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.

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).

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.