Tax Rate Cut Boosts Telesat Canada’s Net Profit in 2006

PARIS — Satellite-fleet operator Telesat Canada, which expects to be sold to a Canadian pension fund and Loral Space and Communications in a transaction expected to be completed by mid year, reported flat sales in 2006 compared to 2005, but sharply higher net profit as its tax rate was cut in half, the Ottawa-based company announced.

Telesat, which in 2005 ranked fourth among the world’s commercial fixed satellite services operators in terms of revenue, said sales in 2006 were 479 million Canadian dollars ($ 409 million) — almost 1 percent higher than 2005.

But net earnings, at 104 million Canadian dollars, were 14.7 percent higher than 2005. Telesat said its corporate tax rate in 2006 was reduced by 50 percent, to 17.2 percent from 35.9 percent, following a change in Canadian tax law in 2006 that was made retroactive to the beginning of the year.

Telesat operates five of its own telecommunications satellites and has the use of two other spacecraft it leases from U.S. satellite-television provider DirecTV Group that have been stationed at Telesat-licensed orbital positions.

In addition, Telesat operates eight satellites for four U.S. companies — four for XM Satellite Radio, two for Mobile Satellite Ventures LP, one for WildBlue Communications and one for DirecTV.

Telesat has three satellites on order and scheduled for launch in the next two years.

The company’s 2006 financial performance was affected by several one-time events in 2005 and 2006 that make financial comparisons difficult. In 2005, sales swelled by 25.8 million Canadian dollars under a contract to provide an interactive distance learning network that includes 9,100 satellite reception sites in Canada, the United States and Mexico.

This business is expected to generate 105 million Canadian dollars in revenues over a five-year period starting in late 2004, according to Telesat, which in November 2004 entered into a strategic alliance with business-broadcast provider Helius Inc. of Lindon, Utah.

In 2006, Telesat subsidiary Infosat purchased Able Leasing Co., a provider of telecommunications services. The deal added 9.5 million Canadian dollars to the company’s 2006 revenues.

In September 2006, Telesat named Daniel S. Goldberg, then chief executive of satellite operator SES New Skies of The Netherlands, as Telesat’s new president, replacing longtime Telesat chief Larry Boisvert, who retired.

Boisvert’s departure and Goldberg’s arrival resulted in compensation packages reducing Telesat’s 2006 cash flow from operations by about 11 million Canadian dollars. Another 2 million Canadian dollars was spent in 2006 to prepare a Telesat stock offering that was canceled with an agreement to sell the company to PSP Investments, a Canadian public pension fund, and Loral of New York.

The sale by Telesat’s current owner, BCE Inc., is valued at 3.42 billion Canadian dollars including Telesat debt and is expected to be completed by summer following Canadian and U.S. regulatory review.

Telesat Canada operates a two-way consumer-broadband business from the Anik F2 satellite using the same Ka-band technology as that used by WildBlue Communications of Denver, in which Telesat is a minority shareholder.

Telesat said its Ka-band consumer broadband business, which it started in 2005, is operating at a loss and will not reach a profit until it has signed up 43,000 subscribers in Canada. As of Dec. 31, the service had 33,500 subscribers.

The company’s technical-consulting business has been hurt by U.S. technology-transfer rules that since 2000 have made it more difficult for non-U.S. companies, including Telesat, to have access to data on U.S. satellites and related technologies.

Despite that, Telesat’s consulting business grew 13 percent in 2006, to 29.6 million Canadian dollars, in part because of the company’s work helping start-up WildBlue prepare for the launch and operation of the WildBlue-1 satellite.

Telesat announced March 13 that it will advise Pakistan’s space agency on the purchase of a Paksat-1R telecommunications satellite, to be launched in 2010.

The Pakistan Space and Upper Atmosphere Research Commission, Suparco, is in the market for a Paksat-1R to replace the Paksat-1 satellite currently stationed at 38 degrees east. Suparco purchased Paksat-1, then called HGS-3, from a company now part of Intelsat in late 2002. Before being sold and renamed HGS-3, the satellite had been owned by Indonesia’s Satelindo organization and called Palapa-C1. The satellite’s on board batteries are defective, limiting operations during periods when it is in Earth’s shadow.

Telesat said its contract includes advising Suparco on the selection of a satellite design and manufacturer, assisting with contract negotiations and monitoring launch and in-orbit testing.