4. CONVERSION FROM IFRS TO U.S. GAAP

As part of the U.S. Domestication, the Company has retrospectively converted its Consolidated Financial Statements from IFRS to U.S. GAAP. Refer to Note 1 for additional details.

The significant differences between IFRS and U.S. GAAP as they relate to these financial statements are as follows:

(a)Development Costs

Under IFRS, in accordance with International Accounting Standard (“IAS”) 38 – Intangible Assets, development costs were capitalized and recorded as an intangible asset if technical feasibility had been established and it was considered probable that the Company would generate future economic benefits from the asset created on completion of development. Most of these projects had not been placed into service as of December 31, 2018. Under U.S. GAAP, in accordance with Accounting Standards Codification (“ASC”) 730 – Research and Development, all development costs are expensed as incurred.

During the year ended December 31, 2018, the Company recorded impairment losses under IFRS on intangible assets related to development. Under U.S. GAAP, these costs would have been expensed as incurred.

(b)Investment Tax Credits

Under IFRS, the Company recorded investment tax credits in accordance with IAS 20 – Accounting for Government Grants and Disclosure of Government Assistance, and recognized investment tax credits as a reduction in direct costs, selling, general and administration, as applicable. Under U.S. GAAP, the Company determined that investment tax credits are within the scope of ASC 740 – Income Taxes (“ASC 740”), and as such are recognized as a reduction of income tax expense.

(c)Investment Tax Credits – Classification

Under IFRS, in accordance with IAS 12 – Income Taxes (“IAS 12”), the Company had classified all investment tax credit balances as current tax assets. Under ASC 740, investment tax credits accounted for under the flow-through method result in either a reduction to income taxes payable in the year in which the credit arises, or as an increase in a deferred tax asset if the credit is carried forward to future years, subject to assessing the realization of such credits. The Company has determined that these credits will be realized and therefore the benefits related to the investment tax credits have been carried forward to future years and recognized as deferred tax assets.

(d)Deferred Taxes

Under IFRS, in accordance with IAS 12, deferred tax assets and liabilities were offset on a legal entity by entity basis. Under U.S. GAAP, in accordance with ASC 740, for each tax-paying component of an entity within a particular jurisdiction, all deferred tax assets and liabilities shall be offset and presented as a single amount within a particular tax jurisdiction rather than on a legal entity by entity basis. Therefore, certain non-current deferred tax assets and liabilities will be offset and presented on a net basis on the balance sheet.

(e)Unrecognized Tax Benefits

Under IFRS, in accordance with IAS 12, tax exposure items are defined as current tax to the extent it affects the calculation of income in respect of both current and prior periods. Under U.S. GAAP, in accordance with ASC 740, uncertain tax positions are classified as a current liability to the extent payment is expected within one year, an offset to deferred tax assets to the extent the related tax attributes are available to offset the liability and a non-current liability where payment is expected beyond one year.

(f)Investment Tax Credits – Interest and penalties

Under IFRS, in accordance with IAS 12, interest and penalties on amounts related to investment tax credits were classified as finance expense. Under U.S. GAAP, in accordance with ASC 740, interest and penalties on the liability for unrecognized tax benefits can be classified as either a component of income tax expense or interest expense. The Company has elected to classify the income or expense in respect of certain interest and penalties as an increase to income tax expense or benefit as these amounts relate to the Company’s tax positions. This includes interest and penalties associated with investment tax credits.

(g)Pension

Under IFRS, in accordance with IAS 19 – Employee Benefits, the Company had recognized re-measurement gains and losses, including actuarial gains and losses, immediately in other comprehensive income. Under U.S. GAAP, ASC 715 – Compensation – Retirement Benefits, actuarial gains and losses are recognized immediately in other comprehensive income and subsequently reversed and recognized in net income in future reporting periods using the corridor approach. Also under IFRS, net interest expense (income) on the net defined benefit liability (asset) was recognized as a component of interest expense using the discount rate for the underfunded pension obligations. Under U.S .GAAP, net interest expense (income) on the net defined benefit liability (asset) is recognized as a component of other defined benefit costs calculated as the net of interest from the discount rate on pension plan obligations less the expected long-term rate of return on plan assets rates on pension plan assets.

(h)Pension – Changes in Deferred Tax

Under IFRS, in accordance with IAS 12, the income tax effect of actuarial gains and losses on defined benefit pension plans and other retirement benefit plans were included in other comprehensive income. Under U.S. GAAP, in accordance with ASC 740, the income tax effect of actuarial gains and loss on defined benefit pension plans and other retirement benefit plans are included in income tax expense.

(i)Property, Plant and Equipment

Certain of the Company’s capitalized projects, such as satellites under construction, include the development of internal use software. Under IFRS, in accordance with IAS 38 – Intangible Assets, the Company capitalized certain overhead costs related to internally developed software as they were determined to be directly attributable to preparing the asset for use. Under U.S. GAAP, ASC 350-40 – Internal Use Software, overhead costs are required to be expensed as incurred, regardless of whether they are directly attributable to preparing the asset for use.

(j)Deferred Income Tax Valuation Allowance – recognition in Income and Other Comprehensive Income

Under IFRS, in accordance with IAS 12, the subsequent recognition of deferred tax assets are generally recorded in income or in other comprehensive income based on the source of the underlying items that originally gave rise to the deferred tax asset. Under U.S. GAAP, in accordance with ASC 740, the release of valuation allowances on deferred tax assets are generally recorded in income from continuing operations, subject to specific rules on the allocation of income tax expense between income from continuing operations and other comprehensive income, which may differ from IFRS.

The significant differences in the Consolidated Statements of Operations were as follows:


		Year ended December 31,
	Note	2018		2017			2016
Net (loss) income - IFRS		$	(1,381)	$	100	$	106
Product and service costs 1	(a), (b), (g), (i)		(88)		(105)		(71)
Depreciation and amortization	(a)		4		6		5
Interest expense, net	(a), (f), (g)		(4)		6		7
Other expense (income), net	(g)		7		25		(4)
Income tax benefit	(b), (f), (h), (j)		28		26		25
Impairment losses, net	(a)		170		—		—
Net (loss) income - U.S. GAAP		$	(1,264)	$	58	$	68

1 Excludes depreciation and amortization

The significant differences in the Consolidated Balance Sheets were as follows:


	December 31,
	2018						2017
	IFRS		Adjustments		U.S. GAAP		IFRS		Adjustments		U.S. GAAP
Assets:
Income taxes receivable 1	$	64	$	(50)	$	14	$	72	$	(53)	$	19
Deferred tax assets		52		51		103		108		(45)		63
Property, plant and equipment, net 2		754		(7)		747		1,055		(47)		1,008
Intangible assets, net 2		1,304		(72)		1,232		1,753		(135)		1,618
Other assets		2,905		—		2,905		3,669		—		3,669
Total assets	$	5,079	$	(78)	$	5,001	$	6,657	$	(280)	$	6,377

Liabilities:
Income taxes payable 1	$	15	$	(11)	$	4	$	49	$	(46)	$	3
Deferred tax liabilities		15		(9)		6		104		(99)		5
Other liabilities		4,326		21		4,347		4,489		47		4,536
Total liabilities	$	4,356	$	1	$	4,357	$	4,642	$	(98)	$	4,544

(Accumulated deficit) retained earnings	$	(1,184)	$	(27)	$	(1,211)	$	262	$	(144)	$	118
Accumulated other comprehensive income		134		(52)		82		151		(38)		113
Other equity		1,773		—		1,773		1,602		—		1,602
Total stockholders' equity		723		(79)		644		2,015		(182)		1,833
Total liabilities and stockholders' equity	$	5,079	$	(78)	$	5,001	$	6,657	$	(280)	$	6,377

1As a result of the conversion to U.S. GAAP, tax reclassifications of $11 million and $5 million were recorded as of December 31, 2018 and 2017, respectively.

2In 2017, the Company reclassified $47 million of construction in process, within property, plant and equipment, to intangibles to conform to the current year presentation.