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Technology Stocks : Loral Space & Communications -- Ignore unavailable to you. Want to Upgrade?

To: dougjn who wrote (2846)	5/2/1998 12:50:00 PM
From: Valueman	Read Replies (2) \| Respond to of 10852

G* will take out the necessary expenditures to build the second generation to the tune of approximately $350 muillion per year from 2002 to 2005--this all happens before the partners see any share. They will start spending on G2 in 2000--total cost looks like $2.2 billion. There is so much unknown though about how things will pan out. If demand is there for mission specific GEOs to service the fixed telephony market, add in $200-250 million per sat there. Since one could handle 10-20 million subs, there is the potential for a great number of these type of GEO sats. They will fall under the G* umbrella. It will take 800,000 subs at 160 minutes per month to generate the cash flow to pay for G2, 400,000 is breakeven. So if we get far enough down the line, the company has indicated its intention to use future cash surpluses to pay dividends to shareholders. By the way, Loral does own over 8 million GSTRF shares(fully converted) on top of their LP units--expect that to rise over the next couple of years. So, I hesitate to go so far out in the future, but at some point they should be paying dividends, unless of course we are a subsidiary of GE at that time!

To: dougjn who wrote (2846)	5/4/1998 11:31:00 AM
From: Snake	Read Replies (1) \| Respond to of 10852

From a tax standpoint, I believe ultimately the partners will swap partnership units for GSTRF stock and GSTRF will be the operating entity. Currently, all income, whether it be U.S. source or foreign source will flow through the U.S. partnership, and thus be taxed in the U.S. Loral's portion is the same. Loral has a permanent establishment in the U.S. and probably is filing an 1120-F U.S. income for a foreign corporation, including losses from G. While G has losses, it is advantageous from a tax view, to flow through the losses to the partners. That way, Loral, Qualcomm, Airtouch, and the other partners that may have taxable income in the U.S. can offset the losses. When G* is profitable, it would make sense to have the ownership in the foreign corporation. All U.S. income would be tax deferred for Qualcomm, Airtouch and other U.S. partners. These partners would not pay tax until dividends were distributed (except on any portion of the income that would be classified as Subpart F income under IRC 951 or if the entity were treated as a PFIC, which it wouldn't). For Loral, no U.S. tax except from U.S. source income since it is a Bermuda entity too. All dividends to LOR from GSTRF is tax-free, with no withholding taxes. There would be a "toll charge" under IRC 367 to make the conversion, but if G* is as profitable as we think, it will be worth it. Also, the other U.S. enities could probably form a Bermuda corp to hold its shares in GSTRF and dividends to that entity would be tax-free. That entity could then be used as a finance entity to finance foreign operations and never be repatriated to the U.S., and thus U.S. tax would be permanently deferred. This would be an efficient form for U.S. taxes, but remember, G* will pay taxes in the countries it operates in. No U.S. taxes just eliminates some double taxation that would occur where the U.S. entity can't use all its foreign tax credits.