost | [1] | $ 180 | $ 179 | $ 541 | $ 536 | ||||
Interest cost | [2] | 504 | 464 | 1,513 | 1,391 | ||||
Expected return on plan assets | [2] | (608) | (657) | (1,824) | (1,971) | ||||
Amortization of net actuarial loss (gain) | [2] | 252 | 260 | 755 | 780 | ||||
Net periodic cost | 328 | 246 | 985 | 736 | |||||
Other Benefits [Member] | |||||||||
Defined Benefit Plan Disclosure [Line Items] | |||||||||
Service cost | [1] | 1 | 1 | 1 | 1 | ||||
Interest cost | [2] | 4 | 4 | 14 | 12 | ||||
Amortization of net actuarial loss (gain) | [2] | (1) | (3) | ||||||
Amortization of prior service cost (credit) | [2] | 5 | 17 | ||||||
Net periodic cost | $ 4 | $ 10 | $ 12 | $ 30 | |||||
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Other Current Liabilities |
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Sep. 30, 2019 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other Current Liabilities [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other Current Liabilities | 6. Other Current Liabilities Other current liabilities consists of (in thousands):
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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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Basis of Presentation (Assets and Liabilities Measured at Fair Value) (Details) - USD ($) $ in Thousands |
Sep. 30, 2019 |
Dec. 31, 2018 |
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Assets, Fair Value | ||
Indemnification - Sale of SSL | $ 598 | $ 2,410 |
Money Market Funds [Member] | Level 1 [Member] | ||
Assets, Fair Value | ||
Cash equivalents | 255,185 | 254,552 |
Money Market Funds [Member] | Level 2 [Member] | ||
Assets, Fair Value | ||
Cash equivalents | ||
Sale of SSL, Nov. 02, 2012 [Member] | Level 2 [Member] | ||
Assets, Fair Value | ||
Indemnification - Sale of SSL | ||
Sale of SSL, Nov. 02, 2012 [Member] | Level 3 [Member] | ||
Assets, Fair Value | ||
Indemnification - Sale of SSL | 598 | 2,410 |
Globalstar do Brasil S.A. [Member] | Level 3 [Member] | ||
Liabilities, Fair Value | ||
Indemnification - Globalstar do Brasil S.A. | $ 159 | $ 184 |
Commitments and Contingencies (Tables) |
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Operating Leases Expense Net of Sublease Income | Lease costs expensed for the three and nine months ended September 30, 2019 and 2018 were as follows (in thousands):
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Reconciliation of the Lease Liability to Future Lease Payments |
The following is a reconciliation of the lease liability to future lease payments as of September 30, 2019 (in thousands):
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Other Current Assets (Schedule of Other Current Assets) (Details) - USD ($) $ in Thousands |
Sep. 30, 2019 |
Dec. 31, 2018 |
Sep. 30, 2018 |
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Other Current Assets [Abstract] | |||
Restricted Cash (see Note 2) | $ 304 | $ 304 | |
Restricted Cash, Current, Asset, Statement of Financial Position [Extensible List] | Assets Current | ||
Indemnification receivable from SSL for pre-closing taxes (see note 13) | $ 598 | $ 2,410 | |
Due from affiliates | 229 | 161 | |
Prepaid expenses | 489 | 151 | |
Other | 450 | 510 | |
Total other current assets | $ 2,070 | $ 3,232 |
Basis of Presentation |
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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, 2019 are not necessarily indicative of the results to be expected for the full year.
The December 31, 2018 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.
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. 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 acquired by Telesat in 2007 is proportionately eliminated in determining our share of the net income 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 Space Systems/Loral, LLC (formerly known as Space Systems/Loral, Inc.) (“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, 2019 and December 31, 2018. 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, 2019, the Company had $257.3 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, 2019 and December 31, 2018, other current assets and other assets, respectively, included restricted cash of $0.3 million, which represents the amount pledged as collateral to the issuer of a standby letter of credit (the “LC”). The LC, which currently expires in August 2020, 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 statements 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, 2019 and December 31, 2018, 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, 2019 and December 31, 2018.
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 refunds and 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 each period any additional U.S. current and deferred tax required on actual or deemed distributions from Telesat, including Global Intangible Low Taxed Income (“GILTI”). 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. Previously recognized tax positions are derecognized in the first period in which it is no longer more likely than not that the 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 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. 2018-13, 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 2016, the FASB amended the Accounting Standards Codification (“ASC”) by creating ASC Topic 842, Leases (“ASC 842”). 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 was effective for the Company on January 1, 2019. We adopted ASC 842 in the first quarter of 2019 utilizing the modified retrospective method with a practical expedient through a cumulative-effect adjustment at the beginning of the first quarter of 2019. As a result, on January 1, 2019, we recognized a right-of-use asset and lease liability for an operating lease of approximately $0.3 million on our condensed consolidated balance sheet.
Additional Cash Flow Information
The following represents non-cash activities and supplemental information to the condensed consolidated statements of cash flows (in thousands):
|
Other Liabilities (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2019 | |||||||||||||||||||||||||||||||||||||
Other Liabilities [Abstract] | |||||||||||||||||||||||||||||||||||||
Schedule of Long Term Liabilities | Other liabilities consists of (in thousands):
|
Related Party Transactions |
9 Months Ended |
---|---|
Sep. 30, 2019 | |
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, 2019 and December 31, 2018, 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, 2019 and 2018 and $3.8 million for each of the nine-month periods ended September 30, 2019 and 2018. For each of the nine-month periods ended September 30, 2019 and 2018, 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 stock option grant agreements (the “Stock Option Grant Agreements”) and a restricted stock unit grant agreement (the “RSU Grant Agreement,” and, together with the Stock Option Grant Agreements, the “Grant Agreements”) with respect to shares in Telesat 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.
On November 7, 2019, Loral, Telesat, PSP and the Special Purchaser entered into a Stock Option Grant Agreement with Telesat executive, Michael C. Schwartz, which documents a grant previously made and approved in March 2019.
The Stock Option Grant Agreements document grants to the Participants of Telesat stock options (including tandem SAR rights) 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 Stock Option 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 RSU Grant Agreement documents a grant to the Participant of restricted stock units with respect to shares in Telesat and provides for certain rights, obligations and restrictions related to such restricted stock units, which include, among other things: (x) 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 RSU Grant Agreement; and (y) 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 the termination of the Participant’s employment.
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.
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. The amount due to Loral primarily due to the management agreement was $6.8 million and $6.7 million as of September 30, 2019 and December 31, 2018, respectively. 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, 2019 and 2018, and we had an allowance of $6.6 million against receivables from XTAR as of September 30, 2019 and December 31, 2018. 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, 2019 and 2018, Mr. Targoff earned consulting fees of $360,000 and $1,080,000, respectively, and reimbursed Loral net expenses of $11,250 and $33,750, respectively. |
Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income - USD ($) shares in Thousands, $ in Thousands |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2019 |
Sep. 30, 2018 |
Sep. 30, 2019 |
Sep. 30, 2018 |
|
Consolidated Statements of Operations [Abstract] | ||||
General and administrative expenses | $ (1,615) | $ (1,715) | $ (5,115) | $ (5,109) |
Operating income (loss) | (1,615) | (1,715) | (5,115) | (5,109) |
Interest and investment income | 1,406 | 1,263 | 4,574 | 3,340 |
Interest expense | (5) | (6) | (15) | (17) |
Other expense | (1,048) | (1,749) | (3,019) | (2,937) |
Income (loss) from continuing operations before income taxes and equity in net income (loss) of affiliates | (1,262) | (2,207) | (3,575) | (4,723) |
Income tax (provision) benefit | (1,275) | (6,669) | (5,501) | (1,014) |
Income (loss) from continuing operations before equity in net income (loss) of affiliates | (2,537) | (8,876) | (9,076) | (5,737) |
Equity in net income (loss) of affiliates | 8,784 | 55,095 | 92,066 | 56,734 |
Income (loss) from continuing operations | 6,247 | 46,219 | 82,990 | 50,997 |
Income (loss) from discontinued operations, net of tax | (25) | (62) | ||
Net income (loss) | 6,247 | 46,194 | 82,990 | 50,935 |
Other comprehensive (loss) income, net of tax | (16,261) | (5,410) | (29,313) | 2,362 |
Comprehensive income (loss) | $ (10,014) | $ 40,784 | $ 53,677 | $ 53,297 |
Basic | ||||
Income (loss) from continuing operations | $ 0.20 | $ 1.49 | $ 2.68 | $ 1.65 |
Income (loss) from discontinued operations, net of tax | ||||
Net income (loss) per share | 0.20 | 1.49 | 2.68 | 1.65 |
Diluted | ||||
Income (loss) from continuing operations | 0.20 | 1.48 | 2.66 | 1.63 |
Income (loss) from discontinued operations, net of tax | ||||
Net income (loss) per share | $ 0.20 | $ 1.48 | $ 2.66 | $ 1.63 |
Weighted average common shares outstanding: | ||||
Basic | 30,933 | 30,933 | 30,933 | 30,933 |
Diluted | 31,008 | 31,008 | 31,008 | 31,008 |
Other Current Assets (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2019 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other Current Assets [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Other Current Assets | Other current assets consists of (in thousands):
|
Income Taxes (Narrative) (Details) $ in Thousands |
Sep. 30, 2019
USD ($)
|
---|---|
Income Taxes [Abstract] | |
Unrecognized tax benefits | $ 43,000 |
Accrued tax penalties | 0 |
Unrecognized tax benefits, interest on income taxes accrued | 1,600 |
Unrecognized tax benefits that would reduce the income tax provision | $ 7,000 |
Investments in Affiliates (Investments in Affiliates) (Details) - USD ($) $ in Thousands |
Sep. 30, 2019 |
Dec. 31, 2018 |
---|---|---|
Schedule of Equity Method Investments [Line Items] | ||
Investments in affiliates | $ 86,725 | $ 24,574 |
Telesat Canada [Member] | ||
Schedule of Equity Method Investments [Line Items] | ||
Investments in affiliates | $ 86,725 | $ 24,574 |
Other Liabilities (Schedule of Long Term Liabilities) (Details) - USD ($) $ in Thousands |
Sep. 30, 2019 |
Dec. 31, 2018 |
---|---|---|
Other Liabilities [Abstract] | ||
Indemnification liabilities (see Note 13) | $ 159 | $ 184 |
Liabilities for uncertain tax positions | 15,803 | 13,315 |
Long-term liabilities | $ 15,962 | $ 13,499 |
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, 2019 |
Sep. 30, 2018 |
Sep. 30, 2019 |
Sep. 30, 2018 |
|
Earnings Per Share [Abstract] | ||||
Income from continuing operations — basic | $ 6,247 | $ 46,219 | $ 82,990 | $ 50,997 |
Less: Adjustment for dilutive effect of Telesat stock options | (51) | (340) | (535) | (350) |
Income from continuing operations — diluted | $ 6,196 | $ 45,879 | $ 82,455 | $ 50,647 |
Commitments and Contingencies (Narrative) (Details) - USD ($) $ in Thousands |
6 Months Ended | 9 Months Ended | 12 Months Ended | |
---|---|---|---|---|
Sep. 30, 2019 |
Sep. 30, 2019 |
Dec. 31, 2018 |
Jan. 01, 2019 |
|
Contingencies And Commitments [Line Items] | ||||
Operating lease liability | $ 300 | |||
Right-of-use asset | $ 501 | $ 501 | $ 300 | |
Sublease income | 0 | $ 0 | ||
Operating lease payments | $ 500 | |||
Operating lease, term of contract | 9 months | 9 months | ||
Operating lease, discount rate | 7.50% | 7.50% | ||
Sale of SSL, Nov. 02, 2012 [Member] | Pre Closing Taxes Indemnification [Member] | ||||
Contingencies And Commitments [Line Items] | ||||
Indemnification refund receivable | $ 600 | $ 600 | 2,400 | |
Indemnification refund received | 1,800 | |||
Globalstar do Brasil S.A. [Member] | ||||
Contingencies And Commitments [Line Items] | ||||
Loss contingency accrual | $ 200 | $ 200 | $ 200 |
Accumulated Other Comprehensive Income (Loss) (Components of Accumulated Other Comprehensive Loss) (Details) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | 9 Months Ended | 12 Months Ended | ||||
---|---|---|---|---|---|---|---|---|
Sep. 30, 2019 |
Dec. 31, 2018 |
Sep. 30, 2018 |
Jun. 30, 2019 |
Jun. 30, 2018 |
Sep. 30, 2019 |
Sep. 30, 2018 |
Dec. 31, 2018 |
|
Accumulated Other Comprehensive Income (Loss) [Line Items] | ||||||||
Accumulated other comprehensive income (loss), beginning balance | $ (17,620) | $ (17,620) | ||||||
Other comprehensive income (loss), Net-of-tax Amount | $ (16,261) | $ (5,410) | (29,313) | $ 2,362 | ||||
Accumulated other comprehensive income (loss), ending balance | (46,933) | $ (17,620) | (46,933) | $ (17,620) | ||||
Postretirement Benefits [Member] | ||||||||
Accumulated Other Comprehensive Income (Loss) [Line Items] | ||||||||
Accumulated other comprehensive income (loss), beginning balance | (14,656) | $ (16,454) | (14,656) | (16,454) | (16,454) | |||
Other comprehensive income (loss) before reclassification | 953 | |||||||
Amounts reclassified from accumulated other comprehensive income (loss) | 594 | 845 | ||||||
Other comprehensive income (loss), Net-of-tax Amount | 594 | 1,798 | ||||||
Accumulated other comprehensive income (loss), ending balance | (14,062) | (14,656) | (14,062) | (14,656) | ||||
Proportionate Share of Telesat Other Comprehensive Loss [Member] | ||||||||
Accumulated Other Comprehensive Income (Loss) [Line Items] | ||||||||
Accumulated other comprehensive income (loss), beginning balance | (2,964) | (20,824) | (2,964) | (20,824) | (20,824) | |||
Other comprehensive income (loss) before reclassification | (7,857) | 22,033 | ||||||
Amounts reclassified from accumulated other comprehensive income (loss) | ||||||||
Other comprehensive income (loss), Net-of-tax Amount | (29,907) | 22,033 | ||||||
Tax Cuts and Jobs Act, reclassification of tax effect from accumulated other comprehensive loss to accumulated deficit | (4,173) | |||||||
Accumulated other comprehensive income (loss), ending balance | (32,871) | (2,964) | (32,871) | (2,964) | ||||
Proportionate Share of Telesat Other Comprehensive Loss [Member] | Restatement Adjustment [Member] | ||||||||
Accumulated Other Comprehensive Income (Loss) [Line Items] | ||||||||
Other comprehensive income (loss) before reclassification | (22,050) | |||||||
Accumulated Other Comprehensive Loss [Member] | ||||||||
Accumulated Other Comprehensive Income (Loss) [Line Items] | ||||||||
Accumulated other comprehensive income (loss), beginning balance | (17,620) | (37,278) | (17,620) | $ (37,278) | (37,278) | |||
Other comprehensive income (loss) before reclassification | (7,857) | 22,986 | ||||||
Amounts reclassified from accumulated other comprehensive income (loss) | 594 | 845 | ||||||
Other comprehensive income (loss), Net-of-tax Amount | (16,261) | 21,469 | $ (5,410) | $ (13,052) | $ 7,772 | (29,313) | 23,831 | |
Tax Cuts and Jobs Act, reclassification of tax effect from accumulated other comprehensive loss to accumulated deficit | (4,173) | |||||||
Accumulated other comprehensive income (loss), ending balance | $ (46,933) | $ (17,620) | (46,933) | $ (17,620) | ||||
Accumulated Other Comprehensive Loss [Member] | Restatement Adjustment [Member] | ||||||||
Accumulated Other Comprehensive Income (Loss) [Line Items] | ||||||||
Other comprehensive income (loss) before reclassification | $ (22,050) |
Basis of Presentation (Narrative) (Details) - USD ($) $ in Thousands |
Sep. 30, 2019 |
Jan. 01, 2019 |
Dec. 31, 2018 |
Sep. 30, 2018 |
---|---|---|---|---|
Basis of Presentation [Line Items] | ||||
Cash and cash equivalents | $ 257,319 | $ 256,947 | $ 248,904 | |
Restricted Cash, Current | 304 | $ 304 | ||
Restricted cash | 304 | |||
Investments in affiliates, guarantee or other funding obligations | 0 | $ 0 | ||
Operating lease liability | $ 300 | |||
Right-of-use asset | $ 501 | 300 | ||
Accounting Standards Update 2016-02 [Member] | Restatement Adjustment [Member] | ||||
Basis of Presentation [Line Items] | ||||
Operating lease liability | 300 | |||
Right-of-use asset | $ 300 |
Other Current Assets |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2019 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other Current Assets [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other Current Assets | 4. Other Current Assets Other current assets consists of (in thousands):
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Other Liabilities |
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Sep. 30, 2019 | |||||||||||||||||||||||||||||||||||||
Other Liabilities [Abstract] | |||||||||||||||||||||||||||||||||||||
Other Liabilities | 8. Other Liabilities Other liabilities consists of (in thousands):
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Financial Instruments, Derivative Instruments and Hedging |
9 Months Ended |
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Sep. 30, 2019 | |
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, 2019 and December 31, 2018. |
Basis of Presentation (Tables) |
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Sep. 30, 2019 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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 statements of cash flows (in thousands):
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Assets and Liabilities Measured at Fair Value on Recurring and Non-Recurring basis | 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):
|
Condensed Consolidated Statements of Cash Flows - USD ($) $ in Thousands |
9 Months Ended | |
---|---|---|
Sep. 30, 2019 |
Sep. 30, 2018 |
|
Operating activities: | ||
Net income (loss) | $ 82,990 | $ 50,935 |
(Income) Loss from discontinued operations, net of tax | 62 | |
Adjustments to reconcile net income to net cash provided by (used in) operating activities: | ||
Non-cash operating items (Note 2) | (88,491) | (57,158) |
Changes in operating assets and liabilities: | ||
Other current assets | (347) | (377) |
Accrued employment costs and other current liabilities | (645) | 576 |
Income tax refund receivable | 2,965 | 287 |
Pension and other postretirement liabilities | (375) | (2,396) |
Other liabilities | 2,463 | 1,915 |
Net cash provided by (used in) operating activities – continuing operations | (1,440) | (6,156) |
Net cash provided by (used in) operating activities – discontinued operations | 1,812 | (79) |
Net cash provided by (used in) operating activities | 372 | (6,235) |
Cash, cash equivalents and restricted cash (Note 2) - period increase (decrease) | 372 | (6,235) |
Cash, cash equivalents and restricted cash (Note 2) - beginning of period | 257,251 | 255,443 |
Cash, cash equivalents and restricted cash - end of period | $ 257,623 | $ 249,208 |
Condensed Consolidated Balance Sheets - USD ($) $ in Thousands |
Sep. 30, 2019 |
Dec. 31, 2018 |
---|---|---|
Current assets: | ||
Cash and cash equivalents | $ 257,319 | $ 256,947 |
Income tax refund receivable | 938 | 3,903 |
Other current assets | 2,070 | 3,232 |
Total current assets | 260,327 | 264,082 |
Right-of-use asset | 501 | |
Income tax refund receivable, non-current | 774 | 774 |
Investments in affiliates | 86,725 | 24,574 |
Deferred tax assets | 37,568 | 40,520 |
Other assets | 38 | 350 |
Total assets | 385,933 | 330,300 |
Current liabilities: | ||
Accrued employment costs | 2,145 | 2,573 |
Other current liabilities | 1,791 | 1,495 |
Total current liabilities | 3,936 | 4,068 |
Pension and other postretirement liabilities | 14,792 | 15,167 |
Other liabilities | 15,962 | 13,499 |
Total liabilities | 34,690 | 32,734 |
Commitments and contingencies | ||
Shareholders' Equity: | ||
Preferred stock, 0.01 par value; 10,000,000 shares authorized, no shares issued and outstanding | ||
Common Stock: | ||
Paid-in capital | 1,019,988 | 1,019,988 |
Accumulated deficit | (612,531) | (695,521) |
Accumulated other comprehensive loss | (46,933) | (17,620) |
Total shareholders' equity | 351,243 | 297,566 |
Total liabilities and shareholders' equity | 385,933 | 330,300 |
Voting Common Stock [Member] | ||
Common Stock: | ||
Common stock, 0.01 par value | 216 | 216 |
Treasury stock (at cost), 154,494 shares of voting common stock | (9,592) | (9,592) |
Non-Voting Common Stock [Member] | ||
Common Stock: | ||
Common stock, 0.01 par value | $ 95 | $ 95 |
Other Current Liabilities (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2019 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other Current Liabilities [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Other Current Liabilities | Other current liabilities consists of (in thousands):
|
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