Q3 2012 Loral Space and Communications Inc Earnings Conference Call
Nov 09, 2012 AM EST
LORL - Loral Space & Communications Inc
Q3 2012 Loral Space and Communications Inc Earnings Conference Call
Nov 09, 2012 / 04:00PM GMT
==============================
Corporate Participants
==============================
* Wendy Lewis
Loral Space & Communications Inc - Director of Communications
* Michael Targoff
Loral Space & Communications Inc - CEO, President and Vice Chairman
==============================
Presentation
------------------------------
Operator [1]
------------------------------
Good day everyone, and 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.
------------------------------
Wendy Lewis, Loral Space & Communications Inc - Director of Communications [2]
------------------------------
Good morning everyone. Thanks for joining us today.
As we proceed with the call, some of the remarks we make about our future expectations, plans and prospects 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 SEC for information on those factors and conditions.
In addition, any tax comments that we may provide on the call today are general information related to US federal income tax only. Loral's stockholders are urged to consult with their tax advisors to determine the particular tax consequence to them of the distribution, including the application and effect of state, local and/or foreign income tax laws.
Now, I would like to turn the call over to Michael Targoff, Chief Executive Officer of Loral Space & Communications.
------------------------------
Michael Targoff, Loral Space & Communications Inc - CEO, President and Vice Chairman [3]
------------------------------
Thank you, Wendy, and good morning everyone. This would be a brief call primarily to provide some information about the tax treatment of the distribution we declared on Wednesday night.
As in the past, with me today are some of our senior executives, including our CFO, Harvey Rein; our General Counsel, Avi Katz; our Treasurer, Richard Mastoloni; and our VP of Tax, Barry Sitler. I want to again commend my colleagues for their contribution to the success of the transaction. We all focus on the headline numbers in our transaction, but rest assured the hard negotiated and executed details of the transaction were significant contributors to the result and were delivered, in large part, by the efforts of this team and their colleagues both here at corporate and at SS/L.
Now to address the principal purpose of this call. As I mentioned, earlier this week we announced that our Board of Directors declared a special distribution of $29 per share resulting from the sale of SS/L. This is more than I had suggested in my last call resulting from a number of factors and more refined tax analysis that we believe reduces the taxes due from $3 a share to more likely $2 a share range.
As you would see as we report cash in our filings from time to time, we have cash and expected cash flow at corporate to fund our liquidity requirements going forward, especially as we reduce our corporate overhead to reflect the new corporate requirements. The $29 will be paid on December 4 to everyone who held the stock as of November 19. I understand that NASDAQ will trade the stock with a due bill through December 4. So anyone who buys the stock between November 15 through December 4 will get the $29 from the person who sold them the stock. Thus the trading price between November 15 and December 4 should not be reduced by the $29 distribution. Record holders on the November 19 and these due bill recipients will, however, receive different tax treatment.
As Wendy noted in the preliminary remarks, recognize that I am not giving tax advice and until we provide a written disclosure, things may change. But I am prepared to provide some guidance now for planning purposes. Thus for shareholders on November 19, the distribution is treated as a partial liquidation for tax purposes, which means that if you are a non-corporate US shareholder on November 19 you will receive the $29 and report a small portion of it as a dividend. The balance will be split between return of capital and capital gain or loss depending upon your basis.
As the average trading price on December 4 will determine how much of your distribution will be a return of capital, we will be providing the precise formula for calculation following the distribution date. The best way to explain how this works is with an example. Let's say the average price on December 4 is $81 per share. A portion of the distribution will be treated as a dividend, which should be about $2 to $3 per share. Let's use $2 in this example. As a result, $27 per share is being received in partial liquidation of your stock, the other $2 of the $29 would be the dividend. You then calculate the percentage of the liquidation over the average price on December 4, or you would take $27 over $81 in our example. And you get one-third or 33.3%. You then apply the 33.3% to your basis and that amount is your return of capital on the liquidation.
Thus if your basis was $45 per share, you would have $15 of return of capital, $12 of capital gain and $2 of dividend. You will apply this formula to each of your lots as many of you will have acquired shares with different cost basis. In each instance, you will take a third of your basis and treat it as a return of capital. Individual shareholders who bought the stock between November 15 and December 4 will receive the $29 and reduce their basis by the full $29. For corporate shareholders the $29 will be an extraordinary dividend and they will get the 70% dividend received deduction and regular dividend income treatment for the balance of the distribution. The full amount of the dividend received deduction will be applied to reduce their basis.
Regarding Telesat, as we reported earlier, our partner PSP has initiated a request to explore a potential IPO of Telesat. As I discussed in our last call, there would be tax inefficiencies for Loral to sell its Telesat shares and we do not intend to participate in an IPO of Telesat if it goes forward. However, we are cooperating with PSP and are currently exploring possible alternatives that could make a Telesat public offering attractive to Loral's shareholders. As soon as there is anything definitive relative to this, we will of course make the appropriate announcements.
So with that, I will turn the call over to the operator for questions.
==============================
Questions and Answers
------------------------------
Operator [1]
------------------------------
(Operator Instructions) And I'm not showing any questions with the queue at this time. I'd like to turn the call back to management for closing remarks.
------------------------------
Michael Targoff, Loral Space & Communications Inc - CEO, President and Vice Chairman [2]
------------------------------
Okay. I hope that means that we -- what I said was clear and people understood it and not that they're so confused that they don't even want to ask a question. But thanks very much for your participation. And hopefully we'll have another call sometime in the future when we have other interesting things to talk about. Thanks again.
------------------------------
Operator [3]
------------------------------
Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect. Everyone have a great day.
------------------------------
Definitions
------------------------------
PRELIMINARY TRANSCRIPT: "Preliminary Transcript" indicates that the
Transcript has been published in near real-time by an experienced
professional transcriber. While the Preliminary Transcript is highly
accurate, it has not been edited to ensure the entire transcription
represents a verbatim report of the call.
EDITED TRANSCRIPT: "Edited Transcript" indicates that a team of professional
editors have listened to the event a second time to confirm that the
content of the call has been transcribed accurately and in full.
------------------------------
Disclaimer
------------------------------
Thomson Reuters reserves the right to make changes to documents, content, or other
information on this web site without obligation to notify any person of
such changes.
In the conference calls upon which Event Transcripts are based, companies
may make projections or other forward-looking statements regarding a variety
of items. Such forward-looking statements are based upon current
expectations and involve risks and uncertainties. Actual results may differ
materially from those stated in any forward-looking statement based on a
number of important factors and risks, which are more specifically
identified in the companies' most recent SEC filings. Although the companies
may indicate and believe that the assumptions underlying the forward-looking
statements are reasonable, any of the assumptions could prove inaccurate or
incorrect and, therefore, there can be no assurance that the results
contemplated in the forward-looking statements will be realized.
THE INFORMATION CONTAINED IN EVENT TRANSCRIPTS IS A TEXTUAL REPRESENTATION
OF THE APPLICABLE COMPANY'S CONFERENCE CALL AND WHILE EFFORTS ARE MADE TO
PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS,
OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE CONFERENCE CALLS.
IN NO WAY DOES THOMSON REUTERS OR THE APPLICABLE COMPANY ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER
DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN
ANY EVENT TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S
CONFERENCE CALL ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE
MAKING ANY INVESTMENT OR OTHER DECISIONS.
------------------------------
Copyright 2017 Thomson Reuters. All Rights Reserved.
------------------------------