Q2 2012 Loral Space and Communications Inc Earnings Conference Call
Aug 13, 2012 AM EDT
LORL - Loral Space & Communications Inc
Q2 2012 Loral Space and Communications Inc Earnings Conference Call
Aug 13, 2012 / 08:00PM GMT
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Corporate Participants
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* Wendy Lewis
Loral Space and Communications Inc - Director of Communications
* Michael Targoff
Loral Space and Communications Inc - CEO
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Conference Call Participants
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* Craig Chobor
Solus - Analyst
* Scott Penner
TD Securities - Analyst
* Michael Broudo
Miller Tabak - Analyst
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Presentation
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Operator [1]
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Good day, everyone. Welcome to the Loral Space & Communications conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session.
(Operator Instructions)
As a reminder today's conference is being recorded.
Now, I would like to turn the conference over to Wendy Lewis, Director of Communications. Please go ahead.
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Wendy Lewis, Loral Space and Communications Inc - Director of Communications [2]
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Good afternoon. Thank you for joining us on the call today.
As we proceed, some of the remarks we make about our future expectations, plans and prospect will be forward-looking statements under the Private Securities Litigation Reform Act of 1995. As you know, actual results may differ materially from those discussed here as a result of a wide variety of factors and conditions. Please refer to the most recent 10-K and 10-Q Forms that we have filed with the Securities and Exchange Commission for information on those factors and conditions.
Now, I would like to turn the call over to Michael Targoff, Chief Executive Officer of Loral Space & Communications.
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Michael Targoff, Loral Space and Communications Inc - CEO [3]
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Thank you, Wendy. Good afternoon, everyone. With me today, as in the past, are some of our key Senior Executives including -- our CFO, Harvey Rein; our General Counsel, Avi Katz; our Treasurer, Richard Mastoloni; and our Controller, John Capogrossi.
The first half of 2012 has been eventful for Loral. We are very pleased with our success in finding ways for shareholders to benefit from the significant value that we have created over the past few years. The call today is to briefly review how we stand relative to the sale of SS/L, our manufacturing division, what we expect going forward and to explain how we plan to change the way we -- excuse me, the way we report our results in the future.
Before addressing these items, I will remind you that in the first quarter of 2012, Telesat refinanced its debt resulting in a distribution of CAD705 million of which Loral share was CAD420 million. And in turn, Loral shareholders received a $13.60 per share cash dividend.
In June, we announced the sale of Space Systems/Loral to McDonald, Dettwiler and Associates. The full value that Loral will receive is in excess of $1 billion. The components of the $1 billion include -- first, $774 million cash from MDA; second, a $101 million bank guaranteed, three-year promissory note for the purchase of SS/L real estate; third, a cash dividend and other payments from SS/L of approximately $112 million, which represented the cash on the balance sheet at March 31; and fourth, a cash payment of approximately $6 million per month from March 31, 2012 to the closing date of the transaction. There are potential adjustments to the final purchase price that are not expected to materially change this result.
The transaction will be a taxable transaction for Loral. My expectation is that the amount of tax that we will be required to pay will be under $3 per share, but this is still being finalized.
As we do not currently see other compelling uses for the proceeds from the sale, I expect to recommend to the Loral Board of Directors that we distribute the after tax cash proceeds to our shareholders. My rough estimate is that this will be approximately $26 per share and this is without the benefit of the land purchase note.
In terms of taxes for non-corporate shareholders, the distribution will likely be a combination of return of capital and dividend. We intend to report the fraction of the distribution that qualifies as a return of capital and reduction of basis in connection with the distribution. Corporate shareholders will effectively receive a 100% dividend -- excuse me, the dividend will be considered 100% of the proceeds will be considered a dividend. It's a better way to say it.
Regarding the closing of the sale, MDA is on track with processing the regulatory approvals required to complete the transaction and consistent with our view, has publicly stated that the acquisition is likely to be closed in late Q3 or early Q4. In our current filing, we have re-classified SS/L operations as discontinued operations.
Now that our only major asset is our equity investment in Telesat, our reporting will have less complexity. As a result, this will be our last regular conference call in conjunction with quarterly earnings. It would be repetitive and unproductive for us to duplicate Telesat's Investor Communications. So, for color on the Telesat business, I recommend that you follow Telesat's press releases and conference calls. Other pertinent information about Loral, such as corporate expenses, cash requirements and strategic activity will be available in our quarterly filings. We will, of course, issue press releases when warranted by any material developments.
Because we will no longer have the overhead of managing SS/L, we expect the annual run rate of corporate expenses to decrease after a transitioning period and SS/L transaction related costs to approximately $7 million per year net of the $5 million management fee that we receive from Telesat.
Some of you have been asking about the nature of Loral going forward, we continue to be pleased with our investment in Telesat which performs just as we have expected it to. Telesat's most recently launched satellite, Nimiq 6, went into service in mid June, so should we report significant revenue in EBITDA growth in the second half of the year, which will be incremental to the quarterly results reported in the second quarter. The launch of an additional satellite, Anik G1, which we expect to take place in the fourth quarter will deliver further growth in 2013.
As in the past, we will continue to consider strategic ways to return more value to our investors. For now, we will continue to work to increase share of the value by closing the SS/L transaction and pursuing the growth that we expect Telesat to provide.
With that, I will turn the call over to the operator so that we can take some of your questions. Thank you.
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Questions and Answers
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Operator [1]
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(Operator Instructions)
Craig Chobor, Solus.
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Craig Chobor, Solus - Analyst [2]
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Just one quick question from the Q. It says here that on July 25, PSP delivered a notice to Telesat Holdco requiring an IPO.
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Michael Targoff, Loral Space and Communications Inc - CEO [3]
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Yes.
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Craig Chobor, Solus - Analyst [4]
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Can you just give us some background, some color on that? Thanks.
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Michael Targoff, Loral Space and Communications Inc - CEO [5]
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Well, I think we've been reporting for years that effective, I think last October, either party -- by, I mean, party either Loral or PSP had the right to request SS/L to pursue -- request Telesat to pursue an IPO. They have made that request, which is their right. We do not intend to participate in the IPO -- in the secondary shares from Loral, as you know, that will be tax inefficient for us.
There are a number of steps that have to be completed before and if -- and if there is an IPO. One is, first of all, a renegotiation of our unanimous shareholder agreement. Two is, a determination from the underwriters as the market decision by the parties about the extent of the public offering, the secondary shares from PSP for sure and a discussion about whether it's appropriate to have any primary shares. And another questions, such as potential dividends and how we structure Loral to make those dividends not tax inefficient to us.
So there's quite a bit of wood to chuck, but they have a right to do it. We're pleased to cooperate.
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Craig Chobor, Solus - Analyst [6]
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Any idea on timing for that, or --?
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Michael Targoff, Loral Space and Communications Inc - CEO [7]
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Well, the timing is a little complicated, because depending on whether it's listed solely in Canada or dual-listed, you have different expected time periods for the regulatory review. It's much faster if it's Canada only. I think, certainly, we're talking about the fourth quarter. We're not talking about the third quarter.
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Operator [8]
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(Operator Instructions)
Scott Penner, TD Securities.
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Scott Penner, TD Securities - Analyst [9]
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I just wonder if I could just ask a couple questions about the Space Systems/Loral to confirm a couple numbers. I think the 10-Q said the EBITDA from that business was both $27.5 million year-to-date. Just, wondering whether that is still consistent with your previous guidance of 8% to 10% margin for the year?
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Michael Targoff, Loral Space and Communications Inc - CEO [10]
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It's -- the second half -- it's really a function of when some bookings come in and timing of the bookings to see if we can get into that range. But we're not expecting to be very far off.
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Operator [11]
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Michael Broudo, Miller Tabak.
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Michael Broudo, Miller Tabak - Analyst [12]
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I had a question on the leverage at Telesat. I'm wondering if you think that leverage ratio is now potentially too high, so that it might prevent pursuing some strategic alternatives if you decide to go down that road? And if you have any intentions of reducing debt at Telesat, say, over the next 6 to 9 months? Thank you.
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Michael Targoff, Loral Space and Communications Inc - CEO [13]
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No, I don't think it's too high at all. I think the -- we've had no discussions about anybody recommending that if an IPO goes forward, one of the purposes would be to reduce the debt. It may come up, but so far neither party -- none of the parties have thought that was an appropriate thing to do.
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Operator [14]
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Thank you. I'm showing no further questions at this time. I would now like to turn the conference back over to Mr Targoff for closing remarks.
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Michael Targoff, Loral Space and Communications Inc - CEO [15]
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Well thank you, everyone. It's been a pleasure having these conference calls with you. Hopefully, I'm sure we will have an occasion again in the future, when something material comes up, to do it again.
But I thank you all and have the rest -- have a good summer for the rest of the summer for all of you. Thanks very much.
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Operator [16]
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Ladies and gentlemen, this concludes today's conference. Thanks for your participation. Have a wonderful day.
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