Telesat(US:TSAT)2023-03-29 11:01Introduction This section provides an overview of Telesat Corporation's structure, its subsidiaries, and financial reporting standards Overview Telesat Corporation, incorporated in 2020, is the general partner of Telesat Partnership LP, reporting in IFRS and Canadian dollars - Telesat Corporation was incorporated on October 21, 2020, and is the general partner of Telesat Partnership LP, owning 100% of its operating subsidiaries16 - References to 'Telesat,' 'Company,' 'we,' 'us,' or 'our' refer to Telesat Canada and its subsidiaries before the Transaction, and Telesat Corporation and its subsidiaries (including Telesat Canada) after the Transaction1821 - Financial information is prepared in accordance with International Financial Reporting Standards (IFRS) and presented in Canadian dollars2324 Cautionary Note Regarding Forward-Looking Statements Forward-looking statements are not guarantees, with actual results subject to financial, operational, and regulatory risks Overview Forward-looking statements are not guarantees, with actual results subject to financial, operational, and regulatory risks - The report contains forward-looking statements identified by words like 'believes,' 'expects,' 'plans,' 'may,' 'will,' 'would,' 'could,' 'should,' 'anticipates,' 'estimates,' 'project,' 'intend' or 'outlook'25 - Actual results may differ materially from anticipated results due to risks and uncertainties, including financial factors (inflation, interest rates, capital access), satellite services (customer dependence, launch/in-orbit failures, competition), Lightspeed constellation (technological challenges, spectrum, regulations, supply chain, capital, competition), regulatory risks, and COVID-19 impacts2526 - Forward-looking statements are based on current expectations, estimates, forecasts, and projections, and are not guarantees of future performance27 Glossary of Terms This section defines key financial, corporate governance, share class, and operational terms used in the report Overview This section defines key financial, corporate governance, share class, and operational terms used in the report - Defines financial instruments such as '2026 Senior Secured Notes', 'Senior Notes', and 'Senior Secured Credit Facilities'354647 - Clarifies corporate governance terms like 'Change of Control', 'Independent Audit Committee Director', and 'Investor Rights Agreements'374243 - Explains various share and unit classes, including 'Class A Shares', 'Class B Variable Voting Shares', 'Class C Shares', 'Golden Share', and 'Telesat Partnership Units'3839404155 Part I This part covers the company's identity, risk factors, business overview, and financial performance ITEM 1. Identity of Directors, Senior Management and Advisers Information on directors, senior management, and advisers is not applicable in this section - Information regarding the identity of directors, senior management, and advisers is marked as 'Not applicable' for this item63 ITEM 2. Offer Statistics and Expected Timetable Offer statistics and expected timetable details are not applicable in this report section - Offer statistics and expected timetable information is marked as 'Not applicable' for this item64 ITEM 3. Key Information This section details various risk factors impacting Telesat's business, including satellite, Lightspeed, regulatory, and financial aspects - Investing in Telesat Public Shares involves a high degree of risk, which could materially affect business, financial condition, liquidity, and stock price67 D. Risk Factors This sub-section details significant operational, Lightspeed, financial, ownership, and tax risks impacting Telesat - Risks related to Telesat's business include in-orbit satellite failures, declining demand for DTH services, intense competition, and technological changes7075109118122 - The Lightspeed constellation faces numerous risks, including technological challenges, securing spectrum rights, governmental regulations, supply chain disruptions, and the ability to raise sufficient capital6971152154157 - Financial risks include increased indebtedness, capital-intensive business operations, and significant exposure to foreign exchange rate fluctuations, particularly with U.S. dollar-denominated debt7495139142234 - Major shareholders (MHR and PSP Investments) have substantial governance rights, and their interests may conflict with other shareholders7499158160257258260 - Regulatory risks involve maintaining authorizations, coordinating with other satellite operators, and potential limitations from ITU rules7174199214220228283287293297298299300302305306308 - Global supply chain issues and inflation have delayed Lightspeed financing and construction, increasing costs and potentially impacting regulatory milestones146147148149 - The company's goodwill and intangible asset values, particularly those supported by the Lightspeed constellation, could be adversely affected by impairment if the program does not proceed as planned135137 ITEM 4. Information on the Company This section details Telesat's history, business operations, strengths, strategy, and infrastructure, including Lightspeed A. History and Development of the Company This sub-section details Telesat Corporation's incorporation in 2020, the 2021 Transaction, and the company's historical development - Telesat Corporation was incorporated on October 21, 2020, and became the publicly traded general partner of Telesat Partnership LP following the Transaction in November 2021311312314 - The Transaction involved Loral stockholders and Telesat Canada equity holders exchanging interests for equity in Telesat Corporation and/or Telesat Partnership, with Loral becoming a wholly-owned subsidiary of Telesat Partnership312314 - Telesat's history dates back to 1969 with the Telesat Canada Act, pioneering commercial geostationary satellites and various innovations in satellite communications324 - Telesat Government Solutions (TGS), a wholly-owned subsidiary, was established in March 2022 and approved by the U.S. Government Defense Counterintelligence and Security Agency as a Foreign Ownership, Control, or Influence—mitigated entity334 B. Business Overview Telesat, a global satellite operator, leverages its GEO fleet and Lightspeed development, strengths, and government support - Telesat is a leading global satellite operator with over 50 years of experience, operating 14 GEO satellites and developing the LEO Lightspeed constellation322323339358 - Competitive strengths include industry-leading engineering expertise, strategic orbital locations, and a contracted revenue backlog of $1.8 billion as of December 31, 2022, representing 2.3 times the year's revenue341343347560 - The growth strategy involves increasing GEO satellite utilization and deploying Telesat Lightspeed to address the growing demand for global broadband connectivity, with significant government support including $1.44 billion from the GoC and $400 million from the GoQ350351352346419418 - Telesat's services are divided into Broadcast (47% of 2022 revenue), Enterprise (51% of 2022 revenue), and Consulting and other (2% of 2022 revenue), serving over 400 customers globally362363 Geographical Breakdown of Revenues (Year Ended December 31, 2022) | Region | Revenues ($ millions) | | :-------------------------- | :-------------------- | | North America | 620.5 | | Latin America and Caribbean | 57.8 | | Asia and Australia | 45.1 | | Europe, Middle East and Africa | 35.8 | - The Lightspeed constellation is designed to provide high-capacity, low-latency, global broadband connectivity, optimized for enterprise and government users, with a total addressable market estimated at US$425 billion by 2025377384385386 - Telesat holds 49 issued patents (5 in the U.S.) expiring between 2025 and 2039, and has several pending patent applications, relying on intellectual property to protect its technology and services436 - The company's risk management includes on-board satellite redundancies, quality assurance during manufacturing and launch, and comprehensive insurance policies (Pre-Launch, Launch, In-Orbit), though not all satellites are fully insured479482483484485487488489491 C. Organizational Structure This sub-section refers to a chart detailing Telesat Corporation's organizational structure and subsidiaries - The organizational structure, including the jurisdiction of formation or incorporation of material subsidiaries, is presented in a chart500 D. Property, Plants and Equipment Information on property, plants, and equipment is referenced to the 'Business Overview' section (Item 4B) - Information on property, plants, and equipment is referenced to Item 4B, 'Business Overview'500 ITEM 4A. Unresolved Staff Comments There are no unresolved staff comments from the SEC regarding the company's filings - There are no unresolved staff comments501 ITEM 5. Operating and Financial Review and Prospects Management discusses Telesat's 2022 financial condition, operating results, liquidity, and capital resources A. Operating results Telesat reported a $80.1 million net loss in 2022, driven by foreign exchange, despite stable revenue and $1.8 billion backlog - Telesat Corporation's net loss for the year ended December 31, 2022, was $80.1 million, a negative variation of $235.1 million from the prior year's net income of $155.0 million533 - The negative variation was primarily due to a negative non-cash foreign exchange impact on U.S. dollar denominated debt and the recognition of Phase I accelerated clearing payments for C-band spectrum, partially offset by a gain on extinguishment of debt533 Revenue by Service Category (Years Ended December 31) | ($ millions) | 2022 | 2021 | | :-------------------- | :----- | :----- | | Broadcast | 358.7 | 390.8 | | Enterprise | 389.0 | 354.1 | | Consulting and other | 11.5 | 13.3 | | Total Revenue | 759.2 | 758.2 | - Broadcast services revenue decreased by $32.2 million (8.2%) in 2022, mainly due to a reduction in a long-term agreement with a North American DTH customer536 - Enterprise services revenue increased by $34.9 million (9.8%) in 2022, driven by equipment sales to DARPA and higher consulting revenue537 Key Financial Metrics (Years Ended December 31) | Metric | 2022 ($ millions) | 2021 ($ millions) | Change (%) | | :--------------------------------- | :---------------- | :---------------- | :--------- | | Depreciation | 188.8 | 203.8 | (7.4)% | | Amortization | 15.0 | 16.0 | (6.3)% | | Operating expenses | 259.0 | 236.9 | 9.3% | | Other operating gains (losses), net | — | (107.6) | (100.0)% | | Interest expense | 221.8 | 188.0 | 18.0% | | Gain on extinguishment of debt | 106.9 | — | N/A | | Interest and other income | 23.5 | 3.4 | 589.7% | | Gain (loss) on changes in fair value of financial instruments | 4.3 | (18.7) | N/A | | Gain (loss) on foreign exchange | (239.6) | 27.5 | N/A | - Contracted revenue backlog was approximately $1.8 billion as of December 31, 2022, with 82.4% of each year's total revenue historically under contract at the beginning of the year560 Contracted Revenue Backlog Recognition Schedule ($ millions) | Year | Amount | | :--------- | :----- | | 2023 | 568.9 | | 2024 | 349.6 | | 2025 | 233.6 | | 2026 | 195.7 | | 2027 | 128.6 | | Thereafter | 282.2 | - Cash and short-term investments totaled $1.68 billion as of December 31, 2022, including $1.05 billion held in unrestricted subsidiaries, with $200.0 million U.S. dollars available under the Revolving Credit Facility563 - Total debt as of December 31, 2022, was $3.85 billion, with variable rate indebtedness exposing the company to interest rate risk234526580583584585587 Adjusted EBITDA (Years Ended December 31) | Metric | 2022 ($ millions) | 2021 ($ millions) | | :-------------------- | :---------------- | :---------------- | | Adjusted EBITDA | 567.9 | 600.4 | | Revenue | 759.2 | 758.2 | | Adjusted EBITDA Margin | 74.8% | 79.2% | - Adjusted EBITDA decreased by $32.5 million in 2022, primarily due to increased operating expenses, partially offset by a favorable foreign exchange impact617 Consolidated Total Secured Debt and Consolidated Total Debt for Covenant Purposes (As at December 31, 2022) | Metric | Amount ($ millions) | | :------------------------------------ | :------------------ | | Consolidated Total Debt for Covenant Purposes | 3,751.7 | | Consolidated Total Secured Debt for Covenant Purposes | 3,223.1 | | Consolidated Total Debt for Covenant Purposes to Consolidated EBITDA ratio | 6.17:1.00 | | Consolidated Total Secured Debt to Consolidated EBITDA for Covenant Purposes ratio | 5.30:1.00 | ITEM 6. Directors, Senior Management and Employees This section details Telesat's Board, senior management, compensation, corporate governance, and employee information A. Directors and Senior Management This sub-section lists the names, positions, and biographies of Telesat's directors and senior management - The Board of Directors includes Michael Boychuk, Jason A. Caloras, Jane Craighead, Richard Fadden, Daniel Goldberg, Henry Intven, David Morin, Dr. Mark H. Rachesky, Guthrie Stewart, and Michael B. Targoff688691692693695696697698699700701 - Senior Management includes Daniel Goldberg (President and CEO), Michèle Beck (SVP, Canadian Sales), Andrew Browne (CFO), Christopher S. DiFrancesco (VP, General Counsel and Secretary), John Flaherty (VP, Business Planning & Marketing), Philip Harlow (President, Telesat Government Solutions), Erwin Hudson (VP, Telesat Lightspeed System Development), Glenn Katz (Chief Commercial Officer), Michael C. Schwartz (SVP, Corporate & Business Development), and France Teasdale (VP, People), David N. Wendling (Chief Technical Officer)688702703704705706707708709710711712 B. Compensation Telesat's executive and director compensation includes salary, bonuses, equity awards, and pension plans - Executive compensation aims to attract, retain, and motivate talent, align interests with shareholders, and encourage appropriate risk-taking713716 - Compensation includes base salary, annual bonuses (tied to Adjusted EBITDA performance), and equity-based awards (Telesat Corporation Options, PSUs, RSUs, DSUs) under the Omnibus Plan and Historic Plans714717742 NEO Compensation (Fiscal Year 2022) | Name | Salary ($) | Share-based Awards ($) | Option-Based Awards ($) | Annual incentive plan ($) | Pension Value ($) | All Other Compensation ($) | Total Compensation ($) | | :------------------------------------ | :--------- | :----------------------- | :---------------------- | :------------------------ | :---------------- | :------------------------- | :----------------------- | | Daniel S. Goldberg | 1,372,938 | 2,452,952 | 1,887,192 | 2,581,673 | 1,078,000 | 886,256 | 10,259,011 | | Andrew Browne | 723,155 | 584,031 | 449,330 | 1,359,821 | 6,000 | 123,840 | 3,246,177 | | Michael Schwartz | 675,120 | 467,218 | 359,457 | 1,269,143 | 442,000 | 82,338 | 3,295,276 | | David Wendling | 414,000 | 467,218 | 359,457 | 467,091 | 227,000 | 29,400 | 1,964,166 | | Glenn Katz | 667,696 | 467,218 | 359,457 | 753,321 | 158,000 | 1,081,767 | 3,487,459 | - The Omnibus Plan reserves 2,972,816 Telesat Public Shares for issuance, representing 6% of estimated fully diluted shares, with insider participation limits of 10%720721 Director Compensation Fee Schedule | Type of Fee | Position | Amount | | :---------------- | :-------------------- | :------------------------------------ | | Board Retainer | Board Member | $75,000 cash + $100,000 Telesat Corporation DSU Award | | Committee Retainer | Audit Committee Chair | $25,000 | | | Audit Committee Member | $10,000 | | | HRCC Chair | $15,000 | | | HRCC Member | $7,500 | | | NCGC Chair | $15,000 | | | NCGC Member | $7,500 | | Meeting Fees | Board and Committee Meetings | Nil | C. Board Practices Telesat's Board adheres to independence, majority voting, and diversity policies, supported by key committees - The Telesat Corporation Board consists of ten directors: the CEO, three designees from PSP Investments, three from MHR, and three independent directors nominated by the NCGC757758 - A majority of the board (8 out of 10 directors) are independent, excluding the CEO (Dan Goldberg) and Michael Targoff772 - The company has established an Audit Committee, a Nominating & Corporate Governance Committee (NCGC), and a Human Resources & Compensation Committee (HRCC)765 - The board has a 'Majority Voting Policy' requiring directors who do not receive more 'for' than 'withheld' votes to tender their resignation781 - Telesat is committed to increasing diversity on the board, with a goal of 30% female representation, and considers diversity in candidate identification783784 Board Diversity Matrix (As of December 31, 2022) | Part I: Gender Identity | Female | Male | Non-Binary | Did Not Disclose Gender | | :---------------------- | :----- | :--- | :--------- | :---------------------- | | Directors | 2 | 8 | — | — | D. Employees As of December 31, 2022, Telesat employed approximately 455 staff, with 2.8% under collective bargaining agreements - As of December 31, 2022, Telesat and its subsidiaries had approximately 455 permanent full and part-time employees811 - Approximately 2.8% of employees are subject to collective bargaining agreements811 - The employee body is primarily comprised of professional engineering, sales and marketing staff, administrative staff, and skilled technical workers811 E. Share Ownership This sub-section details share and unit ownership by directors and senior management, including outstanding equity awards Share Ownership by Directors and Senior Management (As of February 28, 2023) | Name | Class A Shares | Class B Variable Voting Shares | Class A Units | Class B Units | Fully exchanged and converted basis | | :-------------------- | :------------- | :----------------------------- | :------------ | :------------ | :-------------------------------- | | Daniel Goldberg | 242,147 | — | — | — | 242,147 (0.49%) | | Mark H. Rachesky, M.D. | — | 46,136 | — | 18,050,092 | 18,096,228 (36.36%) | | Michael B. Targoff | — | 101,872 | — | — | 101,872 (0.20%) | | Andrew Browne | — | 22,595 | — | — | 22,595 (0.05%) | | Michael C. Schwartz | — | 38,369 | — | — | 38,369 (0.08%) | | David N. Wendling | 2,700 | — | — | — | 2,700 (0.01%) | | Michèle Beck | 1,890 | — | — | — | 1,890 (—%) | | Christopher S. DiFrancesco | 2,160 | — | — | — | 2,160 (—%) | | John Flaherty | 1,890 | — | — | — | 1,890 (—%) | | Erwin Hudson | — | 13,512 | — | — | 13,512 (0.03%) | | Glenn Katz | — | 2,700 | — | — | 2,700 (0.01%) | | Michael Boychuk | — | — | — | — | — | | Jason A. Caloras | — | — | — | — | — | | Jane Craighead | — | — | — | — | — | | Richard Fadden | — | — | — | — | — | | Henry Intven | — | — | — | — | — | | David Morin | — | — | — | — | — | | Guthrie Stewart | — | — | — | — | — | | France Teasdale | — | — | — | — | — | | Phillip Harlow | — | — | — | — | — | Outstanding Stock Options, RSUs, PSUs, and DSUs (As of December 31, 2022) | | Historic Plan | Omnibus Plan | | :----------------------------- | :------------ | :----------- | | Stock Options | 793,667 | 285,149 | | RSUs with time criteria | 973,338 | 351,071 | | RSUs with time and performance criteria | 124,080 | — | | PSUs with time and performance criteria | — | 140,583 | | DSUs | — | 46,576 | | Total | 1,891,085 | 823,379 | - During 2022, 574,226 Telesat Public Shares were issued in exchange for an equal number of Class B LP Units in the Partnership657 F. Disclosure of a Registrant's Action to Recover Erroneously Awarded Compensation There is no applicable disclosure regarding actions to recover erroneously awarded compensation - This item is marked as 'Not applicable'815 ITEM 7. Major Shareholders and Related Party Transactions This section identifies major shareholders and details related party transactions, including agreements with PSP and MHR A. Major Shareholders. This sub-section identifies major shareholders (PSP, MHR) and explains the 'Golden Share' for Canadian control Major Shareholders (5% or more beneficial ownership) as of February 28, 2023 | Name | Fully exchanged and converted basis | | :-------------------------- | :-------------------------------- | | PSP Investments | 18,211,203 (36.59%) | | Mark H. Rachesky, M.D. | 18,096,228 (36.36%) | | MHR | 18,035,092 (36.23%) | | GAMCO Investors, Inc | 2,763,775 (5.55%) | - The 'Golden Share' mechanism ensures that the aggregate votes cast by Canadians equal a simple majority, diluting the voting power of non-Canadian shareholders818822 - The voting power of different share classes is summarized, noting that Class C Limited Voting Shares have no votes for director elections823 B. Related Party Transactions This sub-section details related party transactions, including the 2021 Transaction, Investor Rights, and legal services - The Transaction in November 2021 restructured ownership, making Loral a fully consolidated subsidiary of Telesat Partnership8261436 - Investor Rights Agreements grant PSP Investments and MHR the right to designate three directors each to the Telesat Corporation board828 - Telesat incurred US$793,159 in expenses in 2022 for legal services from Goldberg, Godles, Wiener & Wright, where the CEO's father is a partner830 - Telesat has indemnification agreements with its directors and executive officers, and with PSP Investments for certain Transaction-related losses and tax matters, with some obligations uncapped83214211422 C. Interests of Experts and Counsel There are no applicable disclosures regarding the interests of experts and counsel in the company - This item is marked as 'Not applicable'833 ITEM 8. Financial Information This section refers to consolidated financial statements, discusses legal proceedings, and outlines the company's dividend policy A. Consolidated Financial Statements and Other Financial Information This sub-section refers to consolidated financial statements, details legal proceedings, and dividend policy - Consolidated Financial Statements are included at the end of the Annual Report834 - Telesat is involved in legal proceedings, including tax disputes with Brazilian authorities totaling $89.6 million (2003-2018) and Canadian tax authorities for $13.1 million (transfer pricing 2009-2014) and $11.6 million (R&D claims 2016-2017)835836142414251426 - The company believes the likelihood of a favorable outcome in these tax disputes is more likely than not, and no reserves have been established142414251426 - Telesat intends to retain all available funds and future earnings to support operations and finance business growth, and does not plan to declare or pay cash dividends in the foreseeable future837 B. Significant Changes No significant changes in Telesat Corporation's financial position have occurred since the Annual Financial Statements date - No significant changes in financial position have occurred since the date of the Annual Financial Statements838 ITEM 9. The Offer and Listing Telesat Corporation's Class A and B Variable Voting Shares are listed on Nasdaq and TSX under 'TSAT' since 2021 - Telesat Corporation's Class A Shares and Class B Variable Voting Shares are listed on Nasdaq Global Select Market and TSX under 'TSAT' since November 19, 2021839 - Telesat Partnership Units are not listed on any exchange839 ITEM 10. Additional Information This section provides additional information on share capital, constating documents, ownership, and U.S./Canadian tax A. Share Capital Information regarding share capital is not applicable in this specific section - This item is marked as 'Not applicable'840 B. Constating Documents and Articles of Telesat Corporation This sub-section details constating documents, transfer agents, Canadian ownership, and Telesat Partnership Unit rights - The transfer agent and registrar for Telesat Corporation Shares and Telesat Partnership Units are Computershare Trust Company, N.A. (U.S.) and Computershare Investor Services Inc. (Canada)842 - Canadian law, including the Competition Act and Investment Canada Act, may impose limitations on non-resident acquisitions of Telesat Corporation Shares, particularly regarding control or significant interests843844847 - Telesat Partnership Units provide economic and voting rights substantially equivalent to corresponding Telesat Corporation Shares, with voting facilitated through Special Voting Shares853854857858 - Holders of Telesat Partnership Units have an 'Exchange Right' to convert their units into Telesat Corporation Shares, and mandatory exchanges can occur under specific conditions (e.g., Sunset Exchange, Control Transaction Exchange, Voting Event Exchange)861865 - Telesat Partnership's dissolution can occur upon removal of the general partner, sale of substantially all property, or when no Partnership Units remain outstanding885 - Telesat Corporation, as general partner, owes duties to Telesat Partnership and unit holders similar to a board's duties to a company and its shareholders, and is indemnified for certain losses889890 C. Material Contracts This sub-section lists Telesat's material contracts, including Transaction, Investor Rights, and debt indentures - Material contracts include the Transaction Agreement, Voting Agreement, Investor Rights Agreements with MHR and PSP Investments, and Registration Rights Agreement907 - Also listed are amendments to the Credit Agreement and indentures for the 6.500% Senior Notes due 2027, 4.875% Senior Secured Notes due 2027, and 5.625% Senior Secured Notes due 2026907 D. Exchange Controls No Canadian laws restrict capital export/import or remittance of payments to non-resident security holders - No Canadian laws restrict capital export/import or remittance of payments to non-resident security holders906 E. Taxation This sub-section summarizes U.S. and Canadian income tax consequences for shareholders, including PFIC and SIFT rules - Section 7874 of the Code could treat Telesat Corporation or Telesat Partnership as a U.S. corporation or a surrogate foreign corporation, potentially subjecting them to U.S. tax on worldwide income or limiting tax attributes for Loral283287914915921 - Telesat Corporation may have been a Passive Foreign Investment Company (PFIC) for 2021 and 2022, and could be in subsequent years, leading to adverse U.S. tax consequences for U.S. shareholders, including ordinary income rates on gains and interest charges293294295934935937938 - U.S. Holders of Telesat Partnership Units may receive income allocations without sufficient cash distributions to cover tax liabilities, and exchanges of units for shares are generally taxable events297953961 - Telesat Partnership is a 'SIFT partnership' for Canadian tax purposes, potentially subject to SIFT tax on 'taxable non-portfolio earnings,' which could reduce after-tax returns298998 - Dividends paid by Telesat CanHoldco to Telesat Partnership are subject to Canadian federal withholding tax (25%), though administrative practice may allow for reduced rates based on partner residency3023031011 - Non-Canadian Holders of Telesat Partnership Units are generally subject to Canadian income tax only on their share of income from business carried on in Canada, and the company aims to manage affairs to avoid this3001009 F. Dividends and Payment Agents Information regarding dividends and payment agents is not applicable in this section - This item is marked as 'Not applicable'1013 G. Statement by Experts There is no applicable disclosure regarding statements by experts - This item is marked as 'Not applicable'1014 H. Documents on Display The Annual Report and exhibits are available on SEDAR and SEC, with Telesat filing as a foreign private issuer - The Annual Report and exhibits are available at Telesat's offices and on SEDAR (http://sedar.com)[1015](index=1015&type=chunk) - As a foreign private issuer, Telesat is exempt from certain U.S. proxy rules and frequent reporting requirements, filing an annual report on Form 20-F with the SEC (http://sec.gov)[1016](index=1016&type=chunk)1017 I. Subsidiary Information Information regarding subsidiary information is not applicable in this section - This item is marked as 'Not applicable'1019 ITEM 11. Quantitative and Qualitative Disclosures About Market Risk Disclosures about market risk are referenced to 'Item 5. Operating and Financial Review and Prospects' - Quantitative and qualitative disclosures about market risk are found in 'Item 5. Operating and Financial Review and Prospects'1020 ITEM 12. Description of Securities Other Than Equity Securities There is no applicable disclosure regarding the description of securities other than equity securities - This item is marked as 'Not applicable'1021 Part II This part covers defaults, controls and procedures, audit committee, code of ethics, principal accountant fees, and corporate governance ITEM 13. Defaults, Dividend Arrearages and Delinquencies There are no defaults, dividend arrearages, or delinquencies to report - There are no defaults, dividend arrearages, or delinquencies1023 ITEM 14. Material Modifications to the Rights of Security Holders and Use of Proceeds No material modifications to security holder rights or use of proceeds are reported - This item is marked as 'Not applicable'1024 ITEM 15. Controls and Procedures Management concluded disclosure controls and internal control over financial reporting were effective as of December 31, 2022 - Telesat's disclosure controls and procedures were evaluated as effective as of December 31, 2022, providing reasonable assurance for timely and accurate financial reporting1025 - Management concluded that internal control over financial reporting was effective as of December 31, 2022, based on the COSO framework1027 - No material changes in internal control over financial reporting occurred during the period covered by the annual report1029 ITEM 16A. Audit Committee Financial Expert Telesat's Audit Committee members are independent, financially literate, and qualify as 'audit committee financial experts' - The Audit Committee is composed of Michael Boychuk (Chair), Jane Craighead, and Henry Intven1030 - All Audit Committee members are independent, financially literate, and qualify as 'audit committee financial experts' under applicable SEC rules and NASDAQ/NI 52-1101030 ITEM 16B. Code of Ethics Telesat's Board adopted a global Code of Ethics covering compliance, conflicts of interest, and asset protection - Telesat Corporation has a written Code of Ethics applicable to all officers, directors, employees, consultants, contractors, and agents worldwide1031 - The Code addresses compliance with laws, conflicts of interest, confidentiality, financial information, internal controls, and protection of assets1031 - Violations are to be reported to senior executives, and the Board has ultimate responsibility for monitoring compliance1031 ITEM 16C. Principal Accountant Fees and Services This section details fees paid to Deloitte LLP for audit and other services, with audit fees increasing in 2022 Fees Charged by Deloitte LLP (in thousands of Canadian dollars) | Category | Fiscal 2022 | Fiscal 2021 | | :-------------------- | :---------- | :---------- | | Audit fees | 3,934 | 1,920 | | Audit related fees | 240 | 165 | | Tax fees | 112 | 105 | | All other fee | 3 | 3 | | Total fees charged | 4,289 | 2,194 | - Audit fees for 2022 increased significantly due to services for annual financial statements and proxy statements related to the Transaction1034 - The Audit Committee pre-approves all audit and non-audit services to be provided by the independent external auditor to maintain independence1035 ITEM 16D. Exemptions from the Listing Standards for Audit Committees There are no applicable exemptions from the listing standards for audit committees - This item is marked as 'Not applicable'1036 ITEM 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers There is no applicable disclosure regarding purchases of equity securities by the issuer and affiliated purchasers - This item is marked as 'Not applicable'1037 ITEM 16F. Change in Registrant's Certifying Accountant There is no applicable disclosure regarding a change in the registrant's certifying accountant - This item is marked as 'Not applicable'1038 ITEM 16G. Corporate Governance Telesat's corporate governance adheres to BCBCA, Articles, Investor Rights, and Canadian/NASDAQ guidelines - Telesat's corporate governance is subject to the BCBCA, Telesat Corporation Articles, and Investor Rights Agreements with MHR and PSP Investments1039 - The company follows Canadian Corporate Governance Guidelines and intends to comply with NASDAQ Marketplace Rules, but as a Foreign Private Issuer, it may use exemptions to follow home country practices10411042 ITEM 16H. Mine Safety Disclosure There is no applicable disclosure regarding mine safety - This item is marked as 'Not applicable'1043 ITEM 16I. Disclosure Regarding Foreign Jurisdictions That Prevent Inspections. There is no applicable disclosure regarding foreign jurisdictions that prevent inspections - This item is marked as 'Not applicable'1043 Part III This part includes the company's financial statements and a comprehensive list of all exhibits filed ITEM 17. Financial Statements. Telesat provides its financial statements pursuant to Item 18 of Form 20-F - Telesat has elected to provide financial statements pursuant to Item 181045 ITEM 18. Financial Statements. The Annual Financial Statements of Telesat Corporation are included at the end of this Annual Report - The Annual Financial Statements of Telesat Corporation are included at the end of this Annual Report1046 ITEM 19. Exhibits This section lists all exhibits filed as part of the Annual Report on Form 20-F, providing supporting documentation - The section lists various exhibits, including Articles of Telesat Corporation, Amended and Restated Limited Partnership Agreement, Trust Agreement, Voting Agreement, and several Indentures for Senior Notes1047 - Also included are Investor Rights Agreements, Registration Rights Agreement, Credit Agreement amendments, and certifications (Section 302, Section 906)10471049 Signatures This section contains the official certification by Telesat Corporation, signed by the President and CEO Overview This section contains the official certification by Telesat Corporation, signed by the President and CEO on March 29, 2023 - Telesat Corporation certifies that it meets all requirements for filing on Form 20-F1053 - The report is signed by Daniel S. Goldberg, President and Chief Executive Officer, on March 29, 20231055 Index to Consolidated Financial Statements This index provides an overview of the consolidated financial statements, including auditor reports Reports of Independent Registered Public Accounting Firm Deloitte LLP issued unqualified opinions on internal controls and financial statements, highlighting goodwill impairment - Deloitte LLP issued an unqualified opinion on the effectiveness of Telesat Corporation's internal control over financial reporting as of December 31, 20221059 - Deloitte LLP also expressed an unqualified opinion on the consolidated financial statements for the year ended December 31, 202210601065 - A critical audit matter was the impairment assessment of goodwill and indefinite life intangible assets (orbital slots), involving significant estimates for future revenue forecasts, discount rates, and market multiples, particularly for the Telesat Lightspeed constellation107010711072 Consolidated Statements of Income (Loss) Telesat reported a $80.1 million net loss in 2022, primarily due to foreign exchange losses, despite stable revenue Consolidated Statements of Income (Loss) (in thousands of Canadian dollars) | Metric | 2022 | 2021 | | :------------------------------------------------- | :----- | :----- | | Revenue | 759,169 | 758,212 | | Operating expenses | (258,989) | (236,949) | | Depreciation | (188,755) | (203,772) | | Amortization | (14,979) | (15,983) | | Other operating gains (losses), net | 7 | 107,615 | | Operating income | 296,453 | 409,123 | | Interest expense | (221,756) | (187,994) | | Gain on extinguishment of debt | 106,916 | — | | Interest and other income | 23,476 | 3,418 | | Gain (loss) on changes in fair value of financial instruments | 4,314 | (18,684) | | Gain (loss) on foreign exchange | (239,591) | 27,539 | | Income (loss) before income taxes | (30,188) | 233,402 | | Tax (expense) recovery | (49,929) | (78,377) | | Net income (loss) | (80,117) | 155,025 | | Net income (loss) attributable to Telesat Corporation shareholders | (23,396) | 85,190 | | Net income (loss) attributable to Non-controlling interest | (56,721) | 69,835 | | Basic EPS | (1.90) | 1.89 | | Diluted EPS | (1.90) | 1.83 | - Net income (loss) attributable to Telesat Corporation shareholders was ($23,396 thousand) in 2022, down from $85,190 thousand in 20211076 - Basic and diluted earnings per share were ($1.90) in 2022, compared to $1.89 and $1.83 respectively in 20211076 Consolidated Statements of Comprehensive Income (Loss) Telesat reported $94.9 million total comprehensive income in 2022, driven by foreign currency translation adjustments Consolidated Statements of Comprehensive Income (Loss) (in thousands of Canadian dollars) | Metric | 2022 | 2021 | | :------------------------------------------------- | :----- | :----- | | Net income (loss) | (80,117) | 155,025 | | Foreign currency translation adjustments | 148,456 | (17,555) | | Actuarial gain (loss) on defined benefit plans | 33,282 | 55,422 | | Income tax on items that will not be reclassified to profit or loss | (6,768) | (14,424) | | Total other comprehensive income (loss) | 174,970 | 23,443 | | Total comprehensive income (loss) | 94,853 | 178,468 | | Total comprehensive income (loss) attributable to Telesat Corporation shareholders | 20,257 | 83,063 | | Total comprehensive income (loss) attributable to Non-controlling interest | 74,596 | 95,405 | - Total comprehensive income (loss) attributable to Telesat Corporation shareholders was $20,257 thousand in 2022, down from $83,063 thousand in 20211077 Consolidated Statements of Changes in Shareholders' Equity Telesat's total shareholders' equity increased to $1.84 billion in 2022, influenced by net loss and share changes Consolidated Statements of Changes in Shareholders' Equity (in thousands of Canadian dollars) | Metric | Balance as at January 1, 2022 | Net income (loss) | Issuance of share capital on settlement of restricted share units | Exchange of Limited Partnership units for Public Shares | Other comprehensive income (loss), net of tax | Final Transaction adjustment | Share-based compensation | Balance as at December 31, 2022 | | :------------------------------------ | :---------------------------- | :---------------- | :------------------------------------------------- | :---------------------------------------------------- | :-------------------------------------------- | :--------------------------- | :----------------------- | :---------------------------- | | Share capital | 42,841 | — | 2,142 | 1,571 | — | — | — | 46,554 | | Accumulated earnings | 350,029 | (23,396) | — | 21,812 | 6,757 | — | — | 355,202 | | Equity settled employee benefits reserve | 38,664 | — | (1,224) | (14) | — | — | 20,330 | 57,756 | | Foreign currency translation reserve | (15,860) | — | — | (183) | 36,896 | — | — | 20,853 | | Total reserves | 22,804 | — | (1,224) | (197) | 36,896 | — | 20,330 | 78,609 | | Total Telesat Corporation shareholders' equity | 415,674 | (23,396) | 918 | 23,186 | 43,653 | — | 20,330 | 480,365 | | Non-controlling interest | 1,280,619 | (56,721) | (2,991) | (23,186) | 131,317 | (20,790) | 47,089 | 1,355,337 | | Total shareholders' equity | 1,696,293 | (80,117) | (2,073) | — | 174,970 | (20,790) | 67,419 | 1,835,702 | - Share capital increased by $3,713 thousand in 2022 due to RSU settlements and LP unit exchanges1078 - Non-controlling interest increased by $74,718 thousand in 2022, reaching $1,355,337 thousand1078 Consolidated Balance Sheets Telesat's total assets increased to $6.48 billion in 2022, with cash rising, and liabilities decreased to $4.64 billion Consolidated Balance Sheets (in thousands of Canadian dollars) | Asset/Liability | December 31, 2022 | December 31, 2021 | | :------------------------------------ | :------------------ | :------------------ | | Assets | | | | Cash and cash equivalents | 1,677,792 | 1,449,593 | | Trade and other receivables | 41,248 | 122,698 | | Total current assets | 1,788,288 | 1,617,435 | | Satellites, property and other equipment | 1,364,084 | 1,429,688 | | Intangible assets | 756,878 | 762,659 | | Goodwill | 2,446,603 | 2,446,603 | | Total assets | 6,479,593 | 6,362,451 | | Liabilities | | | | Trade and other payables | 43,555 | 54,628 | | Other current financial liabilities | 48,397 | 36,647 | | Total current liabilities | 171,396 | 181,955 | | Long-term indebtedness | 3,850,081 | 3,792,597 | | Deferred tax liabilities | 275,696 | 296,318 | | Other long-term liabilities | 327,055 | 371,453 | | Total liabilities | 4,643,891 | 4,666,158 | | Shareholders' Equity | | | | Total Telesat Corporation shareholders' equity | 480,365 | 415,674 | | Non-controlling interest | 1,355,337 | 1,280,619 | | Total shareholders' equity | 1,835,702 | 1,696,293 | - Cash and cash equivalents increased by $228,199 thousand, while trade and other receivables decreased by $81,450 thousand1080 - Long-term indebtedness increased by $57,484 thousand, reaching $3,850,081 thousand1080 Consolidated Statements of Cash Flows Net cash from operating activities decreased to $228.8 million in 2022, with investing activities shifting to net generation Consolidated Statements of Cash Flows (in thousands of Canadian dollars) | Cash Flow Category | 2022 | 2021 | | :------------------------------------------ | :----- | :----- | | Net cash from operating activities | 228,848 | 293,497 | | Net cash (used in) generated from investing activities | 74 | (269,968) | | Net cash (used in) generated from financing activities | (104,865) | 605,240 | | Effect of changes in exchange rates on cash and cash equivalents | 104,142 | 2,446 | | Changes in cash and cash equivalents | 228,199 | 631,215 | | Cash and cash equivalents, end of year | 1,677,792 | 1,449,593 | - Cash from operating activities decreased by $64,649 thousand in 20221082 - Investing activities shifted from a net use of $269,968 thousand in 2021 to a net generation of $74 thousand in 2022, largely due to C-band clearing proceeds of $64,651 thousand1082 - Financing activities resulted in a net use of $104,865 thousand in 2022, primarily due to repayment of indebtedness ($97,234 thousand) and final transaction adjustment payment ($20,790 thousand)1082 Notes to the 2022 Consolidated Financial Statements These notes detail Telesat's financial statements, covering accounting policies, critical estimates, and specific line items 1. Background of the Company Telesat Corporation, incorporated in 2020, is a global satellite operator developing Lightspeed, trading on Nasdaq and TSX since 2021 - Telesat Corporation, incorporated in October 2020, is a global satellite operator with 14 GEO satellites and the Canadian payload on Viasat-110841085 - The company is developing the Telesat Lightspeed LEO constellation, with its first LEO satellite (LEO 1) launched in January 20181086 - Telesat Corporation began trading on Nasdaq and TSX on November 19, 2021, after a transaction that made it the public holding company and Loral a wholly-owned subsidiary10871088 2. Basis of Presentation Consolidated financial statements are prepared in accordance with IFRS, including subsidiaries and joint operations - Consolidated financial statements are prepared in accordance with IFRS as issued by the IASB1091 - The statements include results of Telesat and its controlled subsidiaries, with non-controlling interests separately identified109310941095 - Joint operations are accounted for by including Telesat's share of assets, liabilities, revenue, and expenses1096 - Financial statements are generally prepared on a historical cost basis, except for certain financial instruments measured at fair value1097 3. Changes in Accounting Policies Telesat retroactively adopted IFRIC's SaaS accounting decision, impacting the 2021 balance sheet and net income - Telesat retroactively adopted the IFRIC agenda decision on Software as a Service (SaaS) arrangements10981099 Impact of SaaS Accounting Policy Change on Balance Sheet (as at December 31, 2021) | Account | Impact ($ thousands) | | :-------------------------------- | :------------------- | | Satellites, property and other equipment | (2,087) | | Intangible assets | (1,419) | | Accumulated earnings | 3,495 | | Reserves | 11 | Impact of SaaS Accounting Policy Change on Income Statement (Years Ended December 31) | Metric | 2021 ($ thousands) | 2020 ($ thousands) | | :------------------------------------------------- | :----------------- | :----------------- | | Operating expenses | 2,895 | 758 | | Amortization | (158) | — | | Foreign currency translation adjustments | 11 | — | | Net income (loss) per common share attributable to Telesat Corporation shareholders – basic | (0.05) | (0.01) | | Net income (loss) per common share attributable to Telesat Corporation shareholders – diluted | (0.05) | (0.01) | 4. Significant Accounting Policies This section outlines Telesat's significant accounting policies, covering revenue, asset impairment, financial instruments, and benefits - Telesat operates in a single operating segment, providing satellite-based services to broadcast, enterprise, and consulting customers1101 - Revenue from satellite services is recognized monthly, consulting revenue based on completion or input method, and equipment sales upon customer acceptance11061107 - Deferred revenue represents liability for future services, recognized straight-line over contract term, with significant financing components adjusted using a discount rate11091110 - Satellites, property, and other equipment are carried at cost less depreciation, with useful lives of 12 to 15 years for satellites112711281129 - Goodwill and indefinite life intangible assets (trade name, intellectual property, orbital slots) are tested for impairment annually, or more frequently if indicators exist, by comparing carrying value to recoverable amount (higher of fair value less costs of disposal and value in use)11401141114411451146 - Financial instruments are measured at FVTPL, FVTOCI, or amortized cost1156115711581159 - Employee benefit plans (defined benefit and contribution pensions, post-employment benefits) are accounted for using actuarial valuations, with remeasurements recognized in other comprehensive income11641165116611671168116911701172 - Income tax expense includes current and deferred income tax, with deferred tax assets recognized when probable of utilization117611771178 5. Critical Accounting Judgments and Estimates This section highlights critical accounting judgments and estimates, including discount rates, impairment, and actuarial valuations - Critical judgments include determining the discount rate for deferred revenue's significant financing component, assessing lease renewal likelihood and incremental borrowing rates, and estimating provisions for uncertain income tax positions119912001201 - Critical estimates involve fair value measurement of derivative financial instruments, impairment assessments for goodwill and intangible assets (relying on future cash flow projections, discount rates, and growth rates), and actuarial valuations for employee benefits12051206120712081209 - The determination of useful lives for satellites and finite-life intangible assets, and the recoverability of deferred tax assets, also involve significant estimates12111212 6. Segment Information Telesat operates as a single segment, with 2022 revenue primarily from Broadcast and Enterprise services in North America - Telesat operates in a single operating segment, providing satellite-based services through Broadcast, Enterprise, and Consulting and other categories12131214 Revenue by Service Category (in thousands of Canadian dollars) | Service Category | 2022 | 2021 | 2020 | | :-------------------- | :----- | :----- | :----- | | Broadcast | 358,661 | 390,815 | 411,407 | | Enterprise | 388,985 | 354,126 | 389,696 | | Consulting and other | 11,523 | 13,271 | 19,365 | | Total Revenue | 759,169 | 758,212 | 820,468 | Revenue by Geographic Region (in thousands of Canadian dollars) | Region | 2022 | 2021 | 2020 | | :-------------------------- | :----- | :----- | :----- | | Canada | 330,533 | 330,832 | 362,939 | | United States | 289,946 | 292,474 | 307,433 | | Latin America & Caribbean | 57,842 | 55,818 | 64,024 | | Asia & Australia | 45,082 | 38,266 | 41,362 | | Europe, Middle East & Africa | 35,766 | 40,822 | 44,710 | | Total Revenue | 759,169 | 758,212 | 820,468 | - Two significant customers each represented more than 10% of consolidated revenue for the years ended December 31, 2022, 2021, and 20201217 7. Operating Expenses Total operating expenses increased to $259.0 million in 2022, primarily due to higher cost of sales for equipment and services Operating Expenses (in thousands of Canadian dollars) | Expense Category | 2022 | 2021 | 2020 | | :----------------------------- | :----- | :----- | :----- | | Compensation and employee benefits | 152,154 | 156,112 | 89,882 | | Other operating expenses | 52,831 | 50,622 | 58,380 | | Cost of sales | 54,004 | 30,215 | 33,370 | | Total Operating expenses | 258,989 | 236,949 | 181,632 | - Cost of sales increased by $23,789 thousand in 2022, primarily due to higher equipment sales for the DARPA program and increased third-party services for DARPA and NASA programs5461220 - Compensation and employee benefits decreased by $3,958 thousand in 2022, mainly due to lower non-cash share-based compensation and bonus expense5441218 - Other operating expenses increased by $2,209 thousand in 2022, driven by high