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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2020

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from___________ to _____________

Commission File Number 1-14180

Loral Space & Communications Inc.

(Exact name of registrant as specified in its charter)

Delaware

87-0748324

(State or other jurisdiction of incorporation)

(I.R.S. Employer Identification No.)

600 Fifth Avenue, New York, New York

10020

(Address of principal executive offices)

(Zip Code)

(212) 697-1105

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol

Name of each exchange on which registered

Voting Common stock, $.01 par value

LORL

Nasdaq Global Select Market

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 

As of November 3, 2020, 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.

Table of Contents

LORAL SPACE & COMMUNICATIONS INC.

INDEX TO QUARTERLY REPORT ON FORM 10-Q

For the quarterly period ended September 30, 2020

PART I — FINANCIAL INFORMATION

Item 1: Financial Statements (Unaudited)

Page No.

Condensed Consolidated Balance Sheets as of September 30, 2020 and December 31, 2019

3

Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the three and nine months ended September 30, 2020 and September 30, 2019

4

Condensed Consolidated Statements of Shareholders’ Equity for the three and nine months ended September 30, 2020 and September 30, 2019

5

Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2020 and September 30, 2019

6

Notes to Condensed Consolidated Financial Statements

7

Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations

24

Item 4: Disclosure Controls and Procedures

39

PART II — OTHER INFORMATION

Item 1: Legal Proceedings

40

Item 1A: Risk Factors

40

Item 6: Exhibits

42

Signatures

43

2

Table of Contents

PART I

FINANCIAL INFORMATION

Item 1. Financial Statements

LORAL SPACE & COMMUNICATIONS INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

(Unaudited)

September 30,

December 31,

2020

2019

ASSETS

Current assets:

Cash and cash equivalents

$

83,386

$

259,067

Income tax refund receivable

1,235

576

Other current assets

1,470

1,322

Total current assets

86,091

260,965

Right-of-use asset

508

988

Income tax refund receivable, non-current

387

Investments in affiliates

105,402

90,184

Deferred tax assets

37,994

37,945

Other assets

34

341

Total assets

$

230,029

$

390,810

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:

Accrued employment costs

$

2,361

$

2,611

Other current liabilities

2,204

2,883

Total current liabilities

4,565

5,494

Pension and other post-retirement liabilities

15,614

17,447

Other liabilities

19,667

17,842

Total liabilities

39,846

40,783

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

(772,501)

(605,766)

Accumulated other comprehensive loss

(48,023)

(54,914)

Total shareholders' equity

190,183

350,027

Total liabilities and shareholders' equity

$

230,029

$

390,810

See notes to condensed consolidated financial statements

3

Table of Contents

LORAL SPACE & COMMUNICATIONS INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

(In thousands, except per share amounts)

(Unaudited)

Three Months Ended

Nine Months Ended

September 30,

September 30,

2020

2019

2020

2019

General and administrative expenses

$

(1,725)

$

(1,615)

$

(5,174)

$

(5,115)

Recovery of affiliate doubtful receivable

5,854

5,854

Operating income (loss)

4,129

(1,615)

680

(5,115)

Interest and investment income

16

1,406

1,045

4,574

Interest expense

(9)

(5)

(20)

(15)

Other expense

(2,300)

(1,048)

(6,440)

(3,019)

Income (loss) before income taxes and equity in net income of affiliates

1,836

(1,262)

(4,735)

(3,575)

Income tax provision

(309)

(1,275)

(956)

(5,501)

Income (loss) before equity in net income of affiliates

1,527

(2,537)

(5,691)

(9,076)

Equity in net income of affiliates

49,645

8,784

9,086

92,066

Net income

51,172

6,247

3,395

82,990

Other comprehensive (loss) income, net of tax

(7,220)

(16,261)

6,891

(29,313)

Comprehensive income (loss)

$

43,952

$

(10,014)

$

10,286

$

53,677

Net income per share:

Basic

$

1.65

$

0.20

$

0.11

$

2.68

Diluted

$

1.64

$

0.20

$

0.11

$

2.66

Weighted average common shares outstanding:

Basic

30,933

30,933

30,933

30,933

Diluted

31,026

31,008

31,017

31,008

See notes to condensed consolidated financial statements

4

Table of Contents

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, 2019

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

Net income

6,765

Other comprehensive loss

(7,981)

Comprehensive loss

(1,216)

Balance, December 31, 2019

21,582

216

9,506

95

1,019,988

154

(9,592)

(605,766)

(54,914)

350,027

Net loss

(47,777)

Other comprehensive income

14,111

Comprehensive loss

(33,666)

Common dividend paid ($5.50 per share)

(170,130)

(170,130)

Balance, June 30, 2020

21,582

216

9,506

95

1,019,988

154

(9,592)

(823,673)

(40,803)

146,231

Net income

51,172

Other comprehensive loss

(7,220)

Comprehensive income

43,952

Balance, September 30, 2020

21,582

$

216

9,506

$

95

$

1,019,988

154

$

(9,592)

$

(772,501)

$

(48,023)

$

190,183

See notes to condensed consolidated financial statements

5

Table of Contents

LORAL SPACE & COMMUNICATIONS INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

Nine Months Ended

September 30,

2020

2019

Operating activities:

Net income

$

3,395

$

82,990

Adjustments to reconcile net income to net cash (used in) provided by

Operating activities:

Non-cash operating items (Note 2)

(14,231)

(88,491)

Changes in operating assets and liabilities:

Other current assets

6,010

(347)

Accrued employment costs and other current liabilities

(117)

(645)

Income taxes receivable and payable

(945)

2,965

Pension and other post-retirement liabilities

(1,833)

(375)

Other liabilities

2,170

2,463

Net cash used in operating activities - continuing operations

(5,551)

(1,440)

Net cash provided by operating activities – discontinued operations

1,812

Net cash (used in) provided by operating activities

(5,551)

372

Financing activities:

Dividend paid

(170,130)

Net cash used in financing activities – continuing operations

(170,130)

Net cash used in financing activities – discontinued operations

Net cash used in financing activities

(170,130)

Cash, cash equivalents and restricted cash (Note 2) — period (decrease) increase

(175,681)

372

Cash, cash equivalents and restricted cash (Note 2) — beginning of year

259,371

257,251

Cash, cash equivalents and restricted cash — end of period

$

83,690

$

257,623

See notes to condensed consolidated financial statements

6

Table of Contents

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, 2020 are not necessarily indicative of the results to be expected for the full year.

The December 31, 2019 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 under U.S. GAAP. Telesat’s financial statements are prepared in accordance with international financial reporting standards (“IFRS”). To allow our reporting of our investment in Telesat under U.S. GAAP, Telesat provides us with a reconciliation of its financial statements from IFRS to U.S. GAAP. 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

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LORAL SPACE & COMMUNICATIONS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

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 subsequent 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, 2020 and December 31, 2019. 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, 2020, the Company had $83.4 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.

On April 30, 2020, our Board of Directors declared a special dividend of $5.50 per share for an aggregate dividend of $170.1 million. The special dividend was paid on May 28, 2020 to holders of record of Loral voting and non-voting common stock as of the close of business on May 14, 2020.

As of September 30, 2020 and December 31, 2019, the Company had restricted cash of $0.3 million, representing the amount pledged as collateral to the issuer of a standby letter of credit (the “LC”). The LC, which expires in August 2021, has been provided as a guaranty to the lessor of our corporate offices.

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the condensed consolidated balance sheet to the condensed consolidated statement of cash flows (in thousands):

September 30,

December 31,

2020

2019

Cash and cash equivalents

$

83,386

$

259,067

Restricted cash included in other current assets

304

Restricted cash included in other assets

304

Cash, cash equivalents and restricted cash shown in the statement of cash flows

$

83,690

$

259,371

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LORAL SPACE & COMMUNICATIONS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Concentration of Credit Risk

Financial instruments which potentially subject us to concentrations of credit risk consist principally of cash and cash equivalents and receivables. Our cash and cash equivalents are maintained with high-credit-quality financial institutions. As of September 30, 2020, our cash and cash equivalents were invested primarily in two liquid Government AAA money market funds. As of December 31, 2019, our cash and cash equivalents were invested primarily in several liquid Prime and Government AAA money market funds. Such funds are not insured by the Federal Deposit Insurance Corporation. The dispersion across funds reduces the exposure of a default at any one fund. As a result, management believes that its potential credit risks are minimal.

Fair Value Measurements

U.S. GAAP defines fair value as the price that would be received for an asset or the exit price that would be paid to transfer a liability in the principal or most advantageous market in an orderly transaction between market participants. U.S. GAAP also establishes a fair value hierarchy that gives the highest priority to observable inputs and the lowest priority to unobservable inputs. The three levels of the fair value hierarchy are described below:

Level 1: Inputs represent a fair value that is derived from unadjusted quoted prices for identical assets or liabilities traded in active markets at the measurement date.

Level 2: Inputs represent a fair value that is derived from quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, model-based valuation techniques for which all significant assumptions are observable in the market or can be corroborated by observable market data for substantially the full term of the assets or liabilities, and pricing inputs, other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date.

Level 3: Inputs are generally unobservable and typically reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability. The fair values are therefore determined using model-based techniques that include option pricing models, discounted cash flow models, and similar techniques.

Assets and Liabilities Measured at Fair Value

The following table presents our assets and liabilities measured at fair value on a recurring and non-recurring basis (in thousands):

September 30, 2020

December 31, 2019

Level 1

  

Level 2

  

Level 3

   

Level 1

  

Level 2

  

Level 3

Assets

Cash and cash equivalents:

Money market funds

$

80,658

$

$

$

256,915

$

$

Other current assets:

Indemnification - Sale of SSL

598

598

Liabilities

Other liabilities:

Indemnification - Globalstar do Brasil S.A.

$

$

$

145

$

$

$

145

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, 2020 and December 31, 2019.

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LORAL SPACE & COMMUNICATIONS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Assets and Liabilities Measured at Fair Value on a Non-recurring Basis

We review the carrying values of our equity method investments when events and circumstances warrant and consider all available evidence in evaluating when declines in fair value are other-than-temporary. The fair values of our investments are determined based on valuation techniques using the best information available and may include quoted market prices, market comparables and discounted cash flow projections. An impairment charge is recorded when the carrying amount of the investment exceeds its current fair value and is determined to be other-than-temporary.

The asset resulting from the indemnification of SSL is for certain pre-closing taxes and reflects the excess of payments since inception over 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 and restricted share units.

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LORAL SPACE & COMMUNICATIONS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Recent Accounting Pronouncements

In August 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2018-13, 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. While certain amendments are to be applied prospectively, all other amendments are to be applied retrospectively to all periods presented. The new guidance, adopted by the Company on January 1, 2020, did not have a material impact on our 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. 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,

2020

2019

Non-cash operating items:

Equity in net income of affiliates

$

(9,086)

  

$

(92,066)

 

Deferred taxes

(253)

2,802

Depreciation and amortization

3

9

Right-of-use asset, net of lease liability

(4)

12

Recovery of affiliate doubtful receivable

(5,854)

Amortization of prior service credit and actuarial loss

963

752

Net non-cash operating items

$

(14,231)

$

(88,491)

Supplemental information:

Interest paid

$

20

$

15

Income tax refunds

$

178

$

2,980

Income tax payments

$

190

$

226

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LORAL SPACE & COMMUNICATIONS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

3. Accumulated Other Comprehensive Loss

The components of accumulated other comprehensive loss, net of tax, are as follows (in thousands):

Equity in

Pension and

Telesat-related

Accumulated

Other

Other

Other

Post-retirement

Comprehensive

Comprehensive

Benefits

Loss

Loss

Balance, January 1, 2019

$

(14,656)

$

(2,964)

$

(17,620)

Other comprehensive loss before reclassification

(2,307)

(35,783)

(38,090)

Amounts reclassified from accumulated other comprehensive loss

796

796

Net current-period other comprehensive loss

(1,511)

(35,783)

(37,294)

Balance, December 31, 2019

(16,167)

(38,747)

(54,914)

Other comprehensive income before reclassification

6,130

6,130

Amounts reclassified from accumulated other comprehensive loss

761

761

Net current-period other comprehensive income

761

6,130

6,891

Balance, September 30, 2020

$

(15,406)

$

(32,617)

$

(48,023)

The components of other comprehensive income (loss) and related tax effects are as follows (in thousands):

Three Months Ended September 30,

2020

2019

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

$

321

(a)

$

(68)

$

253

$

251

(a)

$

(52)

$

199

Equity in Telesat-related other

comprehensive loss

(7,477)

4

(7,473)

(16,465)

5

(16,460)

Other comprehensive loss

$

(7,156)

$

(64)

$

(7,220)

$

(16,214)

$

(47)

$

(16,261)

Nine Months Ended September 30,

2020

2019

Before-Tax

Tax

Net-of-Tax

Before-Tax

Tax (Provision)

Net-of-Tax

Amount

Provision

Amount

Amount

Benefit

Amount

Amortization of prior service credits

and net actuarial loss

$

963

(a)

$

(202)

$

761

$

752

(a)

$

(158)

$

594

Equity in Telesat-related other

comprehensive income (loss)

6,132

(2)

6,130

(29,915)

8

(29,907)

Other comprehensive income (loss)

$

7,095

$

(204)

$

6,891

$

(29,163)

$

(150)

$

(29,313)

(a)

Reclassifications are included in other expense.

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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,

2020

2019

Restricted cash (see Note 2)

$

304

  

$

Indemnification receivable from SSL for pre-closing taxes (see Note 13)

598

598

Due from affiliates

111

186

Prepaid expenses

454

164

Other

3

374

$

1,470

$

1,322

5. Investments in Affiliates

Investments in affiliates consist of (in thousands):

September 30,

December 31,

2020

2019

Telesat

$

105,402

$

90,184

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

Three Months Ended

Nine Months Ended

September 30,

September 30,

2020

2019

2020

2019

Telesat

$

49,645

$

8,784

$

9,086

$

92,066

Telesat

As of September 30, 2020 and December 31, 2019, 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, 2020, we also recorded our share of equity in other comprehensive (loss) income of Telesat of $(7.5) million and $6.1 million for the three and nine months ended September 30, 2020, respectively.

In the third quarter of 2019, we recorded an out-of-period correction to decrease our investment in Telesat and increase other comprehensive loss by $22.1 million. This non-cash adjustment was made to record the cumulative translation adjustment on our investment in Telesat from November 2007, when we first acquired our ownership interest in Telesat, to December 31, 2018. The adjustment resulted from translating our share of Telesat’s equity 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, InvestmentsEquity 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.

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LORAL SPACE & COMMUNICATIONS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

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.

On October 11, 2019, Telesat issued $550.0 million of 6.5% senior notes maturing in October 2027. The 6.5% senior notes are effectively subordinated to Telesat’s secured indebtedness, including the obligations under its senior secured credit facilities and its 4.875% senior secured notes.

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.

On December 6, 2019, Telesat entered into amended senior secured credit facilities which provide for term loan borrowings of $1,908.5 million which mature in December 2026 and revolving credit facilities of up to $200 million (or Canadian dollar equivalent) which mature in December 2024. Telesat also issued, through a private placement, $400 million of 4.875% senior secured notes which mature in June 2027.

On December 6, 2019, Telesat repaid all outstanding amounts, including related fees and expenses, under its former senior secured credit facilities.

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, 2020, Telesat’s Total Leverage Ratio was 5.07:1.00. Telesat is, however, permitted to pay annual consulting fees of $5.0 million to Loral in cash (see Note 14).

The following tables present summary financial data for Telesat in accordance with U.S. GAAP as of September 30, 2020 and December 31, 2019 and for the three and nine months ended September 30, 2020 and 2019 (in thousands):

September 30,

December 31,

2020

2019

Balance Sheet Data:

Current assets

$

990,985

$

877,294

Total assets

4,094,795

4,130,337

Current liabilities

151,645

124,217

Long-term debt, including current portion

2,824,838

2,836,700

Total liabilities

3,448,067

3,504,594

Shareholders’ equity

646,728

625,743

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LORAL SPACE & COMMUNICATIONS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Three Months Ended

Nine Months Ended

September 30,

September 30,

2020

2019

2020

2019

Statement of Operations Data:

Revenues

$

152,081

$

180,180

$

460,407

$

520,819

Operating expenses

(33,322)

(29,038)

(103,717)

(102,536)

Depreciation and amortization

(44,888)

(52,259)

(133,336)

(155,036)

Other operating expense

(26)

(45)

(182)

(110)

Operating income

73,845

98,838

223,172

263,137

Interest expense

(37,715)

(46,239)

(115,947)

(139,574)

Foreign exchange gain (loss)

48,943

(24,702)

(74,387)

73,713

Gain (loss) on financial instruments

246

(4,244)

(11,643)

(40,619)

Other income

1,524

4,497

7,476

12,603

Income tax provision

(9,053)

(15,548)

(18,509)

(26,584)

Net income

$

77,790

$

12,602

$

10,162

$

142,676

Other

We own 56% of XTAR, LLC (“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, 2020 and December 31, 2019, 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.

Prior to July 1, 2020, XTAR owned and operated an X-band satellite, XTAR–EUR (the “Satellite”) located at the 29° E.L. orbital slot (“the “Orbital Slot”). In addition, prior to July 1, 2020, XTAR leased from Hisdesat 7.2 72MHz X-band transponders on the Spainsat satellite located at 30° W.L. (the “Transponder Lease”). For services provided by Loral, XTAR, until December 31, 2013, was charged a quarterly management fee under a management agreement with Loral (the “Loral Management Agreement”). As of December 31, 2019, the amount due to Loral under the Loral Management Agreement was $6.6 million, and we had an allowance of $6.6 million against this receivable.

On July 1, 2020, Loral, XTAR and Hisdesat restructured their relationship, including, among other things, the following: (i) Hisdesat purchased the Satellite and certain assets related to operation of the Satellite (the “Purchased Assets”) from XTAR; (ii) XTAR’s agreement with Hisdesat to operate the Satellite at the Orbital Slot was terminated and the rights and licenses to operate the Satellite at the Orbital Slot reverted to Hisdesat; (iii) the Transponder Lease was terminated; (iv) XTAR and Hisdesat entered into an agreement under which XTAR will continue to market and sell capacity on the Satellite and on the Spainsat satellite; (v) XTAR and Loral terminated the Loral Management Agreement; and (vi) Loral granted to Hisdesat an option to acquire for nominal consideration, subject to receipt of all required regulatory approvals, Loral’s membership interests in XTAR. This option has not yet been exercised by Hisdesat. On July 2, 2020, Loral received from XTAR $5.9 million from the proceeds of the sale of the Purchased Assets in full and final settlement of the past due receivable outstanding of $6.6 million under the Loral Management Agreement. As a result, the Company recorded a $5.9 million recovery of an affiliate doubtful receivable and a corresponding reduction in its allowance for doubtful accounts for the three and nine month periods ended September 30, 2020.

As of September 30, 2020 and December 31, 2019, 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, 2020 and December 31, 2019, the carrying value of this investment was zero. Loral has written-off its investment in this company and has no future funding requirements relating to this investment. Accordingly, there is no requirement for us to provide for our allocated share of this company’s net losses. This company is currently in the process of dissolution and liquidation in Mexico, and Loral believes that it will not have any liability associated with this company upon completion of this process.

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LORAL SPACE & COMMUNICATIONS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

6. Other Current Liabilities

Other current liabilities consists of (in thousands):

&#