Exhibit 99.1

[GRAPHIC MISSING]

TELESAT CANADA

Quarterly Report

For the Three Month and Six Month Periods Ended June 30, 2012


PART I. FINANCIAL INFORMATION
Item 1. Financial Statements			1
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			33
Item 3. Quantitative and Qualitative Disclosures About Market Risk			49
PART II. OTHER INFORMATION
Item 1. Legal Proceedings			50
Item 1A. Risk Factors			50
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			50
Item 3. Defaults Upon Senior Securities			50
Item 4. Reserved			50
Item 5. Other Information			50
Item 6. Exhibits			50

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Telesat Holdings Inc.

Condensed Consolidated Statements of Income
For the period ended June 30


			Three months						Six months
(in thousands of Canadian dollars) (unaudited)	Notes		2012			2011			2012			2011
Revenue		4		201,913			200,420			398,171			403,200
Operating expenses		5		(52,251	)		(45,726	)		(135,446	)		(92,470	)
				149,662			154,694			262,725			310,730
Depreciation				(51,079	)		(48,797	)		(101,039	)		(98,183	)
Amortization				(9,150	)		(10,261	)		(18,252	)		(20,502	)
Other operating (losses) gains, net				(18	)		2			(76	)		(746	)
Operating income				89,415			95,638			143,358			191,299
Interest expense		6		(63,421	)		(54,812	)		(117,330	)		(112,545	)
Loss on refinancing		9		(54,164	)		—			(76,052	)		—
Interest and other income				246			472			971			1,164
Loss on changes in fair value of financial instruments				(149,990	)		(29,049	)		(89,017	)		(14,575	)
(Loss) gain on foreign exchange				(53,745	)		13,400			5,027			91,751
(Loss) income before tax				(231,659	)		25,649			(133,043	)		157,094
Tax expense		7		(11,217	)		(3,884	)		(10,859	)		(20,404	)
Net (loss) income				(242,876	)		21,765			(143,902	)		136,690

See accompanying notes to the condensed consolidated financial statements

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Telesat Holdings Inc.

Condensed Consolidated Statements of Comprehensive Income
For the period ended June 30


		Three months					Six months
(in thousands of Canadian dollars) (unaudited)	Notes	2012			2011		2012			2011
Net (loss) income			(242,876	)		21,765		(143,902	)		136,690
Other comprehensive (loss) income:
Foreign currency translation adjustments, net of tax			(2,404	)		3,320		(1,583	)		1,237
Actuarial gains on defined benefit plans, net of tax			520			—		2			—
Other comprehensive (loss) income			(1,884	)		3,320		(1,581	)		1,237
Total comprehensive (loss) income			(244,760	)		25,085		(145,483	)		137,927

See accompanying notes to the condensed consolidated financial statements

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Telesat Holdings Inc.

Condensed Consolidated Statements of Changes in Shareholders' Equity

(in thousands of Canadian dollars) (unaudited)

Notes

Common shares

Preferred shares

Total
share
capital

Accumulated earnings

Equity-settled employee benefits reserve

Foreign currency translation reserve

Total reserves

Total shareholders' equity

Balance at January 1, 2011

756,414

541,764

1,298,178

163,804

24,573

(1,692)

22,881

1,484,863

Net income for the period

136,690

Other comprehensive income, net of tax of $nil

1,237

Share based payments

1,327

Balance at June 30, 2011

756,414

541,764

1,298,178

300,494

25,900

(455)

25,445

1,624,117

Balance at July 1, 2011

756,414

541,764

1,298,178

300,494

25,900

(455)

25,445

1,624,117

Net income for the period

100,585

Dividends declared on preferred shares

(10

)

(10

)

Other comprehensive loss, net of tax of $10,486

(31,077

)

(4,778

)

(4,778

)

(35,855

)

Share based payments

1,327

Balance at December 31, 2011

756,414

541,764

1,298,178

369,992

27,227

(5,233)

21,994

1,690,164

Balance at January 1, 2012

756,414

541,764

1,298,178

369,992

27,227

(5,233)

21,994

1,690,164

Net loss for the period

(143,902

)

(143,902

)

Return of capital

(371,261

)

(214,941

)

(586,202

)

(586,202

)

Other comprehensive income (loss), net of tax benefit of $464

(1,583

)

(1,583

)

(1,581

)

Share based payments

598

Balance at June 30, 2012

385,153

326,823

711,976

226,092

27,825

(6,816)

21,009

959,077

See accompanying notes to the condensed consolidated financial statements

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Telesat Holdings Inc.

Condensed Consolidated Balance Sheets


(in thousands of Canadian dollars) (unaudited)	Notes		June 30, 2012		December 31, 2011
Assets
Cash and cash equivalents				129,105		277,962
Trade and other receivables				49,386		46,789
Other current financial assets				7,010		7,010
Prepaid expenses and other current assets				29,653		22,126
Total current assets				215,154		353,887
Satellites, property and other equipment		4, 8		2,181,213		2,151,915
Other long-term financial assets				70,865		142,408
Other long-term assets				7,630		5,536
Intangible assets		4		876,531		896,078
Goodwill				2,446,603		2,446,603
Total assets				5,797,996		5,996,427
Liabilities
Trade and other payables				59,150		45,156
Other current financial liabilities				96,661		82,988
Other current liabilities				71,387		67,877
Current indebtedness		9		18,821		86,495
Total current liabilities				246,019		282,516
Long-term indebtedness		9		3,250,956		2,748,131
Deferred tax liabilities				460,100		451,896
Other long-term financial liabilities				303,449		259,783
Other long-term liabilities				433,921		422,502
Senior preferred shares		10		—		141,435
Promissory note		11		144,474		—
Total liabilities				4,838,919		4,306,263
Shareholders' Equity
Share capital		12		711,976		1,298,178
Accumulated earnings				226,092		369,992
Reserves				21,009		21,994
Total shareholders' equity				959,077		1,690,164
Total liabilities and shareholders' equity				5,797,996		5,996,427

See accompanying notes to the condensed consolidated financial statements

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Telesat Holdings Inc.

Condensed Consolidated Statements of Cash Flows
For the six months ended June 30


(in thousands of Canadian dollars) (unaudited)	Notes		2012			2011
Cash flows from operating activities
Net (loss) income				(143,902	)		136,690
Adjustments to reconcile net (loss) income to cash flows from operating activities:
Amortization and depreciation				119,291			118,685
Deferred tax expense		7		10,682			18,806
Unrealized foreign exchange gain				(11,399	)		(102,203	)
Loss on derivatives				89,017			14,575
Dividends on senior preferred shares				—			4,931
Share-based compensation				598			1,327
Loss on disposal of assets				76			746
Loss on refinancing		9		76,052			—
Other				(24,514	)		(15,211	)
Customer prepayments on future satellite services				38,345			19,406
Insurance proceeds				314			5,943
Operating assets and liabilities		16		(2,257	)		(4,968	)
Net cash from operating activities				152,303			198,727
Cash flows from (used in) investing activities
Satellite programs				(121,852	)		(231,636	)
Purchase of other property and equipment				(5,051	)		(9,285	)
Purchase of intangible assets				—			(12,618	)
Proceeds from sale of assets				20			104
Net cash used in investing activities				(126,883	)		(253,435	)
Cash flows from (used in) financing activities
Proceeds from indebtedness		9		3,099,658			—
Proceeds from issue of promissory note		11		145,466			—
Repayment of indebtedness		9		(2,601,803	)		(19,240	)
Repayment of senior preferred shares		10		(141,435	)		—
Payment of premium on early retirement of indebtedness				(39,444	)		—
Payment of debt issue costs				(48,140	)		—
Return of capital to shareholders		12		(586,202	)		—
Satellite performance incentive payments				(2,008	)		(2,956	)
Net cash used in financing activities				(173,908	)		(22,196	)
Effect of changes in exchange rates on cash and cash equivalents				(369	)		(967	)
Decrease in cash and cash equivalents				(148,857	)		(77,871	)
Cash and cash equivalents, beginning of period				277,962			220,295
Cash and cash equivalents, end of period		16		129,105			142,424
Supplemental disclosure of cash flow information
Interest received				835			662
Interest paid				132,310			115,719
Income taxes paid				2,114			1,444

See accompanying notes to the condensed consolidated financial statements

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Telesat Holdings Inc.

Notes to the Condensed Consolidated Interim Financial Statements
June 30, 2012
(all amounts in thousands of Canadian dollars, except where noted)
(unaudited)

1. BACKGROUND OF THE COMPANY

Telesat Holdings Inc. (the “Company” or “Telesat”) is a Canadian corporation. Telesat is a global fixed satellite services operator providing secure satellite-delivered communications solutions worldwide to broadcast, telecom, corporate and government customers. The Company has a fleet of 13 satellites plus the Canadian Ka-band payload on ViaSat-1 with one more satellite under construction. Telesat also manages the operations of additional satellites for third parties. Telesat is headquartered at 1601 Telesat Court, Ottawa, Canada, K1B 5P4 with offices and facilities around the world.

On October 31, 2007, Canada’s Public Sector Pension Investment Board (“PSP Investments”) and Loral Space & Communications Inc. (“Loral”), through a newly formed entity called Telesat Holdings Inc. completed the acquisition of Telesat Canada from BCE Inc. (“BCE”). Loral and PSP Investments indirectly hold an economic interest in Telesat of 64% and 36%, respectively. Loral indirectly holds a voting interest of 33 1/3% on all matters including the election of directors. PSP Investments indirectly holds a voting interest of 66 2/3% on all matters except for the election of directors, and a 30% voting interest for the election of directors. The remaining voting interest of 36 2/3% for the election of directors is held by shareholders of the Company’s director voting preferred shares.

Unless the context states or requires otherwise, references herein to the “consolidated financial statements” or the “financial statements” or similar terms refer to the unaudited condensed consolidated interim financial statements of Telesat.

These unaudited condensed consolidated interim financial statements were approved by the Company’s Board of Directors and authorized for issue on August 1, 2012.

2. BASIS OF PRESENTATION

Statement of Compliance

These financial statements represent the interim financial statements of Telesat Holdings Inc. and its subsidiaries, on a consolidated basis, prepared in accordance with International Accounting Standard 34, Interim Financial Reporting (“IAS 34”).

These financial statements should be read in conjunction with the December 31, 2011 consolidated financial statements and use the same basis of presentation and accounting policies as outlined in notes 2 and 3 to the consolidated financial statements for the year ended December 31, 2011. The results of operations for the three and six months ended June 30, 2012 and 2011 are not necessarily indicative of the results that may be expected for a full fiscal year.

Basis of Consolidation

These financial statements include the results of the Company and subsidiaries controlled by the Company. Control is achieved where the Company has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities.

3. SIGNIFICANT ACCOUNTING POLICIES

Future Changes in Accounting Policies

The International Accounting Standards Board (“IASB”) recently issued a number of new accounting standards. The new standards determined to be applicable to the Company are disclosed below. The remaining standards have been excluded as they are not applicable or not material.

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Telesat Holdings Inc.

Notes to the Condensed Consolidated Interim Financial Statements
June 30, 2012
(all amounts in thousands of Canadian dollars, except where noted)
(unaudited)

3. SIGNIFICANT ACCOUNTING POLICIES – (continued)

Financial instruments

IFRS 9, Financial Instruments (“IFRS 9”) was issued by the International Accounting Standards Board (“IASB”) on October 28, 2010, and will replace IAS 39, Financial Instruments: Recognition and Measurement (“IAS 39”). IFRS 9 uses a single approach to determine whether a financial asset is measured at amortized cost or fair value, replacing multiple rules in IAS 39. The approach in IFRS 9 is based on how an entity manages its financial instruments in the context of its business model and the contractual cash flow characteristics of the financial assets. Two measurement categories continue to exist to account for financial liabilities in IFRS 9, fair value through profit or loss (“FVTPL”) and amortized cost. Financial liabilities held for trading are measured at FVTPL, and all other financial liabilities are measured at amortized cost unless the fair value option is applied. The treatment of embedded derivatives under the new standard is consistent with IAS 39 and is applied to financial liabilities and non-derivative hosts not within the scope of this standard. IFRS 9 is effective for annual periods beginning on or after January 1, 2015. The Company is currently evaluating the impact of IFRS 9 on its consolidated financial statements.

Presentation of Financial Statements

On June 16, 2011, the IASB issued the amended version of IAS 1, Presentation of Financial Statements (“IAS 1”). The amendments to IAS 1 retain the “one or two statement” approach at the option of the entity and revise how the components of other comprehensive income are presented. The revised standard is effective for annual periods beginning on or after July 1, 2012. The Company is currently evaluating the impact of revised IAS 1 on its consolidated financial statements.

Accounting for post employment benefits

On June 16, 2011, the IASB issued the amended version of IAS 19, Employee Benefits (“IAS 19”). The amendments make changes in eliminating the accounting option to defer the recognition of actuarial gains and losses, streamlining the presentation of changes in assets and liabilities arising from defined benefit plans as well as amendments to disclosure requirements. Changes in the defined benefit obligation and plan assets are disaggregated into three components: service costs, net interest on the net defined benefit obligation (asset) and remeasurements of the net defined benefit obligation (asset). The revised standard is effective for annual periods beginning on or after January 1, 2013 with earlier application permitted. The Company is currently evaluating the impact of revised IAS 19 on its consolidated financial statements.

Fair value measurement and disclosure requirements

IASB issued IFRS 13, Fair value measurement (“IFRS 13”) on May 12, 2011. IFRS 13 provides guidance on how fair value measurement should be applied whenever its use is already required or permitted by other standards within IFRS. IFRS 13 is effective for annual periods beginning on or after January 1, 2013 with earlier application permitted. The Company is currently evaluating the impact of revised IFRS 13 on its consolidated financial statements.

4. SEGMENT INFORMATION

Telesat operates in a single industry segment, in which it provides satellite-based services to its broadcast, enterprise and consulting customers around the world.

The Company derives revenue from the following services:

—

Broadcast — distribution or collection of video and audio signals in the North American and International markets which include delivery of television programming, occasional use services, bundled, value added services such as digital encoding, satellite capacity, uplinking and downlinking services and radio services.

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Telesat Holdings Inc.

Notes to the Condensed Consolidated Interim Financial Statements
June 30, 2012
(all amounts in thousands of Canadian dollars, except where noted)
(unaudited)

4. SEGMENT INFORMATION – (continued)

—

Enterprise — provision of satellite capacity and ground network services for voice, data, and image transmission and internet services around the world.

—

Consulting and other — all consulting services related to space and earth segments, government studies, satellite control services and research and development.

Revenue derived from the above service lines were as follows:


	Three months ended June 30,				Six months ended June 30,
	2012		2011		2012		2011
Broadcast	$	102,610	$	110,837	$	202,980	$	224,047
Enterprise		92,967		81,730		182,483		162,261
Consulting and Other		6,336		7,853		12,708		16,892
Total revenue	$	201,913	$	200,420	$	398,171	$	403,200

Geographic Information

Revenue by geographic region was based on the point of origin of the revenue (destination of the billing invoice), allocated as follows:


	Three months ended June 30,				Six months ended June 30,
	2012		2011		2012		2011
Canada	$	94,547	$	106,099	$	186,747	$	211,566
United States		66,196		59,982		130,948		122,215
Europe, Middle East & Africa		18,908		17,525		37,971		36,374
Asia & Australia		4,564		5,140		8,705		9,556
Latin America & Caribbean		17,698		11,674		33,800		23,489
Total revenue	$	201,913	$	200,420	$	398,171	$	403,200

Telesat’s satellites are in geosynchronous orbit. For disclosure purposes, the satellites have been classified based on ownership. Satellites, property and other equipment by geographic region are allocated as follows:


Satellites, property and other equipment	June 30, 2012		December 31, 2011
Canada	$	1,862,015	$	1,809,152
United States		256,187		276,211
All others		63,011		66,552
Total satellites, property and other equipment	$	2,181,213	$	2,151,915


Intangible Assets	June 30, 2012		December 31, 2011
Canada	$	830,332	$	848,898
United States		32,812		33,257
All others		13,387		13,923
Total intangible assets	$	876,531	$	896,078

Goodwill was not allocated to geographic regions in any of the periods.

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Telesat Holdings Inc.

Notes to the Condensed Consolidated Interim Financial Statements
June 30, 2012
(all amounts in thousands of Canadian dollars, except where noted)
(unaudited)

4. SEGMENT INFORMATION – (continued)

Major Customers

For the six months ended June 30, 2012, there were three significant customers each representing more than 10% of consolidated revenue (June 30, 2011 — three customers).

5. OPERATING EXPENSES

The Company’s operating expenses are comprised of the following:


	Three months ended June 30,				Six months ended June 30,
	2012		2011		2012		2011
Compensation and employee benefits^(a)	$	23,103	$	14,945	$	75,602	$	31,076
Other operating expenses^(b)		11,873		11,508		24,931		22,549
Cost of sales^(c)		17,275		19,273		34,913		38,845
Operating expenses	$	52,251	$	45,726	$	135,446	$	92,470

Compensation and employee benefits include salaries, bonuses, commission, post-employment benefits and charges arising from share-based payments. The expense for the three and six months ended June 30, 2012, includes $6.4 million and $43.6 million of compensation and benefit expense for executives and certain employees of Telesat in connection with the special cash distribution paid to the Company’s shareholders (see notes 12 and 17).

Other operating expenses include general and administrative expense, marketing expense, in-orbit insurance expense, professional fees and facility costs.

Cost of sales includes the rental of third-party capacity, the cost of equipment sales and costs directly attributable to the facilitation of customer contracts.

6. INTEREST EXPENSE

The components of interest expense are as follows:


	Three months ended June 30,						Six months ended June 30,
	2012			2011			2012			2011
Interest expense on indebtedness	$	54,326		$	45,048		$	100,491		$	90,826
Interest expense on derivative instruments		11,301			16,337			22,462			31,899
Interest expense on performance incentive payments		1,043			1,072			2,102			2,188
Interest expense on senior preferred shares		—			2,466			2,380			4,931
Interest expense on promissory note		3,617			—			3,736			—
Other expenses		—			(156	)		—			—
Capitalized interest		(6,866	)		(9,955	)		(13,841	)		(17,299	)
Interest expense	$	63,421		$	54,812		$	117,330		$	112,545

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Telesat Holdings Inc.

Notes to the Condensed Consolidated Interim Financial Statements
June 30, 2012
(all amounts in thousands of Canadian dollars, except where noted)
(unaudited)

7. INCOME TAXES


	Three months ended June 30,				Six months ended June 30,
	2012		2011		2012		2011
Current tax expense	$	96	$	1,237	$	177	$	1,598
Deferred tax expense		11,121		2,647		10,682		18,806
Tax expense	$	11,217	$	3,884	$	10,859	$	20,404

A reconciliation of the statutory income tax rate, which is a composite of Canadian federal and provincial rates, to the effective income tax rate is as follows:


	Three months ended June 30,						Six months ended June 30,
	2012			2011			2012			2011
(Loss) income before tax	$	(231,659	)	$	25,649		$	(133,043	)	$	157,094
Multiplied by the statutory income tax rate of 26.41% (2011 – 28.11%)		(61,181	)		7,210			(35,137	)		44,159
Income tax recorded at rates different from the Canadian tax rate		(393	)		(1,280	)		—			(1,705	)
Permanent differences		47,104			1,227			22,983			(12,991	)
Effect on deferred tax balances due to change in income tax rate from 25.15% to 26.41% (effective June 20, 2012)		23,892			—			23,892			—
Origination and reversal of temporary differences		1,580			(4,260	)		(1,001	)		(10,829	)
Other adjustments		215			987			122			1,770
Total tax expense in the income statement	$	11,217		$	3,884		$	10,859		$	20,404
Effective income tax rate		(4.84	)%		15.14	%		(8.16	)%		12.99	%

8. SATELLITES, PROPERTY AND OTHER EQUIPMENT

For the six months ended June 30, 2012, the Company had satellite, property and other equipment additions of $131 million. Substantially all of the asset additions pertained to the Company’s satellite programs consisting of Nimiq 6, which entered into commercial service during June 2012 and the Anik G1 satellite, which is currently under construction.

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Telesat Holdings Inc.

Notes to the Condensed Consolidated Interim Financial Statements
June 30, 2012
(all amounts in thousands of Canadian dollars, except where noted)
(unaudited)

9. INDEBTEDNESS


	June 30, 2012			December 31, 2011
Senior secured credit facilities:
Revolving facility	$	—		$	—
The Canadian term loan facility		—			80,000
Term loan A		500,000			—
The U.S. term loan facility (December 31, 2011 – USD $1,684,800)		—			1,720,686
Term loan B – U.S. facility (June 30, 2012 – USD $1,725,000)		1,753,635			—
The U.S. term loan II facility (December 31, 2011 – USD $144,725)		—			147,808
Term loan B – Canadian facility		175,000			—
Senior Notes 6% (USD $ 700,000)		711,620			—
Senior Notes 11% (USD $692,825)		—			707,582
Senior Subordinated Notes 12.5% (USD $217,175)		220,781			221,801
		3,361,036			2,877,877
Less: deferred financing costs, interest rate floors and prepayment options		(91,259	)		(43,251	)
		3,269,777			2,834,626
Less: current portion (net of deferred financing costs)		(18,821	)		(86,495	)
Long-term portion	$	3,250,956		$	2,748,131

On March 28, 2012, the Company terminated and paid all outstanding amounts under its previously existing credit facilities dated October 31, 2007, which included the Canadian term loan, U.S. term loan and U.S. term loan II facilities. The deferred financing costs which were capitalized with the carrying value of the previous senior credit facilities, were expensed resulting in a loss on refinancing of $21.9 million.

On March 28, 2012, Telesat Canada entered into a new Credit Agreement with a syndicate of banks which provides for the extension of credit under the Credit Facilities as described below. All obligations under the credit Agreement are guaranteed by the Company and certain of Telesat Canada’s existing subsidiaries (the “Guarantors”). The obligations under the Credit Agreement and the guarantees of those obligations are secured, subject to certain exceptions, by first priority liens and security interest in the assets of Telesat Canada and the Guarantors. The Credit Agreement contains covenants that restrict the ability of Telesat Canada and certain of its subsidiaries 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 sales-leaseback transactions, creating subsidiaries, repaying subordinated debt or amending organizational documents. The Credit Agreement requires Telesat Canada to comply with a maximum senior secured leverage ratio. The Credit Agreement also contains customary affirmative covenants and events of default.

On May 14, 2012, Telesat Canada issued, through a private placement, USD $700 million of 6.0% Senior Notes which mature on May 15, 2017. The 6% Senior Notes are subordinated to Telesat Canada’s existing and future secured indebtedness, including obligations under its Senior Credit Facilities, and are governed under the 6% Senior Notes Indenture. The net proceeds of the offering, along with available cash on hand, were used to pay all holders of the 11% Senior Notes due November 1, 2015 issued under an indenture dated as of June 30, 2008 and to pay certain financing costs and redemption premiums. The tender and redemption premiums, along with the deferred financing costs which were capitalized with the carrying value of the previous 11% Senior Notes, were expensed resulting in a loss on refinancing of $54.2 million.

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Telesat Holdings Inc.

Notes to the Condensed Consolidated Interim Financial Statements
June 30, 2012
(all amounts in thousands of Canadian dollars, except where noted)
(unaudited)

9. INDEBTEDNESS – (continued)

The Senior Credit Facilities are comprised of the following facilities:

i — Revolving Facility

The revolving facility (“Revolving Facility”) is a CAD/USD $140 million loan facility available in either Canadian dollars or U.S. dollars, maturing on March 28, 2017. Loans under the Revolving Facility bear interest at a floating rate plus an applicable margin of 2.00% for prime rate and Alternate Base Rate (“ABR”) loans and 3.00% for Bankers Acceptance (“BA”) and Eurodollar loans. The Revolving Facility has an unused commitment fee of 50 basis points. At June 30, 2012, other than approximately $0.2 million in drawings related to letters of credit, there were no borrowings under this facility.

ii — Term Loan A Facility

The Term Loan A Facility (“TLA Facility”) is a $500 million loan maturing on March 28, 2017. The outstanding borrowings under the TLA Facility currently bear interest at a floating rate of the BA borrowing rate plus an applicable margin of 3.00%. There are no required repayments on the TLA Facility for the year ending December 31, 2012.

iii — Term Loan B — Canadian Facility

The Term Loan B — Canadian Facility (“Canadian TLB Facility”) is a $175 million loan maturing on March 28, 2019. The outstanding borrowings under the Canadian TLB Facility currently bear interest at a floating rate of the BA borrowing rate, but not less than 1.25%, plus an applicable margin of 3.75%. The mandatory principal repayments on the Canadian TLB Facility are ¼ of 1% of the original amount of the loan, which must be paid on the last day of each quarter beginning with the fiscal quarter ending September 30, 2012.

iv — Term Loan B — U.S. Facility

The Term Loan B — U.S. Facility (“U.S. TLB Facility”) is a USD $1,725 million loan maturing on March 28, 2019. The outstanding borrowings under the U.S. TLB Facility currently bear interest at a floating rate of Libor, but not less than 1.00%, plus an applicable margin of 3.25%. The mandatory principal repayments on the U.S. TLB Facility are ¼ of 1% of the original amount of the loan, which must be paid on the last day of each quarter beginning with the fiscal quarter ending September 30, 2012.

Each of the Senior Credit Facilities is subject to mandatory principal repayments requirements. The maturity date for each of the Senior Credit Facilities described above will be accelerated if Telesat Canada’s existing 6% Senior Notes due in 2017 and 12.5% Senior Subordinated Notes due in 2017 or certain refinancing thereof are not repurchased, redeemed, refinanced or deferred before the date that is 91 days prior to the maturity date of such notes.

The Company incurred $39.1 million debt issuance costs in connection with the new Senior Credit Facilities.

In order to economically hedge currency risk, the Company kept its existing cross-currency basis swap to synthetically convert USD $1.0 billion of future U.S. dollar denominated payment obligations to $1.2 billion. This currency basis swap is being amortized on a quarterly basis at ¼ of 1% of the original amount. At June 30, 2012, the balance of this cross currency basis swap was $1.2 billion and bears interest at a floating rate of BA plus an applicable margin of approximately 387 basis points.

6% Senior Notes due May 15, 2017

The 6% Senior Notes in the amount of USD $700 million, bear interest at an annual rate of 6% and are due May 15, 2017. The Senior Notes include covenants or terms that restrict the Company’s ability to, among

TABLE OF CONTENTS

Telesat Holdings Inc.

Notes to the Condensed Consolidated Interim Financial Statements
June 30, 2012
(all amounts in thousands of Canadian dollars, except where noted)
(unaudited)

9. INDEBTEDNESS – (continued)

other things, (i) incur additional indebtedness, (ii) incur liens, (iii) pay dividends or make certain other restricted payments, investments or acquisitions, (iv) enter into certain transactions with affiliates, (v) modify or cancel satellite insurance, (vi) effect mergers with another entity, and (vii) redeem the Senior Notes prior to May 15, 2014, in each case subject to exceptions provided for in the Senior Notes indenture. The Company incurred approximately $10 million of debt issuance costs in connection with the 6% Senior Notes.

10. SENIOR PREFERRED SHARES

On March 28, 2012, the Company redeemed all of its outstanding senior preferred shares for $145.5 million in cash, which consisted of $141.4 million in principal and $4.1 million in accrued dividends.

11. PROMISSORY NOTE

On March 28, 2012, the Company issued a Promissory Note (the “PSP Note”) to an affiliate of PSP Investments in the amount of $145.5 million. The PSP Note is subordinated to the Company’s senior debt and matures on March 28, 2016. The PSP Note, in whole or in part, may be repaid at any time prior to maturity without penalty or premium, or to comply with scheduled repayments. The scheduled repayments require the Company to pay an amount equal to a least 50% of the outstanding principal amount at March 28, 2014, with the balance, if any, to be repaid no later than March 28, 2016. Interest accrues on the PSP Note at 9.75% per annum for the first two years and adjusted thereafter to be the Treasury Rate as of the date of the second anniversary, plus 7.5% per annum, but not less than 11% per annum. The Treasury Rate is defined as the yield to maturity as of such date of the United States Treasury securities with a 10 year constant maturity. Interest payments are payable in cash on each anniversary date and on the date of any voluntary prepayment.

With the closing of the new senior secured credit facilities on March 28, 2012, as described in note 9, the Company declared a special cash distribution to its Common, Voting Participating Preferred, and Non-Voting Participating Preferred shareholders, as a return of capital, in the amount of $656.5 million. As at June 30, 2012, approximately $586.2 million of the special cash distribution had been paid. The remainder of the return of capital was paid in July 2012. There were no changes to the number of shares issued, rights, privileges or conditions associated to each class of shares.


	Number of shares		Stated Value at June 30, 2012		Stated Value at December 31, 2011
Common Shares		74,252,460	$	385,153	$	756,414
Voting Participating Preferred Shares		7,034,444		82,216		117,388
Non-Voting Participating Preferred Shares		35,953,824		244,597		424,366
Director Voting Preferred Shares		1,000		10		10
Total share capital			$	711,976	$	1,298,178

13. CAPITAL DISCLOSURES

The Company was previously subject to three financial covenant tests: a maximum Consolidated Total Debt to Consolidated Earnings Before Interest, Taxes, Depreciation and Amortization (“EBITDA”) for covenant purposes ratio test, a minimum Consolidated EBITDA for covenant purposes to Consolidated Interest Expense ratio test and a maximum Permitted Capital Expenditure Amount test. These covenants are no longer applicable as a result of the termination of the previous senior secured credit agreement on March 28, 2012.

TABLE OF CONTENTS

Telesat Holdings Inc.

Notes to the Condensed Consolidated Interim Financial Statements
June 30, 2012
(all amounts in thousands of Canadian dollars, except where noted)
(unaudited)

13. CAPITAL DISCLOSURES – (continued)

The Senior Credit Facilities entered into on March 28, 2012, are secured by substantially all of the Company’s assets. Under the terms of the Senior Credit Facilities, the Company is required to comply with a senior secured leverage ratio covenant. The covenant is based on a Consolidated Total Secured Debt to Consolidated Earnings Before Interest, Taxes, Depreciation and Amortization (“EBITDA”) for covenant purposes ratio test. At June 30, 2012, the Company’s Consolidated Total Secured Debt to Consolidated EBITDA ratio was 4.12:1, which was less than the maximum test ratio of 5.25:1.

14. FINANCIAL INSTRUMENTS

Measurement of Risks

The Company, through its financial assets and liabilities, is exposed to various risks. The following analysis provides a measurement of risks as at the balance sheet date of June 30, 2012.

Credit Risk

Credit risk is the risk that a counterparty to a financial asset will default, resulting in the Company incurring a financial loss. At June 30, 2012, the maximum exposure to credit risk is equal to the carrying value of the financial assets, $256 million (December 31, 2011 — $474 million). Cash and cash equivalents are invested with high quality investment grade financial institutions and are governed by the Company’s corporate investment policy, which aims to reduce credit risk by restricting investments to high-grade U.S. dollar and Canadian dollar denominated investments.

It is expected that the counterparties to the Company’s financial assets will be able to meet their obligations as they are institutions with strong credit ratings. Telesat regularly monitors the credit risk and credit exposure.

Telesat has a number of diverse customers, which limits the concentration of credit risk with respect to trade receivables. The Company has credit evaluation, approval and monitoring processes intended to mitigate potential credit risks. Telesat’s standard payment terms are 30 days. Interest at a rate of 1.5% per month, compounded monthly, is typically charged on balances remaining unpaid at the end of the standard payment terms. Telesat’s historical experience with customer defaults has been minimal. As a result, Telesat considers the credit quality of its North American customers to be high; however due to the additional complexities of collecting from its International customers, the Company considers the credit quality of its International customers to be lower than the North American customers. At June 30, 2012, North American and International customers made up 50% and 50% of the outstanding trade receivable balance, respectively (December 31, 2011 — 51% and 49%). Anticipated bad debt losses have been provided for in the allowance for doubtful accounts. The allowance for doubtful accounts at June 30, 2012 was $3.0 million (December 31, 2011 — $ 3.7 million).

Foreign Exchange Risk

The Company’s operating results are subject to fluctuations as a result of exchange rate variations to the extent that transactions are made in currencies other than Canadian dollars. The most significant impact of variations in the exchange rate is on the U.S. dollar denominated debt financing. At June 30, 2012, approximately $2,686 million of the $3,361 million total debt financing (before netting of deferred financing costs, interest rate floors and prepayment options) is the Canadian dollar equivalent of the U.S. dollar denominated portion of the debt.

The Company has entered into a cross currency basis swap to economically hedge the foreign currency risk on a portion of its U.S. dollar denominated debt. At June 30, 2012, the Company had a cross currency basis swap of $1,169 million (December 31, 2011 — $1,175 million) which required the Company to pay Canadian dollars to receive USD $1,007 million (December 31, 2011 — USD $1,012 million). At June 30, 2012, the

TABLE OF CONTENTS

Telesat Holdings Inc.

Notes to the Condensed Consolidated Interim Financial Statements
June 30, 2012
(all amounts in thousands of Canadian dollars, except where noted)
(unaudited)

14. FINANCIAL INSTRUMENTS – (continued)

fair value of this derivative contract was a liability of $170.8 million (December 31, 2011 — liability of $160.4 million). The non-cash loss will remain unrealized until the contract is settled. This contract is due on October 31, 2014.

The Company’s main currency exposures as at June 30, 2012 lie in its U.S. dollar denominated cash and cash equivalents, trade and other receivables, trade and other payables and indebtedness.

As at June 30, 2012, a 5 percent increase (decrease) in the Canadian dollar against the U.S. dollar would have increased (decreased) the Company’s net income by approximately $149 million and increased (decreased) other comprehensive income by $0.8 million. This analysis assumes that all other variables, in particular interest rates, remain constant.

Interest Rate Risk

The Company is exposed to interest rate risk on its cash and cash equivalents and its long term debt which is primarily variable rate financing. Changes in the interest rates could impact the amount of interest Telesat is required to pay. Telesat uses interest rate swaps to economically hedge the interest rate risk related to variable rate debt financing. At June 30, 2012, the Company had a series of five interest rate swaps to fix interest on $1.5 billion of debt at a weighted average fixed rate of 2.63% (excluding applicable margins) and one interest rate swap to pay a fixed rate of 1.46% (excluding applicable margins) on $300 million of U.S. dollar denominated debt. As at June 30, 2012, the fair value of these derivative contracts was a liability of $46.3 million (December 31, 2011 — liability of $53.1 million). The contracts mature between October 31, 2014 and September 30, 2016.

If the interest rates on the unhedged variable rate debt had changed by 0.25% this would have resulted in a change in the net income of approximately $1.0 million and $1.7 million for the three and six months ended June 30, 2012.

Liquidity Risk

The Company maintains credit facilities to ensure it has sufficient available funds to meet current and foreseeable financial requirements. The following are the contractual maturities of financial liabilities (including expected financing costs) as at June 30, 2012:


In millions of Canadian dollars	Carrying amount		Contractual cash flows (undiscounted)		2012		2013		2014		2015		2016		After 2016
Trade and other payables	$	59,150	$	59,150	$	59,150	$	—	$	—	$	—	$	—	$	—
Customer and other deposits		4,011		4,011		2,112		827		994		78		—		—
Deferred satellites performance incentive payments		67,942		94,373		11,857		8,356		8,376		8,397		8,444		48,943
Loral Note		22,681		22,681		—		—		22,681		—		—		—
PSP Note		148,005		189,920		10,802		14,183		81,593		8,680		74,662		—
Tax indemnification payable to Loral		7,079		7,079		—		7,079		—		—		—		—
Other financial liabilities		7,508		7,508		5,958		1,550		—		—		—		—
Long-term indebtedness		3,335,684		4,359,278		101,140		219,783		242,437		239,412		261,245		3,295,261
Interest rate swaps		46,252		50,751		12,456		19,267		16,848		1,446		734		—
Cross currency basis swaps		170,762		65,240		14,199		27,825		23,216		—		—		—
	$	3,869,074	$	4,859,991	$	217,674	$	298,870	$	396,145	$	258,013	$	345,085	$	3,344,204

TABLE OF CONTENTS

Telesat Holdings Inc.

Notes to the Condensed Consolidated Interim Financial Statements
June 30, 2012
(all amounts in thousands of Canadian dollars, except where noted)
(unaudited)

14. FINANCIAL INSTRUMENTS – (continued)

The carrying value of the deferred satellites performance incentive payments includes $2.7 million interest payable. The carrying value of the long-term indebtedness includes $13.5 million of interest payable and excludes $52.4 million of financing costs. The carrying value of the PSP Note includes $3.6 million of interest payable and excludes $0.2 million of financing costs.

Assets pledged as security

The Senior Credit Facilities are secured by substantially all of Telesat’s assets which exclude the assets of non-restricted subsidiaries.

Financial assets and liabilities recorded in the balance sheet were as follows:


June 30, 2012	Loans and receivables		FVTPL			Other financial liabilities			Total			Fair value
Cash and cash equivalents	$	129,105	$	—		$	—		$	129,105		$	129,105
Trade and other receivables		49,386		—			—			49,386			49,386
Other financial assets – current		7,010		—			—			7,010			7,010
Other financial assets – long-term		12,530		58,335			—			70,865			70,865
Trade and other payables		—		—			(59,150	)		(59,150	)		(59,150	)
Other financial liabilities – current		—		(57,865	)		(38,796	)		(96,661	)		(98,951	)
Other financial liabilities – long-term		—		(216,154	)		(87,295	)		(303,449	)		(302,961	)
Indebtedness (excluding deferred financing costs)		—		—			(3,322,179	)		(3,322,179	)		(3,359,158	)
Promissory note (excluding deferred financing costs)		—		—			(144,640	)		(144,640	)		(148,721	)
Total	$	198,031	$	(215,684	)	$	(3,652,060	)	$	(3,669,713	)	$	(3,712,575	)


December 31, 2011	Loans and receivables		FVTPL			Other financial liabilities			Total			Fair value
Cash and cash equivalents	$	277,962	$	—		$	—		$	277,962		$	277,962
Trade and other receivables		46,789		—			—			46,789			46,789
Other financial assets – current		7,010		—			—			7,010			7,010
Other financial assets – long-term		7,977		134,431			—			142,408			142,408
Trade and other payables		—		—			(45,156	)		(45,156	)		(45,156	)
Other financial liabilities – current		—		(42,204	)		(40,784	)		(82,988	)		(85,549	)
Other financial liabilities – long-term		—		(171,270	)		(88,513	)		(259,783	)		(255,225	)
Indebtedness (excluding deferred financing costs)		—		—			(2,884,056	)		(2,884,056	)		(2,936,414	)
Senior preferred shares		—		—			(141,435	)		(141,435	)		(143,265	)
Total	$	339,738	$	(79,043	)	$	(3,199,944	)	$	(2,939,249	)	$	(2,991,440	)

TABLE OF CONTENTS

Telesat Holdings Inc.

Notes to the Condensed Consolidated Interim Financial Statements
June 30, 2012
(all amounts in thousands of Canadian dollars, except where noted)
(unaudited)

14. FINANCIAL INSTRUMENTS – (continued)

Fair Value

Fair value is the amount that willing parties would accept to exchange a financial instrument based on the current market for instruments with the same risk, principal and remaining maturity. Where possible, fair values are based on the quoted market values in an active market. In the absence of an active market, we determine fair values based on prevailing market rates (bid and ask prices, as appropriate) for instruments with similar characteristics and risk profiles or internal or external valuation models, such as option pricing models and discounted cash flow analysis, using observable market-based inputs. The fair value hierarchy is as follows:

Level 1 based on quoted prices in active markets for identical assets or liabilities.

Level 2 based on observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation.

Estimates of fair values are affected significantly by the assumptions for the amount and timing of estimated future cash flows and discount rates, which all reflect varying degrees of risk. Potential income taxes and other expense that would be incurred on disposition of these financial instruments are not reflected in the fair values. As a result, the fair values are not necessarily the net amounts that would be realized if these instruments were actually settled.

The carrying amounts of cash and cash equivalents, trade and other receivables, and trade and other payables approximate fair value due to the short-term maturity of these instruments. Included in cash and cash equivalents are $3.9 million (December 31, 2011 — $66.5 million) of short-term investments. The fair value of the indebtedness is based at June 30, 2012 on transactions and quotations from third parties considering market interest rates and excluding deferred financing costs.

Fair value of derivative financial instruments

The Company has recorded additional embedded derivatives as a result of the Senior Credit Facilities and PSP Note entered into on March 28, 2012. The embedded derivatives are related to interest rate floors which are included in the Canadian TLB Facility (note 9), the U.S. TLB Facility (note 9) and the PSP Note (note 11). At March 28, 2012, the fair value of the embedded derivatives was a liability of $46.1 million. At June 30, 2012, the fair value was a liability of $57 million.

The Company recorded a prepayment option embedded derivative relating to its 6% Senior Notes issued on May 14, 2012 (note 9). At May 14, 2012, the fair value of the new prepayment option embedded derivative was an asset of $2.7 million. At June 30, 2012, the fair value was an asset of $4.3 million. In connection with the Company’s redemption of its 11% Senior Notes, a loss of $162 million was recognized on the write-off of the previous prepayment option embedded derivative asset.

On June 20, 2012, the Company entered into three new interest rate swaps to economically hedge its exposure to floating interest rates on the Senior Credit Facilities. At June 30, 2012, the fair value of the interest rate swaps was a liability of $2.1 million.

TABLE OF CONTENTS

Telesat Holdings Inc.

Notes to the Condensed Consolidated Interim Financial Statements
June 30, 2012
(all amounts in thousands of Canadian dollars, except where noted)
(unaudited)

14. FINANCIAL INSTRUMENTS – (continued)

The changes in fair value of these derivatives are recorded on the Company’s consolidated statement of income as gains or losses on changes in fair value of financial instruments, are non-cash, and will expire on their respective maturity dates.

The current and long term portions of the fair value of the Company’s derivative assets and liabilities, at each of the balance sheet dates, and the fair value methodologies used to calculate those values were as follows:


June 30, 2012	Long-term assets		Current liabilities			Long-term liabilities			Total			Fair value hierarchy
Cross currency basis swap	$	—	$	(25,975	)	$	(144,786	)	$	(170,761	)		Level 2
Interest rate swaps		—		(19,198	)		(27,055	)		(46,253	)		Level 2
Interest rate floors		—		(12,692	)		(44,313	)		(57,005	)		Level 2
Prepayment options		58,335		—			—			58,335			Level 2
	$	58,335	$	(57,865	)	$	(216,154	)	$	(215,684	)


December 31, 2011	Long-term assets		Current liabilities			Long-term liabilities			Total			Fair value hierarchy
Cross currency basis swap	$	—	$	(23,637	)	$	(136,736	)	$	(160,373	)		Level 2
Interest rate swaps		—		(18,567	)		(34,534	)		(53,101	)		Level 2
Prepayment options		134,431		—			—			134,431			Level 2
	$	134,431	$	(42,204	)	$	(171,270	)	$	(79,043	)

Reconciliation of fair value of derivative assets and liabilities


Opening fair value, January 1, 2011	$	(172,049	)
Unrealized losses on derivatives		87,914
Realized gains on derivatives:
Cross currency basis swap		1,895
Forward foreign exchange contracts		8,776
Impact of foreign exchange		(5,579	)
Fair value, December 31, 2011		(79,043	)
Interest rate floors		(46,052	)
Prepayment option		2,704
Unrealized gains on derivatives		71,787
Realized gains (losses) on derivatives:
Cross currency basis swap		791
Prepayment option		(161,595	)
Impact of foreign exchange		(4,276	)
Fair value, June 30, 2012	$	(215,684	)

TABLE OF CONTENTS

Telesat Holdings Inc.

Notes to the Condensed Consolidated Interim Financial Statements
June 30, 2012
(all amounts in thousands of Canadian dollars, except where noted)
(unaudited)

15. EMPLOYEE BENEFIT PLANS

The Company’s net defined benefit plan expense included in operating expenses consisted of the following elements:


	Defined benefit pension plans						Other post-employment benefit plans
Three months ended June 30,	2012			2011			2012		2011
Current service cost	$	1,335		$	961		$	98	$	75
Interest cost		2,429			2,422			284		291
Expected return on plan assets		(2,741	)		(2,677	)		—		—
Net defined benefit plan expense	$	1,023		$	706		$	382	$	366


	Defined benefit pension plans						Other post-employment benefit plans
Six months ended June 30,	2012			2011			2012		2011
Current service cost	$	2,670		$	1,922		$	196	$	150
Interest cost		4,858			4,844			567		585
Expected return on plan assets		(5,482	)		(5,354	)		—		—
Net defined benefit plan expense	$	2,046		$	1,412		$	763	$	735

16. SUPPLEMENTAL CASH FLOW INFORMATION


At June 30	2012		2011
Cash and cash equivalents is comprised of:
Cash	$	125,185	$	138,430
Short term investments, original maturity three months or less		3,920		3,994
	$	129,105	$	142,424

As a result of the termination of the Company’s previous senior secured credit facilities, dated October 31, 2007, the restrictions over the use of the insurance proceeds received for the settlement of the Telstar 14R/Estrela do Sul 2 claim are no longer applicable.


	Six months ended June 30
	2012			2011
Changes in operating assets and liabilities are comprised of:
Trade and other receivables	$	(5,369	)	$	1,285
Financial assets		(4,634	)		(78	)
Other assets		(8,188	)		(7,851	)
Trade and other payables		10,188			(8,438	)
Financial liabilities		(1,857	)		7,900
Other liabilities		7,603			2,214
	$	(2,257	)	$	(4,968	)


	Six months ended June 30
	2012		2011
Non-cash investing and financing activities are comprised of:
Purchase of satellite, property and equipment	$	24,447	$	33,259

TABLE OF CONTENTS

Telesat Holdings Inc.

Notes to the Condensed Consolidated Interim Financial Statements
June 30, 2012
(all amounts in thousands of Canadian dollars, except where noted)
(unaudited)

17. COMMITMENTS AND CONTINGENCIES

Off balance sheet commitments include operating leases, commitments for future capital expenditures and other future purchases.


Off balance sheet commitments	2012		2013		2014		2015		2016		Thereafter		Total
Operating commitments	$	16,373	$	27,512	$	21,805	$	13,123	$	8,358	$	34,017	$	121,188
Capital commitments		43,809		—		—		—		—		—		43,809
Total off balance sheet commitments	$	60,182	$	27,512	$	21,805	$	13,123	$	8,358	$	34,017	$	164,997

Certain of the Company’s satellite transponders, offices, warehouses, earth stations, vehicles, and office equipment are leased under various terms. The expiry terms range from July 2012 to January 2043.

Telesat has entered into a contract for the construction and launch of Anik G1 (targeted for launch in 2012). The total outstanding commitments at June 30, 2012 are in U.S. dollars.

Telesat has agreements with various customers for prepaid revenue on several service agreements which take effect when the spacecraft is placed in service. Telesat is responsible for operating and controlling these satellites. Customer prepayments of $426 million at June 30, 2012 (December 31, 2011 — $408 million), a portion of which is refundable under certain circumstances, are reflected in other liabilities, both current and long-term.

In the normal course of business, the Company has executed agreements that provide for indemnification and guarantees to counterparties in various transactions. These indemnification undertakings and guarantees may require the Company to compensate the counterparties for costs and losses incurred as a result of certain events including, without limitation, loss or damage to property, change in the interpretation of laws and regulations (including tax legislation), claims that may arise while providing services, or as a result of litigation that may be suffered by the counterparties. The nature of substantially all of the indemnification undertakings prevents the Company from making a reasonable estimate of the maximum potential amount the Company could be required to pay counterparties as the agreements do not specify a maximum amount and the amounts are dependent upon the outcome of future contingent events, the nature and likelihood of which cannot be determined at this time. Historically, the Company has not made any significant payments under such indemnifications.

Telesat and Loral have entered into an indemnification agreement whereby Loral will indemnify Telesat for any tax liabilities for taxation years prior to 2007 related to Loral Skynet operations. Likewise, Telesat will indemnify Loral for the settlement of any tax receivables for taxation years prior to 2007.

Distribution to Shareholders

On March 28, 2012, the Company declared a special cash distribution to its Common, Voting Participating Preferred, and Non-Voting Participating Preferred shareholders, as a reduction in stated value, in the amount of $656.5 million. Of this amount, $586.2 million of the special cash distribution was paid on March 28, 2012 (refer to note 12). The remaining $70.3 million distribution to shareholders was paid during July 2012.

Special Payments to Executives and Certain Employees

On March 28, 2012, the Company authorized cash payments of $48.6 million to executives and certain employees of the Company in connection with the cash distribution made to the Company’s shareholders. Approximately $41.3 million of the $48.6 million was recorded as compensation expense at June 30, 2012 with the majority of the expense paid during the second quarter. The remaining amounts are expected to be paid over the next three years, with the majority to be paid by the end of 2012, subject to the applicable officers’ and employees’ continued employment with the Company on the payment date and other conditions.

TABLE OF CONTENTS

Telesat Holdings Inc.

Notes to the Condensed Consolidated Interim Financial Statements
June 30, 2012
(all amounts in thousands of Canadian dollars, except where noted)
(unaudited)

17. COMMITMENTS AND CONTINGENCIES – (continued)

Legal Proceedings

The Company frequently participates in proceedings before national telecommunications regulatory authorities. In addition, the Company may also become involved from time to time in other legal proceedings arising in the normal course of its business.

Telesat Canada’s Anik F1 satellite, built by Boeing and launched in November 2000, has defective solar arrays that have caused a drop in power output on the satellite and reduced its operational life. Telesat Canada filed a claim for Anik F1 as a constructive total loss under its insurance policies and received an amount from its insurers in settlement of that claim. In November 2006, Telesat Canada commenced arbitration proceedings against Boeing, alleging that Boeing was grossly negligent and/or engaged in willful misconduct in the design and manufacture of the Anik F1 satellite and in failing to warn Telesat Canada prior to the launch of a material deficiency in the power performance of a similar satellite previously launched. Telesat’s claim currently seeks approximately $71 million plus costs and post-award interest, a portion of which was in respect of the subrogated rights of its insurers. Boeing has responded by alleging that Telesat Canada failed to obtain what it asserts to be contractually required waivers of subrogation rights such that, if Telesat Canada is successful in obtaining an award which includes an amount in respect of the subrogated rights of the insurers, Boeing is entitled to off-setting damages in that amount, which is approximately $182 million. Boeing also asserts that Telesat Canada owes Boeing performance incentive payments pursuant to the terms of the satellite construction contract in the amount of approximately USD $6.6 million plus interest. The arbitration hearing is scheduled to commence in November 2012. While it is not possible to determine the ultimate outcome of the arbitration, Telesat Canada intends to vigorously prosecute its claims and defend its position that no liability is owed Boeing in connection with the dispute and that, in the circumstances of this case, it was not contractually required to obtain waivers of the subrogation rights at issue.

Other than the above, the Company is not aware of any proceedings outstanding or threatened as of the date hereof by or against us or relating to its business which may have, or have had in the recent past, significant effects on Telesat Canada’s financial position or profitability.

The Company’s immediate shareholders are Red Isle Private Investment Inc. (“Red Isle”), a company incorporated in Canada, Loral Holdings Corporation (“Loral Holdings”), a company incorporated in the United States, Mr. John P. Cashman and Mr. Colin D. Watson, two Canadian citizens. Red Isle is wholly owned by the Public Sector Pension Investment Board (“PSP Investments”), a Canadian Crown corporation. Loral Holdings is a wholly owned subsidiary of Loral Space & Communications Inc. (“Loral”), a United States publically listed company.

Transactions with subsidiaries

The Company and its subsidiaries regularly engage in inter-group transactions. These transactions include the purchase and sale of satellite services and communication equipment, providing and receiving network and call centre services, access to orbital slots and management services. The transactions have been entered into over the normal course of operations. Balances and transactions between the Company and its subsidiaries have been eliminated on consolidation and therefore have not been disclosed.

Redemption of the Senior Preferred Shares and Issuance of a Promissory Note

On March 28, 2012, the Company redeemed all of its outstanding senior preferred shares, previously held by Red Isle, for $145.5 million in cash, which included $141.4 million of principal and $4.1 million of accrued

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Telesat Holdings Inc.

Notes to the Condensed Consolidated Interim Financial Statements
June 30, 2012
(all amounts in thousands of Canadian dollars, except where noted)
(unaudited)

dividends on the senior preferred shares (refer to note 10). Following the redemption of the senior preferred shares, the Company issued a subordinated promissory note to Red Isle in the amount of $145.5 million (refer to note 11).

Distributions to Loral and Red Isle

On March 28, 2012, the Company declared a special cash distribution to its shareholders, Loral and Red Isle, as a reduction in stated value, in the amount of $656.5 million. At June 30, 2012, $586.2 million was paid, of which $375.2 million was distributed to Loral and $211.0 million was distributed to Red Isle (see note 12). The remaining $70.3 million return of capital was made during July 2012 with $45.0 million distributed to Loral and $25.3 million distributed to Red Isle.

Key Management Personnel — Special Payments

In connection with the special cash distribution made to the Company’s shareholders, the Board authorized $48.6 million in special payments, with the majority awarded to the Company’s executives. At June 30, 2012, an additional $4.1 million of special payments was accrued (March 31, 2012 — $37.2 million was accrued). During the second quarter of 2012, approximately $33.0 million of special bonus was paid. Additional payments were made in July 2012 with the remaining amounts to be paid over the next three years, with the majority to be paid by the end of 2012, subject to the applicable executives’ continued employment with the Company on the payment date and other conditions.

Independent Board of Directors Special Payment

In 2012, the Company’s four independent directors received a special payment for the assistance they provided in the assessment of various strategic alternatives explored by the Company in 2011. The amount paid to the four independent directors was, in aggregate, $0.9 million.

On March 1, 2011, the Company entered into the Assignment and Assumption Agreements with Loral. The agreement requires the Company to remit to Loral one-half of any revenue received and earned by the Company in connection with the sale of supplemental capacity on the Canadian payload of the ViaSat-1 satellite for the first four years after the service commencement date of the supplemental capacity.

The Company and certain of its subsidiaries regularly engage in transactions with related parties. The Company’s related parties include Loral, Red Isle, Space Systems/Loral (“SSL”), a satellite manufacturer and a wholly owned subsidiary of Loral, XTAR LLC (“XTAR”), a satellite operator and affiliate of Loral, and Loral Canadian Gateway Corporation (“LCGC”), a wholly owned subsidiary of Loral.

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Telesat Holdings Inc.

Notes to the Condensed Consolidated Interim Financial Statements
June 30, 2012
(all amounts in thousands of Canadian dollars, except where noted)
(unaudited)

During the year, the Company and its subsidiaries entered into the following transactions with related parties.


	Sale of goods and services, interest income				Purchase of goods and services, interest expense
Three months ended	June 30, 2012		June 30, 2011		June 30, 2012		June 30, 2011
Loral
– Operating expenses	$	—	$	—	$	1,559	$	1,210
– Interest expense		—		—		362		321
– Intangible assets		—		—		—		12,618
Red Isle
– Interest expense		—		—		3,536		2,465
SSL
– Revenue		456		436		—		—
– Satellite, property and other equipment		—		—		13,584		76,535
– Interest expense		—		—		244		244
XTAR
– Revenue		246		228		—		—
LCGC
– Revenue		—		7		—		—
– Satellite, property and other equipment		—		—		—		4,568


	Sale of goods and services, interest income				Purchase of goods and services, interest expense
Six months ended	June 30, 2012		June 30, 2011		June 30, 2012		June 30, 2011
Loral
– Operating expenses	$	—	$	—	$	3,165	$	2,494
– Interest expense		—		—		724		621
– Intangible assets		—		—		—		12,618
Red Isle
– Interest expense		—		—		6,033		4,931
SSL
– Revenue		912		1,040		—		—
– Satellite, property and other equipment		—		—		38,297		120,941
– Interest expense		—		—		490		495
XTAR
– Revenue		502		463		—		—
LCGC
– Revenue		—		324		—		—
– Satellite, property and other equipment		—		—		—		4,568

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Telesat Holdings Inc.

Notes to the Condensed Consolidated Interim Financial Statements
June 30, 2012
(all amounts in thousands of Canadian dollars, except where noted)
(unaudited)

The following balances were outstanding at the end of the period:


	Amounts owed by related parties				Amounts owed to related parties
At	June 30, 2012		December 31, 2011		June 30, 2012		December 31, 2011
Loral
– Trade receivables/payables	$	—	$	—	$	651	$	—
– Other long-term financial assets/liabilities		2,376		2,387		29,759		28,252
Red Isle
– Other current financial liabilities		—		—		3,653		1,650
– Senior preferred shares		—		—		—		141,435
– Promissory note		—		—		145,466		—
SSL
– Trade receivable/payable		471		380		9,556		4,758
– Other current financial liabilities		—		—		1,351		1,047
– Other long-term financial liabilities		—		—		17,908		15,018

The amounts outstanding are unsecured and will be settled in cash.

The Company has entered into a contract for the construction of Anik G1 with SSL. The total outstanding commitments at June 30, 2012 were $12.0 million (December 31, 2011 — $50.9 million).

The Company funds certain defined benefit pension plans. Contributions made to the plans for the three and six months ended June 30, 2012 were $1.9 million and $3.8 million respectively (June 30, 2011 — $1.3 million and $3.2 million respectively).

19. CONDENSED CONSOLIDATING FINANCIAL INFORMATION

The 12.5% Senior Subordinated Notes were co-issued by Telesat LLC and Telesat Canada, (“the Issuers”) which are 100% owned subsidiaries of Telesat, and were guaranteed fully and unconditionally, on a joint and several basis, by Telesat and certain of its subsidiaries.

The condensed consolidating financial information below for the three and six months ended June 30, 2012 and the three and six months ended June 30, 2011 are presented pursuant to Article 3-10(d) of Regulation S-X. The information presented consists of the operations of Telesat Holdings Inc. Telesat Holdings Inc. primarily holds investments in subsidiaries and equity. Telesat LLC, a U.S. Delaware corporation, is a financing subsidiary that has no assets, liabilities or operations.

The condensed consolidating financial information reflects the investments of Telesat Holdings Inc. in the Issuers, of the Issuers in their respective Guarantor and Non-Guarantor subsidiaries and of the Guarantors in their Non-Guarantor subsidiaries using the equity method.

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Telesat Holdings Inc.

Notes to the Condensed Consolidated Interim Financial Statements
June 30, 2012
(all amounts in thousands of Canadian dollars, except where noted)
(unaudited)

Condensed Consolidating Statements of Income (Loss)
For the three months ended June 30, 2012


	Telesat Holdings			Telesat LLC		Telesat Canada			Guarantor Subsidiaries			Non-guarantor Subsidiaries			Adjustments			Consolidated
Revenue		—			—		187,377			35,946			4,633			(26,043	)		201,913
Operating expenses		—			—		(42,856	)		(30,000	)		(5,438	)		26,043			(52,251	)
		—			—		144,521			5,946			(805	)		—			149,662
Depreciation		—			—		(38,594	)		(12,408	)		(77	)		—			(51,079	)
Amortization		—			—		(9,283	)		149			(16	)		—			(9,150	)
Other operating (losses) gains, net		—			—		(33	)		15			—			—			(18	)
Operating income (loss)		—			—		96,611			(6,298	)		(898	)		—			89,415
(Loss) income from equity investments		(242,876	)		—		(8,927	)		(966	)		—			252,769			—
Interest expense		—			—		(63,412	)		(7	)		(2	)		—			(63,421	)
Loss on refinancing		—			—		(54,164	)		—			—			—			(54,164	)
Interest and other income		—			—		114			130			2			—			246
Loss on changes in fair value of financial instruments		—			—		(149,990	)		—			—			—			(149,990	)
(Loss) gain on foreign exchange		—			—		(51,891	)		(3,931	)		2,077			—			(53,745	)
(Loss) income before tax		(242,876	)		—		(231,659	)		(11,072	)		1,179			252,769			(231,659	)
Tax (expense) benefit		—			—		(11,217	)		51			(51	)		—			(11,217	)
Net (loss) income		(242,876	)		—		(242,876	)		(11,021	)		1,128			252,769			(242,876	)

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Telesat Holdings Inc.

Notes to the Condensed Consolidated Interim Financial Statements
June 30, 2012
(all amounts in thousands of Canadian dollars, except where noted)
(unaudited)

Condensed Consolidating Statements of Income (Loss)
For the six months ended June 30, 2012


	Telesat Holdings			Telesat LLC		Telesat Canada			Guarantor Subsidiaries			Non-guarantor Subsidiaries			Adjustments			Consolidated
Revenue		—			—		369,752			70,893			9,777			(52,251	)		398,171
Operating expenses		(15	)		—		(111,638	)		(64,349	)		(11,695	)		52,251			(135,446	)
		(15	)		—		258,114			6,544			(1,918	)		—			262,725
Depreciation		—			—		(76,135	)		(24,751	)		(153	)		—			(101,039	)
Amortization		—			—		(18,565	)		345			(32	)		—			(18,252	)
Other operating losses, net		—			—		(43	)		(33	)		—			—			(76	)
Operating (loss) income		(15	)		—		163,371			(17,895	)		(2,103	)		—			143,358
(Loss) income from equity investments		(141,507	)		—		(20,979	)		(2,210	)		—			164,696			—
Interest expense		(2,380	)		—		(114,939	)		(9	)		(2	)		—			(117,330	)
Loss on refinancing		—			—		(76,052	)		—			—			—			(76,052	)
Interest and other income		—			—		608			361			2			—			971
Loss on changes in fair value of financial instruments		—			—		(89,017	)		—			—			—			(89,017	)
(Loss) gain on foreign exchange		—			—		6,334			(720	)		(587	)		—			5,027
(Loss) income before tax		(143,902	)		—		(130,674	)		(20,473	)		(2,690	)		164,696			(133,043	)
Tax (expense) benefit		—			—		(10,833	)		39			(65	)		—			(10,859	)
Net (loss) income		(143,902	)		—		(141,507	)		(20,434	)		(2,755	)		164,696			(143,902	)

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Telesat Holdings Inc.

Notes to the Condensed Consolidated Interim Financial Statements
June 30, 2012
(all amounts in thousands of Canadian dollars, except where noted)
(unaudited)

Condensed Consolidating Statements of Income (Loss)
For the three months ended June 30, 2011


	Telesat Holdings			Telesat LLC		Telesat Canada			Guarantor Subsidiaries			Non-guarantor Subsidiaries			Adjustments			Consolidated
Revenue		—			—		180,338			24,935			5,351			(10,204	)		200,420
Operating expenses		—			—		(32,125	)		(18,078	)		(5,727	)		10,204			(45,726	)
		—			—		148,213			6,857			(376	)		—			154,694
Depreciation		—			—		(35,806	)		(12,907	)		(84	)		—			(48,797	)
Amortization		—			—		(10,619	)		383			(25	)		—			(10,261	)
Other operating gains, net		—			—		1			1			—			—			2
Operating income (loss)		—			—		101,789			(5,666	)		(485	)		—			95,638
Income (loss) from equity investments		24,231			—		(7,839	)		2,689			—			(19,081	)		—
Interest (expense) income		(2,466	)		—		(52,939	)		595			(2	)		—			(54,812	)
Interest and other income		—			—		146			315			11			—			472
Loss on changes in fair value of financial instruments		—			—		(29,049	)		—			—			—			(29,049	)
Gain (loss) on foreign exchange		—			—		16,030			(2,198	)		(432	)		—			13,400
Income (loss) before tax		21,765			—		28,138			(4,265	)		(908	)		(19,081	)		25,649
Tax (expense) benefit		—			—		(3,907	)		(40	)		63			—			(3,884	)
Net income (loss)		21,765			—		24,231			(4,305	)		(845	)		(19,081	)		21,765

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Telesat Holdings Inc.

Notes to the Condensed Consolidated Interim Financial Statements
June 30, 2012
(all amounts in thousands of Canadian dollars, except where noted)
(unaudited)

Condensed Consolidating Statements of Income (Loss)
For the six months ended June 30, 2011


	Telesat Holdings			Telesat LLC		Telesat Canada			Guarantor Subsidiaries			Non-guarantor Subsidiaries			Adjustments			Consolidated
Revenue		—			—		364,457			49,454			10,470			(21,181	)		403,200
Operating expenses		—			—		(63,375	)		(38,600	)		(11,676	)		21,181			(92,470	)
		—			—		301,082			10,854			(1,206	)		—			310,730
Depreciation		—			—		(72,154	)		(25,861	)		(168	)		—			(98,183	)
Amortization		—			—		(21,240	)		782			(44	)		—			(20,502	)
Other operating losses, net		—			—		(501	)		(239	)		(6	)		—			(746	)
Operating income (loss)		—			—		207,187			(14,464	)		(1,424	)		—			191,299
Income (loss) from equity investments		141,621			—		(15,364	)		(1,625	)		—			(124,632	)		—
Interest (expense) income		(4,931	)		—		(108,255	)		643			(2	)		—			(112,545	)
Interest and other income		—			—		465			616			83			—			1,164
Loss on changes in fair value of financial instruments		—			—		(14,575	)		—			—			—			(14,575	)
Gain (loss) on foreign exchange		—			—		92,624			3,472			(4,345	)		—			91,751
Income (loss) before tax		136,690			—		162,082			(11,358	)		(5,688	)		(124,632	)		157,094
Tax (expense) benefit		—			—		(20,461	)		47			10			—			(20,404	)
Net income (loss)		136,690			—		141,621			(11,311	)		(5,678	)		(124,632	)		136,690

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Telesat Holdings Inc.

Notes to the Condensed Consolidated Interim Financial Statements
June 30, 2012
(all amounts in thousands of Canadian dollars, except where noted)
(unaudited)

Condensed Consolidating Balance Sheets
As at June 30, 2012


	Telesat Holdings		Telesat LLC		Telesat Canada			Guarantor Subsidiaries			Non-guarantor Subsidiaries		Adjustments			Consolidated
Assets
Cash and cash equivalents		—		—		108,932			17,805			2,368		—			129,105
Trade and other receivables		—		—		30,757			17,278			1,351		—			49,386
Other current financial assets		—		—		42			263			6,705		—			7,010
Intercompany receivable		—		—		371,310			158,903			142,840		(673,053	)		—
Prepaid expenses and other current assets		—		—		22,101			7,454			98		—			29,653
Total current assets		—		—		533,142			201,703			153,362		(673,053	)		215,154
Satellites, property and other equipment		—		—		1,862,208			317,122			1,883		—			2,181,213
Other long-term financial assets		—		—		69,601			851			413		—			70,865
Other long-term assets		—		—		5,921			1,709			—		—			7,630
Intangible assets		—		—		830,332			46,127			72		—			876,531
Investment in affiliates		1,004,781		—		1,157,858			765,250			261		(2,928,150	)		—
Goodwill		—		—		2,078,056			343,876			24,671		—			2,446,603
Total assets		1,004,781		—		6,537,118			1,676,638			180,662		(3,601,203	)		5,797,996
Liabilities
Trade and other payables		—		—		44,523			12,015			2,612		—			59,150
Other current financial liabilities		—		—		95,295			1,339			27		—			96,661
Intercompany payable		45,704		—		203,487			390,967			32,895		(673,053	)		—
Other current liabilities		—		—		68,943			1,960			484		—			71,387
Current indebtedness		—		—		18,820			1			—		—			18,821
Total current liabilities		45,704		—		431,068			406,282			36,018		(673,053	)		246,019
Long-term indebtedness		—		—		3,250,956			—			—		—			3,250,956
Deferred tax liabilities		—		—		460,497			(397	)		—		—			460,100
Other long-term financial liabilities		—		—		299,702			3,457			290		—			303,449
Other long-term liabilities		—		—		423,187			10,559			175		—			433,921
Promissory note		—		—		144,474			—			—		—			144,474
Total liabilities		45,704		—		5,009,884			419,901			36,483		(673,053	)		4,838,919
Shareholders’ Equity
Share capital		711,976		—		1,589,063			1,167,015			104,434		(2,860,512	)		711,976
Accumulated earnings (deficit)		226,092		—		(148,029	)		155,291			39,314		(46,576	)		226,092
Reserves		21,009		—		86,200			(65,569	)		431		(21,062	)		21,009
Total shareholders’ equity		959,077		—		1,527,234			1,256,737			144,179		(2,928,150	)		959,077
Total liabilities and shareholders’ equity		1,004,781		—		6,537,118			1,676,638			180,662		(3,601,203	)		5,797,996

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Telesat Holdings Inc.

Notes to the Condensed Consolidated Interim Financial Statements
June 30, 2012
(all amounts in thousands of Canadian dollars, except where noted)
(unaudited)

Condensed Consolidating Balance Sheet
As at December 31, 2011


	Telesat Holdings		Telesat LLC		Telesat Canada		Guarantor Subsidiaries			Non-guarantor Subsidiaries		Adjustments			Consolidated
Assets
Cash and cash equivalents		—		—		256,837		18,654			2,471		—			277,962
Trade and other receivables		—		—		27,010		18,670			1,109		—			46,789
Other current financial assets		—		—		26		255			6,729		—			7,010
Intercompany receivable		—		—		349,662		137,658			148,153		(635,473	)		—
Prepaid expenses and other current assets		—		—		14,052		8,019			55		—			22,126
Total current assets		—		—		647,587		183,256			158,517		(635,473	)		353,887
Satellites, property and other equipment		—		—		1,808,997		340,992			1,926		—			2,151,915
Other long-term financial assets		—		—		141,084		896			428		—			142,408
Other long-term assets		—		—		3,010		2,526			—		—			5,536
Intangible assets		—		—		848,898		47,077			103		—			896,078
Investment in affiliates		1,878,938		—		1,184,893		1,495,142			260		(4,559,233	)		—
Goodwill		—		—		2,078,056		343,876			24,671		—			2,446,603
Total assets		1,878,938		—		6,712,525		2,413,765			185,905		(5,194,706	)		5,996,427
Liabilities
Trade and other payables		—		—		33,405		9,118			2,633		—			45,156
Other current financial liabilities		1,650		—		79,995		1,308			35		—			82,988
Intercompany payable		45,689		—		179,352		375,012			35,420		(635,473	)		—
Other current liabilities		—		—		64,393		3,111			373		—			67,877
Current indebtedness		—		—		86,494		1			—		—			86,495
Total current liabilities		47,339		—		443,639		388,550			38,461		(635,473	)		282,516
Long-term indebtedness		—		—		2,748,131		—			—		—			2,748,131
Deferred tax liabilities		—		—		452,208		(312	)		—		—			451,896
Other long-term financial liabilities		—		—		255,630		3,862			291		—			259,783
Other long-term liabilities		—		—		411,533		10,726			243		—			422,502
Senior preferred shares		141,435		—		—		—			—		—			141,435
Total liabilities		188,774		—		4,311,141		402,826			38,995		(635,473	)		4,306,263
Shareholders’ Equity
Share capital		1,298,178		—		2,320,730		1,898,682			104,434		(4,323,846	)		1,298,178
Accumulated earnings (deficit)		369,992		—		35,415		176,382			42,071		(253,868	)		369,992
Reserves		21,994		—		45,239		(64,125	)		405		18,481			21,994
Total shareholders’ equity		1,690,164		—		2,401,384		2,010,939			146,910		(4,559,233	)		1,690,164
Total liabilities and shareholders’ equity		1,878,938		—		6,712,525		2,413,765			185,905		(5,194,706	)		5,996,427

TABLE OF CONTENTS

Telesat Holdings Inc.

Notes to the Condensed Consolidated Interim Financial Statements
June 30, 2012
(all amounts in thousands of Canadian dollars, except where noted)
(unaudited)

Condensed Consolidating Statements of Cash Flows
For the six months ended June 30, 2012


	Telesat Holdings			Telesat LLC		Telesat Canada			Guarantor Subsidiaries			Non-guarantor Subsidiaries			Adjustments			Consolidated
Cash flows from operating activities
Net (loss) income		(143,902	)		—		(141,507	)		(20,434	)		(2,755	)		164,696			(143,902	)
Adjustments to reconcile net (loss) income to cash flows from operating activities:
Amortization and depreciation		—			—		94,700			24,406			185			—			119,291
Deferred tax expense (benefit)		—			—		10,773			(91	)		—			—			10,682
Unrealized foreign exchange (gain) loss		—			—		(11,106	)		(835	)		542			—			(11,399	)
Loss on derivatives		—			—		89,017			—			—			—			89,017
Share-based compensation		—			—		434			106			58			—			598
Loss (income) from equity investments		141,507			—		20,979			2,210			—			(164,696	)		—
Loss on disposal of assets		—			—		43			33			—			—			76
Loss on refinancing		—			—		76,052			—			—			—			76,052
Other		—			—		(14,478	)		(9,796	)		(240	)		—			(24,514	)
Customer prepayments on future satellite services		—			—		38,345			—			—			—			38,345
Insurance proceeds		—			—		314			—			—			—			314
Operating assets and liabilities		(1,635	)		—		(13,255	)		10,383			2,250			—			(2,257	)
Net cash from (used in) operating activities		(4,030	)		—		150,311			5,982			40			—			152,303
Cash flows from investing activities
Satellite programs		—			—		(120,839	)		(1,013	)		—			—			(121,852	)
Purchases of other property and equipment		—			—		(3,501	)		(1,429	)		(121	)		—			(5,051	)
Proceeds from sale of assets		—			—		6			14			—			—			20
Return of capital from subsidiaries		731,667			—		—			731,667			—			(1,463,334	)		—
Dividends received		—			—		3,963			—			—			(3,963	)		—
Net cash from (used in) investing activities		731,667			—		(120,371	)		729,239			(121	)		(1,467,297	)		(126,883	)
Cash flows from financing activities
Proceeds from indebtedness		—			—		3,099,658			—			—			—			3,099,658
Proceeds from issue of promissory note		—			—		145,466			—			—			—			145,466
Repayment of indebtedness		—			—		(2,601,803	)		—			—			—			(2,601,803	)
Repayment of senior preferred shares		(141,435	)		—		—			—			—			—			(141,435	)
Payment of premium on early retirement of indebtedness		—			—		(39,444	)		—			—			—			(39,444	)
Payment of debt issue costs		—			—		(48,140	)		—			—			—			(48,140	)
Return of capital to shareholders		(586,202	)		—		(731,667	)		(731,667	)		—			1,463,334			(586,202	)
Satellite performance incentive payments		—			—		(1,915	)		(93	)		—			—			(2,008	)
Dividends paid		—			—		—			(3,963	)		—			3,963			—
Net cash from (used in) financing activities		(727,637	)		—		(177,845	)		(735,723	)		—			1,467,297			(173,908	)
Effect of changes in exchange rates on cash and cash equivalents		—			—		—			(347	)		(22	)		—			(369	)
Decrease in cash and cash equivalents		—			—		(147,905	)		(849	)		(103	)		—			(148,857	)
Cash and cash equivalents, beginning of period		—			—		256,837			18,654			2,471			—			277,962
Cash and cash equivalents, end of period		—			—		108,932			17,805			2,368			—			129,105

TABLE OF CONTENTS

Telesat Holdings Inc.

Notes to the Condensed Consolidated Interim Financial Statements
June 30, 2012
(all amounts in thousands of Canadian dollars, except where noted)
(unaudited)

Condensed Consolidating Statements of Cash Flows
For the six months ended June 30, 2011


	Telesat Holdings			Telesat LLC		Telesat Canada			Guarantor Subsidiaries			Non-guarantor Subsidiaries			Adjustments			Consolidated

Cash flows from operating activities
Net income (loss)		136,690			—		141,621			(11,311	)		(5,678	)		(124,632	)		136,690
Adjustments to reconcile net income (loss) to cash flows from operating activities:
Amortization and depreciation		—			—		93,394			25,079			212			—			118,685
Deferred tax expense (benefit)		—			—		19,036			(130	)		(100	)		—			18,806
Unrealized foreign exchange (gain) loss		—			—		(102,010	)		(4,237	)		4,044			—			(102,203	)
Loss on derivatives		—			—		14,575			—			—			—			14,575
Dividends on senior preferred shares		4,931			—		—			—			—			—			4,931
Share-based compensation		—			—		1,036			192			99			—			1,327
(Income) loss from equity investments		(141,621	)		—		15,364			1,625			—			124,632			—
Loss on disposal of assets		—			—		501			239			6			—			746
Other		—			—		(14,194	)		(1,077	)		60			—			(15,211	)
Customer prepayments on future satellite services		—			—		16,906			2,500			—			—			19,406
Insurance proceeds		—			—		5,943			—			—			—			5,943
Operating assets and liabilities		—			—		14,142			(19,893	)		783			—			(4,968	)
Net cash from (used in) operating activities		—			—		206,314			(7,013	)		(574	)		—			198,727
Cash flows from investing activities
Satellite programs		—			—		(187,364	)		(44,272	)		—			—			(231,636	)
Purchases of other property and equipment		—			—		(8,708	)		(530	)		(47	)		—			(9,285	)
Purchase of intangible		—			—		—			(12,618	)		—						(12,618	)
Proceeds from sale of assets		—			—		104			—			—			—			104
Business acquisitions		—			—		(9,264	)		9,264			—			—			—
Dividends received		—			—		7,531			—			—			(7,531	)		—
Net cash from (used in) investing activities		—			—		(197,701	)		(48,156	)		(47	)		(7,531	)		(253,435	)
Cash flows from financing activities
Repayment of indebtedness		—			—		(19,240	)		—			—			—			(19,240	)
Satellite performance incentive payments		—			—		(2,956	)		—			—			—			(2,956	)
Intercompany loan		—			—		(55,145	)		55,145			—			—			—
Dividends paid		—			—		—			(7,531	)		—			7,531			—
Net cash from (used in) financing activities		—			—		(77,341	)		47,614			—			7,531			(22,196	)
Effect of changes in exchange rates on cash and cash equivalents		—			—		—			(913	)		(54	)		—			(967	)
Decrease in cash and cash equivalents		—			—		(68,728	)		(8,468	)		(675	)		—			(77,871	)
Cash and cash equivalents, beginning of period		—			—		196,682			21,135			2,478			—			220,295
Cash and cash equivalents, end of period		—			—		127,954			12,667			1,803			—			142,424

TABLE OF CONTENTS

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 Telesat Holdings Inc.’s unaudited condensed consolidated interim financial statements beginning at Page 1 of this Quarterly Report. As used in this management’s discussion and analysis of financial condition and results of operations (“MD&A”), unless the context states or requires otherwise, references to “Telesat”, “Company”, “we”, “our” and “us” refer to Telesat Holdings Inc. and its subsidiaries. Unless the context states or requires otherwise, reference herein to “the consolidated financial statements” or “the financial statements” or similar terms refer to the unaudited condensed consolidated interim financial statements of Telesat Holdings Inc. included herein.

The dollar amounts presented in this Quarterly Report are in Canadian dollars unless otherwise specified. On June 30, 2012, the Bloomberg exchange rate was USD$1 = CAD$1.0166. The average exchange rate for the three months ended June 30, 2012 was USD$1 = CAD$1.0062.

The financial information presented herein has been prepared in accordance with International Accounting Standard 34, Interim Financial Reporting (“IAS 34”). IFRS differs in certain respects from United States GAAP; however, the Securities and Exchange Commission (“SEC”) adopted Release No. 33-8879 to accept foreign private issuers financial statements prepared in accordance with IFRS as issued by the International Accounting Standards Board (“IASB”) without reconciliation to United States GAAP in their filings with the SEC. As a result, we are not presenting a reconciliation to United States GAAP in this Quarterly Report.

The information contained in this MD&A takes into account information available up to August 1, 2012, unless otherwise noted.

Forward-Looking Statements Safe Harbor

This Quarterly Report contains statements that are not based on historical fact and are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. When used in this Quarterly Report, the words “believes”, “expects”, “plans”, “may”, “will”, “would”, “could”, “should”, “anticipates”, “estimates”, “project”, “targeted”, “intend” or “outlook” or other variations of these words or other similar expressions are intended to identify forward-looking statements and information. Actual results may differ materially from the expectations expressed or implied in the forward-looking statements as a result of known and unknown risks and uncertainties. Detailed information about some of the known risks and uncertainties is included in the “Risk Factors” section of Telesat Canada’s Annual Report on Form 20-F for the fiscal year ended December 31, 2011 filed with the SEC as well as Telesat Canada’s other filings with the SEC which can be obtained on the SEC’s website at http://www.sec.gov. Readers are specifically referred to those documents. Known risks and uncertainties include but are not limited to: (1) financial risks, including economic downturns, restrictions imposed by covenants contained in the agreements governing our debt, our leverage, volatility in exchange rates, and our dependence on a few large customers for a significant proportion of our revenue; (2) risks associated with operating satellites and providing satellite services, including satellite construction or launch delays, launch failures, in-orbit failures or impaired satellite performance, the ability to obtain or renew satellite insurance at all or on reasonable terms, and competition from other providers of telecommunications services; (3) risks associated with domestic and foreign government regulation; and (4) other risks, including potential conflicts of interest with our significant shareholders, litigation, and market risks. The foregoing list of important factors is not exhaustive. The information contained in this Quarterly Report reflects our beliefs, assumptions, intentions, plans and expectations as of the date of this report. We disclaim any obligation or undertaking to update or revise the information herein.

OVERVIEW OF THE BUSINESS

We are a leading global fixed satellite services operator with offices and facilities around the world. We provide our satellite and communication services from a fleet of satellites that occupy Canadian and other orbital locations. We are organized into one operating segment, the satellite services business; however, we provide our services through three business categories: Broadcast, Enterprise and Consulting and Other.

TELESAT CANADA

Quarterly Report

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Telesat Holdings Inc.

Condensed Consolidated Statements of Income For the period ended June 30

Telesat Holdings Inc.

Condensed Consolidated Statements of Comprehensive Income For the period ended June 30

Telesat Holdings Inc.

Condensed Consolidated Statements of Changes in Shareholders' Equity

Telesat Holdings Inc.

Condensed Consolidated Balance Sheets

Telesat Holdings Inc.

Condensed Consolidated Statements of Cash Flows For the six months ended June 30

Telesat Holdings Inc. Notes to the Condensed Consolidated Interim Financial StatementsJune 30, 2012 (all amounts in thousands of Canadian dollars, except where noted)(unaudited)

1. BACKGROUND OF THE COMPANY

2. BASIS OF PRESENTATION

Statement of Compliance

Basis of Consolidation

3. SIGNIFICANT ACCOUNTING POLICIES

Future Changes in Accounting Policies

Telesat Holdings Inc. Notes to the Condensed Consolidated Interim Financial StatementsJune 30, 2012 (all amounts in thousands of Canadian dollars, except where noted)(unaudited)

3. SIGNIFICANT ACCOUNTING POLICIES – (continued)

Financial instruments

Presentation of Financial Statements

Accounting for post employment benefits

Fair value measurement and disclosure requirements

4. SEGMENT INFORMATION

Telesat Holdings Inc. Notes to the Condensed Consolidated Interim Financial StatementsJune 30, 2012 (all amounts in thousands of Canadian dollars, except where noted)(unaudited)

4. SEGMENT INFORMATION – (continued)

Geographic Information

Telesat Holdings Inc. Notes to the Condensed Consolidated Interim Financial StatementsJune 30, 2012 (all amounts in thousands of Canadian dollars, except where noted)(unaudited)

4. SEGMENT INFORMATION – (continued)

Major Customers

5. OPERATING EXPENSES

6. INTEREST EXPENSE

Telesat Holdings Inc. Notes to the Condensed Consolidated Interim Financial StatementsJune 30, 2012 (all amounts in thousands of Canadian dollars, except where noted)(unaudited)

7. INCOME TAXES

8. SATELLITES, PROPERTY AND OTHER EQUIPMENT

Telesat Holdings Inc. Notes to the Condensed Consolidated Interim Financial StatementsJune 30, 2012 (all amounts in thousands of Canadian dollars, except where noted)(unaudited)

9. INDEBTEDNESS

Telesat Holdings Inc. Notes to the Condensed Consolidated Interim Financial StatementsJune 30, 2012 (all amounts in thousands of Canadian dollars, except where noted)(unaudited)

9. INDEBTEDNESS – (continued)

i — Revolving Facility

ii — Term Loan A Facility

iii — Term Loan B — Canadian Facility

iv — Term Loan B — U.S. Facility

6% Senior Notes due May 15, 2017

Telesat Holdings Inc. Notes to the Condensed Consolidated Interim Financial StatementsJune 30, 2012 (all amounts in thousands of Canadian dollars, except where noted)(unaudited)

9. INDEBTEDNESS – (continued)

10. SENIOR PREFERRED SHARES

11. PROMISSORY NOTE

12. SHARE CAPITAL

13. CAPITAL DISCLOSURES

Telesat Holdings Inc. Notes to the Condensed Consolidated Interim Financial StatementsJune 30, 2012 (all amounts in thousands of Canadian dollars, except where noted)(unaudited)

13. CAPITAL DISCLOSURES – (continued)

14. FINANCIAL INSTRUMENTS

Measurement of Risks

Credit Risk

Foreign Exchange Risk

Telesat Holdings Inc. Notes to the Condensed Consolidated Interim Financial StatementsJune 30, 2012 (all amounts in thousands of Canadian dollars, except where noted)(unaudited)

14. FINANCIAL INSTRUMENTS – (continued)

Interest Rate Risk

Liquidity Risk

Telesat Holdings Inc. Notes to the Condensed Consolidated Interim Financial StatementsJune 30, 2012 (all amounts in thousands of Canadian dollars, except where noted)(unaudited)

14. FINANCIAL INSTRUMENTS – (continued)

Assets pledged as security

Telesat Holdings Inc. Notes to the Condensed Consolidated Interim Financial StatementsJune 30, 2012 (all amounts in thousands of Canadian dollars, except where noted)(unaudited)

14. FINANCIAL INSTRUMENTS – (continued)

Fair Value

Fair value of derivative financial instruments

Telesat Holdings Inc. Notes to the Condensed Consolidated Interim Financial StatementsJune 30, 2012 (all amounts in thousands of Canadian dollars, except where noted)(unaudited)

14. FINANCIAL INSTRUMENTS – (continued)

Reconciliation of fair value of derivative assets and liabilities

Telesat Holdings Inc. Notes to the Condensed Consolidated Interim Financial StatementsJune 30, 2012 (all amounts in thousands of Canadian dollars, except where noted)(unaudited)

15. EMPLOYEE BENEFIT PLANS

16. SUPPLEMENTAL CASH FLOW INFORMATION

Telesat Holdings Inc. Notes to the Condensed Consolidated Interim Financial StatementsJune 30, 2012 (all amounts in thousands of Canadian dollars, except where noted)(unaudited)

17. COMMITMENTS AND CONTINGENCIES

Distribution to Shareholders

Condensed Consolidated Statements of Income
For the period ended June 30

Condensed Consolidated Statements of Comprehensive Income
For the period ended June 30

Condensed Consolidated Statements of Cash Flows
For the six months ended June 30

Telesat Holdings Inc.

Notes to the Condensed Consolidated Interim Financial Statements
June 30, 2012
(all amounts in thousands of Canadian dollars, except where noted)
(unaudited)

Telesat Holdings Inc.

Notes to the Condensed Consolidated Interim Financial Statements
June 30, 2012
(all amounts in thousands of Canadian dollars, except where noted)
(unaudited)

Telesat Holdings Inc.

Notes to the Condensed Consolidated Interim Financial Statements
June 30, 2012
(all amounts in thousands of Canadian dollars, except where noted)
(unaudited)

Telesat Holdings Inc.

Notes to the Condensed Consolidated Interim Financial Statements
June 30, 2012
(all amounts in thousands of Canadian dollars, except where noted)
(unaudited)

Telesat Holdings Inc.

Notes to the Condensed Consolidated Interim Financial Statements
June 30, 2012
(all amounts in thousands of Canadian dollars, except where noted)
(unaudited)

Telesat Holdings Inc.

Notes to the Condensed Consolidated Interim Financial Statements
June 30, 2012
(all amounts in thousands of Canadian dollars, except where noted)
(unaudited)

Telesat Holdings Inc.

Notes to the Condensed Consolidated Interim Financial Statements
June 30, 2012
(all amounts in thousands of Canadian dollars, except where noted)
(unaudited)

Telesat Holdings Inc.

Notes to the Condensed Consolidated Interim Financial Statements
June 30, 2012
(all amounts in thousands of Canadian dollars, except where noted)
(unaudited)

Telesat Holdings Inc.

Notes to the Condensed Consolidated Interim Financial Statements
June 30, 2012
(all amounts in thousands of Canadian dollars, except where noted)
(unaudited)

Telesat Holdings Inc.

Notes to the Condensed Consolidated Interim Financial Statements
June 30, 2012
(all amounts in thousands of Canadian dollars, except where noted)
(unaudited)

Telesat Holdings Inc.

Notes to the Condensed Consolidated Interim Financial Statements
June 30, 2012
(all amounts in thousands of Canadian dollars, except where noted)
(unaudited)

Telesat Holdings Inc.

Notes to the Condensed Consolidated Interim Financial Statements
June 30, 2012
(all amounts in thousands of Canadian dollars, except where noted)
(unaudited)

Telesat Holdings Inc.

Notes to the Condensed Consolidated Interim Financial Statements
June 30, 2012
(all amounts in thousands of Canadian dollars, except where noted)
(unaudited)

Telesat Holdings Inc.

Notes to the Condensed Consolidated Interim Financial Statements
June 30, 2012
(all amounts in thousands of Canadian dollars, except where noted)
(unaudited)

Telesat Holdings Inc.

Notes to the Condensed Consolidated Interim Financial Statements
June 30, 2012
(all amounts in thousands of Canadian dollars, except where noted)
(unaudited)

Telesat Holdings Inc.

Notes to the Condensed Consolidated Interim Financial Statements
June 30, 2012
(all amounts in thousands of Canadian dollars, except where noted)
(unaudited)

Telesat Holdings Inc.

Notes to the Condensed Consolidated Interim Financial Statements
June 30, 2012
(all amounts in thousands of Canadian dollars, except where noted)
(unaudited)

Telesat Holdings Inc.

Notes to the Condensed Consolidated Interim Financial Statements
June 30, 2012
(all amounts in thousands of Canadian dollars, except where noted)
(unaudited)

Telesat Holdings Inc.

Notes to the Condensed Consolidated Interim Financial Statements
June 30, 2012
(all amounts in thousands of Canadian dollars, except where noted)
(unaudited)

Telesat Holdings Inc.

Notes to the Condensed Consolidated Interim Financial Statements
June 30, 2012
(all amounts in thousands of Canadian dollars, except where noted)
(unaudited)

Condensed Consolidating Statements of Income (Loss)
For the three months ended June 30, 2012

Telesat Holdings Inc.

Notes to the Condensed Consolidated Interim Financial Statements
June 30, 2012
(all amounts in thousands of Canadian dollars, except where noted)
(unaudited)

Condensed Consolidating Statements of Income (Loss)
For the six months ended June 30, 2012

Telesat Holdings Inc.

Notes to the Condensed Consolidated Interim Financial Statements
June 30, 2012
(all amounts in thousands of Canadian dollars, except where noted)
(unaudited)

Condensed Consolidating Statements of Income (Loss)
For the three months ended June 30, 2011

Telesat Holdings Inc.

Notes to the Condensed Consolidated Interim Financial Statements
June 30, 2012
(all amounts in thousands of Canadian dollars, except where noted)
(unaudited)

Condensed Consolidating Statements of Income (Loss)
For the six months ended June 30, 2011

Telesat Holdings Inc.

Notes to the Condensed Consolidated Interim Financial Statements
June 30, 2012
(all amounts in thousands of Canadian dollars, except where noted)
(unaudited)

Condensed Consolidating Balance Sheets
As at June 30, 2012

Telesat Holdings Inc.

Notes to the Condensed Consolidated Interim Financial Statements
June 30, 2012
(all amounts in thousands of Canadian dollars, except where noted)
(unaudited)

Condensed Consolidating Balance Sheet
As at December 31, 2011

Telesat Holdings Inc.

Notes to the Condensed Consolidated Interim Financial Statements
June 30, 2012
(all amounts in thousands of Canadian dollars, except where noted)
(unaudited)

Condensed Consolidating Statements of Cash Flows
For the six months ended June 30, 2012

Telesat Holdings Inc.

Notes to the Condensed Consolidated Interim Financial Statements
June 30, 2012
(all amounts in thousands of Canadian dollars, except where noted)
(unaudited)

Condensed Consolidating Statements of Cash Flows
For the six months ended June 30, 2011

Telesat Canada 6-K