As filed with the Securities and Exchange Commission on
March 30, 2000.
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
Commission file number 0-23044
AMERICAN MOBILE SATELLITE CORPORATION
(Exact name of registrant as specified in its charter)
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DELAWARE |
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93-0976127 |
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(State or other jurisdiction of incorporation or organization) |
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(I.R.S. Employer
Identification No.) |
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10802 Parkridge Boulevard |
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Reston, VA |
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20191-5416 |
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(Address of principal executive offices) |
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(Zip Code) |
Registrant’s telephone number, including area code:
(703) 758-6000
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.01 per value per share
(Title of class)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such report(s), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
The aggregate market value of shares of Common Stock held by
non-affiliates at March 27, 2000 was approximately
$1,055,180,513.
Number of shares of Common Stock outstanding at March 27,
2000: 49,455,775.
DOCUMENTS INCORPORATED BY REFERENCE
Certain information in the Company’s definitive Proxy
Statement for its 2000 Annual Meeting of Stockholders is
incorporated by reference in Part III of this Form 10-K.
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained
herein, and will not be contained, to the best of
registrant’s knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this
Form 10-K or any amendments to this Form 10-K.
TABLE OF CONTENTS
AMERICAN MOBILE SATELLITE CORPORATION
1999 Annual Report on Form 10-K
PART I
This Annual Report on Form 10-K includes
“forward-looking statements” within the meaning of
Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as
amended. All statements regarding our expected financial position
and operating results, our business strategy, and our financing
plans and requirements are forward-looking statements. These
statements can sometimes be identified by our use of
forward-looking words or phrases such as, for example,
“may,” “will,” “anticipate,”
“estimate,” “expect,” “project,” or
“intend.” These forward-looking statements reflect our
plans, expectations and beliefs, and, accordingly, are subject
to certain risks and uncertainties. We cannot guarantee that any
of such forward-looking statements will be realized. Factors that
may cause actual results to differ materially from those
contemplated by such forward-looking statements (“Cautionary
Statements”) include, among others, those described under
the caption “Management’s Discussion and Analysis of
Financial Condition and Results of
Operations – Overview,” and elsewhere in this
annual report, including in conjunction with the forward-looking
statements included in this annual report. All of our subsequent
written and oral forward-looking statements (or statements that
may be attributed to us) are expressly qualified by the
Cautionary Statements. You should carefully review the risk
factors described in our other filings with the Securities and
Exchange Commission (the “SEC”) from time to time,
including our registration statement on Form S-3 (File
No. 333-81459), and our quarterly reports on Form 10-Q
to be filed after this annual report, as well as our other
reports and filings with the SEC. In addition, you are urged to
review carefully the Report on Form 8-K, dated
February 25, 2000, of XM Satellite Radio Holdings Inc.
(“XM Radio”) (File No. 0-27441) describing the
risk factors relating to XM Radio’s business, as well as XM
Radio’s other reports filed from time to time with the SEC.
1
Item 1. Business
Overview
We are a nationwide provider of two-way, wireless mobile data
services and mobile Internet services, principally for
business-to-business uses. Our customers use our networks and
applications for email messaging and dispatch and voice
communications services, enabling businesses and mobile workers
to transfer electronic information and messages and access
corporate databases and the Internet. We have developed a
versatile array of services targeted at customers in four primary
market segments: (1) mobile email and other Internet-based
content services, (2) telemetry, which refers to device to
device communications for database access or remote monitoring,
(3) transportation and package delivery, and (4) field
service. Our network is designed to offer a broad array of
wireless data services such as:
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two-way mobile Internet services, including our recently-launched
eLinkSM wireless email service, that provide
business-to-business users integrated wireless access to a broad
range of corporate and Internet email and Net-based information; |
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• |
telemetry systems that connect remote equipment, such as wireless
point-of-sale terminals, with a central monitoring facility; |
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mobile data and call dispatch fleet management systems, used by
large transportation companies and field service organizations; |
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global position tracking systems that permit businesses to manage
mobile assets; and |
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point-to-multi-point voice communications systems used by natural
resource companies, utilities, government agencies and other
entities with mobile fleets and field workers. |
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We have been providing terrestrial wireless services to customers
for several years, using a network which possesses four key
design attributes: (1) two-way communication, (2) deep
in-building penetration, (3) user mobility, and
(4) broad nationwide coverage. We offer our customers the
nation’s largest, most fully-deployed terrestrial wireless
two-way data network, comprising nearly 2,000 base stations that
provide service to 427 of the nation’s largest cities and
towns, including virtually all metropolitan areas. In 1999, we
significantly improved terrestrial network performance and
coverage, adding approximately 300 new base stations. Our
satellite in geosynchronous orbit overlays our terrestrial
network, thereby extending the service area coverage of our
network for certain of our service offerings throughout all 50
states and the Caribbean. The satellite also provides nationwide
voice and dispatch services. As of December 31, 1999, there
were approximately 140,700 end users on our networks, of which
122,200 were using data services, and 18,500 were using voice
services.
We believe that our network’s rapid message response time,
extensive nationwide coverage and deep in-building penetration
are key competitive advantages. Our business-to-business
customers enjoy the advantages of wireless integrated network
applications and mobile Internet services for mission critical
applications, built on a fully redundant network architecture. We
are the only mobile data network to offer guaranteed message
delivery to our customers.
Our Strategy
Our objective is to penetrate aggressively the large and growing
markets for mobile Internet data communications services, and
wireless telemetry applications. To meet this objective we intend
to:
Leverage Resources of Strategic Distribution Partners. To
penetrate our target markets, we have signed a number of
strategic distribution alliances with industry leaders. We intend
to access the resources and large existing corporate customer
bases of these partners to address significantly more potential
customers than we would be able to address on our own. For
example, we have formed alliances with SkyTel, a leading national
paging company with several hundred trained sales
representatives, and Critical Path, an email outsourcer which
hosts more than 11 million email boxes. We have also formed
a strategic alliance with IBM, providing us with the opportunity
to market our services to an established base of large corporate
customers. In the
2
telemetry market, we have entered into reseller agreements with
U.S. Wireless (point-of-sale), ABB Information Systems (utility
monitoring), and Ameritech SecurityLink (alarm monitoring), and
other value added resellers. We will continue to seek strategic
distribution channels that will enable us to more fully penetrate
our existing markets and access potential new markets on an
incremental basis. In addition, in vertical markets we intend to
exploit cross-selling opportunities using some of our existing
large corporate customers.
Develop New Wireless Applications. We intend to exploit
the market potential of our wireless network by working with
value-added partners and major e-business solutions providers to
develop additional innovative wireless applications and
content-based services, including future enhancements to our
eLink wireless email service. As market acceptance and demand for
wireless email grows, we believe users will demand a wide
variety of content-based services and features currently
accessible on the Internet. As an example of this strategy, we
have formed a strategic relationship with MicroStrategy under
which subscribers to our eLink service will be able to receive,
and act upon, timely, personalized alerts and updates on subjects
such as finance, weather, news and sports. We have also signed
agreements to develop Internet content-based services for use
with our eLink service with GoAmerica and Neomar, and we are
pursuing other similar agreements. In addition, we have formed an
important strategic alliance with IBM, under which we will
jointly develop and market wireless enterprise-wide email and
other e-business solutions to corporate customers, as well as
large email hosting Internet Service Providers, Mail Service
Providers, and Applications Service Providers.
Work With Vendors to Develop Less Expensive and More
Functional User Devices. We will continue to work with
vendors to develop new generations of user devices and
applications that combine improved functionality and convenience
at a lower price. We also intend to work with vendors to help
bring our network services to existing popular PDA platforms,
such as held-held devices. In addition, we will continue to
incorporate inexpensive, off the shelf software or free software
in our services. We believe that lower price points will
accelerate the acceptance and adoption of our services in our
traditional markets, and will also enable us to better penetrate
our targeted new wireless markets. By working with suppliers and
other business partners and by making strategic software and
hardware investments, we have significantly lowered the total
cost of ownership of our products. At the same time, we have
improved the functionality of our devices and made them smaller
and more convenient.
Capitalize on, and Enhance, Our Network’s Technical
Advantages. We have been providing terrestrial wireless
services to customers for several years, using the nation’s
largest, most fully deployed terrestrial wireless two-way data
network. Unlike many competitors who are in the process of
building limited city-wide or regional terrestrial networks, or
planning to launch satellites, we have deployed a national
network that is well tested and reliable, and our future network
expansion requirements are expected to arise primarily from
increased customer demand. We believe that our terrestrial
network provides key competitive advantages currently unmatched
by any competitor: broad nationwide geographic coverage,
guaranteed two-way message delivery, rapid message response time,
and deep in-building penetration with superior performance
characteristics when compared with cellular-based architectures
or satellite-only alternatives. We also believe that our two-way
messaging and wireless email products are superior to currently
available “two-way paging” services, due to the full,
two-way messaging capabilities that our network enables. We will
continue to enhance our terrestrial network’s capacity and
coverage by acquiring additional frequency, building more base
stations, both in existing and new geographic markets, and
selectively upgrading the technological capabilities of existing
base stations.
Our Wireless Service Offerings
We offer wireless services in four general categories:
(1) terrestrial data, including eLink wireless email,
(2) multi-mode data, (3) satellite-only data, and
(4) satellite voice and dispatch. We describe each of these
categories below.
3
Terrestrial Data Services
General. Terrestrial data services are the core of our
wireless business. Utilizing a variety of portable and hand-held
user devices, our terrestrial data services enable communications
between groups of mobile or fixed terminals and a single
“hub.” We target our data applications to both vertical
and horizontal markets. Applications include wireless email,
Internet and Intranet access, fax, peer-to-peer communications,
asset tracking, dispatch, point-of-sale, and other telemetry
applications. There are over 30 types of subscriber devices
available from more than 15 manufacturers for use on our
terrestrial network. These devices include Research in
Motion’s (RIM) handheld eLink devices, ruggedized laptops,
handheld digital assistants, and wireless modems for PC’s. A
variety of software firms have developed “middleware”
which helps to minimize our customers’ development efforts
in connecting the customer’s application to our network.
Also, a number of off-the-shelf software packages enable popular
email software applications on our network.
In the field service market, long-standing customers such as IBM,
Sears, Pitney Bowes, and NCR use our customized terrestrial data
applications to enable their mobile field service technicians to
stay connected. These customers value the broad, nationwide
coverage and deep in-building penetration of our terrestrial data
network.
Our largest single terrestrial data application is in the package
delivery market, where UPS has registered for service
approximately 32,700 of its third generation package tracking
devices on our network, under a multi-year agreement with us that
calls for UPS to deploy approximately 50,000 devices on our
network by the end of 2001.
eLink Wireless Email. Our eLink wireless email service,
which we launched in the fall of 1999, provides mobile users with
integrated wireless access to a broad range of corporate and
Internet email and personal information management
(PIM) applications. The eLink service uses a palm-sized
wireless handheld device, the RIM 850, manufactured by Research
in Motion. This device features a full QWERTY keyboard and a
thumbwheel which functions as a mouse. We sell the RIM 850 for
$359, with a monthly fee of $59.95 for unlimited email service or
a limited use plan priced at $24.95 per month.
We currently offer two versions of eLink, “AgentSM
,” and “MessengerSM.”
Users of our eLink Agent service can send and receive email
messages, using their existing corporate or Internet email
address, over our terrestrial network, as long as the user’s
email system is compliant with the industry protocol known as
Post Office Protocol 3, or POP 3. Outgoing mail sent
form the device appears to have come from the user’s desktop
PC. eLink Agent synchronizes with a user’s desktop PC so
that full calendar, task list, and contact information can be
instantly swapped to and from the device.
Our eLink Messenger service assigns a unique email address
(separate from the user’s corporate or Internet email
address), allowing users to send and receive wireless email
messages independent of other email systems. In addition, the
Messenger service allows users to send faxes from their device,
and the device also functions as a pager.
We are actively working on a number of innovative enhancements to
our eLink service. For example, we are currently developing an
IMAP4 solution for eLink, which will provide a more robust
Internet email application protocol, thereby enabling seamless
connectivity of our eLink service with a wider variety of
commercial email applications. We are also developing a combined
Agent/ Messenger offering, which will allow users to
“toggle” back and forth between the two services. We
expect to introduce several of these enhancements to the
marketplace shortly.
While eLink currently is a wireless email service, we believe it
will serve as a platform for future applications that go beyond
simple email, such as wirelessly extending corporate
enterprise-wide information management tools and systems.
Telemetry. We work with a variety of resellers in the
telemetry market. These resellers integrate customer-specific
devices and systems with our network to provide a wireless means
of transmitting data from a fixed or mobile site to a central
monitoring facility. Applications include wireless point-of-sale
systems, utility meter reading, vending and office machine
automation, and security/alarm monitoring.
4
Pricing of Terrestrial Data Services. Terrestrial data
service customers are charged a monthly access fee. In addition
to this access fee, users pay for usage depending on the number
of kilobytes of data transmitted. Our pricing plans offer a wide
variety of volume packaging and discounts, consistent with
customer demand and market conditions. The average monthly bill
for our data customers (other than eLink) range from below $10
for high unit quantity, low traffic volume, off-peak telemetry
users, to over $100 for high-volume, peak users in the field
service market. Our average monthly revenue per data user in the
fourth quarter of 1999 was approximately $43.
Multi-Mode Data Services
Our multi-mode communications service, MobileMAX2SM,
uses our terrestrial and satellite network to provide
“least-cost-routing” for our customers’ two-way
data communications. MobileMAX2 does this by actively seeking
connections to the lower cost terrestrial network before
automatically switching to our satellite network. By using both
networks, the multi-mode service offers complete nationwide
coverage. We believe that MobileMAX2, a lightweight,
easily-installed device, will prove to be a cost-effective
solution for long-haul trucking customers, as well as the broader
transportation industry, including the less-than-truckload and
package delivery markets. In addition to selling the MobileMAX2
service, we have initiated a bundled leasing program targeted at
smaller and medium-sized trucking companies who may not be able
to afford the capital expenditure associated with a purchase of
the equipment. Multi-mode users are charged a monthly access fee
that includes a specified number of vehicle location reports.
Multi-mode customers, such as Sitton Motor Lines and Southeastern
Freight Lines, value the least-cost-routing feature and complete
nationwide coverage of our multi-mode service.
Satellite-Only Data Service
We offer satellite-only messaging as an alternative to our
multi-mode service for customers in the long-haul trucking
segment. Customers with broad network coverage requirements but
relatively low usage requirements can get the service they need
at an affordable price by subscribing to our satellite-only data
service. Representative customers in this segment include CNF and
Cannon Express.
Satellite Voice and Dispatch Services
Our satellite telephone service supports two-way circuit-switched
voice, facsimile and data service. We offer a wide range of
satellite phone configurations developed to address the
particular communications needs of our customers. We market
telephone service to businesses that have nationwide coverage
requirements, including those operating in geographic areas that
lack significant terrestrial coverage, such as natural resource
companies, utilities and telecommunications companies that
require backup and restoral support, public safety organizations,
and maritime users seeking expanded or less costly coverage for
both commercial and recreational vessels. Our satellite telephone
customers include CBS, the Red Cross, FEMA, and the State of
Louisiana.
Our satellite dispatch service provides point-to-multi-point
voice communications among users in a customer-defined group
using a push-to-talk device. This service facilitates team-based
contingency-driven operations of groups operating over wide
and/or remote areas. Our targeted customer groups include oil and
gas pipeline companies, utilities and telecommunications
companies with outside maintenance fleets, state and local public
safety organizations, and public service organizations who need
to seamlessly link resources on a nationwide basis. Our satellite
dispatch customers include AT&T, MCI WorldCom, and the
Williams Companies.
Satellite telephone users are charged both fixed access and
variable usage fees. Our satellite dispatch customers are charged
a fixed access fee for virtually unlimited usage. Monthly bills
for satellite voice customers range from over $100 for high
volume users to a low of $35 for certain public safety and
emergency restoral applications. Our average monthly revenue per
voice user in the fourth quarter of 1999 was approximately $73.
5
Our Wireless Customers
As of December 31, 1999, there were approximately 140,700
user devices in service on our network and an established
customer base of large corporations in the following market
segments:
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Percentage of |
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Total Units |
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Transportation and package delivery |
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40 |
% |
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Field service |
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33 |
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Telemetry and point of sale |
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9 |
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ELink |
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2 |
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Maritime and Other |
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16 |
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Total |
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100 |
% |
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As of December 31, 1999, our customer base included the
following product segments:
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Percentage of |
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Total Units |
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Data: |
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Terrestrial only: |
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eLink |
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2 |
% |
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Other |
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62 |
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Multi-mode |
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10 |
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Satellite-only |
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7 |
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Private network customers |
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6 |
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Voice: |
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Telephony |
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7 |
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Dispatch |
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5 |
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Private network customers |
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1 |
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Total |
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100 |
% |
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Marketing and Distribution
We market our wireless services through distribution partners and
resellers, our direct sales force, and dealers.
Distribution Partners and Resellers. To penetrate
new wireless data markets with significant growth potential, we
have signed a variety of distribution alliances with key industry
leaders. We intend to leverage the resources and large existing
corporate customer bases of these partners to address
significantly more potential customers than we would be able to
address on our own. For example, we have formed an alliance with
SkyTel, a leading national paging company, under which SkyTel
offers our eLink service to SkyTel’s customers through its
sales force of several hundred trained sales representatives and
its resale partners. We have formed similar distribution
alliances with internet service providers, such as GoAmerica. We
also have a marketing agreement with Critical Path, an email
outsourcer which hosts more than 11 million email boxes. We
have also formed a strategic partnership with IBM, under which we
will jointly develop and market wireless enterprise-wide email
and other e-business solutions to corporate customers. We use
resellers to distribute our services and to resell capacity on
our network. Typically, we use resellers either in non-core
markets, such as the maritime voice market, where Stratos Global
Corporation is our exclusive reseller, or in specialized markets,
such as telemetry, where we sell capacity on our network to
resellers who integrate their customers’ equipment and
systems with our network to provide a customized application. In
the telemetry market, we have entered into reseller agreements
with U.S. Wireless (point-of-sale), ABB Information Systems
(utility monitoring), and Ameritech SecurityLink (alarm
monitoring). We also use three specialized government resellers,
one of which has included certain of our products and services on
its General Services Administration schedule. We intend to seek
other, similar means of expanding our opportunities to sell to
the
6
government market. We also sell bulk satellite capacity to
private network customers who use this capacity to support their
own proprietary networks and products.
Direct Sales Force. We have a direct sales force
that is experienced in selling our various wireless services.
Historically, our direct sales force has focused on the
requirements of business customers who need customized
applications. With the launch of our eLink wireless email
service, we have also built up a significant sales force
concentrated on promoting our eLink offering to vertical markets.
Our corporate accounts group is focused on promoting our eLink
wireless email service to wirelessly enable enterprise-wide email
systems for Fortune 500 accounts. For our wireless data
services, we also have regionally based representatives who
specialize in specific industry segments. Sales to corporate
account targets generally require a sustained marketing effort
lasting several months. Prior to making a buying decision, a
majority of the accounts exercise a due diligence process where
competitive alternatives are evaluated. Our employees often
assist in developing justification studies, application design
support, hardware testing, planning and training. In the wireless
email area, our internal sales force has been key to our ability
to convey crucial customer feedback to our product management
team, enabling us to identify and develop new product and service
features, such as an IMAP4 solution, the new, more robust
internet mail application protocol, and additional connectivity
options.
Dealers. We use dealers to market and sell our
satellite voice and dispatch services. These dealers typically
have strong business relationships with regional public safety
entities, as well as with smaller field service fleets. We
believe that opportunities exist to capitalize on the strengths
of this channel by introducing a low-cost terrestrial data device
with minimum integration requirements. Typically these dealers
serve as agents for sales and service and do not provide billing
and collection services. These dealers are generally compensated
with a standard activation fee, plus a modest percentage of the
service revenue for which they are responsible.
Our Network
Our wireless network consists of (1) the largest two-way
terrestrial data network in the United States, providing service
to 427 of the nation’s largest cities and towns, including
virtually all metropolitan areas, and (2) a satellite in
geosynchronous orbit with coverage of the continental United
States, Alaska, Hawaii, Puerto Rico, the U.S. Virgin Islands and
U.S. coastal waters and airspace. The network provides a wide
range of mobile data and voice services.
Users of our network access it through subscriber units that may
be portable, mobile or stationary devices. Generally, subscriber
units enable either data or voice communications and are designed
to operate over either the terrestrial data-only network or the
satellite network, which provides both voice and data
communications. In addition, our multi-mode subscriber equipment
is designed to provide least-cost routing of data messages over
the integrated terrestrial and satellite network.
Subscriber units receive and transmit wireless data or voice
messages from either terrestrial base stations or our satellite,
MSAT-2. Terrestrial messages are routed to their destination via
data switches that we own, which connect to the public data
network. Satellite messages are routed to their destination via
satellite data and voice switches, located at our headquarters,
which connect to the public data and switched voice networks. A
data switch located in Lincolnshire, Illinois links the
terrestrial and satellite networks for the delivery of our
multi-mode data service.
Our terrestrial network delivers superior in-building
penetration, completion rates and response times compared to
other wireless data networks through the use of a patented single
frequency reuse technology
7
developed by Motorola. Single frequency reuse technology enables
multiple base stations in a given area to use the same frequency.
As a result, a message sent by a subscriber can be received by a
number of base stations. This technology contrasts with more
commonly used multiple frequency reuse systems which provide for
only one transmission path for a given message at a particular
frequency. In comparison with multiple frequency reuse systems,
our technology provides superior in-building penetration and
response times and enables us to incrementally deploy additional
capacity as required, instead of in larger increments as required
by most wireless networks.
Our satellite, MSAT-2, has an expected end of service date of
2006 subject to potential malfunctions and other factors. We have
an agreement with TMI Communications and Company, Limited
Partnership, a Canadian company which owns and operates a
technologically identical satellite known as MSAT-1, for back up,
restoral and additional capacity if our satellite fails or we
need additional capacity. In return, we have agreed to provide
TMI with similar back-up service on our MSAT-2 satellite.
Equipment and Supplier Relationships
We have contracts with multiple vendors to supply equipment
configurations designed to meet the requirements of specific
end-user applications. We continue to pursue enhancements to
these devices that will result in additional desirable features
and reduced cost of ownership. Although many of the components of
our products are available from a number of different suppliers,
we rely on a relatively small number of key suppliers. The
devices used with our services generally are subject to various
product certification requirements and regulatory approvals
before they are delivered for use by our customers.
Our eLink wireless email service uses the RIM 850, a palm-sized
handheld device manufactured by Research in Motion, Limited. This
device includes a full QWERTY keyboard and features a unique
thumb wheel that functions similarly to a PC mouse. Research In
Motion also manufactures modems designed to be integrated into
handheld field service terminals, telemetry devices, utility
monitoring and security systems and certain other computing
systems, as well as the modem that is incorporated into
MobileMAX2, our second generation multi-mode terminal
manufactured by Vistar Telecommunications. Our supply
arrangements with Research in Motion are not exclusive, and
Research in Motion manufactures similar hardware products for
other companies, including BellSouth Wireless, our competitor in
the two-way wireless email market segment.
In addition to the messaging devices manufactured by Research in
Motion, there are currently over 30 other types of subscriber
units available from approximately 15 manufacturers that can
operate on our terrestrial network. Examples of portable
subscriber units include ruggedized laptop computers, small
external modems, handheld or palmtop “assistants,” and
pen based “tablets.”
In the transportation segment, we have an agreement with Vistar
Telecommunications Inc., a Canadian company, to provide
multi-mode data terminal equipment, including our second
generation multi-mode terminal, MobileMAX2. The new multi-mode
terminal incorporates a modem provided by Research in Motion.
Mobile satellite voice telephones are offered in a number of
different configurations that deliver a variety of features and
options to meet specific market needs. The primary suppliers of
our voice terminal equipment have been Westinghouse Wireless
Solutions, Inc. and Mitsubishi Electronics America. We have no
arrangements with Westinghouse or Mitsubishi for the delivery of
any new voice terminal equipment, and, when our remaining voice
inventory is depleted, our customers who need voice equipment
will need to buy such equipment from Westinghouse, Mitsubishi or
another manufacturer whose equipment works on our satellite
network, through such vendors’ designated distribution
channels. Other vendors are exploring putting new voice terminal
equipment on our network and we are committed to working with
such vendors to facilitate their development efforts with a view
toward certifying new equipment on our network. We continue
working with Westinghouse and Mitsubishi to provide support and
service to our voice customers.
Tandem Computer provides the terrestrial network switching
computers under a multi-year lease that extends through 2000,
while AT&T provides network services including a nationwide
wireline data network, and leased sites which house regional
switching equipment for our terrestrial network.
8
We also have a relationship with AT&T as our vendor for
switched inbound and outbound public switched telephone network
services. The satellite system terminates calls from its
telephone product via both the AT&T and Sprint networks.
We have an agreement with Motorola under which Motorola provides
certain continued support for the terrestrial network
infrastructure, and ongoing maintenance and service of the
terrestrial network base stations. An unrelated third party also
provides certain lease administration services for a portion of
the terrestrial network base station site leases.
Hughes Network Systems Ltd. manufactures and supports the key
component to our multi-mode and satellite messaging products,
namely the land earth stations. There are currently four land
earth stations that are operational, with a fifth under
development. The platform for our voice products, the
communications ground segment, depends upon products from
multiple vendors, most of which are generally commercially
available. Northern Telecom manufactures and supports the core
voice switch. Digital Equipment Corporation supplies the
computing platform that runs the communications ground segment.
We own certain patents, technical data and other intellectual
property that has been developed in connection with our
communications network. We jointly own certain intellectual
property with TMI, the Canadian mobile satellite service
provider, and we license intellectual property from other vendors
for operation of our network. We believe our ownership of and
rights to intellectual property for our system is sufficient for
our business purposes.
The terrestrial network, and certain of its competitive strengths
such as deep in-building penetration, is based upon single
frequency reuse technology. Motorola holds the patent for the
single frequency reuse technology. We have entered into support
agreements with Motorola to provide for certain support of the
operations of the terrestrial network. However, there can be no
assurance that Motorola will not enter into arrangements with our
competitors, or that if it does, such arrangements would not
harm our business.
Competition
The wireless communications industry is highly competitive and is
characterized by constant technological innovation. We compete
by providing unmatched geographic coverage, deep in-building
penetration, and guaranteed reliability distinguish us from
existing and emerging competitors. Our wireless business
solutions are used by businesses that need critical customer and
operational information in a mobile environment.
We have multiple business lines and compete with a variety of
service providers, from small startups to Fortune 500 companies.
Because we compete in several market segments with a broad range
of services, competitors and competing technologies may address
one or more of our market segments. We face competition from
service providers in (1) dedicated mobile data, (2)
PCS/cellular, (3) narrowband PCS/enhanced paging,
(4) emerging technology platforms, and (5) mobile
satellite services.
Dedicated Mobile Data. Companies using packet data
on dedicated mobile networks provide wireless data services that
compete directly with a number of our data products. In a packet
data environment data messages are transmitted in short bursts.
Primary competitors using this technology include BellSouth
Wireless Data and Metricom. BellSouth Wireless Data, a wholly
owned subsidiary of BellSouth Corporation, operates a
terrestrial-only network that provides data services to customers
in vertical markets such as the field service, transportation
and utility industries, and two-way messaging service to the the
horizontal market. We believe that our network provides broader
coverage, and superior in-building penetration than BellSouth
Wireless Data’s network. In addition, we continue to upgrade
our network in major metropolitan areas to continue to offer
broader geographic coverage and operate at faster speeds than the
BellSouth Wireless Data network. Metricom’s Ricochet
service provides wireless access to the Internet, private
intranets, local area networks and email. Because of the large
size of the Metricom modem, the mobility of the user is limited
while using the service. Metricom currently offers its service in
limited regions, comprised of San Francisco, Seattle, parts of
New York City and Washington, D.C. Metricom plans to add several
more cities in 2000.
9
The vendor of our wireless email device, Research in Motion, also
offers a competing wireless messaging service, called
Blackberry, which utilizes BellSouth Wireless Data’s
network. Blackberry offers wireless email and Personal
Information Management (PIM) functionality, but only serves
users in a Microsoft Exchange environment. We believe that our
eLink wireless email service is superior to similar products
offered by competitors because of (1) the ability to combine
a wider variety of corporate and Internet email applications
with the eLink email service, (2) a unique synchronizing
cradle that automatically updates users’ personal
information management features, (3) more attractive
pricing, (4) a rechargeable battery option, and (5) the
nationwide breadth of our terrestrial wireless network.
PCS/ Cellular. PCS and cellular services presently
serve the majority of mobile communications users in the United
States, with over 73 million subscribers at the end of 1999.
There are a large number of cellular and PCS systems
collectively providing voice service throughout most of the
United States, with no single competitor providing the seamless,
national footprint that is available through our network. As the
average voice revenue per subscriber declines, wireless voice
carriers are beginning to focus on delivering wireless data
services in an effort to differentiate their voice products and
to retain voice customers. The first of these services is the
Sprint PCS Wireless Web. Sprint allows circuit switched wireless
web access to several content services using the numeric keypad
of the phone. Other voice carriers are also beginning to offer
wireless data services through mobile phones, but we believe the
limitations of today’s PCS and cellular features and
networks will limit competition in our target markets. Users must
type messages using the numeric keypad, must have a digital
phone and digital service, and do not have access to data
services when they roam onto analog networks, detracting from the
user experience. Pricing today is based on per-minute charges
that can accumulate quickly as users are required to log on to
the Sprint web browser and use Yahoo to send or receive email or
access content services. It is expected to take several years
before PCS/cellular carriers will have the breadth of coverage to
match our services.
Cellular digital packet data (CDPD), the cellular industry’s
only packet data service, is available in fewer geographic
markets than our service, covering approximately 55% of the U.S.
population. Expansion of the CDPD networks has slowed
considerably as carriers such as AT&T and Bell Atlantic
Mobile look to other means to provide data services to their
voice customers. Some cellular and PCS carriers offer short
message capabilities, depending on the protocol they use, and
expect to offer larger capacity packet data services in the next
few years.
Narrowband PCS/ Enhanced Paging. Some traditional
paging companies, such as SkyTel, Arch and Metrocall, are
expanding beyond their traditional alpha/numeric paging into
two-way wireless messaging services using narrowband PCS. Typical
applications include wireless email, near-real time delivery of
stock quotes and other time sensitive information, and mobile
workforce communications. Although some paging companies have
begun to offer limited two-way messaging services, initial
challenges in coverage, responsiveness and throughput, as well as
the high cost of service, currently limit their adoption by our
targeted customers. These services compete primarily with our
eLink wireless email services. We have signed a strategic
alliance with SkyTel under which SkyTel markets our eLink service
to its customers, and we have similar reseller agreements with
our national distribution partners.
Emerging technology platforms. A variety of new
technologies, devices and services will result in new types of
competition for us in the near future. The emergence of new
protocols such as WAP (Wireless Access Protocol) and Bluetooth is
expected to enable the use of the Internet as a platform to
exchange information between people with different devices on
different networks. WAP defines a protocol for altering Internet
sites to make their content more readily transmittable to mobile
user devices, where bandwidth is limited. Bluetooth is a wireless
networking technology that will enable communications between
disparate devices in a home or office setting. Manufacturers such
as Nokia, Ericsson and Qualcomm are developing mobile phones and
devices to work with the WAP and Bluetooth protocols. Within the
next few years, it is expected that new, so-called “3G
technologies,” new forms of CDMA, TDMA and GSM, will
increase the data capabilities of voice and data services and may
have a competitive impact on portions of our business.
The growth in wireless data opportunities has led traditional
hardware manufacturers and software developers to invest in
technologies that will allow the migration of core products and
services to a mobile environment.
10
Companies like IBM, Oracle, Siebel, Sun and Lucent have made
significant investments in the area of mobility to guarantee
their place in both the desktop and mobile/handheld computing
environments.
Although the emergence of new technologies and new players
expands our competitive environment, we believe it provides more
of an opportunity than a threat. For example, we have formed a
strategic partnership with IBM to develop mobile services that
will be sold into IBM’s enterprise customers and users of
Lotus Notes. Through IBM and other partners, we intend to be able
to offer a full range of services, from simple wireless email to
customized wireless data solutions, to our target customers in
the enterprise market.
Mobile Satellite Services. A number of companies
are selling or developing mobile satellite services that compete
with our satellite voice and data services as well as our
multi-mode transportation product. We do not view these mobile
satellite services as competitors to the terrestrial component of
our network because they are satellite-based and lack the
extensive urban and in-building coverage we provide.
We face competition in the limited satellite voice and data
services market from several companies that utilize a variety of
satellite technologies. TMI, a Canadian company that operates a
geosynchronous satellite comparable to our MSAT-2 satellite,
received permission in November 1999 from the FCC to offer
mobile messaging services in the United States using its
Canadian-licensed MSAT-1 satellite. Its offerings are similar to
many of our satellite voice and data services. As described below
in “Regulation”, we have appealed the FCC decision
granting TMI authority to operate in the United States.
Globalstar recently launched its satellite services in limited
areas of the globe, including the areas covered by our satellite.
Globalstar’s system consists of a constellation of
forty-eight low earth orbiting satellites that covers more than
eighty percent of the globe. Globalstar offers or plans to offer
global voice, fax, and data services. We do not foresee
Globalstar providing a nationwide dispatch service such as ours
or a data service in excess of 9600 bps. It is a more complex and
expensive system than the satellite component of our network,
but offers some advantages over our voice services such as
smaller handheld telephones, global coverage, and in certain
circumstances, reduced transmission delay.
Our multi-mode transportation product, MobileMAX2, utilizes both
the satellite and terrestrial components of our network and
competes in the trucking market, principally with Qualcomm’s
satellite-only, low-speed OmniTRACS product. While both
MobileMAX2 and OmniTRACS provide similar service, OmniTRACS
currently does not have a terrestrial communications path or
least-cost routing capabilities similar to our MobileMAX2
product. With OmniTRACS, transmissions to and from a vehicle must
be routed exclusively over a satellite network and are subject
to line of sight blocking and higher transmission costs. Qualcomm
plans to launch a separate terrestrial-only service in 2000
using the Sprint PCS CDMA network.
In addition to relatively complex non-geosynchronous systems
designed to provide mobile voice services, there are relatively
simple “little” low earth orbit systems that would
provide only low-speed packet data services. These systems,
including ORBCOMM Global, L.P., and LEO One USA, have access to
comparatively limited spectrum and are expected to compete for
customers who require specialty applications such as asset
tracking services for untethered trailers.
Employees
At December 31, 1999, we had 493 employees. None of our
employees is represented by a labor union. We consider our
relations with our employees to be good.
Our Investment in XM Radio
In addition to our core wireless business, we have a significant
investment in XM Satellite Radio Holdings Inc., a development
stage company. XM Radio is seeking to become a nationwide
provider of digital quality audio entertainment and information
programming transmitted directly by satellites to vehicle, home
and portable radios. XM Radio owns one of two FCC licenses to
provide a satellite digital audio radio service for the United
States. XM Radio is developing its service, which it will call
“XM Radio,” to provide a wide variety of music, news,
talk, sports and other programming offering up to 100 distinctive
channels.
11
XM Radio has a separate management team and a business plan that
is distinct from our core wireless business. To date, XM Radio
has received substantially all of its required funding from
independent sources in exchange for debt and equity interests in
XM Radio. We are not required to provide any additional funding
to XM Radio, and we currently expect that XM Radio will continue
to obtain substantially all of its required funding from other
sources. Accordingly, we do not expect that development of the XM
Radio business will have a material effect on our consolidated
liquidity, capital resources or cash flows.
For more details about XM Radio, its business and a discussion of
certain risk factors related to its business plan, readers are
urged to review carefully XM Radio’s Current Report on
Form 8-K, dated February 25, 2000 (File
No. 0-27441) filed with the SEC, as well as XM Radio’s
other reports filed with the SEC from time to time.
Regulation
The satellite network and terrestrial two-way wireless data
network used in our core wireless business are regulated to
varying degrees at the federal, state, and local levels. Various
legislative and regulatory proposals under consideration from
time to time by Congress and the FCC have in the past materially
affected and may in the future materially affect the
telecommunications industry in general, and our wireless business
in particular. The following is a summary of significant laws,
regulations and policies affecting the operation of our core
wireless business. In addition, many aspects of regulation at the
federal, state and local level currently are subject to judicial
review or are the subject of administrative or legislative
proposals to modify, repeal, or adopt new laws and administrative
regulations and policies. Neither the outcome of these
proceedings nor their impact on our operations can be predicted
at this time.
General Regulatory Matters Applicable to Our Wireless
Business
The ownership and operation of our satellite and terrestrial
networks are subject to the rules and regulations of the FCC,
which acts under authority established by the Communications Act
and related federal laws. Among other things, the FCC allocates
portions of the radio frequency spectrum to certain services and
grants licenses to and regulates individual entities using that
spectrum. American Mobile operates pursuant to various licenses
granted by the FCC.
American Mobile is a Commercial Mobile Radio Service provider and
therefore is regulated as a common carrier. We must offer
service at just and reasonable rates on a first-come,
first-served basis, without any unjust or unreasonable
discrimination, and we are subject to the FCC’s complaint
processes. The FCC has forborne from applying numerous common
carrier provisions of the Communications Act to Commercial Mobile
Radio Service providers. In particular, we are not subject to
traditional public utility rate-of-return regulation, and we are
not required to file tariffs with the FCC for our domestic
services.
As a provider of interstate telecommunications services, we are
required to contribute to the FCC’s universal service fund,
which supports the provision of affordable telecommunications to
high-cost areas, and the provision of advanced telecommunications
services to schools, libraries, and rural health care providers.
Under the FCC’s current rules, we are required to
contribute a percentage of the end-user telecommunications
revenues we derive from the retail sale of interstate
telecommunications services. Currently excluded from a
carrier’s universal service contribution base are end-user
revenues derived from the sale of information and other
non-telecommunications services and wholesale revenues derived
from the sale of telecommunications. A significant portion of the
terrestrial network revenue falls within the excluded
categories, thereby reducing our universal service assessments.
Current rules also do not require that we impute to our
contribution base retail revenues derived when we use our own
transmission facilities to provide a service that includes both
information service and telecommunications components. There can
be no assurances that the FCC will retain the exclusions
described herein or its current policy regarding the scope of a
carrier’s contribution base. American Mobile may also be
required to contribute to state universal service programs. The
requirement to
12
make these state universal service payments, the amount of which
in some cases may be subject to change and is not yet determined,
may have a material adverse impact on the conduct of our
business.
American Mobile is subject to the Communications Assistance for
Law Enforcement Act (“CALEA”). Under CALEA, we must
ensure that law enforcement agencies can intercept certain
communications transmitted over our networks. We must also ensure
that law enforcement agencies are able to access certain
call-identifying information relating to communications over our
networks. We must comply with the CALEA requirements and any
rules subsequently promulgated by June 30, 2000 or face
possible sanctions, including substantial fines and possible
imprisonment of company officials. It is possible that we may not
be able to comply with all of CALEA’s requirements or do so
in a timely manner. Where compliance with any requirement is
deemed by the FCC to be not “reasonably achievable,” we
may be exempted from such requirement. In addition, CALEA
establishes a federal fund to compensate telecommunications
carriers for all reasonable costs directly associated with
modifications performed by carriers in connection with equipment,
facilities, and services installed or deployed on or before
January 1, 1995. For equipment, facilities, and services
deployed after January 1, 1995, the CALEA fund is supposed
to compensate carriers for any reasonable costs associated with
modifications required to make compliance “reasonably
achievable.” It is possible that all necessary modifications
will not qualify for this compensation and that the available
funds will not be sufficient to reimburse American Mobile. The
requirement to comply with CALEA could have a material adverse
effect on the conduct of our business.
As a matter of general regulation by the FCC, we are subject to,
among other things, payment of regulatory fees, restrictions on
the level of radio frequency emissions of our systems’
mobile terminals and base stations, and “rate
integration” regulations requiring that providers of
interstate interexchange telecommunications services charge the
same rates for these services in every state, including Puerto
Rico and the U.S. Virgin Islands. Any of these regulations may
have an adverse impact on the conduct of our business.
The FCC licenses of American Mobile are subject to restrictions
in the Communications Act that (1) certain FCC licenses may
not be held by a corporation of which more than 20% of its
capital stock is directly owned of record or voted by non-U.S.
citizens or entities or their representatives and (2) that
no such FCC license may be held by a corporation controlled by
another corporation (“indirect ownership”) if more than
25% of the controlling corporation’s capital stock is owned
of record or voted by non-U.S. citizens or entities or their
representatives, if the FCC finds that the public interest is
served by the refusal or revocation of such license. However,
with the implementation of the Basic Telecommunications
Agreement, negotiated under the auspices of the World Trade
Organization (“WTO”) and to which the United States is
a party, the FCC will presume that indirect ownership interests
in American Mobile’s FCC licenses in excess of 25% by
non-U.S. citizens or entities will be permissible to the extent
that the ownership interests are from WTO-member countries. The
Basic Telecommunications Agreement and this presumption regarding
indirect ownership by non-U.S. citizens or entities do not apply
to XM Radio’s satellite radio license. If the 25% foreign
ownership limit is exceeded, the FCC could potentially take a
range of actions which could harm our business.
Our Terrestrial Network
Our terrestrial network consists of base stations licensed in the
Business Radio and Specialized Mobile Radio Service, all
operating in the 800 MHz frequency band. The terrestrial network
is interconnected with the public switched data network.
The FCC’s licensing regime in effect when it issued licenses
for the terrestrial network provided for the issuance of
individual licenses for specific channels at specific sites. With
respect to the part of the band in which all of the terrestrial
base stations operate, however, the FCC has implemented a new
licensing regime. The new licensing regime involves the
auctioning of licenses for specific channels for wide geographic
areas, within which the licensee will have substantial
flexibility to operate any number of base stations, including
base stations that may operate on the same channels as incumbent
licensees such as American Mobile. The FCC proposes to prohibit
the new geographic licensees from causing interference to
incumbents, but there is concern that such interference may occur
and that practical application of these rules is uncertain.
13
We believe that we have licenses for sufficient channels to meet
our current needs for capacity on the terrestrial network. To the
extent that we need additional capacity, we may be required to
either participate in the upcoming auctions or acquire channels
from other licensees. As part of its new licensing regime, the
FCC permits a wide-area geographic licensee, with prior FCC
approval, to sell a portion of its geographic area to another
entity. This partitioning authority may increase our flexibility
to operate additional base stations, but the practical utility of
this option is uncertain at this time.
We operate the terrestrial network under a number of waivers of
the FCC’s technical rules, including rules on station
identification, for-profit use of excess capacity, system
loading, and multiple station ownership. Several of these waivers
were first obtained individually by IBM and Motorola, which
operated separate wireless data systems until forming the ARDIS
joint venture in 1990. The FCC incorporated a number of these
waivers into its regulations when it implemented Congress’
statutory provision creating the Commercial Mobile Radio Service
classification, and we no longer require those waivers. As of
March 3, 1999, we completed our planned construction of base
stations for which extended implementation was granted by the
FCC in 1996.
Our Satellite Network
We are licensed by the FCC to provide a broad range of mobile
voice, data and dispatch services via satellite to land, air and
sea-based customers in a service area consisting of the
continental United States, Alaska, Hawaii, Puerto Rico, the U.S.
Virgin Islands and U.S. coastal waters and airspace. American
Mobile is also authorized to provide fixed site voice and data
services via satellite to locations within this service area, so
long as such services remain incidental to American Mobile’s
mobile communications services. American Mobile is authorized to
build, launch and operate three geosynchronous satellites in
accordance with a specified schedule. We are not in compliance
with the schedule for commencement and construction of our second
and third satellites and we have petitioned the FCC for changes
to the schedule. Certain of these extension requests have been
opposed by third parties. The FCC has not acted on our requests.
The FCC has the authority to revoke the authorizations for the
second and third satellites and, in connection with such a
revocation, could exercise its authority to rescind our license.
We believe that the exercise of such authority to rescind the
license is unlikely. The term of the license for each of our
three authorized satellites is ten years, beginning when we
certify that the respective satellite is operating in compliance
with the license. The ten-year term of the license for MSAT-2
began August 21, 1995. Although we anticipate that the
authorizations are likely to be extended in due course to
correspond to the useful lives of the satellites and that new
licenses will be granted for replacement satellites, there is no
assurance of such extension or grant.
On July 2, 1998, we filed an application for authority to
launch and operate our second-generation mobile satellite system.
This satellite is intended to support our existing satellite
services and also allow the provision of an extended array of
services, such as higher data rate services and services to
lower-power terminals. There is no guarantee that the FCC will
grant this application. The filing of the application does not
commit us to expend any resources toward this project; however,
should we decide to proceed with the construction of the
follow-on satellite, we would be required to raise substantial
additional capital to fund this project.
MSAT-2 is designed to operate over the 1530-1559/1631.5-1660.5
MHz bands (the “L-band”). American Mobile is currently
licensed to operate in the 1544-1559/1645-1660.5 MHz bands (the
“upper L-band”). The FCC has designated American Mobile
as the licensee for both MSS and Aeronautical Mobile Satellite
(Route) Service (“AMS®S”). AMS®S includes
satellite communications related to air traffic control, as well
as aeronautical safety-related operational and administrative
functions. As a condition to its authorization, American Mobile
is required by the FCC to be capable of providing priority and
preemptive access for AMS®S traffic in the upper L-band and
to be interoperable with and capable of transferring AMS®S
traffic to international and foreign systems providing such
service. We currently anticipate we will be able to meet these
requirements without any material adverse effect on our business.
If we are unable to meet these requirements, the FCC may
authorize and give priority spectrum access to one or more
additional satellite systems that meet the specified
requirements.
We have applied for authorization to operate in the
1530-1544/1631.5-1645.5 MHz band (the “lower L-band”).
If we are assigned spectrum in the lower L-band, we will be
required by the FCC to provide similar
14
priority and preemptive access in that spectrum to maritime
distress and safety communications. With respect to our mobile
voice terminals, we currently anticipate we will be able to meet
this requirement without any material adverse effect on our
business. The Federal Aviation Administration filed comments,
however, in connection with our application to operate up to
30,000 mobile data terminals that were transitioned from leased
space segment to MSAT-2 in late 1995, stating its concern that
the mobile data terminals cannot be operated in compliance with
our obligation to provide priority and preemptive access in the
upper L-band. The FAA has proposed that we operate the mobile
data terminals in the lower L-band. We have received successive
six-month grants of special temporary authority, under a two-year
waiver of the FCC’s rules on priority and preemptive
access, to operate up to 15,100 mobile data terminals in the
lower L-band. This number was increased to 33,100 terminals
pursuant to our acquisition of the mobile data equipment and
services previously licensed to Rockwell. The two-year waiver
expired on August 1, 1997, but remains in effect while our
request for a two-year extension of that waiver is pending at the
FCC. We will need additional authority to increase the number of
mobile data terminals that we are authorized to operate in order
to achieve planned growth in our data services, and on
July 27, 1999, we applied for authority to operate an
additional 36,900 mobile terminals in the lower L-band. We will
also need the FCC to grant us or another entity authority to
operate over our space segment to operate mobile data terminals
with a different transmission design than those operated under
our current lower L-band authorization. Transmissions from these
terminals require a wider bandwidth than do transmissions from
our existing terminals. We were granted a six-month special
temporary authority to operate up to 10,000 of these mobile data
terminals on February 12, 1999. VISTAR Telecommunications,
Inc., the manufacturer of these wider-bandwidth mobile data
terminals, has applied for a blanket license to operate up to
100,000 of these terminals using our satellite. There can be no
assurance that we or others will continue to receive authority to
operate these mobile data terminals or other mobile terminals in
the lower L-band over our space segment.
American Mobile’s mobile terminal authorizations are subject
to compliance with certain requirements regarding interference
protection to the Global Positioning System (“GPS”).
With the consent of the FAA, the FCC granted our application
subject to certain conditions, including that the grant may be
modified after the interference issue is studied. The FCC is now
proposing to impose more stringent limits on the out-of-band
emissions from certain mobile terminals, including those used in
connection with our system, in order to protect GPS and the
Russian Global Navigation Satellite System. Some of our existing
mobile terminals may not comply with this proposed standard.
Under the FCC’s proposal, all mobile terminals commissioned
after January 1, 2002 must comply with this new limit, and
any terminals not meeting the new specifications must be retired
or retrofitted by 2005. While we believe that we will be able to
comply with the proposed 2002 deadline for newly commissioned
terminals, we have opposed the 2005 deadline for the retirement
or retrofitting of existing, non-compliant terminals. If adopted
by the FCC, this policy could have a material adverse effect on
our business.
American Mobile’s license authorizes MSAT-2 to operate using
certain telemetry, transfer and control frequencies in the
Ku-band. American Mobile operates MSAT-2 at the 101 degrees W.L.
orbital location. GE American Communications, Inc., also operates
a satellite at the 101 degrees W.L. orbital location. American
Mobile and GE American have an agreement covering MSAT-2 that may
require us to modify our operations or make certain payments to
GE American if our operations cause interference to those of GE
American. While there can be no assurances, we do not anticipate
any interference in the operations of MSAT-2 and those of GE
American.
American Mobile’s subscriber equipment will operate in
L-band frequencies that are limited in available bandwidth. The
feeder-link earth stations and the network communications
controller of the communications ground segment operate in the
more plentiful fixed satellite service Ku-band frequencies. Of
the 30 MHz in the upper L-band frequencies, American Mobile is
currently licensed to operate in the 1544-1559/1645.5-1660.5 MHz
bands. Of the 30 MHz assigned to American Mobile by the FCC, one
MHz is limited to AMS®S and one-way paging and two MHz are
limited to distress and safety communications. We do not plan to
operate on these three MHz of bandwidth.
In June 1996, the FCC issued a notice of proposed rulemaking
proposing to assign to American Mobile the first 28 MHz of
internationally coordinated L-band spectrum from either the upper
or lower portion of the
15
MSS L-band. Under the FCC’s proposal, we would have first
priority access to use the lower L-band spectrum as necessary to
compensate for spectrum unavailable for coordination in the upper
L-band. In the event the United States is able to coordinate
more than 28 MHz of L-band spectrum, the FCC has proposed
allowing other applicants to apply for assignment of those
frequencies. Certain entities have filed with the FCC petitions
to deny our application and comments opposing the assignment of
additional frequencies to American Mobile. While there can be no
assurances, we believe the FCC is likely to grant our
application.
In the Ku-band frequencies, American Mobile is currently licensed
to operate MSAT-2 using 200 MHz within the bands 10.75-10.95 GHz
for downlink transmissions and 13.0-13.15 GHz and 13.2-13.25 GHz
for uplink transmissions. We have applied for authority to
operate using an additional 200 MHz of spectrum within the same
bands.
Spectrum availability, particularly in the L-band, is a function
not only of how much spectrum is assigned to us by the FCC, but
also the extent to which the same frequencies are used by other
systems in the North American region, and the manner of such use.
All spectrum use must be coordinated with other parties that are
providing or plan to provide mobile satellite-based
communications in the same geographical region using the same
spectrum. At this time, the other parties with which spectrum use
must be coordinated include Canada, Mexico, the Russian
Federation and Inmarsat. In addition, a new Japanese system
proposes to operate in a manner that would interfere with our
system and other systems in this region, and this Japanese
system’s spectrum use will have to be coordinated with these
regional operators.
Use of the spectrum is determined through a series of
negotiations between the United States government and the other
user agencies, pursuant to the rules and regulations of the
International Telecommunication Union. For the past several
years, each of the countries and international organizations that
have used or will use L-band frequencies within the North
American region have met regularly to negotiate and coordinate
their current and future use of that spectrum. This international
coordination process is not yet complete and there has been no
spectrum sharing arrangement since the end of 1999. In the
absence of a coordination agreement, we must operate our system
on a non-interference basis.
We estimate that international coordination will make
approximately 20 MHz of L-band spectrum available to the United
States for MSAT-2. Since the coordination process involves many
parties and there is uncertainty about the total outcome, the
actual amount of spectrum available may be less than that
estimated. The operation of the new Japanese system may have the
effect of further reducing our access to spectrum. Some of the
spectrum that may be available to us may include a portion of the
28 MHz lower L-band spectrum adjacent to the frequencies already
assigned to us by the FCC.
The International Telecommunications Union Radio Regulations
include a table of frequency allocations that prescribe the
permitted uses of the radio spectrum. As a result of the
International Telecommunications Union satellite plan for parts
of the Ku-band, there also may be restrictions on our ability to
deploy feederlink earth stations in Alaska, Hawaii, Puerto Rico,
and the U.S. Virgin Islands.
During the course of the licensing process for American Mobile
and several times since, the FCC has stated that there is only
enough spectrum in the MSS L-band for the FCC to authorize a
single mobile satellite services system to provide service in the
United States. On November 30, 1999, however, the FCC
granted two applications to use TMI’s Canadian-licensed
system to provide service in the United States to up to 125,000
mobile terminals. TMI’s system operates in the MSS L-band
and has a satellite footprint that covers the United States. We
are currently appealing the FCC’s grant of these
applications to the United States Court of Appeals for the D.C.
Circuit. There is no assurance that this appeal will be
successful. TMI’s entry into the domestic U.S. marketplace
may increase TMI’s demand for spectrum in the international
coordination process and otherwise make it more difficult for us
to secure access to 20 MHz of spectrum. The FCC may grant
additional applications to use TMI’s system or other
foreign-licensed L-band systems to provide service to domestic
U.S. customers.
American Mobile is operating under waivers of certain FCC rules.
In 1996, the FCC issued an order requiring all Commercial Mobile
Radio Service providers to offer what are known as “enhanced
9-1-1 services” including the ability to automatically
locate the position of all transmitting mobile terminals. We
would not
16
have been able to offer this automatic location information
without adding substantially to the cost of our mobile equipment
and reconfiguring our communications ground segment software. The
FCC decided not to impose specific new requirements on mobile
satellite services providers, including American Mobile, at that
time. The FCC did state its expectation that such providers
eventually would be required to provide “appropriate access
to emergency services.” A decision to impose this
requirement on mobile satellite services providers could have a
material adverse effect on our business.
The FCC enacted “rate integration” regulations
requiring that providers of interstate interexchange
telecommunications services charge the same rates for these
services in every state, including Puerto Rico and the U.S.
Virgin Islands. We have opposed the imposition of this rate
integration requirement on our mobile satellite services system,
so that we may preserve the flexibility to charge more for
service in areas covered by satellite beams that require more
satellite power. The FCC has denied our request for a permanent
exemption from its rate integration requirement, but has not yet
ruled on our request for a temporary waiver of a year or more.
The FCC has granted American Mobile an interim waiver from its
rate integration requirement until its decision on American
Mobile’s temporary waiver request.
Item 2. Properties.
We lease approximately 94,000 square feet at our headquarters
office space and network operations center in Reston, Virginia.
The lease has a term which runs through August 3, 2003
(which may be extended at our election for an additional five
years). In addition, we lease a back-up Ku-band radio frequency
facility in Alexandria, Virginia. We also lease approximately
86,000 square feet of space for office space and an operations
center in Lincolnshire, Illinois, the lease for which expires
December 31, 2005 (which may be extended at our election for
an additional five years). We also lease site space for nearly
2,000 base stations and antennas across the country for the
terrestrial network under one- to five-year lease contracts with
renewal provisions. We anticipate that we will be able to gain
access to additional base station sites when necessary on
acceptable terms.
Item 3. Legal Proceedings.
There are no material pending legal proceedings that are required
to be disclosed.
Item 4. Submission of Matters to a Vote of
Security Holders.
No matters were submitted to a vote of the Company’s
Stockholders during the fourth quarter of fiscal 1999.
17
PART II
Items 5, 6, 7 and 8.
The information called for by Items 5 through 8 of Part II is
presented in a separate section of this Annual Report on
Form 10-K commencing on the page numbers specified below:
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| Form 10-K Item |
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Page |
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Item 5 – Market for the Registrant’s Common
Equity and Related Matters |
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F-54 |
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Item 6 – Selected Financial Data |
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F-55 |
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Item 7 – Management’s Discussion and Analysis
of Financial Condition and Results of Operations |
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F - 2 |
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Item 8 – Financial Statements and Supplementary
Data |
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F-13 |
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Item 9. Changes in and Disagreements with
Accountants on Accounting and Financial Disclosure.
None.
18
PART III
Items 10, 11, 12 and 13.
The information called for by Part III (Items 10, 11, 12 and 13)
is incorporated herein by reference from the material included
under the captions “Nominees,” “Board Committees,
Meetings, and Compensation,” “Executive Officers,”
“Performance Graph,” “Summary Compensation
Table,” Option/ SAR Grants in Last Fiscal Year,”
“Option/ SAR Exercises and Year-End Option Values,”
“Compensation and Stock Option Committee Report,”
“Security Ownership of Certain Beneficial Owners and
Management,” “Agreements Among Stockholders,”
“Compensation and Stock Option Committee Interlocks and
Insider Participation” and “Section 16(a)
Beneficial Ownership Reporting Compliance” in the
Company’s definitive proxy statement (to be filed) for its
Annual Meeting of Stockholders to be held May 23, 2000 (the
“Proxy Statement”). The Proxy Statement is being
prepared and will be filed with the Securities and Exchange
Commission pursuant to Regulation 14A, and furnished to the
Company’s Stockholders, on or about April 19, 2000.
19
PART IV
Item 14. Exhibits, Financial Statement
Schedules, and Reports on Form 8-K.
(a) 1. Financial Statements.
The following consolidated financial statements of the Company
and its subsidiaries are included in a separate section of this
Annual Report on Form 10-K commencing on the page numbers
specified below:
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INDEX |
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Management’s Discussion and Analysis of Financial Condition
and Results of Operations |
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F - 2 |
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Report of Arthur Andersen LLP, Independent Public Accountants to
American Mobile |
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F-13 |
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Report of KPMG LLP, Independent Auditors to XM Satellite
Radio Holdings Inc. and Subsidiaries |
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F-14 |
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Consolidated Statements of Operations of American Mobile |
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F-15 |
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Consolidated Balance Sheets of American Mobile |
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F-16 |
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Consolidated Statements of Stockholders’ (Deficit) Equity of
American Mobile |
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F-18 |
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Consolidated Statements of Cash Flows of American Mobile |
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F-19 |
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Notes to Consolidated Financial Statements of American Mobile |
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F-21 |
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Quarterly Financial Data of American Mobile |
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F-54 |
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Selected Financial Data of American Mobile |
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F-55 |
20
2. Financial Statement
Schedules.
Financial Statement Schedules not included with the ones listed
below have been omitted because they are not required or not
applicable, or because the required information is shown in the
financial statements or notes thereto.
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1. Condensed Financial Information of Registrant |
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Page S-1 |
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2. Valuation and Qualifying Accounts |
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Page S-10 |
3. Exhibits.
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3.1 |
|
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— Restated Certificate of Incorporation of the Company
(as restated effective September 7, 1999) (Incorporated by
reference to Exhibit 4.1 to the Company’s Registration
Statement on Form S-8 (File No. 333-88807)) |
|
3.2 |
|
|
— Amended and Restated Bylaws of the Company (as
amended and restated effective September 23,
1999)(incorporated by reference to Exhibit 4.2 to the
Company’s Registration Statement on Form S-8 (File
No. 333-88807)) |
|
9.1 |
|
|
— Amended and Restated Stockholders’ Agreement
dated as of December 1, 1993, between the Company and
certain holders of its capital stock (Incorporated by reference
to Exhibit 9.1 to the Company’s Registration Statement
on Form S-1 (Reg. No. 33-70468)) |
|
10.1 |
|
|
— Contract for an MSAT Spacecraft, dated
December 7, 1990 between the Company and Hughes Aircraft
Company, amended June 15, 1993 (Amendment Nos. 1
through 4) and further amended November 11, 1993 (Amendment
No. 5), AMSC Subsidiary Corporation, as assignee of the
Company, and Hughes Aircraft Company (Incorporated by reference
to Exhibit 10.3 to the Company’s Registration Statement
on Form S-1 (Reg. No. 33-70468)) |
|
10.1a |
|
|
— Amendment No. 6 to the American Mobile Hughes
MSAT Spacecraft Contract, dated October 11, 1994, between
AMSC Subsidiary Corporation, as assignee to the Company, and
Hughes Aircraft Company (Incorporated by reference to
Exhibit 10.3a to the Company’s Annual Report on
Form 10-K for the fiscal year ended December 31, 1994
(File No. 0-23044)) |
|
10.1b |
|
|
— Mutual Final Release, dated October 11, 1994,
between AMSC Subsidiary Corporation, Hughes Aircraft, Spar
Aerospace Limited and Lockheed Missiles & Space Company, Inc.
(Incorporated by reference to Exhibit 10.3b to the
Company’s Annual Report on Form 10-K for the fiscal
year ended December 31, 1994 (File No. 0-23044)) |
|
10.1c |
|
|
— Amendment No. 7 to the American Mobile Hughes
MSAT Spacecraft Contract, dated October 11, 1994, between
AMSC Subsidiary Corporation, as assignee to the Company, and
Hughes Aircraft Company (Incorporated by reference to
Exhibit 10.3c previously filed with the Report on Form
10-K for the period ending December 31, 1997 (File
No. 0-23044))) |
|
10.2 |
|
|
— Memorandum of Agreement for Satellite Capacity, dated
February 17, 1992, between AMSC Subsidiary Corporation and
Telesat Mobile Inc., as amended by Amending Agreement dated
October 18, 1993 among the Company, AMSC Subsidiary
Corporation and TMI Communications and Company, Limited
Partnership, as successor in interest to Telesat Mobile Inc., and
as further amended by letter agreement dated October 18,
1993 (Incorporated by reference to Exhibit 10.7 to the
Company’s Registration Statement on Form S-1 (Reg.
No. 33-70468)) |
|
10.3 |
|
|
— Agreement for Cooperation in Joint Procurement of MSS
Systems, dated September 19, 1988, between American Mobile
Satellite Consortium Inc. and Telesat Mobile Inc. (Incorporated
by reference to Exhibit 10.32 to the Company’s
Registration Statement on Form S-1 (Reg. No.
33-70468)) |
21
| |
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10.4 |
|
|
— Joint Operating Agreement, dated April 25, 1990,
between the Company and Telesat Mobile Inc. as amended by
Amending Agreement dated October 18, 1993 among the Company,
AMSC Subsidiary Corporation and TMI Communications and Company,
Limited Partnership, as successor in interest to Telesat Mobile
Inc. (Incorporated by reference to Exhibit 10.33 to the
Company’s Registration Statement on Form S-1 (Reg.
No. 33-70468)) |
|
10.5 |
|
|
— Right of First Offer Agreement dated as of
November 30, 1993 among the Company, Hughes Communications
Satellite Services, Inc., Singapore Telecommunications Ltd.,
Satellite Communications Investments Corporation, Space
Technologies Investments, Inc., Satellite Mobile Telephone
Company L.P., Transit Communications, Inc., MTel Space
Technologies, L.P. and MTel Space Technologies Corporation
(Incorporated by reference to Exhibit 10.11 to the
Company’s Registration Statement on Form S-1 (Reg.
No. 33-70468)) |
|
10.5a |
|
|
— Amendment No. 1 dated June 28, 1996, to
Right of First Offer Agreement among American Mobile, Hughes
Communications Satellite Services, Inc., Singapore
Telecommunications Ltd., Satellite Communications Investments
Corporation, Space Technologies Investments, Inc., and Transit
Communications, Inc. (Incorporated by reference to
Exhibit XI to the Amended and Restated Schedule 13D
dated July 1, 1996, filed by Hughes Communications Satellite
Services, Inc., Hughes Communications, Inc., Hughes Aircraft
Company, Hughes Electronics Corporation and General Motors
Corporation with respect to shares of Common Stock, $.01 par
value, of American Mobile) |
|
10.6* |
|
|
— American Mobile Satellite Corporation Stock Award
Plan (formerly known as the Amended and Restated 1989 Employee
Stock Option Plan) (as amended and restated effective
January 27, 2000) (filed herewith) |
|
10.6a* |
|
|
— Form of Nonstatutory Stock Option Agreement under the
Stock Award Plan (filed herewith) |
|
10.7* |
|
|
— Employee Stock Purchase Plan, as amended
June 25, 1998 (incorporated by reference to exhibit 10.7 to
the Company’s annual report on Form 10-K for the year
ended December 31, 1998 (File No. 0-23044)) |
|
10.8* |
|
|
— Form of Directors and Officers Indemnification
Agreement (Incorporated by reference to Exhibit 10.41 to the
Company’s Annual Report on Form 10-K for the fiscal
year ended December 31, 1993 (File No. 0-23044)) |
|
10.9* |
|
|
— 1994 Stock Option Plan for Non-Employee Directors
(Incorporated by reference to Exhibit 10.53 to the
Company’s Annual Report on Form 10-K filed for the
period ended December 31, 1996 (File No. 0-23044)) |
|
10.10* |
|
|
— Form of Executive Agreements (Incorporated by
reference to Exhibit 10.54 to the Company’s Annual
Report on Form 10-K filed for the period ending
December 31, 1996 (File No. 0-23044)) |
|
10.11* |
|
|
— Form of Restricted Stock Agreement (Incorporated by
reference to Exhibit 10.13b to the Company’s Annual
Report on Form 10-K for the fiscal year ended December
31, 1997 (File No. 0-23044)) |
|
10.12 |
|
|
— Mobile Terminal Production Agreement, dated
October 6, 1992, between AMSC Subsidiary Corporation and
Westinghouse Electric Corporation acting through Westinghouse
Electronic Systems Company (Incorporated by reference to
Exhibit 10.17 to the Company’s Registration Statement
on Form S-1 (Reg. No. 33-70468)) |
|
10.12a |
|
|
— Amendment No. 1 to Mobile Terminal Production
Agreement, dated November 21, 1994, between AMSC Subsidiary
Corporation and Westinghouse Electric Corporation acting through
Westinghouse Electronic Systems Company (Incorporated by
reference to Exhibit 10.17a to the Company’s Annual Report
on Form 10-K for the fiscal year ended December 31,
1994 (File No. 0-23044)) |
22
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10.12b |
|
|
— Amendment No. 2 to Mobile Terminal Production
Agreement, dated January 23, 1995, between AMSC Subsidiary
Corporation and Westinghouse Electric Corporation acting through
Westinghouse Electronic Systems Company (Incorporated by
reference to Exhibit 10.17b to the Company’s Annual Report
on Form 10-K for the fiscal year ended December 31,
1994 (File No. 0-23044)) |
|
10.12c |
|
|
— Amendment No. 3 to Mobile Terminal Production
Agreement, dated March 21, 1995, between AMSC Subsidiary
Corporation and Westinghouse Electric Corporation acting through
Westinghouse Electronic Systems Company (Incorporated by
reference to Exhibit 10.17c the Company’s Annual Report
on Form 10-K for the fiscal year ended December 31,
1994 (File No. 0-23044)) |
|
10.13 |
|
|
— Mobile Termination Production Contract, dated
November 30, 1992, between AMSC Subsidiary Corporation and
Mitsubishi Electric Corporation (Incorporated by reference to
Exhibit 10.18 to the Company’s Registration Statement
on Form S-1 (Reg. No. 33-70468)) |
|
10.14 |
|
|
— Deed of Lease at Reston, Virginia, dated
February 4, 1993 and amended June 21, 1993, between
AMSC Subsidiary Corporation and Trust Company of the West as
Trustee (Incorporated by reference to Exhibit 10.20 to the
Company’s Registration Statement on Form S-1 (Reg.
No. 33-70468)) |
|
10.14a |
|
|
— Amendment No. 4 to Deed of Lease, dated
October 7, 1994, between AMSC Subsidiary Corporation and
Trust Company of the West as Trustee (Incorporated by reference
to Exhibit 10.20a to the Company’s Annual Report on
Form 10-K for the fiscal year ended December 31, 1994
(File No. 0-23044)) |
|
10.15 |
|
|
— Master Lease Agreement, dated June 23, 1993,
between AMSC Subsidiary Corporation and Digital Equipment
Corporation and Amendment to Master Lease Agreement between AMSC
Subsidiary Corporation and Digital Equipment Corporation dated
August 2, 1993 (Incorporated by reference to
Exhibit 10.25 to the Company’s Registration Statement
on Form S-1 (Reg. No. 33-70468)) |
|
10.16 |
|
|
— Telemetry, Tracking and Control Satellite Service
Agreement, dated as of August 5, 1993, between AMSC
Subsidiary Corporation and Hughes Communications Satellite
Services, Inc. (Incorporated by reference to Exhibit 10.27
to the Company’s Registration Statement on Form S-1
(Reg. No. 33-70468)) |
|
10.17 |
|
|
— Agreement dated as of December 14, 1992 between
AMSC Subsidiary Corporation and GTE Spacenet Corporation
(Incorporated by reference to Exhibit 10.35 to the
Company’s Registration Statement on Form S-1 (Reg.
No. 33-70468)) |
|
10.17a |
|
|
— Amendment No. 1 dated as of November 7,
1997 to the Agreement dated as of December 14, 1992, by GTE
Spacenet Corporation and AMSC Subsidiary Corporation
(Incorporated by reference to Exhibit 10.65 previously filed
with the Report on Form 10-K for the period ending
December 31, 1997 (File No. 0-23044)) |
|
10.18 |
|
|
— Master Agreement dated March 30, 1994, between
Washington International Teleport, Inc., and the Company
(Incorporated by reference to Exhibit 10.36a to the
Company’s Annual Report on Form 10-K for the fiscal year
ended December 31, 1993 (File No. 0-23044)) |
|
10.18a |
|
|
— Contract Amendment No. A001, dated July 1,
1994, between Washington International Teleport, Inc., and the
Company (Incorporated by reference to Exhibit 10.36b to the
Company’s Quarterly Report on Form 10-Q filed for the
period ending September 30, 1994 (File No. 0-23044)) |
|
10.18b |
|
|
— Contract Amendment No. A002, dated July 1,
1994, between Washington International Teleport, Inc., and the
Company (Incorporated by reference to Exhibit 10.36c to the
Company’s Quarterly Report on Form 10-Q filed for the
period ending September 30, 1994 (File No. 0-23044)) |
23
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10.19 |
|
|
— Asset Sale Agreement dated as of November 22,
1996, by and among Rockwell Collins, Inc. American Mobile and
AMSC Subsidiary Corporation (Incorporated by reference to
Exhibit 10.61 to the Company’s Current Report on
Form 8-K dated November 22, 1996, and filed on
December 9, 1996 (File No. 0-23044)) |
|
10.20 |
|
|
— Stock Purchase Agreement for the Acquisition of
Motorola ARDIS Acquisition, Inc. and Motorola ARDIS, Inc. by AMSC
Acquisition Company, Inc., a Wholly-Owned Subsidiary of American
Mobile, dated as of December 31, 1997 (Incorporated by
reference to Exhibit 10.65 previously filed with the
Company’s Report on Form 10-K for the period ending
December 31, 1997 (File No. 0-23044)). |
|
10.20a |
|
|
— Amendment No. 1 dated March 31, 1998 to the
Stock Purchase Agreement for the Acquisition of Motorola ARDIS
Acquisition, Inc. and Motorola ARDIS, Inc. by AMSC Acquisition
Company, Inc., a Wholly-Owned Subsidiary of American
Mobile(Incorporated by reference to Exhibit 4.2 to the
Schedule 13D dated March 31, 1998, filed by Motorola,
Inc.). |
|
10.21 |
|
|
— Participation Rights Agreement by and among Motorola,
Inc., American Mobile, and the parties listed on
Schedule A, dated as of December 31, 1997 (Incorporated
by reference to Exhibit 10.65 previously filed with the
Report on Form 10-K for the period ending December 31,
1997 (File No. 0-23044)). |
|
10.21a |
|
|
— Registration Rights Agreement by and among Motorola,
Inc. and American Mobile dated as of March 31, 1998
(Incorporated by reference to Exhibit 4.4 to the
Schedule 13D dated March 31, 1998, filed by Motorola,
Inc.) |
|
10.22 |
|
|
— Credit Agreement by and between Motorola Inc. and
ARDIS Company dated June 17, 1998 (Incorporated by reference
to Exhibit 10.61 to the Company’s Current Report on
Form 10-Q dated June 30, 1998 (File No. 0-23044)). |
|
10.23 |
|
|
— Indenture of AMSC Acquisition Company, Inc.,
Series A and Series B, 12 1/4% Senior Notes Due
2008, dated March 31, 1998 (Incorporated by reference to
Registration Statement on Form S-4 filed on May 15,
1998 (File No. 333-52777)). |
|
10.24 |
|
|
— Debt Registration Rights Agreement dated
March 31, 1998 by and among AMSC Acquisition Company, Inc.,
Bear, Stearns & Co. Inc., J.P. Morgan Securities Inc., TD
Securities (USA) Inc. and BancAmerica Robertson Stephens,
and guarantors party thereto (Incorporated by reference to
Registration Statement on Form S-4 filed on May 15,
1998 (File No. 333-52777)). |
|
10.25 |
|
|
— Unit Agreement Among American Mobile, AMSC
Acquisition Company, Inc. and State Street Bank and Trust Company
as Unit Agent, dated March 31, 1998 (Incorporated by
reference to Registration Statement on Form S-4 filed on
May 15, 1998 (File No. 333-52777)). |
|
10.26 |
|
|
— Warrant Agreement between American Mobile as Issuer
and State Street Bank and Trust Company as Warrant Agent dated
March 31, 1998 (Incorporated by reference to Registration
Statement on Form S-4 filed on May 15, 1998 (File
No. 333-52777)). |
|
10.27 |
|
|
— Warrant Registration Rights Agreement dated
March 31, 1998 By and Among American Mobile and Bear,
Stearns & Co. Inc., J.P. Morgan Securities Inc., T.D.
Securities (USA) Inc., BancAmerica Robertson Stephens
(Incorporated by reference to Registration Statement on
Form S-4 filed on May 15, 1998 (File
No. 333-52777)). |
|
10.28 |
|
|
— Pledge and Security Agreement by and among AMSC
Acquisition Company, Inc., State Street Bank and Trust Company,
as Trustee and State Street Bank and Trust Company, as Collateral
Agent dated March 31, 1998 (Incorporated by reference to
Registration Statement on Form S-4 filed on May 15,
1998 (File No. 333-52777)). |
24
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|
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10.29 |
|
|
— Guaranty Issuance Agreement, dated as of
March 31, 1998, among Hughes Electronics Corporation,
Singapore Telecommunications Ltd., and Baron Capital Partners,
L.P. and American Mobile Satellite Corporation and AMSC
Acquisition Company, Inc. (Incorporated by reference to
Exhibit 1 to the Schedule 13D dated March 31,
1998, filed by Hughes Communications Satellite Services, Inc.) |
|
10.29a |
|
|
— Amendment No. 1 to the Guaranty Issuance
Agreement, dated as of January 15, 1999, among Hughes
Electronics Corporation, Singapore Telecommunications Ltd., and
Baron Capital Partners, L.P. and American Mobile and AMSC
Acquisition Company, Inc. (Incorporated by reference to
Exhibit 10.29a to the Company’s annual report on Form
10-K for the year ended December 31, 1998 (File No.
0-23044)) |
|
10.29b |
|
|
— Amendment No. 2 to the Guaranty Issuance
Agreement, dated as of March 29, 1999, among Hughes
Electronics Corporation, Singapore Telecommunications Ltd., and
Baron Capital Partners, L.P. and American Mobile and AMSC
Acquisition Company, Inc. (incorporated by reference to
exhibit 10.29b to the Company’s annual report on Form
10-K for the year ended December 31, 1998 (File No.
0-23044)) |
|
10.30 |
|
|
— Warrant No. 1 for the Purchase of 3,750,000
Shares (subject to adjustment) of Common Stock of American Mobile
Satellite Corporation issued to Hughes Electronics Corporation,
dated June 28, 1996 (Incorporated by reference to
Exhibit XIII to the Amended and Restated Schedule 13D
dated July 1, 1996, filed by Hughes Communications Satellite
Services, Inc., Hughes Communications, Inc., Hughes Aircraft
Company, Hughes Electronics Corporation and General Motors
Corporation with respect to shares of Common Stock, $.01 par
value, of American Mobile Satellite Corporation). |
|
10.30a |
|
|
— Amendment No. 1 to the Warrant Certificate,
dated as of March 27, 1997, by and among American Mobile
Satellite Corporation and Hughes Electronics Corporation,
Singapore Telecommunications Ltd., and Baron Capital Partners,
L.P. (Incorporated by reference to Exhibit 4 to the
Schedule 13D dated March 31, 1997, filed by Hughes
Communications Satellite Services, Inc.) |
|
10.30b |
|
|
— Amendment No. 2 to the Warrant Certificate,
dated as of March 31, 1998, by and among American Mobile
Satellite Corporation and Hughes Electronics Corporation,
Singapore Telecommunications Ltd., and Baron Capital Partners,
L.P. (Incorporated by reference to Exhibit 4 to the
Schedule 13D dated March 31, 1998, filed by Hughes
Communications Satellite Services, Inc.) |
|
10.30c |
|
|
— Amendment No. 3 to the Warrant Certificates for
the Purchase of Shares of Common Stock of American Mobile
Satellite Corporation, dated as of April 1, 1999, by and
among American Mobile Satellite Corporation and Hughes
Electronics Corporation, Singapore Telecommunications Ltd., and
Baron Capital Partners, L.P. (incorporated by reference to
exhibit 10.29b to the Company’s annual report on
Form 10-K for the year ended December 31, 1998 (File
No. 0-23044)) |
|
10.31 |
|
|
— Registration Rights Agreement dated as of
June 28, 1996, among American Mobile, Hughes Electronics
Corporation, Singapore Telecommunications Ltd., and Baron Capital
Partners, L.P. (Incorporated by reference to Exhibit XIV to
the Amended and Restated Schedule 13D dated July 1,
1996, filed by Hughes Communications Satellite Services, Inc.,
Hughes Communications, Inc., Hughes Aircraft Company, Hughes
Electronics Corporation and General Motors Corporation with
respect to shares of Common Stock, $.01 par value, of
American Mobile). (Incorporated by reference to
Exhibit 10.57 to the Company’s Quarterly Report on
Form 10-Q filed for the period ended June 30, 1996
(File No. 0-23044)) |
|
10.32 |
|
|
— Warrant for the Purchase of Shares of Common Stock of
American Mobile, dated as of March 31, 1998 (Incorporated
by reference to Exhibit 2 to the Schedule 13D dated
March 31, 1998, filed by Hughes Communications Satellite
Services, Inc. ) |
25
| |
|
|
|
|
|
10.32a |
|
|
— Amendment No. 1 to Warrant Certificates for the
Purchase of Shares of Common Stock of American Mobile Satellite
Corporation, dated as of April 1, 1999 by and among Hughes
Electronics Corporation, Singapore Telecommunications Ltd. and
Baron Capital Partners, L.P. (incorporated by reference to
exhibit 10.29b to the Company’s annual report on
Form 10-K for the year ended December 31, 1998 (File
No. 0-23044)) |
|
10.33 |
|
|
— Amended and Restated Registration Rights Agreement,
dated as of March 31, 1998, among American Mobile and Hughes
Electronics Corporation, Singapore Telecommunications Ltd., and
Baron Capital Partners, L.P. (Incorporated by reference to
Exhibit 3 to the Schedule 13D dated March 31,
1998, filed by Hughes Communications Satellite Services, Inc.) |
|
10.33a |
|
|
— Amendment No. 1, dated as of May 10, 1999,
to Amended and Restated Registration Rights Agreement among
American Mobile, Hughes Electronics, Singapore Telecommunications
Ltd., and Baron Capital Partners, L.P. (incorporated by
reference to exhibit 10.33a to the Company’s quarterly
report on Form 10-Q for the quarter ended March 31,
1999 (File No. 0-23044)) |
|
10.34 |
|
|
— Term Credit Agreement dated as of March 31, 1998
among American Mobile, Morgan Guaranty Trust Company of New
York, Toronto Dominion (Texas), Inc. and other banks party
thereto (Incorporated by reference to Exhibit 10.61 to the
Company’s Current Report on Form 10-Q dated
March 31, 1998 (File No. 0-23044)) |
|
10.34a |
|
|
— Amendment No. 1 and Waiver to Term Credit
Agreement dated as of January 15, 1999 among American
Mobile, Morgan Guaranty Trust Company of New York, Toronto
Dominion (Texas), Inc. and other banks party thereto
(incorporated by reference to exhibit 10.34a to the
Company’s annual report on Form 10-K for the year ended
December 31, 1998 (File No. 0-23044)) |
|
10.34b |
|
|
— Waiver, dated as of May 21, 1999, under the Term
Credit Agreement (filed herewith) |
|
10.34c |
|
|
— Amendment No. 2 and Waiver of Term Credit
Agreement and Amendment No. 1 of Term Loan Security and
Pledge Agreement, dated as of November 15, 1999, by and
among American Mobile, Morgan Guaranty Trust Company of New York,
Toronto Dominion (Texas), Inc. and the other banks party thereto
(filed herewith) |
|
10.35 |
|
|
— Revolving Credit Agreement dated as of March 31,
1998 among AMSC Acquisition Company, Inc., American Mobile,
Morgan Guaranty Trust Company of New York and Toronto Dominion
(Texas), Inc. and other banks party thereto (Incorporated by
reference to Exhibit 10.61 to the Company’s Current
Report on Form 10-Q dated March 31, 1998 (File
No. 0-23044)) |
|
10.35a |
|
|
— Amendment No. 1 and Waiver to Revolving Credit
Agreement dated as of January 15, 1999 among AMSC
Acquisition Company, Inc., American Mobile, Morgan Guaranty Trust
Company of New York and Toronto Dominion (Texas), Inc. and other
banks party thereto (incorporated by reference to exhibit 10.35a
to the Company’s annual report on Form 10-K for the
year ended December 31, 1998 (File No. 0-23044)) |
|
10.35b |
|
|
— Amendment No. 2 and Waiver of Revolving Credit
Agreement and Amendment No. 1 of Subsidiary Guaranties,
dated as of November 15, 1999, by and among AMSC Acquisition
Company, Inc., American Mobile, Morgan Guaranty Trust Company of
New York, Toronto Dominion (Texas), Inc. and the other banks
party thereto, and the Subsidiary Guarantors party thereto (filed
herewith) |
|
10.36 |
|
|
— 1999 Stock Option Plan for Non-Employee Directors
(Incorporated by reference to Exhibit 4.4 to the
Company’s Registration Statement on Form S-8 (File
No. 333-88807)) |
|
10.36a |
|
|
— Form of Stock Option Agreement for use with the 1999
Stock Option Plan for Non-Employee Directors (Incorporated by
reference to Exhibit 4.5 to the Company’s Registration
Statement on Form S-8 (File No. 333-88807)) |
26
| |
|
|
|
|
|
10.37 |
|
|
— Exchange Agreement, dated June 7, 1999, by and
among American Mobile, WorldSpace, Inc., XM Satellite Radio
Holdings Inc., and Noah A. Samara, as trustee of XM Ventures
(Incorporated by reference to Exhibit 2.1 to the
Company’s Report on Form 8-K dated July 9, 1999
(File No. 0- 23044)) |
|
10.38 |
|
|
— Registration Rights Agreement, dated July 7,
1999, by and among XM Satellite Radio Holdings Inc. (“XM
Radio”), American Mobile, Baron Asset Fund series
(“Baron”), Clear Channel Investments, Inc. (“Clear
Channel”), Columbia XM Radio Partners, LLC
(“Columbia”), DIRECTV Enterprises, Inc.
(“DIRECTV”), General Motors Corporation
(“GM”), Madison Dearborn Capital Partners III,
L.P. (“Madison Capital”), Madison Dearborn Special
Equity III, L.P. (“Madison Equity”), Special
Advisors Fund I, LLC (“Madison Advisors,” and,
collectively with Madison Capital and Madison Equity,
“Madison”), and Telcom-XM Investors, L.L.C.
(“Telcom”) (Incorporated by reference to
Exhibit 99.2 to the Company’s Report on Form 8-K
dated July 9, 1999 (File No. 0-23044)) |
|
10.39 |
|
|
— Shareholders Agreement, dated July 7, 1999, by
and among XM Radio, American Mobile, Baron, Clear Channel,
Columbia, DIRECTV, GM, Madison Equity, Madison Capital, Madison
Advisors, and Telcom (Incorporated by reference to
Exhibit 99.1 to the Company’s Report on Form 8-K
dated July 9, 1999 (File No. 0-23044)) |
|
10.40 |
|
|
— Note Purchase Agreement, dated as of June 7,
1999, by and among XM Radio and each of Clear Channel, GM,
Columbia, DIRECTV, Madison Capital, Madison Advisors, and Madison
Equity, and Telcom (Incorporated by reference to
Exhibit 99.3 to the Company’s Report on Form 8-K
dated July 9, 1999 (File No. 0-23044)) |
|
21.1 |
|
|
— Subsidiaries of the Company (filed herewith) |
|
23.1 |
|
|
— Consent of Arthur Andersen LLP (filed herewith) |
|
23.2 |
|
|
— Consent of KPMG LLP (filed herewith) |
|
27.1 |
|
|
— Financial Data Schedule (filed herewith) |
|
|
| * |
Management contract or compensatory plan or arrangement required
to be filed as an exhibit to this report pursuant to
Item 14(c) of this report. |
None.
27
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
|
|
| |
AMERICAN MOBILE SATELLITE
CORPORATION |
|
|
|
| |
By |
/s/ WALTER V. PURNELL, JR. |
|
|
| |
|
| |
Walter V. Purnell, Jr. |
| |
President and Chief Executive Officer
|
Date: March 30, 2000
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the
dates indicated.
| |
|
|
|
|
/s/ WALTER V. PURNELL, JR.
Walter V. Purnell, Jr. |
|
President and Chief Executive Officer (principal executive
officer) |
|
March 30, 2000 |
/s/ W. BARTLETT SNELL
W. Bartlett Snell |
|
Senior Vice President and Chief Financial Officer (principal
financial and accounting officer) |
|
March 30, 2000 |
/s/ GARY M. PARSONS
Gary M. Parsons |
|
Chairman of the Board |
|
March 30, 2000 |
|
|
|
|
|
Douglas I. Brandon |
|
Director |
|
March 30, 2000 |
/s/ BILLY J. PARROTT
Billy J. Parrott |
|
Director |
|
March 30, 2000 |
/s/ ANDREW A. QUARTNER
Andrew A. Quartner |
|
Director |
|
March 30, 2000 |
/s/ JACK A. SHAW
Jack A. Shaw |
|
Director |
|
March 30, 2000 |
28
INDEX
| |
|
|
|
|
|
|
|
|
|
|
Management’s Discussion and Analysis of Financial Condition
and Results of Operations |
|
|
F- 2 |
|
|
|
|
|
|
|
Report of Arthur Andersen LLP, Independent Public Accountants to
American Mobile |
|
|
F-13 |
|
|
|
|
|
|
|
Report of KPMG LLP, Independent Auditors to XM Radio |
|
|
F-14 |
|
|
|
|
|
|
|
Consolidated Statements of Operations of American Mobile |
|
|
F-15 |
|
|
|
|
|
|
|
Consolidated Balance Sheets of American Mobile |
|
|
F-16 |
|
|
|
|
|
|
|
Consolidated Statements of Stockholders’ (Deficit) Equity of
American Mobile |
|
|
F-18 |
|
|
|
|
|
|
|
Consolidated Statements of Cash Flows of American Mobile |
|
|
F-19 |
|
|
|
|
|
|
|
Notes to Consolidated Financial Statements of American Mobile |
|
|
F-21 |
|
|
|
|
|
|
|
Quarterly Financial Data of American Mobile |
|
|
F-54 |
|
|
|
|
|
|
|
Selected Financial Data of American Mobile |
|
|
F-55 |
|
F-1
Management’s Discussion and Analysis of Financial
Condition and Results of Operations
This Annual Report on Form 10-K includes
“forward-looking statements” within the meaning of
Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as
amended. All statements regarding our expected financial position
and operating results, our business strategy, and our financing
plans and requirements are forward-looking statements. These
statements can sometimes be identified by our use of
forward-looking words or phrases such as, for example,
“may,” “will,” “anticipate,”
“estimate,” “expect,” “project,” or
“intend.” These forward-looking statements reflect our
plans, expectations and beliefs, and, accordingly, are subject
to certain risks and uncertainties. We cannot guarantee that any
of such forward-looking statements will be realized. Factors that
may cause actual results to differ materially from those
contemplated by such forward-looking statements (“Cautionary
Statements”) include, among others, those described under
the caption “Management’s Discussion and Analysis of
Financial Condition and Results of
Operations — Overview,” and elsewhere in this
annual report, including in conjunction with the forward-looking
statements included in this annual report. All of our subsequent
written and oral forward-looking statements (or statements that
may be attributed to us) are expressly qualified by the
Cautionary Statements. You should carefully review the risk
factors described in our other filings with the Securities and
Exchange Commission (the “SEC”) from time to time,
including our registration statement on Form S-3 (File
No. 333-81459), and our quarterly reports on Form 10-Q
to be filed after this annual report, as well as our other
reports and filings with the SEC. In addition, you are urged to
review carefully the Report on Form 8-K, dated
February 25, 2000 (File No. 0-27441) of XM Satellite
Radio Holdings Inc. (“XM Radio”) describing the risk
factors relating to its business, as well as XM Radio’s
other reports filed from time to time with the SEC.
General
This section provides information which we believe is relevant to
an assessment and understanding of the financial condition and
consolidated results of operations of American Mobile Satellite
Corporation (with its subsidiaries, “American Mobile”
or the “Company”). The discussion should be read in
conjunction with the consolidated financial statements and notes
thereto. American Mobile has six wholly-owned subsidiaries which,
for purposes of this annual report, are referred to as the core
wireless business, and a controlling interest in three other
subsidiaries, referred to as XM Radio (defined below). On a
consolidated basis, we refer to these entities as American
Mobile.
Core Wireless Business
American Mobile was formed in May 1988 and, until 1996, was
a development stage company, engaged primarily in the design,
development, construction, deployment and financing of a mobile
satellite communication system. We have expanded our network
through acquisitions over the last several years. In late 1996,
we expanded our mobile data messaging service through the
acquisition of Rockwell International Corporation’s dual
mode mobile messaging and global positioning and monitoring
service. On March 31, 1998, we acquired ARDIS Company from
Motorola, Inc.. With these acquisitions, we became a leading
provider of nationwide wireless communications services,
including data, dispatch and voice services, primarily to
business customers in the United States. We offer a broad range
of end-to-end wireless solutions utilizing a seamless network
consisting of the nation’s largest, most fully-deployed
terrestrial wireless data network and a satellite in
geosynchronous orbit. Combined, we refer to these as the network.
During 1999, we made substantial investments in two new
products — eLinkSM and MobileMAX2SM
. Our eLink service is a two-way wireless email device and
electronic organizer that uses our terrestrial network. We
believe that this product will capitalize on the rapid expansion
of internet email usage, particularly in the business-to-business
environment. MobileMAX2 is our second generation multi-mode
mobile data messaging service which uses both our satellite and
terrestrial networks to provide least-cost-routing capabilities.
We believe MobileMAX2 will improve our competitive position in
the transportation industry, since the product has a relatively
low cost of entry, and contains added functionality that should
allow us to increase our penetration of the less-than-truckload
market.
F-2
We expect that our rollout of eLink and MobileMAX2 will require a
significant investment of financial resources. We believe that
the market opportunity represented by these wireless data
offerings is substantial, and we have decided to focus the
majority of our available future resources on expanding our
wireless data business. As a result of these factors and in light
of certain regulatory developments in late 1999 with respect to
our satellite voice business, we expect that the future level of
investment in our voice business and satellite-related product
lines will decrease as a percentage of our overall investment.
While we expect that this shift in resources will ultimately
yield an increase in our customer base, we expect that it will
have the effect of driving down average revenue per unit as the
percentage of voice customers decreases.
XM Radio
As of March 15, 2000, we had an equity interest in XM
Satellite Radio Holdings Inc. (“XM Radio”) of
approximately 34.4% (or 25.5% on a fully diluted basis) of the
common stock of XM Radio; however, we continue to control XM
Radio through Board of Director membership and common stock
voting rights. We will continue to consolidate XM Radio until we
no longer control XM Radio. We must request and receive FCC
approval to relinquish control of XM Radio. Accordingly, the
results of XM Radio are consolidated with our financial
statements. The operations and financing of XM Radio are
maintained separate and apart from the operations and financing
of American Mobile (see discussion of Liquidity and Capital
Resources below). XM Radio completed its initial public offering
in October 1999. Please refer to XM Radio’s SEC reports
and filings for more detail about its business plan, risks, and
financial results.
Our significant acquisitions in recent years and the impact of
consolidating the results of XM Radio, make period to period
comparison of our financial results less meaningful, and
therefore, you should not rely on them as an indication of future
operating performance.
Overview
We have incurred significant operating losses and negative cash
flows in each year since we started operations, due primarily to
start-up costs, the costs of developing and building the networks
and the cost of developing, selling and providing our products
and services. We are, and will continue to be, highly leveraged
(see discussion of Liquidity and Capital Resources —
below).
Our future operating results could be adversely affected by a
number of uncertainties and factors, including:
|
|
|
| |
• |
the launch of new products or the entry into new market segments,
which may require us to continue to incur significant operating
losses, |
| |
| |
• |
our ability to fully recover the value of our inventory in a
timely manner, |
| |
| |
• |
our ability to gain market acceptance of new products and
services, including our new product offerings, eLink and
MobileMAX2, |
| |
| |
• |
the timely roll-out of certain key customer initiatives and new
products, including for example MobileMAX2, |
| |
| |
• |
our ability to respond and react to changes in our business and
the industry because we have substantial indebtedness, |
| |
| |
• |
our ability to fund anticipated capital expenditures, operating
losses and debt service requirements and our ability to secure
additional financing as necessary, |
| |
| |
• |
our ability to modify the organization, strategy and product mix
to maximize the market opportunities as the market changes, |
| |
| |
• |
our ability to manage growth effectively, |
| |
| |
• |
competition from existing companies that provide services using
existing communications technologies and the possibility of
competition from companies using new technology in the future, |
F-3
|
|
|
| |
• |
our ability to maintain, on commercially reasonable terms or at
all, certain technologies licensed from third parties, |
| |
| |
• |
the loss of one or more of our key customers, |
| |
| |
• |
the timely availability of an adequate supply of subscriber
equipment at competitive price points, |
| |
| |
• |
our ability to expand our networks on a timely basis and at a
commercially reasonable cost, or at all, as additional future
demand increases, |
| |
| |
• |
regulation by the FCC, |
| |
| |
• |
technical anomalies that may occur within the network, which
could impact, among other things, customer performance,
satisfaction and revenue under contractual arrangements with
certain customers, or the operation of the satellite network and
the cost, scope or availability of in-orbit insurance. |
Additionally, XM Radio is a development stage company with no
revenues, and its business is subject to a number of significant
risks and uncertainties including the following:
|
|
|
| |
• |
the ability to obtain additional financing necessary to complete
the build out of its system and maintain operations until such
time as it can reach cash flow positive, |
| |
| |
• |
satellite launch failure, destruction or damage during launch,
and premature failure of XM Radio’s satellite that will not
be fully covered by insurance, |
| |
| |
• |
the ability of XM Radio to successfully integrate complex
technologies into a technologically feasible configuration, |
| |
| |
• |
the timely availability of XM Radio subscriber equipment at
competitive prices, |
| |
| |
• |
the ability of XM Radio to gain market acceptance of its service,
and |
| |
| |
• |
the ability of XM Radio to achieve profitability given certain
distribution agreement obligations and joint development funding
requirements. |
The Company has a significant investment in XM Radio which may be
effected by the foregoing risks and impact the market price of
XM Radio’s stock. For an expanded discussion of XM
Radio’s risk factors, please refer to XM Radio’s Report
on Form 8-K dated February 25, 2000 filed with the
SEC.
Years Ended December 31, 1999 and 1998
Service Revenue and Subscriber Statistics
Service revenues, which includes our data, voice, and capacity
reseller services, approximated $67.7 million for 1999,
which constituted a $9.7 million, or 17% increase over 1998.
The increase in service revenues year over year was primarily
attributable to a full year of ARDIS data service in 1999, versus
only nine months in 1998. Our 1999 revenue growth was slowed as
a result of delays in our rollout of new product initiatives. In
the case of MobileMAX2, this delay also caused us to have product
shortages of our first-generation equipment, so we had limited
equipment available for sale to generate new customers.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended |
|
|
|
|
|
|
December 31, |
|
|
|
|
|
|
|
|
|
|
|
| Summary of Revenue |
|
1999 |
|
1998 |
|
Change |
|
% Change |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions) |
|
|
|
|
|
|
Data Service |
|
$ |
49.7 |
|
|
$ |
40.1 |
|
|
$ |
9.6 |
|
|
|
24 |
% |
|
|
|
|
|
|
Voice Service |
|
|
13.2 |
|
|
|
14.0 |
|
|
|
(0.8 |
) |
|
|
(6 |
) |
|
|
|
|
|
|
Capacity Resellers and Other |
|
|
4.8 |
|
|
|
3.9 |
|
|
|
0.9 |
|
|
|
23 |
|
|
|
|
|
|
|
Equipment Revenue |
|
|
23.4 |
|
|
|
29.2 |
|
|
|
(5.8 |
) |
|
|
(20 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
91.1 |
|
|
$ |
87.2 |
|
|
$ |
3.9 |
|
|
|
4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-4
The decrease in service revenue from voice services was primarily
a result of a 32% decrease in our average revenue per unit for
maritime subscribers following the sale of our maritime business
to a reseller in late 1998. This was offset by an increase in our
total voice subscriber customer base of 42% as well as Year 2000
priority service fees. Our data service revenue increased as a
result of the inclusion of ARDIS for the full twelve months in
1999 as compared to nine months in 1998, which contributed
$9.0 million in additional revenue year over year, and a 15%
increase in mobile data units during 1999. Service revenue from
capacity resellers, who handle both voice and data services,
increased primarily as a result of two new customers and
increased contract commitments from current customers.
The decrease in revenue from the sale of equipment revenue
reflects the sale of approximately $8.5 million of maritime
voice equipment to one customer in the fourth quarter of 1998.
Excluding this sale, revenue from the sale of equipment increased
in 1999 because of increased voice product sales primarily
associated with companies preparing for Year 2000, as well as
marketing promotions which increased the sales of both data and
voice equipment.
As is common in our industry, we report subscriber information
and average revenue per unit per month statistics. Although these
measures are not required under Generally Accepted Accounting
Principles (“GAAP”), we believe that this information
helps to demonstrate important trends in our business.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average |
|
|
|
|
Revenue |
|
|
Subscribers |
|
per Unit |
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended |
|
Year Ended |
|
|
December 31, |
|
December 31, |
|
|
|
|
|
|
|
1999 |
|
1998 |
|
1999 |
|
1998 |
|
|
|
|
|
|
|
|
|
|
Data |
|
|
122,200 |
|
|
|
92,700 |
|
|
$ |
42 |
|
|
$ |
51 |
|
|
|
|
|
|
|
Voice |
|
|
18,500 |
|
|
|
13,000 |
|
|
|
80 |
|
|
|
110 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
140,700 |
|
|
|
105,700 |
|
|
$ |
47 |
|
|
$ |
60 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additionally, our mix of subscribers can be broken down into the
following markets:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
As of |
|
|
December 31, |
|
|
|
|
|
1999 |
|
1998 |
|
|
|
|
|
|
Field Service |
|
|
33 |
% |
|
|
47 |
% |
|
|
|
|
|
|
Transportation |
|
|
40 |
% |
|
|
27 |
% |
|
|
|
|
|
|
Telemetry |
|
|
9 |
% |
|
|
10 |
% |
|
|
|
|
|
|
Maritime |
|
|
4 |
% |
|
|
3 |
% |
|
|
|
|
|
|
eLink |
|
|
2 |
% |
|
|
— |
|
|
|
|
|
|
|
Other |
|
|
12 |
% |
|
|
13 |
% |
As the mix of subscribers shifts more to our data business, and
more of the voice business is handled by resellers, we expect
that the overall average revenue per unit will continue to
decline over time towards the average revenue per unit for the
data service.
F-5
Expenses
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Year Ended |
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December 31, |
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| Summary of Expenses |
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1999 |
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1998 |
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Change |
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% Change |
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(in millions) |
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Cost of Service & Operations |
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$ |
69.3 |
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$ |
55.8 |
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$ |
13.5 |
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24 |
% |
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Cost of Equipment Sales |
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29.5 |
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30.4 |
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(0.9 |
) |
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(3 |
) |
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Sales & Advertising |
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23.1 |
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19.2 |
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3.9 |
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20 |
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General & Administrative |
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40.3 |
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17.3 |
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23.0 |
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133 |
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Depreciation & Amortization |
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55.8 |
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52.7 |
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3.1 |
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6 |
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Impairment of Satellite Assets |
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97.4 |
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— |
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97.4 |
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— |
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Total |
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$ |
315.4 |
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$ |
175.4 |
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$ |
140.0 |
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80 |
% |
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As of January 1999, as a result of the completion of the
integration of the ARDIS network’s accounting systems and
the achievement of certain related cost synergies, we no longer
report separate company information for ARDIS. Additionally,
effective July 7, 1999, we assumed control of XM Radio and
we consolidated its results with ours from that point forward.
Consequently, the discussion of the 1999 results reflect the
costs of the consolidated entity.
Cost of service and operations includes costs to support
subscribers and to operate the network. As a percentage of total
revenues, cost of service and operations was 76% for 1999 and 64%
for 1998. The increase in cost of service and operations was
primarily attributable to (i) additional headcount,
primarily as a result of the ARDIS acquisition,
(ii) increased communication charges associated with
increased service usage and costs to support the terrestrial
network, (iii) system and base station maintenance to
support the terrestrial network, (iv) site rental costs
associated with the terrestrial network, and
(v) approximately $3.6 million of incremental Year 2000
costs that we do not anticipate to recur in future years. As a
percentage of revenue, cost of service and operations has
increased as a result of the variable costs incurred within the
terrestrial network, such as site rent and telecommunications
costs. XM Radio did not incur any cost of service and operations
expenses in 1999.
The cost of equipment sold decreased $0.9 million, or 3%,
from $30.4 million in 1998 to $29.5 million in 1999.
The decrease from 1998 to 1999 in the cost of equipment sold was
primarily attributable to the impact of the sale of the maritime
business in 1998, mentioned above, offset by (i) increased
sales of voice products supporting Year 2000 preparedness,
(ii) increased warranty costs associated with the increased
number of registered first-generation multi-mode data products,
and (iii) an inventory valuation charge of approximately
$4.2 million recorded in the fourth quarter of 1999 related to
older voice and satellite-only transportation inventory.
The 20% increase in sales and advertising expenses from 1998 to
1999 was primarily attributable to (i) increased headcount
costs resulting from the inclusion of ARDIS acquisition for the
full twelve months of 1999 and (ii) costs associated with the
launch of our new eLink service offering which included
additional advertising and headcount for sales and support staff.
We expect these costs to continue to increase as we introduce
new products and services and invest in customer acquisition. XM
Radio did not incur any sales and advertising expenses in 1999.
General and administrative expenses were $40.3 million in
1999, of which $20.9 million were related to XM Radio. Excluding
XM Radio expenses, general and administrative expenses
represented 21% and 20% of total revenue in 1999 and 1998,
respectively. The $2.1 million increase in general and
administrative expenses was primarily attributable to an increase
in headcount from the prior year causing an increase in bonuses,
training costs, payroll taxes, and 401(K) match expense.
Depreciation and amortization expenses were $55.8 million in
1999, of which $0.9 million was incurred by XM Radio.
Excluding XM Radio, depreciation and amortization was
approximately 60% of total revenue in 1999 and 1998. The dollar
increase in depreciation and amortization expense was primarily
attributable to
F-6
(i) a full year of depreciation for the ARDIS assets in 1999
versus nine months in 1998 and (ii) depreciation on new
assets associated with the expansion of the terrestrial network.
In the fourth quarter of 1999, we recorded a $97.4 million
asset impairment charge related to our satellite and satellite
related ground segment assets. Although the satellite and other
assets remain in sound working order, we determined that we would
not be able to recover the full carrying value of our satellite
and ground segment assets through future undiscounted cash flows,
due to the continuing shift of focus of our resources from voice
toward data business, as well as the loss of our satellite
exclusivity in the United States which occurred in the fourth
quarter of 1999. As a result, we recorded an impairment charge
for the excess of the carrying value of these assets over their
fair value which we estimated using the discounted future cash
flows related to these assets. Because we have written these
assets down to their fair values, future depreciation charges
related to the satellite will be substantially less in 2000 and
beyond.
Interest and other income, including that earned by XM Radio, was
$8.5 million for 1999, as compared to $4.4 million for
1998. Excluding $2.8 million of interest earned by XM Radio
on its short-term investments, the increase was primarily a
result of interest earned on XM Radio convertible debt, prior to
the consolidation of XM Radio, offset by lower balances on
escrows established with the proceeds from the $335 million
debt offering.
We incurred $66.0 million of interest expense in 1999, of
which $2.7 million was incurred by XM Radio, compared to
$53.8 million of interest expense in 1998, reflecting
(i) the amortization of debt discount, prepaid interest and
debt offering costs in the amount of $15.8 million,
excluding XM Radio, in 1999, compared to $16.2 million in
1998, (ii) interest expense, at 12 1/4 %, on the
$335 million notes issued in March 1998, offset by
lower debt balances on our bank facility as a result of the
partial repayment in July 1999, as discussed below. We
expect that interest costs will continue to increase as we
continue to draw down on our bank revolver; however, we expect
that a portion of the increased interest expense will be offset
by reduced amortization of debt discount costs that were written
off when $59 million of debt was repaid and extinguished
under the term facility in July 1999.
In January 1999, we issued a note payable to Baron Asset
Fund, a stockholder and a guarantor of our bank facility, in the
amount of $21.5 million. The note was secured and was
exchangeable for a portion of our shares of XM Radio. Since the
note was indexed to XM Radio stock, which increased in value
during the year, we recorded an unrealized loss in 1999 in the
amount of $27.4 million. The note payable was exchanged for
XM Radio stock in January 2000, and we will record an offsetting
gain in the first quarter of 2000 for the difference between the
carrying value of the debt and XM Radio stock exchanged to settle
the obligation.
Net capital expenditures, excluding XM Radio, in 1999 for
property and equipment were $13.8 million compared to
$12.5 million in 1998. Expenditures consisted primarily of
assets necessary to continue the build out of our terrestrial
network. In addition from the period July 1, 1999 through
December 31, 1999, XM Radio expended $1.7 million
primarily for office furniture and equipment.
Net capital expenditures for property under construction
represent those costs associated with the build out of the XM
Radio network. It is anticipated that these expenditures will
continue to be significant as XM Radio continues to build out its
satellites and ground segments. For the period from July 1,
1999 through December 31, 1999, XM Radio expended
$141.2 million for property under construction.
Years Ended December 31, 1998 and 1997
Service Revenue
Service revenues, which includes our data, voice, and capacity
reseller services, approximated $58.0 million for 1998,
which constituted a $37.3 million increase over 1997. The
significant increase in service revenues
F-7
year over year was primarily attributable to the ARDIS data
service. Absent the acquisition of ARDIS on March 31, 1998,
service revenues for 1998 increased 33% year to year from
$20.7 million to $27.6 million.
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Year Ended |
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December 31, |
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| Summary of Revenue |
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1998 |
|
1997 |
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Change |
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% Change |
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(in millions) |
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Data Service |
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$ |
40.1 |
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$ |
7.6 |
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$ |
32.5 |
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428 |
% |
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Voice Service |
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14.0 |
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10.0 |
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4.0 |
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40 |
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|
|
Capacity Resellers and Other |
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|
3.9 |
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|
|
3.1 |
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|
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0.8 |
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26 |
|
|
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|
|
Equipment Revenue |
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|
29.2 |
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|
|
23.5 |
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|
5.7 |
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24 |
|
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Total |
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$ |
87.2 |
|
|
$ |
44.2 |
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|
$ |
43.0 |
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|
97 |
% |
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The increase in service revenue from voice services was primarily
a result of a 34% increase in voice customers in 1998 as
compared to 1997. The increase in service revenue from our data
services was a result of $30.4 million from the ARDIS data
service and a 26% increase in mobile data units during 1998.
Service revenue from capacity resellers, who handle both voice
and data services, increased primarily as a result of increased
contract commitments from current customers.
The increase in revenue from the sale of equipment includes the
sale of approximately $8.5 million of maritime voice
equipment to a maritime reseller in the fourth quarter of 1998.
Excluding this sale, revenue from the sale of equipment decreased
due to reductions in prices for certain data products. ARDIS
equipment sales were $1.4 million.
As of December 31, 1998, there were approximately 105,700
subscribers on the network, as compared to approximately 32,400
at the end of 1997.
Expenses
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Year Ended |
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|
|
December 31, |
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| Summary of Expenses |
|
1998 |
|
1997 |
|
Change |
|
% Change |
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|
|
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|
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|
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(in millions) |
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|
|
Cost of Service & Operations |
|
$ |
55.8 |
|
|
$ |
32.0 |
|
|
$ |
23.8 |
|
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|
74 |
% |
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|
Cost of Equipment Sales |
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|
30.4 |
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|
|
40.3 |
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(9.9 |
) |
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(25 |
) |
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Sales & Advertising |
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|
19.2 |
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|
12.1 |
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|
7.1 |
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|
59 |
|
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General & Administrative |
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|
17.3 |
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14.8 |
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2.5 |
|
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17 |
|
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Depreciation & Amortization |
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|
52.7 |
|
|
|
42.4 |
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|
|
10.3 |
|
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24 |
|
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Total |
|
$ |
175.4 |
|
|
$ |
141.6 |
|
|
$ |
33.8 |
|
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|
24 |
% |
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Cost of service and operations for 1998 includes costs to support
subscribers and to operate the network. As a percentage of total
revenues, cost of service and operations was 64% and 72% for
1998 and 1997, respectively. This increase was primarily
attributable to (i) $24.6 million related to ARDIS and (ii)
increased interconnect charges associated with increased service
usage, offset by (iii) a reduction in information technology
costs caused by reducing the dependence on outside consultants.
Absent the acquisition of ARDIS on March 31, 1998, cost of
service and operations for 1998 was $31.1 million, or a
$0.9 million decrease from 1997.
The decrease from 1997 to 1998 in the cost of equipment sold was
primarily attributable to the impact of an inventory valuation
allowance of approximately $12.0 million recorded in the
fourth quarter of 1997 and the resulting decrease in 1998
equipment prices, offset by the cost of the sale of the maritime
equipment, mentioned above.
The 59% increase in sales and advertising expenses from 1997 to
1998 was primarily attributable to ARDIS. Absent the acquisition
of ARDIS, sales and advertising expenses for 1998 were
$12.3 million, an increase of
F-8
less than 2% over 1997. Sales and advertising expenses were 22%
of total revenue in 1998 and 27% of total revenue in 1997.
General and administrative expenses represented 20% and 34% of
total revenue in 1998 and 1997, respectively. The dollar increase
in general and administrative expenses for 1998 compared to 1997
was primarily attributable to $5.4 million of ARDIS costs
offset by reductions of approximately $2.9 million of
expenses attributable to (i) $0.9 million in taxes relating
to a reversal of an accrual as a result of obtaining a favorable
property tax ruling, and (ii) reductions of bad debt
expense. Absent the acquisition of ARDIS, general and
administrative expenses for 1998 were $11.9 million.
Depreciation and amortization expense represented approximately
60% of total revenue in 1998, as compared to 96% of total revenue
in 1997. The dollar increase in depreciation and amortization
expense was primarily attributable to the addition of ARDIS
assets and step-up in the basis of ARDIS licenses. Absent the
acquisition of ARDIS, depreciation and amortization expenses for
1998 was $40.0 million, or a reduction of $2.4 million
from 1997.
Interest and other income was $4.4 million for 1998 as
compared to $1.1 million for 1997. The increase was
primarily a result of interest earned on escrows established with
the proceeds from the $335 million debt offering. We
incurred $53.8 million of interest expense in 1998 compared
to $21.6 million in 1997, reflecting (i) the
amortization of debt discount, prepaid interest and debt offering
costs in the amount of $16.2 million in 1998, compared to
$9.4 million in 1997, (ii) interest expense on the
$335 million Notes at 12 1/4%, offset by lower debt
balances on our bank facility.
Interest expense in 1998 was significant as a result of
borrowings under our bank facility, the amortization of borrowing
costs incurred in conjunction with securing the facility, and
interest accrued on the notes issued in the ARDIS acquisition. It
is anticipated that interest costs will continue to be
significant as a result of the bank facility and notes (see
discussion of Liquidity and Capital Resources below).
Net capital expenditures for 1998 for property and equipment were
$12.5 million compared to $8.6 million for 1997. The
increase was largely attributable to the acquisition of assets
necessary to continue the build-outs of the terrestrial network.
Liquidity and Capital Resources
Core Wireless Business
Adequate liquidity and capital are critical to our ability to
continue as a going concern and to fund subscriber acquisition
programs necessary to achieve positive cash flow and profitable
operations. We expect to continue to make significant capital
outlays to fund interest expense, new product rollouts, capital
expenditures and working capital before we begin to generate
positive cash flow from operations. We expect these outlays to
continue for the foreseeable future.
In August 1999, we raised $116 million, net of
underwriting discounts and expenses, through the issuance of
7 million shares of our common stock in a public offering.
Of the proceeds, we used $59 million to pay down a portion
of, and permanently reduce, our term loan facility. The rest of
the proceeds were used to pay down the revolving loan, which are
available for re-borrowing as needed.
Summary of Liquidity and Financing Sources for Core Wireless
Business
Our current operating assumptions and projections reflect our
best estimate of subscriber and revenue growth and operating
expenses. We anticipate that capital expenditures, operating
losses, working capital and debt service requirements through
2000, and beyond, can be met by (i) the borrowings available
under the bank financing and the vendor financing,
(ii) proceeds from the exercise of stock options and
warrants and (iii) additional debt or equity financing
transactions. We also believe that our investment in XM Radio may
provide us, in the future, with flexibility for obtaining
additional liquidity in the future, should that be necessary.
However, there are various restrictions on our ability to realize
liquidity on our investment in XM Radio. Our ability to meet our
projections is subject to numerous uncertainties and we cannot
guarantee that
F-9
our current projections regarding the timing of our ability to
achieve positive operating cash flow will be accurate. If our
cash requirements are more than projected, we may require
additional financing in amounts which may be material. The type,
timing and terms of financing that we select will be dependent
upon our cash needs, the availability of other financing sources
and the prevailing conditions in the financial markets. We cannot
guarantee that additional financing sources will be available at
any given time or available on favorable terms. See
“Overview.”
Our current financing arrangements are summarized below:
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• |
A $141 million bank financing facility, consisting of
(i) a $100 million unsecured five-year reducing
revolving credit facility and (ii) a $41 million five-year
term loan facility, with up to three additional one-year
extensions subject to the lenders’ approval, which is
secured by the assets of the Company, principally our
stockholdings in XM Radio. The bank financing is severally
guaranteed by Hughes Electronics Corporation, Singapore
Telecommunications Ltd., and Baron Capital Partners, L.P. Both
facilities bear interest, generally, at 100 basis points above
London Interbank Offered Rate — LIBOR. Certain proceeds
that we may receive are required to be used to repay and reduce
the bank financing, unless otherwise waived by the lenders and
the guarantors. As of February 29, 2000, the Company had
outstanding borrowings of $41 million under the term loan
facility at 7.1875%, and $69 million under the revolving
credit facility at rates ranging from 6.9375% to 7.1875%.
Additionally, in connection with the bank financing, we entered
into an interest rate swap agreement which reduces the impact of
interest rate increases on the term loan facility. Under the swap
agreement, we will receive an amount equal to LIBOR plus 50
basis points, paid directly to the banks on a quarterly basis, on
a notional amount of $41 million until the termination date
of March 31, 2001. The unamortized fee paid for the swap
agreement is reflected as an asset in the accompanying financial
statements. We are exposed to a credit loss in the event the
counter party does not perform under this agreement; however, we
do not believe there is a significant risk of non performance,
since the counter party to the swap agreement is a major
financial institution. |
| |
| |
• |
A vendor financing commitment from Motorola, Inc., a stockholder,
to provide up to $10 million of vendor financing to finance
up to 75% of the purchase price of additional terrestrial
network base stations. Loans under this facility bear interest at
a rate equal to LIBOR plus 7.0% and are guaranteed by American
Mobile and each of its wholly-owned subsidiaries. The terms of
the facility require that amounts borrowed be secured by the
equipment purchased therewith. As of December 31, 1999,
$4.1 million was available under this facility. |
| |
| |
• |
$335 million of senior notes issued at the time of the ARDIS
acquisition. The notes bear interest at 12 1/4% annually
and are due in 2008. A portion of the net proceeds of the sale of
the notes were used to finance pledged securities that are
intended to provide for the payment of the first six interest
payments on these notes. Interest payments are due semi-annually,
in arrears, and began on October 1, 1998. The notes were
issued by a subsidiary of American Mobile, and are fully
guaranteed by American Mobile. |
| |
| |
• |
We have also arranged the financing of certain trade payables,
and as of December 31, 1999, $4.0 million of deferred
trade payables were outstanding at rates ranging from 6.07% to
12.00% and are generally payable by the end of 2000. |
For a complete description of these financings and their terms,
please see Footnote Number 8 to our financial statements included
herein.
Commitments
At December 31, 1999, we had remaining contractual
commitments to purchase subscriber equipment inventory, primarily
related to eLink and MobileMAX2, in the maximum amount of
$44.9 million during 2000 and 2001. We have the right to
terminate certain of these commitments by incurring a
cancellation penalty representing a percentage of the unfulfilled
portion of the contract. As of December 31, 1999, the
cancellation penalty would have been approximately $7.4 million.
F-10
We have also contracted for the purchase of $10.4 million of
base stations to expand our coverage and complete certain
necessary site build-outs, $0.4 million for certain software
development, and certain other operating expense contract
commitments that total approximately $1.2 million over the
next year.
XM Radio
XM Radio is operated, managed, and funded separately from our
core wireless business. While we do not have any obligation or
commitments to provide additional funding to XM Radio, and do not
expect to provide any additional funding, we may choose to do so
in the future. XM Radio will require significant additional
funding in the future. If XM Radio is not successful in obtaining
the additional required financing, our investment in XM Radio
could be negatively impacted.
On July 7, 1999, XM Radio issued $250 million of
Series A subordinated convertible notes to several new
strategic and financial investors including General Motors
Corporation, Clear Channel Investments, DIRECTV, Telcom Ventures,
Columbia Capital and Madison Dearborn Partners. $75 million
of the proceeds from this financing were used to repay an
outstanding note payable, and the remainder was used for working
capital. In October 1999, XM Radio raised net proceeds of
approximately $114.1 million through the issuance of
10.2 million shares of common stock in an initial public
offering. Concurrent with this offering, the Series A
subordinated convertible notes converted to either common stock
or preferred stock. In the first quarter of 2000, XM Radio raised
an additional $228.5 million in net proceeds through a
follow-on offering of 4.4 million shares of common stock and
2.0 million shares of convertible redeemable preferred
stock. In March 2000, XM Radio completed a high yield debt
offering of 325,000 units, each unit consisting of $1,000
principal amount of 14% Senior Secured Notes due 2010 and one
warrant to purchase 8.024815 shares of Class A common stock
of XM Radio at an exercise price of $49.50 per share.
XM Radio realized net proceeds of $191.0 million,
excluding $123.0 million used to acquire securities which
will be used to pay interest payments due under the notes for the
first three years.
XM Radio is also subject to certain commitments and
contingencies. XM Radio has a distribution agreement with General
Motors that will require significant expenditures in the future.
Under its satellite contract with Hughes Space and
Communications, Inc., XM Radio will incur payment obligations of
approximately $541.3 million of which $183.9 million
had been paid as of December 31, 1999. XM Radio has signed a
contract with LCC International, Inc., for the engineering of its
terrestrial repeater network with total contract payments
expected to be approximately $115 million through 2001. As
of December 31, 1999, XM Radio has paid $6.6 million
under this contract. In February 2000, XM Radio signed a
contract with Hughes Network Systems for the design, development,
and purchase of terrestrial repeater equipment. The total value
of this contract is $128 million and XM Radio has paid
$3.5 million under a letter agreement through
December 31, 1999 in anticipation of this contract. On
February 16, 2000, XM Radio and Sirius Satellite Radio, a
competitor of XM Radio, signed an agreement to develop a unified
standard for satellite radios to facilitate the ability of
consumers to purchase one radio capable of receiving both XM
Radio’s and Sirius Satellite Radio’s services.
Other
All of our wholly owned subsidiaries are subject to financing
agreements that limit the amount of cash dividends and loans that
can be advanced to American Mobile Parent. At December 31,
1999, all of the subsidiaries’ net assets were restricted
under these agreements. These restrictions will have an impact on
our ability to pay dividends.
Cash used in operating activities was $107.0 million for
1999, of which $12.8 million was attributable to XM Radio,
compared to $56.2 million for 1998. Excluding XM Radio, cash
used in operating activities was $94.2 million. The
decrease in cash used in operating activities was primarily
attributable to (i) increased operating losses, and (ii) a
decrease in net working capital primarily due to the timing of
payments on accounts receivables and prepaid expenses. Cash used
in investing activities was $218.1 million for 1999, of
which $215.8 million was attributable to XM Radio, compared
to $190.0 million for 1998. Excluding XM Radio, cash used in
investing activities was $2.3 million. This decrease was
primarily attributable to the 1998 acquisition of ARDIS and the
funding of certain escrows required in connection with the
acquisition and issuance of notes. This decrease was offset by a
reduction in funding of escrows for two semi-annual interest
F-11
payments in 1999 compared to one semi-annual interest payment in
1998. Cash provided by financing activities was
$374.3 million in 1999, of which $279.1 million was
attributable to XM Radio, compared to $246.3 million in
1998. Excluding XM Radio, cash provided by financing activities
was $95.2 million. This decrease reflects the issuance of
the notes, offset by the repayment of certain vendor financing
and other long-term debt. Proceeds from the sale of debt
securities and Common Stock, excluding XM Radio, were
$122.3 million and $335.4 million for 1999 and 1998,
respectively. Excluding XM Radio, payments on long-term debt and
capital leases were $119.3 million and $118.3 million
for 1999 and 1998, respectively. In addition, excluding XM Radio,
we incurred $306,000 of debt issuance costs in 1999, as compared
to $14.7 million in 1998 associated with the placement of
the notes and amendments to the bank financing. As of
December 31, 1999, excluding XM Radio, we had $776,000 of
cash and cash equivalents, working capital of $2.9 million,
and $41.0 million of current investments restricted for the
payment of interest. None of the cash and working capital held by
XM Radio is available for use by the Company.
Regulation
The ownership and operations of our communication systems are
subject to significant regulation by the FCC, which acts under
authority granted by the Communications Act of 1934, as amended
(the “Communications Act”), and related federal laws. A
number of our licenses are subject to renewal by the FCC and,
with respect to our satellite operations, are subject to
international frequency coordination. In addition, current FCC
regulations generally limit the ownership and control of American
Mobile by non-U.S. citizens or entities to 25%. We cannot assure
that the rules and regulations of the FCC will continue to
support our operations as presently conducted and contemplated to
be conducted in the future, or that all existing licenses will
be renewed and requisite frequencies coordinated.
As described in greater detail in “Part I, Item 1.
Business — Regulation”, in November 1999 the
FCC granted two applications to use a Canadian competitor’s
satellite system to provide mobile satellite services in the
United States. This decision represents a departure from the
FCC’s previous statements that there is only enough spectrum
in the mobile satellite services L-band to authorize a single
mobile satellite services system to provide service in the United
States. While American Mobile has appealed this decision, there
can be no assurances that it will be overturned. The loss of
exclusive right to provide these services will result in
competition from other providers to provide mobile satellite
services and cause us to reduce the prices charged and revenue
related to these services.
Other Matters
As previously reported, the satellite has, in the past,
experienced certain technological anomalies, and there can be no
assurance that the satellite will not experience subsequent
anomalies that could adversely impact the Company’s
financial condition, results of operations and cash flows. See
“Part I, Item 1. Business — Our
Network”.
Year 2000 Readiness
American Mobile has completed its Year 2000 Readiness program and
did not experience any significant problems as a result of the
roll over to the year 2000. We do not anticipate any continued
business impacts related to this issue. American Mobile incurred
approximately $2.4 million in 1998 and $6.0 million in 1999
to address Year 2000 issues. Only a negligible amount is budgeted
for the year 2000.
Accounting Standards
In June 1998, FASB issued Statement No. 133,
“Accounting for Derivative Instruments and Hedging
Activities,” which requires the recognition of all
derivatives as either assets or liabilities measured at fair
value. In June 1999, FASB issued Statement No. 137, which
defers the effective date of Statement No. 133 until fiscal
quarters beginning after June 15, 2000. We do not believe
that the adoption of this statement will have a material impact
on our financial position and results of operations.
F-12
Report of Independent Public Accountants
To American Mobile Satellite Corporation:
We have audited the accompanying consolidated balance sheets of
American Mobile Satellite Corporation (a Delaware corporation)
and Subsidiaries as of December 31, 1999 and 1998, and the
related consolidated statements of operations, stockholders’
equity (deficit) and cash flows for each of the three years
in the period ended December 31, 1999. These financial
statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these
financial statements based on our audits. We did not audit the
financial statements of XM Satellite Radio Holdings Inc, which
statements reflect total assets and total revenues of 57% and 0%,
respectively, in 1999 of the related consolidated totals. Those
statements were audited by other auditors whose report has been
furnished to us, and our opinion, insofar as it relates to the
amounts included for XM Satellite Radio Holdings Inc., is based
solely on the report of the other auditors.
We conducted our audits in accordance with auditing standards
generally accepted in the United States. Those standards require
that we plan and perform an audit to obtain reasonable assurance
about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.
We believe that our audits and the report of other auditors
provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of other
auditors, the financial statements referred to above present
fairly, in all material respects, the financial position of
American Mobile Satellite Corporation and Subsidiaries as of
December 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in
the period ended December 31, 1999, in conformity with
accounting principles generally accepted in the United States.
/s/ Arthur Anderson LLP
Vienna, Virginia
March 15, 2000
F-13
INDEPENDENT AUDITORS’ REPORT
To the Board of Directors and Stockholders
XM Satellite Radio Holdings Inc. and Subsidiaries:
We have audited the consolidated balance sheets of XM Satellite
Radio Holdings Inc. and subsidiaries (a development stage
company) (the “Company”) as of December 31, 1998
and 1999, and the related consolidated statements of operations,
stockholders’ equity (deficit), and cash flows for each of
the years in the three-year period ended December 31, 1999,
and for the period from December 15, 1992 (date of
inception) to December 31, 1999, which are not included
herein. These consolidated financial statements are the
responsibility of the Company’s management. Our
responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial
position of XM Satellite Radio Holdings Inc. and subsidiaries (a
development stage company) as of December 31, 1998 and 1999,
and the results of their operations and their cash flows for
each of the years in the three-year period ended
December 31, 1999 and for the period from December 15,
1992 (date of inception) to December 31, 1999, in conformity with
generally accepted accounting principles.
The consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed
in note 11 to the consolidated financial statements, the Company
has not commenced operations and is dependent upon additional
debt or equity financing, which raises substantial doubt about
its ability to continue as a going concern. Management’s
plan in regard to these matters is also described in note 11. The
consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
McLean, VA
February 16, 2000, except
for Note 14, which is
as of March 15, 2000
F-14
American Mobile Satellite Corporation and Subsidiaries
Consolidated Statements of Operations
(in thousands, except per share data)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, |
|
|
|
|
|
1999 |
|
1998 |
|
1997 |
|
|
|
|
|
|
|
|
REVENUES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Services |
|
$ |
67,653 |
|
|
$ |
57,994 |
|
|
$ |
20,684 |
|
|
|
|
|
|
|
Sales of equipment |
|
|
23,418 |
|
|
|
29,227 |
|
|
|
23,530 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenues |
|
|
91,071 |
|
|
|
87,221 |
|
|
|
44,214 |
|
|
COSTS AND EXPENSES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service and operations |
|
|
69,258 |
|
|
|
55,781 |
|
|
|
31,959 |
|
|
|
|
|
|
|
Cost of equipment sold |
|
|
29,527 |
|
|
|
30,449 |
|
|
|
40,335 |
|
|
|
|
|
|
|
Sales and advertising |
|
|
23,125 |
|
|
|
19,159 |
|
|
|
12,066 |
|
|
|
|
|
|
|
General and administrative |
|
|
40,336 |
|
|
|
17,332 |
|
|
|
14,819 |
|
|
|
|
|
|
|
Satellite and related assets impairment charge (Note 2) |
|
|
97,419 |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
55,798 |
|
|
|
52,707 |
|
|
|
42,430 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Loss |
|
|
(224,392 |
) |
|
|
(88,207 |
) |
|
|
(97,395 |
) |
|
|
|
|
|
|
Interest and Other Income |
|
|
8,464 |
|
|
|
4,372 |
|
|
|
1,122 |
|
|
|
|
|
|
|
Interest Expense |
|
|
(65,928 |
) |
|
|
(53,771 |
) |
|
|
(21,633 |
) |
|
|
|
|
|
|
Unrealized Loss on Note Receivable from XM Radio |
|
|
(9,919 |
) |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
Unrealized Loss on Note Payable to Related Party |
|
|
(27,399 |
) |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
Minority Interest |
|
|
7,067 |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
Equity in Loss of XM Radio |
|
|
(6,692 |
) |
|
|
(12,960 |
) |
|
|
(1,301 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss Before Extraordinary Item |
|
|
(318,799 |
) |
|
|
(150,566 |
) |
|
|
(119,207 |
) |
|
|
|
|
|
|
Extraordinary Loss on Extinguishment of Debt |
|
|
(12,132 |
) |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET LOSS |
|
$ |
(330,931 |
) |
|
$ |
(150,566 |
) |
|
$ |
(119,207 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and Diluted Loss Per Share of Common Stock: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before extraordinary item |
|
$ |
(8.03 |
) |
|
$ |
(4.94 |
) |
|
$ |
(4.74 |
) |
|
|
|
|
|
|
Extraordinary item |
|
$ |
(0.30 |
) |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss |
|
$ |
(8.33 |
) |
|
$ |
(4.94 |
) |
|
($ |
4.74 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average Common Shares Outstanding During
the Period |
|
|
39,704 |
|
|
|
30,496 |
|
|
|
25,131 |
|
The accompanying notes are an integral part of these consolidated
financial statements.
F-15
American Mobile Satellite Corporation and Subsidiaries
Consolidated Balance Sheets
(in thousands)
as of December 31,
| |
|
|
|
|
|
|
|
|
|
|
|
|
1999 |
|
1998 |
|
|
|
|
|
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT ASSETS: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
51,474 |
|
|
$ |
2,285 |
|
|
|
|
|
|
|
Short-term investments |
|
|
69,472 |
|
|
|
— |
|
|
|
|
|
|
|
Accounts receivable-trade, net of allowance for doubtful accounts
of $1,225 in 1999 and $935 in 1998 |
|
|
16,594 |
|
|
|
15,325 |
|
|
|
|
|
|
|
Inventory |
|
|
28,616 |
|
|
|
18,593 |
|
|
|
|
|
|
|
Prepaid in-orbit insurance |
|
|
3,381 |
|
|
|
3,381 |
|
|
|
|
|
|
|
Restricted short-term investments |
|
|
41,038 |
|
|
|
41,038 |
|
|
|
|
|
|
|
Other current assets |
|
|
9,719 |
|
|
|
13,231 |
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
220,294 |
|
|
|
93,853 |
|
|
|
|
|
|
|
PROPERTY AND EQUIPMENT, net (gross balances include $143,152 and
$140,485 purchased from related parties through 1999 and 1998,
respectively) |
|
|
116,516 |
|
|
|
246,553 |
|
|
|
|
|
|
|
XM RADIO SYSTEM UNDER CONSTRUCTION |
|
|
357,278 |
|
|
|
— |
|
|
|
|
|
|
|
GOODWILL AND OTHER INTANGIBLES, net |
|
|
62,211 |
|
|
|
53,235 |
|
|
|
|
|
|
|
RESTRICTED INVESTMENTS |
|
|
31,109 |
|
|
|
67,199 |
|
|
|
|
|
|
|
DEFERRED CHARGES AND OTHER ASSETS, net of accumulated
amortization of $18,280 in 1999 and $17,653 in 1998 |
|
|
22,540 |
|
|
|
28,954 |
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
809,948 |
|
|
$ |
489,794 |
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated
financial statements.
F-16
| |
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ DEFICIT |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses |
|
$ |
67,885 |
|
|
$ |
33,797 |
|
|
|
|
|
|
|
Obligations under capital leases due within one year |
|
|
6,154 |
|
|
|
5,971 |
|
|
|
|
|
|
|
Current portion of vendor financing commitment due to related
party |
|
|
1,977 |
|
|
|
543 |
|
|
|
|
|
|
|
Current portion of deferred trade payables |
|
|
3,983 |
|
|
|
4,498 |
|
|
|
|
|
|
|
Other current liabilities |
|
|
1,646 |
|
|
|
162 |
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
81,645 |
|
|
|
44,971 |
|
|
|
|
|
|
|
LONG-TERM LIABILITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations under Senior Notes, net of discount |
|
|
327,576 |
|
|
|
327,147 |
|
|
|
|
|
|
|
Obligations under New Bank Financing |
|
|
85,000 |
|
|
|
132,000 |
|
|
|
|
|
|
|
Capital lease obligations |
|
|
247 |
|
|
|
5,824 |
|
|
|
|
|
|
|
Net assets acquired in excess of purchase price |
|
|
1,333 |
|
|
|
2,028 |
|
|
|
|
|
|
|
Vendor financing commitment due to related party |
|
|
2,535 |
|
|
|
1,069 |
|
|
|
|
|
|
|
Convertible note payable due to related party, at fair value |
|
|
50,138 |
|
|
|
— |
|
|
|
|
|
|
|
Deferred trade payables |
|
|
— |
|
|
|
620 |
|
|
|
|
|
|
|
Investment in XM Radio |
|
|
— |
|
|
|
12,618 |
|
|
|
|
|
|
|
Other long-term liabilities |
|
|
3,955 |
|
|
|
540 |
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term liabilities |
|
|
470,784 |
|
|
|
481,846 |
|
|
|
|
|
|
|
|
Total liabilities |
|
|
552,429 |
|
|
|
526,817 |
|
|
|
|
|
|
|
|
|
|
|
COMMITMENTS (Note 11) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MINORITY INTEREST |
|
|
274,745 |
|
|
|
— |
|
|
|
|
|
|
|
STOCKHOLDERS’ DEFICIT: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred Stock; par value $0.01; authorized 200,000 shares; no
shares outstanding |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
Common Stock; voting, par value $0.01; authorized 150,000,000
shares; 48,539,316 shares issued and outstanding in 1999,
32,198,735 shares issued and outstanding in 1998 |
|
|
485 |
|
|
|
322 |
|
|
|
|
|
|
|
Additional paid-in capital |
|
|
844,181 |
|
|
|
508,084 |
|
|
|
|
|
|
|
Deferred compensation |
|
|
(6,536 |
) |
|
|
(1,528 |
) |
|
|
|
|
|
|
Common Stock purchase warrants |
|
|
63,290 |
|
|
|
59,108 |
|
|
|
|
|
|
|
Unamortized guarantee warrants |
|
|
(18,384 |
) |
|
|
(33,678 |
) |
|
|
|
|
|
|
Cumulative loss |
|
|
(900,262 |
) |
|
|
(569,331 |
) |
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS’ DEFICIT |
|
|
(17,226 |
) |
|
|
(37,023 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total liabilities, minority interest, and stockholders’
deficit |
|
$ |
809,948 |
|
|
$ |
489,794 |
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated
financial statements.
F-17
American Mobile Satellite Corporation and Subsidiaries
Consolidated Statements of Stockholders’ Equity (Deficit)
(dollars in thousands)
for the period from January 1, 1997 through
December 31, 1999
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common |
|
|
|
|
|
|
|
|
Additional |
|
|
|
Stock |
|
Unamortized |
|
|
Common |
|
Par |
|
Paid-In |
|
Deferred |
|
Purchase |
|
Guarantee |
|
|
Stock Shares |
|
Value |
|
Capital |
|
Compensation |
|
Warrants |
|
Warrants |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE, December 31, 1996 |
|
|
25,097,577 |
|
|
$ |
251 |
|
|
$ |
451,259 |
|
|
|
— |
|
|
$ |
23,848 |
|
|
$ |
(17,100 |
) |
|
|
|
|
|
|
Common Stock issued under the 401(k) Savings Plan |
|
|
31,684 |
|
|
|
1 |
|
|
|
349 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
Common Stock issued under the Stock Purchase Plan |
|
|
29,930 |
|
|
|
— |
|
|
|
283 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
Common Stock issued for award of bonus stock |
|
|
120 |
|
|
|
— |
|
|
|
1 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
Guarantee Warrants revaluation |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
12,490 |
|
|
|
(12,490 |
) |
|
|
|
|
|
|
Amortization of Guarantee Warrants |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
6,004 |
|
|
|
|
|
|
|
Net Loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE, December 31, 1997 |
|
|
25,159,311 |
|
|
|
252 |
|
|
|
451,892 |
|
|
|
— |
|
|
|
36,338 |
|
|
|
(23,586 |
) |
|
|
|
|
|
|
Common Stock issued under the 401(k) Savings Plan |
|
|
105,089 |
|
|
|
1 |
|
|
|
847 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
Common Stock issued under the Stock Purchase Plan |
|
|
47,011 |
|
|
|
— |
|
|
|
278 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
Common Stock issued for ARDIS Acquisition |
|
|
6,520,532 |
|
|
|
65 |
|
|
|
49,716 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
Common Stock issued for exercise of stock options and award of
bonus stock |
|
|
10,681 |
|
|
|
— |
|
|
|
135 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
Issuance of Stock Purchase Warrants pursuant to Notes financing |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
8,490 |
|
|
|
— |
|
|
|
|
|
|
|
Issuance of Restricted Stock |
|
|
356,111 |
|
|
|
4 |
|
|
|
1,776 |
|
|
|
(1,780 |
) |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
Amortization of compensation expense |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
252 |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
Guarantee Warrants revaluation |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
17,720 |
|
|
|
(17,720 |
) |
|
|
|
|
|
|
Amortization of Guarantee Warrants |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
7,628 |
|
|
|
|
|
|
|
Expiration of Stock Purchase Warrants |
|
|
— |
|
|
|
— |
|
|
|
3,440 |
|
|
|
— |
|
|
|
(3,440 |
) |
|
|
— |
|
|
|
|
|
|
|
Net Loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE, December 31, 1998 |
|
|
32,198,735 |
|
|
|
322 |
|
|
|
508,084 |
|
|
|
(1,528 |
) |
|
|
59,108 |
|
|
|
(33,678 |
) |
|
|
|
|
|
|
Common Stock issued under the 401(k) Savings Plan |
|
|
126,052 |
|
|
|
1 |
|
|
|
1,114 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
Common Stock issued under the Stock Purchase Plan |
|
|
90,867 |
|
|
|
1 |
|
|
|
385 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
Common Stock issued for exercise of stock options and award of
bonus stock |
|
|
484,815 |
|
|
|
5 |
|
|
|
5,686 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
Common Stock issued for XM Satellite Radio Holdings Inc.
Acquisition |
|
|
8,614,244 |
|
|
|
86 |
|
|
|
129,127 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
Common Stock issued in Public Offering |
|
|
7,000,000 |
|
|
|
70 |
|
|
|
115,919 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
Issuance of Restricted Stock |
|
|
40,000 |
|
|
|
— |
|
|
|
190 |
|
|
|
(190 |
) |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
Cancellation of Restricted Stock |
|
|
(30,785 |
) |
|
|
— |
|
|
|
(504 |
) |
|
|
504 |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
Additional deferred compensation on Restricted Stock |
|
|
— |
|
|
|
— |
|
|
|
5,322 |
|
|
|
(5,322 |
) |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
Amortization of Guarantee Warrants |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
7,372 |
|
|
|
|
|
|
|
Common Stock issued upon exercise of Warrants |
|
|
15,388 |
|
|
|
— |
|
|
|
296 |
|
|
|
— |
|
|
|
(108 |
) |
|
|
— |
|
|
|
|
|
|
|
Guarantee Warrants revaluation |
|
|
— |
|
|
|
— |
|
|
|
(2,101 |
) |
|
|
— |
|
|
|
4,290 |
|
|
|
(1,749 |
) |
|
|
|
|
|
|
Reduction of Guarantee Warrants related to extinguishment of debt |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
9,671 |
|
|
|
|
|
|
|
Capital gain in connection with sale of stock by XM Satellite
Radio Holdings Inc. |
|
|
— |
|
|
|
— |
|
|
|
80,663 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
Net Loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE, December 31, 1999 |
|
|
48,539,316 |
|
|
$ |
485 |
|
|
$ |
844,181 |
|
|
$ |
(6,536 |
) |
|
$ |
63,290 |
|
|
$ |
(18,384 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
[Additional columns below]
[Continued from above table, first column(s) repeated]
| |
|
|
|
|
|
|
|
|
|
|
|
Cumulative |
|
|
|
|
Loss |
|
Total |
|
|
|
|
|
|
BALANCE, December 31, 1996 |
|
$ |
(299,558 |
) |
|
$ |
158,700 |
|
|
|
|
|
|
|
Common Stock issued under the 401(k) Savings Plan |
|
|
— |
|
|
|
350 |
|
|
|
|
|
|
|
Common Stock issued under the Stock Purchase Plan |
|
|
— |
|
|
|
283 |
|
|
|
|
|
|
|
Common Stock issued for award of bonus stock |
|
|
— |
|
|
|
1 |
|
|
|
|
|
|
|
Guarantee Warrants revaluation |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
Amortization of Guarantee Warrants |
|
|
— |
|
|
|
6,004 |
|
|
|
|
|
|
|
Net Loss |
|
|
(119,207 |
) |
|
|
(119,207 |
) |
|
|
|
|
|
|
|
|
|
|
BALANCE, December 31, 1997 |
|
|
(418,765 |
) |
|
|
46,131 |
|
|
|
|
|
|
|
Common Stock issued under the 401(k) Savings Plan |
|
|
— |
|
|
|
848 |
|
|
|
|
|
|
|
Common Stock issued under the Stock Purchase Plan |
|
|
— |
|
|
|
278 |
|
|
|
|
|
|
|
Common Stock issued for ARDIS Acquisition |
|
|
— |
|
|
|
49,781 |
|
|
|
|
|
|
|
Common Stock issued for exercise of stock options and award of
bonus stock |
|
|
— |
|
|
|
135 |
|
|
|
|
|
|
|
Issuance of Stock Purchase Warrants pursuant to Notes financing |
|
|
— |
|
|
|
8,490 |
|
|
|
|
|
|
|
Issuance of Restricted Stock |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
Amortization of compensation expense |
|
|
— |
|
|
|
252 |
|
|
|
|
|
|
|
Guarantee Warrants revaluation |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
Amortization of Guarantee Warrants |
|
|
— |
|
|
|
7,628 |
|
|
|
|
|
|
|
Expiration of Stock Purchase Warrants |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
Net Loss |
|
|
(150,566 |
) |
|
|
(150,566 |
) |
|
|
|
|
|
|
|
|
|
|
BALANCE, December 31, 1998 |
|
|
(569,331 |
) |
|
|
(37,023 |
) |
|
|
|
|
|
|
Common Stock issued under the 401(k) Savings Plan |
|
|
— |
|
|
|
1,115 |
|
|
|
|
|
|
|
Common Stock issued under the Stock Purchase Plan |
|
|
— |
|
|
|
386 |
|
|
|
|
|
|
|
Common Stock issued for exercise of stock options and award of
bonus stock |
|
|
— |
|
|
|
5,691 |
|
|
|
|
|
|
|
Common Stock issued for XM Satellite Radio Holdings Inc.
Acquisition |
|
|
— |
|
|
|
129,213 |
|
|
|
|
|
|
|
Common Stock issued in Public Offering |
|
|
— |
|
|
|
115,989 |
|
|
|
|
|
|
|
Issuance of Restricted Stock |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
Cancellation of Restricted Stock |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
Additional deferred compensation on Restricted Stock |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
Amortization of Guarantee Warrants |
|
|
— |
|
|
|
7,372 |
|
|
|
|
|
|
|
Common Stock issued upon exercise of Warrants |
|
|
— |
|
|
|
188 |
|
|
|
|
|
|
|
Guarantee Warrants revaluation |
|
|
— |
|
|
|
440 |
|
|
|
|
|
|
|
Reduction of Guarantee Warrants related to extinguishment of debt |
|
|
— |
|
|
|
9,671 |
|
|
|
|
|
|
|
Capital gain in connection with sale of stock by XM Satellite
Radio Holdings Inc. |
|
|
— |
|
|
|
80,663 |
|
|
|
|
|
|
|
Net Loss |
|
|
(330,931 |
) |
|
|
(330,931 |
) |
|
|
|
|
|
|
|
|
|
|
BALANCE, December 31, 1999 |
|
$ |
(900,262 |
) |
|
$ |
(17,226 |
) |
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated
financial statements.
F-18
American Mobile Satellite Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(in thousands)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, |
|
|
|
|
|
1999 |
|
1998 |
|
1997 |
|
|
|
|
|
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(330,931 |
) |
|
$ |
(150,566 |
) |
|
$ |
(119,207 |
) |
|
|
|
|
|
|
Adjustments to reconcile net loss to net cash used in operating
activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of Guarantee Warrants and debt related costs |
|
|
16,301 |
|
|
|
16,171 |
|
|
|
9,350 |
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
55,798 |
|
|
|
52,707 |
|
|
|
42,430 |
|
|
|
|
|
|
|
Equity in loss of XM Radio |
|
|
6,692 |
|
|
|
12,960 |
|
|
|
1,301 |
|
|
|
|
|
|
|
Net unrealized loss on marketable securities |
|
|
37,318 |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
Extraordinary loss on extinguishment of debt |
|
|
12,132 |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
Loss on impairment of satellite and related assets |
|
|
97,419 |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
Non cash stock compensation of XM Radio |
|
|
4,210 |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
Minority Interest |
|
|
(7,067 |
) |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
Changes in assets and liabilities, net of acquisitions: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventory |
|
|
(10,023 |
) |
|
|
21,947 |
|
|
|
(2,287 |
) |
|
|
|
|
|
|
|
Prepaid in-orbit insurance |
|
|
— |
|
|
|
1,183 |
|
|
|
516 |
|
|
|
|
|
|
|
|
Accounts receivable — trade |
|
|
(3,897 |
) |
|
|
(105 |
) |
|
|
(1,537 |
) |
|
|
|
|
|
|
|
Other current assets |
|
|
551 |
|
|
|
7,240 |
|
|
|
4,639 |
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses |
|
|
16,715 |
|
|
|
(14,472 |
) |
|
|
(5,820 |
) |
|
|
|
|
|
|
|
Accrued interest Senior Note |
|
|
(83 |
) |
|
|
10,715 |
|
|
|
— |
|
|
|
|
|
|
|
|
Deferred trade payables |
|
|
(1,135 |
) |
|
|
(6,567 |
) |
|
|
11,685 |
|
|
|
|
|
|
|
|
Deferred items — net |
|
|
(977 |
) |
|
|
(7,396 |
) |
|
|
8,038 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities |
|
|
(106,977 |
) |
|
|
(56,183 |
) |
|
|
(50,892 |
) |
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for acquisition of ARDIS |
|
|
— |
|
|
|
(52,373 |
) |
|
|
— |
|
|
|
|
|
|
|
Purchase of XM Radio Note Receivable |
|
|
(21,419 |
) |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
Purchase of restricted investments |
|
|
(4,916 |
) |
|
|
(145,761 |
) |
|
|
— |
|
|
|
|
|
|
|
Payment of interest from escrow |
|
|
41,006 |
|
|
|
20,633 |
|
|
|
— |
|
|
|
|
|
|
|
Investment in XM Radio |
|
|
(2,400 |
) |
|
|
— |
|
|
|
(1,643 |
) |
|
|
|
|
|
|
XM Radio Acquisition costs |
|
|
(788 |
) |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
Purchase of short term investments by XM Radio |
|
|
(69,472 |
) |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
System under construction |
|
|
(141,154 |
) |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
Other investing activities by XM Radio |
|
|
(3,422 |
) |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
Additions to property and equipment |
|
|
(15,538 |
) |
|
|
(12,470 |
) |
|
|
(8,598 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(218,103 |
) |
|
|
(189,971 |
) |
|
|
(10,241 |
) |
F-19
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, |
|
|
|
|
|
1999 |
|
1998 |
|
1997 |
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of Common Stock |
|
|
122,253 |
|
|
|
412 |
|
|
|
284 |
|
|
|
|
|
|
|
Proceeds from issuance of Common Stock-XM Radio |
|
|
114,428 |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
Proceeds from Notes and Stock Purchase Warrants |
|
|
— |
|
|
|
335,000 |
|
|
|
— |
|
|
|
|
|
|
|
Principal payments under capital leases |
|
|
(5,982 |
) |
|
|
(3,395 |
) |
|
|
(2,576 |
) |
|
|
|
|
|
|
Principal payments under Vendor Financing |
|
|
(1,290 |
) |
|
|
(16 |
) |
|
|
— |
|
|
|
|
|
|
|
Proceeds from Series A subordinated convertible notes of XM
Radio |
|
|
250,000 |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
Proceeds from bridge loan |
|
|
— |
|
|
|
10,000 |
|
|
|
— |
|
|
|
|
|
|
|
Payment of bridge loan |
|
|
— |
|
|
|
(10,000 |
) |
|
|
— |
|
|
|
|
|
|
|
Repayment of Bank Financing |
|
|
— |
|
|
|
(100,000 |
) |
|
|
— |
|
|
|
|
|
|
|
Repayment of XM Radio bank loan |
|
|
(73 |
) |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
Repayment of WorldSpace loan by XM Radio |
|
|
(75,000 |
) |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
Repayment of term loan |
|
|
(59,000 |
) |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
Repayments of Revolver |
|
|
(53,000 |
) |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
Proceeds from Bank Financing and New Bank Financing |
|
|
65,000 |
|
|
|
34,000 |
|
|
|
71,000 |
|
|
|
|
|
|
|
Proceeds from note payable to related party |
|
|
21,500 |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
Proceeds from reduction of interest rate swap |
|
|
6,009 |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
Payments on long-term debt |
|
|
— |
|
|
|
(4,933 |
) |
|
|
(6,180 |
) |
|
|
|
|
|
|
Debt issuance costs |
|
|
(10,576 |
) |
|
|
(14,735 |
) |
|
|
(1,471 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities |
|
|
374,269 |
|
|
|
246,333 |
|
|
|
61,057 |
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents |
|
|
49,189 |
|
|
|
179 |
|
|
|
(76 |
) |
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS, beginning of period |
|
|
2,285 |
|
|
|
2,106 |
|
|
|
2,182 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS, end of period |
|
$ |
51,474 |
|
|
$ |
2,285 |
|
|
$ |
2,106 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated
financial statements.
F-20
AMERICAN MOBILE SATELLITE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
as of December 31, 1999, 1998 and 1997
1. ORGANIZATION, BUSINESS AND LIQUIDITY
American Mobile Satellite Corporation (with its subsidiaries,
“American Mobile” or the “Company”) was
incorporated in May 1988 and, until 1996, was a development
stage company, engaged primarily in the design, development,
construction, deployment and financing of a mobile satellite
communication system. The Company has expanded its network
through acquisitions over the last several years. In late 1996,
the Company expanded its mobile data messaging service through
the acquisition of Rockwell International Corporation’s dual
mode mobile messaging and global positioning and monitoring
service. On March 31, 1998, the Company acquired ARDIS
Company (“ARDIS”), a wholly-owned subsidiary of
Motorola, Inc. that owns and operates a terrestrial two-way
wireless data communications network. With these acquisitions,
the Company became a leading provider of nationwide wireless
communications services, including data, dispatch and voice
services, primarily to business customers in the United States.
The Company offers a broad range of end-to-end wireless solutions
utilizing a seamless network consisting of the nation’s
largest, most fully-deployed terrestrial wireless data network
and a satellite in geosynchronous orbit. Combined, the Company
refers to these as the network.
As of March 15, 2000, the Company had an equity interest in
XM Satellite Radio Holdings Inc. (“XM Radio”) of
approximately 34.4% (or 25.5% on a fully diluted basis); however,
the Company continues to control XM Radio through its Board of
Director membership and common stock voting rights. The Company
will continue to consolidate XM Radio until the Company no longer
controls XM Radio. The Company must request and receive FCC
approval to relinquish control of XM Radio. As a result of
acquiring the outstanding debt and equity interest in XM Radio
from the other investor ( the “XM Acquisition”), XM
Radio’s financial results for the period July 7, 1999
to December 31,1999 have been included in the Company’s
Consolidated Financial Statements. Prior to July 7, 1999,
the Company’s investment in XM Radio was accounted for
pursuant to the equity method of accounting. See Note
13 — Business Acquisitions. The operations and
financing of XM Radio are maintained separate and apart from the
operations and financing of American Mobile. XM Radio completed
its initial public offering in October 1999. Please refer to
XM Radio’s audited financial statements, included in its
reports and filings with the SEC, for more detail about its
business plan, risks, and financial results.
American Mobile is devoting its efforts to expanding its
business. This effort involves substantial risk. Specifically,
future operating results will be subject to significant business,
economic, regulatory, technical, and competitive uncertainties
and contingencies. Depending on their extent and timing, these
factors, individually or in the aggregate, could have an adverse
effect on the Company’s financial condition and future
results of operations.
Liquidity and Financing Requirements
Adequate liquidity and capital are critical to the ability of the
Company to continue as a going concern and to fund subscriber
acquisition programs necessary to achieve positive cash flow and
profitable operations. The Company expects to continue to make
significant capital outlays for the foreseeable future to fund
interest expense, capital expenditures and working capital prior
to the time that it begins to generate positive cash flow from
operations and for the foreseeable future thereafter.
On August 3, 1999, the Company raised $116 million, net
of underwriting discounts and expenses, through the issuance of
7.0 million shares of its common stock in a public offering.
On March 31, 1998, AMSC Acquisition Company, Inc.
(“Acquisition Company”) issued $335 million of
units consisting of 12 1/4% Senior Notes due 2008 (the
“Senior Notes”), and one warrant to purchase 3.75749
shares of Common Stock, subsequently increased to 3.83 shares
(see Note 8), of the Company for each $1,000 principal
amount of Notes (the “Warrants”). The Company also
restructured its existing Bank
F-21
AMERICAN MOBILE SATELLITE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements —
(Continued)
as of December 31, 1999, 1998 and 1997
Financing (the “New Bank Financing”). The New Bank
Financing of $200 million consists of a $100 million
unsecured five-year reducing Revolving Credit Facility maturing
March 31, 2003 and a $100 million five-year Term Loan
Facility with up to three additional one-year extensions subject
to lender approval. In 1999, the Company paid down
$53 million on the Revolving Credit Facility and the Term
Loan Facility was reduced to $41 million. As of February 29,
2000, the Company had $31 million available for borrowing
under the Revolving Credit Facility. Additionally, Motorola has
agreed to provide the Company with up to $10 million of
vendor financing (the “Vendor Financing Commitment”),
which is available to finance up to 75% of the purchase price of
additional base stations needed to meet the Company’s
buildout requirements under certain customer contracts (see Note
8).
XM Radio is operated, managed, and funded separately from the
Company. While the Company does not have any obligation or
commitments to provide additional funding to XM Radio, and does
not expect to provide such funding, it may choose to provide
additional financing in the future. XM Radio will require
significant additional funding in the future. The failure of XM
Radio to obtain required financing could have a material adverse
effect on the value of the Company’s investment in XM Radio.
The Company’s current operating assumptions and projections
reflect management’s best estimate of subscriber and revenue
growth and operating expenses. The Company anticipates that
capital expenditures, operating losses, working capital and debt
service requirements through 2000, and beyond, can be met by
(i) the borrowings available under the bank financing and
the vendor financing, (ii) proceeds from the exercise of
stock options and warrants and (iii) additional debt or
equity financing transactions. The Company also believes that its
investment in XM Radio may provide the Company, in the future,
with flexibility for obtaining additional liquidity in the
future, should that be necessary. However, there are various
restrictions on our ability to realize liquidity on our
investment in XM Radio. The Company’s ability to meet
its projections is subject to numerous uncertainties and there
can be no assurance that the Company’s current projections
regarding the timing of its ability to achieve positive operating
cash flow will be accurate. If the Company’s cash
requirements are more than projected, the Company may require
additional financing in amounts which may be material. The type,
timing and terms of financing that the Company selects will be
dependent upon its cash needs, the availability of other
financing sources and the prevailing conditions in the financial
markets. The Company cannot guarantee that additional financing
sources will be available at any given time or available on
favorable terms.
2. SIGNIFICANT ACCOUNTING POLICIES
Accounting Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles (GAAP) requires
management to make estimates and assumptions that affect the
reported amount of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ
from those estimates. The Company’s most significant
estimates relate to the valuation of inventory and committed
inventory purchases, the allowance for doubtful accounts
receivable, and the realizability of long-term assets.
Consolidation
The consolidated financial statements include the accounts of
American Mobile, its wholly owned subsidiaries, and its equity
interest in XM Radio. All significant inter-company transactions
and accounts have been eliminated. In conjunction with the XM
Acquisition, the financial statements at December 31, 1998
have been restated to record the Company’s portion of the
losses from XM Radio which had been previously suspended under
the equity method of accounting. The effect of this restatement
was to increase the Company’s previously reported net loss
for the year ended December 31, 1998 by approximately
$12.6 million.
F-22
AMERICAN MOBILE SATELLITE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements —
(Continued)
as of December 31, 1999, 1998 and 1997
Cash Equivalents
The Company considers highly liquid investments with remaining
maturities of 90 days or less at the time of acquisition to
be cash equivalents.
Short Term Investments
XM Radio holds commercial paper with maturity dates due within
the next twelve months and are stated at amortized cost. These
investments are intended to raise interest income to fund working
capital needs.
Restricted Short Term Investments
Restricted investments represent those investments made by the
Company to fund either customer obligations or required interest
payments associated with the Senior Notes. The Company considers
all required funding from these accounts due within the next
twelve months to be current and reflects these amounts as such in
the accompanying balance sheet. The Company accounts for these
investments on an amortized cost basis.
Inventories
Inventories, which consist primarily of communication devices,
are stated at the lower of cost or market. Cost is determined
using the weighted average cost method. The Company periodically
assesses the market value of its inventory, based on sales trends
and forecasts and technological changes and records a charge to
current period income when such factors indicate that a reduction
to net realizable value is appropriate. Management considers
both inventory on hand and inventory which it has committed to
purchase. The Company recorded inventory write-downs to cost of
equipment sold to reduce inventory amounts to their net
realizable value, in the amount of $4.2 million in 1999,
none in 1998, and $12.0 million in 1997.
Other Current Assets
Other current assets consists of the following:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
|
|
1999 |
|
1998 |
|
|
|
|
|
|
|
|
|
|
(in thousands) |
|
|
|
|
|
|
Interest rate swap (Note 8) |
|
$ |
2,445 |
|
|
$ |
5,964 |
|
|
|
|
|
|
|
Prepaid expenses |
|
|
4,952 |
|
|
|
3,990 |
|
|
|
|
|
|
|
Deposits |
|
|
2,123 |
|
|
|
3,010 |
|
|
|
|
|
|
|
Non-trade receivables and other |
|
|
199 |
|
|
|
267 |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
9,719 |
|
|
$ |
13,231 |
|
|
|
|
|
|
|
|
|
|
Fair Value of Financial Instruments
Statement of Financial Accounting Standards (“SFAS”)
No. 107, “Disclosures about Fair Value of Financial
Instruments,” requires disclosures of the fair value of
certain financial instruments. The carrying amount for cash and
cash equivalents, short-term investments, trade accounts
receivable, accounts payable, royalty payable, and deferred trade
payables approximate fair value because of the relatively short
maturity of these instruments. The fair value of the Senior Notes
was estimated using quoted market prices. The fair value of the
interest rate swap is the estimated amount that the Company would
receive to terminate the swap agreement on December 31,
1999 based on quoted market prices, taking into account current
interest rates and the current creditworthiness of the swap
counter parties. As a result of the Guarantees associated with
the New Bank Financing, it is not practicable to estimate the
fair value of this facility. For debt issues that are not
F-23
AMERICAN MOBILE SATELLITE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements —
(Continued)
as of December 31, 1999, 1998 and 1997
quoted on an exchange, interest rates currently available to the
Company for issuance of debt with similar terms and remaining
maturities are used to estimate fair value.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 1999 |
|
As of December 31, 1998 |
|
|
|
|
|
|
|
Carrying |
|
|
|
Carrying |
|
|
|
|
Amount |
|
Fair Value |
|
Amount |
|
Fair Value |
|
|
|
|
|
|
|
|
|
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted investments |
|
$ |
72,147 |
|
|
$ |
71,267 |
|
|
$ |
108,237 |
|
|
$ |
107,010 |
|
|
|
|
|
|
|
Interest rate swap (Note 8) |
|
|
3,056 |
|
|
|
3,448 |
|
|
|
13,419 |
|
|
|
11,884 |
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior Notes |
|
|
327,576 |
|
|
|
274,700 |
|
|
|
327,147 |
|
|
|
211,050 |
|
|
|
|
|
|
|
Vendor financing commitment |
|
|
4,512 |
|
|
|
4,512 |
|
|
|
1,612 |
|
|
|
1,612 |
|
|
|
|
|
|
|
Capital leases |
|
|
6,401 |
|
|
|
6,401 |
|
|
|
11,795 |
|
|
|
11,795 |
|
Concentrations of Credit Risk
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of cash, short
term investments, restricted investments, and accounts
receivable. The Company periodically invests its cash balances in
temporary or overnight investments. The Company invests its
short term investments and restricted investments in debt
securities such as commercial paper, time deposits, certificates
of deposit, bankers acceptances, and marketable direct
obligations of the United States Treasury. The Company’s
intent is to hold its investments in debt securities to maturity.
To date, the majority of the Company’s business has been
transacted with telecommunications, field services, natural
resources and transportation companies, including maritime and
trucking companies located throughout the United States. The
Company grants credit based on an evaluation of the
customer’s financial condition, generally without requiring
collateral or deposits. Exposure to losses on trade accounts
receivable, for both service and for inventory sales, is
principally dependent on each customer’s financial
condition. As of December 31, 1999, five customers accounted
for approximately 33% of the Company’s service revenue,
with one of those customers accounting for approximately 14%. The
Company anticipates that its credit risk with respect to trade
accounts receivable in the future will become more diversified
due to the large number of customers expected to comprise the
Company’s subscriber base and their expected dispersion
across many different industries and geographies.
Software Development Costs
The Company capitalizes costs related to the development of
certain software to be used with its mobile messaging and
position location service (the “Mobile Data Communications
Service”) product. The Company commenced amortization of
these costs in the first quarter of 1996. These costs are
amortized over three years. As of December 31, 1999 and
1998, net capitalized software development costs were $152,000
and $869,000, respectively, and are included in property and
equipment in the accompanying balance sheets. Additionally,
during 1998, the Company adopted Statement of Position
(“SOP”) No. 98-1 — “Accounting for
the Costs of Computer Software Developed or Obtained for Internal
Use.” As of December 31, 1999 and 1998, net
capitalized internal use software costs were $5.3 million
and $1.1 million, respectively, and are included in property
and equipment in the accompanying balance sheet and are
amortized over three years.
Deferred Charges and Other Assets
Other assets primarily consist of the long-term portion of the
interest rate swap purchased in connection with the New Bank
Financing (see Note 8), the amortized financing costs and debt
issue costs associated with the
F-24
AMERICAN MOBILE SATELLITE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements —
(Continued)
as of December 31, 1999, 1998 and 1997
existing vendor financing arrangements, the Senior Notes, the
Bank Financing and the New Bank Financing, the long-term portion
of lease receivables associated with a 5-year customer lease
program offered in 1999, and the long-term portion of prepaid
expenses of XM Radio.
| |
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
|
|
1999 |
|
1998 |
|
|
|
|
|
|
|
|
|
|
(in thousands) |
|
|
|
|
|
|
Deferred financing costs, net |
|
$15,299 |
|
$20,646 |
|
|
|
|
|
|
Prepaid expenses of XM Radio-long-term portion |
|
3,422 |
|
— |
|
|
|
|
|
|
Lease receivables-long-term portion |
|
2,628 |
|
— |
|
|
|
|
|
|
Interest rate swap agreement-long-term portion |
|
611 |
|
7,455 |
|
|
|
|
|
|
Other long term assets |
|
580 |
|
853 |
|
|
|
|
|
|
|
$22,540 |
|
$28,954 |
|
|
|
|
|
Financing costs are amortized over the term of the related
facility using the straight line method, which approximates the
effective interest method.
Revenue Recognition
The Company recognizes service revenue when communications
services have been rendered. Equipment sales are recognized upon
shipment of products and customer acceptance, if required.
Research and Development Costs
Research and development costs are expensed as incurred. Such
costs include internal research and development activities and
expenses associated with external product development agreements.
The Company incurred research and development costs of
approximately $3.9 million in 1999, $1.1 million for
1998, and none for 1997.
Advertising Costs
Advertising costs are charged to operations in the year incurred
and totaled $4.2 million, $2.9 million, and
$3.4 million for 1999, 1998, and 1997, respectively.
Stock Based Compensation
The Company accounts for employee stock options using the method
of accounting prescribed by Accounting Principles Board
(“APB”) Opinion No. 25, “Accounting for Stock
Issued to Employees.” Generally, no expense is recognized
related to the Company’s stock options because the
option’s exercise price is set at the stock’s fair
market value on the date the option is granted.
Assessment of Asset Impairment
The Company adopted the provisions of SFAS No. 121
“Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of” which requires that
long-lived assets and certain identifiable intangibles be
reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may
not be recoverable. Recoverability of assets to be held and used
is measured by a comparison of the carrying amount of an asset to
future net cash flows expected to be generated by the asset. If
such assets are considered to be impaired, the impairment to be
recognized is measured by the amount by which the carrying amount
of the assets exceed the fair value of the assets. Assets to be
disposed of are reported at the lower of the carrying amount or
their fair value less costs to sell.
F-25
AMERICAN MOBILE SATELLITE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements —
(Continued)
as of December 31, 1999, 1998 and 1997
The Company has assessed the carrying value of its satellite and
its related assets as of December 31, 1999, and determined
that an impairment did exist. The Company’s geostationery
satellite was originally designed for voice services. Following
the Company’s acquisition of ARDIS in 1998, the Company
focused its business towards a data strategy and as a result of
this shift, data service revenue in 1999 increased to 73% of
service revenue from 69% in 1998. Voice service revenue in 1998
represented 24% of service revenue versus only 20% in 1999. This
shift to a data strategy is apparent in the Company’s two
new primary product offerings in 1999 — MobileMAX2(sm),
announced in the fourth quarter of 1999 with sales to begin in
2000, and eLink(sm), which sales began in the fourth quarter of
1999. MobileMAX2 is the Company’s second generation
multi-mode data messaging service and eLink is a two-way wireless
email device. These two new products rely primarily on the
terrestrial network for service delivery. In addition to these
factors, TMI Communications and Company, Limited Partnership
(TMI) and SatCom Systems, Inc. were each granted
applications in November 1999 to use TMI’s
Canadian-licensed satellite system to provide service in the
United States. TMI’s system operates in the Mobile Satellite
Services (“MSS”) L-band and has footprints covering
the United States. These companies’ entry in the United
States marketplace represents additional competition to the
Company in the voice business. Given these factors, management
evaluated the satellite and related ground segment assets for
impairment. Based on the analysis, the Company determined that
future cash flows were less than the carrying value of the
assets. Accordingly, the Company determined the fair value of the
assets and recorded an impairment charge of $97.4 million
to reduce the carrying value of the satellite and related ground
segment assets to the Company’s estimate of fair value at
December 31, 1999. The determination of fair value was based
on management’s best estimate of the expected discounted
future cash flows attributable to the satellite and related
ground segment.
Loss Per Share
Basic earnings per share excludes dilution and is computed by
dividing income available to common stockholders by the
weighted-average number of common shares outstanding for the
period. Diluted earnings per share reflects the potential
dilution that could occur if securities or other contracts to
issue common stock were exercised or converted into common stock
or resulted in the issuance of common stock that then shared in
the earnings of the entity. Options and warrants to purchase
shares of common stock were not included in the computation of
loss per share as the effect would be antidilutive. As a result,
the basic and diluted earnings per share amounts are identical.
As of December 31, 1999, there were approximately 4,038,336
options and warrants that are not included in this calculation
because the effect would be antidilutive.
Comprehensive Income
SFAS No. 130, “Reporting of Comprehensive Income”
requires “comprehensive income” and the components of
“other comprehensive income” to be reported in the
financial statements and/or notes thereto. Since the Company does
not have any components of “other comprehensive
income,” reported net income is the same as
“comprehensive income” for the years ended
December 31, 1999, 1998, and 1997.
Segment Disclosures
In accordance with SFAS 131, “Disclosures about
Segments of an Enterprise and Related Information,” the
Company has two operating segments: wireless communications and
XM Radio’s satellite-based digital audio radio service. The
Company provides wireless communication services to the
continental United States, Alaska, Hawaii, Puerto Rico, the U.S.
Virgin Islands, and hundreds of miles of U.S. coastal waters. All
revenues are derived from customers within the United States. XM
Radio is in the process of constructing its satellite system to
provide digital radio programming transmitted from satellites to
vehicles, homes, and portable radios. XM Radio is currently in
the development stage and thus has no revenue generating
F-26
AMERICAN MOBILE SATELLITE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements —
(Continued)
as of December 31, 1999, 1998 and 1997
operations. The following summarizes the Company’s core
wireless communications service and equipment revenue by major
product lines:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue for the Year Ended |
|
|
December 31, |
|
|
|
|
|
1999 |
|
1998 |
|
1997 |
|
|
|
|
|
|
|
|
|
|
|
|
(in millions) |
|
|
|
|
|
|
Data Service |
|
$ |
49.7 |
|
|
$ |
40.1 |
|
|
$ |
7.6 |
|
|
|
|
|
|
|
Voice Service |
|
|
13.2 |
|
|
|
14.0 |
|
|
|
10.0 |
|
|
|
|
|
|
|
Capacity Resellers and Other |
|
|
4.8 |
|
|
|
3.9 |
|
|
|
3.1 |
|
|
|
|
|
|
|
Equipment |
|
|
23.4 |
|
|
|
29.2 |
|
|
|
23.5 |
|
Reclassification
Certain amounts from prior years’ consolidated financial
statements have been reclassified to conform with the 1999
presentation.
New Accounting Pronouncements
In June 1998, FASB issued Statement No. 133,
“Accounting for Derivative Instruments and Hedging
Activities,” which requires the recognition of all
derivatives as either assets or liabilities measured at fair
value. This statement was originally effective for the year ended
December 31, 2000. In June 1999, FASB issued Statement
No. 137, which defers the effective date of Statement
No. 133 until fiscal quarters beginning after June 15,
2000. The Company does not believe that the adoption of this
statement will have a material impact on its financial position,
results of operations and cash flows.
3. STOCKHOLDERS’ EQUITY
The Company has authorized 200,000 shares of Preferred Stock and
150,000,000 shares of Common Stock. The par value per share is
$0.01 for each class of stock. For each share held, common
stockholders are entitled to one vote on matters submitted to the
stockholders. Cumulative voting applies for all elections of
directors of the Company.
The Preferred Stock may be issued in one or more series at the
discretion of the Board of Directors (the “Board”),
without stockholder approval. The Board is authorized to
determine the number of shares in each series and all
designations, rights, preferences, and limitations on the shares
in each series, including, but not limited to, determining
whether dividends will be cumulative or non-cumulative.
Certain controlling stockholders of the Company have entered into
a Stockholders’ Agreement (the “Agreement”) which
contains provisions relating to the election of directors,
procedures for maintaining compliance with the FCC’s alien
ownership restrictions, certain restrictions on the transfer,
sale and exchange of Common Stock, and procedures for appointing
directors to the Executive Committee of the Board, among others.
The Agreement continues in effect until terminated by an
affirmative vote of holders of three-fourths of the
Company’s Common Stock held by parties to the Agreement.
Other matters relating to the Company’s governance of the
Company are set forth in the Certificate of Incorporation and
Bylaws.
On August 3, 1999, the Company raised $116 million, net
of underwriting discounts and expenses, through the issuance of
7.0 million shares of its common stock in a public offering.
F-27
AMERICAN MOBILE SATELLITE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements —
(Continued)
as of December 31, 1999, 1998 and 1997
As of December 31, 1999, the Company had reserved Common
Stock for future issuance as detailed below.
| |
|
|
|
|
|
|
|
|
|
|
|
Shares issuable upon exercise of warrants |
|
|
7,957,626 |
|
|
|
|
|
|
|
Amended and Restated Stock Option Plan for Employees |
|
|
3,568,504 |
|
|
|
|
|
|
|
Stock Option Plan for Non-Employee Directors |
|
|
100,000 |
|
|
|
|
|
|
|
Employee Stock Purchase Plan |
|
|
352,259 |
|
|
|
|
|
|
|
Defined Contribution Plan |
|
|
122,351 |
|
|
|
|
|
|
|
Total |
|
|
12,100,740 |
|
|
|
|
|
|
4. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
|
|
1999 |
|
1998 |
|
|
|
|
|
|
|
|
|
|
(in thousands) |
|
|
|
|
|
|
Space Segment |
|
$ |
127,316 |
|
|
$ |
188,150 |
|
|
|
|
|
|
|
Ground Segment |
|
|
75,435 |
|
|
|
110,942 |
|
|
|
|
|
|
|
Network equipment |
|
|
58,511 |
|
|
|
49,089 |
|
|
|
|
|
|
|
Construction in progress |
|
|
11,493 |
|
|
|
7,580 |
|
|
|
|
|
|
|
Office equipment and furniture |
|
|
18,605 |
|
|
|
16,252 |
|
|
|
|
|
|
|
Mobile data communications service equipment |
|
|
17,191 |
|
|
|
17,384 |
|
|
|
|
|
|
|
|
|
|
|
|
|
308,551 |
|
|
|
389,397 |
|
|
|
|
|
|
|
Less accumulated depreciation and amortization |
|
|
192,035 |
|
|
|
142,844 |
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net |
|
$ |
116,516 |
|
|
$ |
246,553 |
|
|
|
|
|
|
|
|
|
|
Property and equipment is recorded at cost and depreciated over
its useful life using the straight line method. Assets recorded
as capital leases are amortized over the shorter of their useful
lives or the term of the lease. The estimated useful lives of
office furniture and equipment vary from 2-10 years. The
ground segment is depreciated over 8 years, the network
equipment is depreciated over 7 years, and the mobile data
communications service equipment is depreciated over
3 1/2 years. The Company has also capitalized certain
costs to develop and implement its computerized billing system.
These costs are included in property and equipment and are
depreciated over 8 years.
The Company is depreciating its satellite over its estimated
useful life of 10 years, which was based on several factors,
including current conditions and the estimated remaining fuel of
MSAT-2. The original estimated useful live is periodically
reviewed using current Telemetry Tracking and Control data. To
date, no significant change in the original estimated useful life
has resulted. The telecommunications industry is subject to
rapid technological change which may require the Company to
revise the estimated useful lives of MSAT-2 and the ground
segment or to adjust their carrying amounts. As discussed in
Note 2, the Company wrote down the value of the space and
ground segment assets to their estimated fair value.
The costs of constructing and putting satellites into service are
capitalized in the financial statements and depreciated over the
estimated useful life of the satellite. A failure of the
satellite from unsuccessful launches and/or in orbit anomalies
would result in a current write-down of the satellite value.
Partial satellite failures are recognized currently to the extent
such losses are deemed abnormal to the operation of the
satellite. A partial failure which is deemed normal would not
result in a loss of satellite capacity beyond what is considered
normal satellite wear and tear. Additionally, all future
incentive arrangements relating to the construction of satellites
will be capitalized at launch.
F-28
AMERICAN MOBILE SATELLITE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements —
(Continued)
as of December 31, 1999, 1998 and 1997
XM Radio is currently developing its satellite system. The costs
of constructing and putting the satellite into service are being
capitalized. At December 31, 1999, the carrying value of the
system under construction relate to the costs incurred in
obtaining a Federal Communication Commission (“FCC”)
license and approval as well as system development. XM Radio will
begin amortizing the FCC license upon commercial launch of the
satellite using the straight line method over its estimated
useful life of fifteen years. Depreciation of the satellite will
begin upon in-orbit delivery and the ground stations will begin
upon commercial launch. The satellites and ground stations will
be depreciated over their estimated useful lives.
XM Radio System Under Construction consists of the following:
| |
|
|
|
|
|
|
|
December 31, |
|
|
1999 |
|
|
|
|
|
(in thousands) |
|
|
|
|
|
|
License |
|
$ |
112,918 |
|
|
|
|
|
|
|
Satellite System |
|
|
204,083 |
|
|
|
|
|
|
|
Terrestrial System |
|
|
6,578 |
|
|
|
|
|
|
|
Spacecraft control facilities |
|
|
2,000 |
|
|
|
|
|
|
|
Broadcast facilities and other |
|
|
5,574 |
|
|
|
|
|
|
|
Capitalized Interest (including $12,400 capitalized during 1999) |
|
|
26,125 |
|
|
|
|
|
|
|
Total |
|
$ |
357,278 |
|
|
|
|
|
|
5. GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill and other intangible assets resulting from the
Company’s acquisitions consist of the following:
| |
|
|
|
|
|
|
|
|
|
|
December 31, |
|
December 31, |
|
|
1999 |
|
1998 |
|
|
|
|
|
|
|
|
|
|
(in thousands) |
|
|
|
|
|
|
FCC Licenses |
|
$ |
49,880 |
|
|
$ |
49,179 |
|
|
|
|
|
|
|
Goodwill-ARDIS Acquisition |
|
|
5,898 |
|
|
|
6,154 |
|
|
|
|
|
|
|
Programming and advertising agreements-XM Radio Acquisition |
|
|
7,337 |
|
|
|
— |
|
|
|
|
|
|
|
Receiver Agreement-XM Radio Acquisition |
|
|
4,207 |
|
|
|
— |
|
|
|
|
|
|
|
Less accumulated amortization |
|
|
(5,111 |
) |
|
|
(2,098 |
) |
|
|
|
|
|
|
|
|
|
|
Goodwill and other intangible assets, net |
|
$ |
62,211 |
|
|
$ |
53,235 |
|
|
|
|
|
|
|
|
|
|
Goodwill and other intangible assets are being amortized on a
straight-line basis over 10-20 years except for the
programming and advertising agreements acquired in the XM Radio
Acquisition. These agreements will begin amortization upon
commercial operations of XM Radio and will be amortized over the
life of their respective contract.
6. STOCK OPTIONS AND RESTRICTED STOCK
The Company has two active stock option plans. The American
Mobile Satellite Corporation 1989 Amended and Restated Stock
Option Plan for Employees (the “Plan”) permits the
grant of non-statutory options and the award of bonus stock up to
a total of 4.5 million shares of Common Stock. Under the
Plan, the exercise price and vesting schedule for options is
determined by the Compensation Committee of the Board, which was
established to administer the Plan. Generally, options vest over
a three year period and will have an exercise price not less than
the fair market value of a share on the date the option is
granted or have a term greater than ten years. In
January 2000, the Board of Directors, increased the total
shares in the plan by 1 million shares bringing the total
shares in the plan to 5.5 million. In January 2000, the
Board of Directors also proposed an
F-29
AMERICAN MOBILE SATELLITE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements —
(Continued)
as of December 31, 1999, 1998 and 1997
additional 1.8 million increase in the total shares in the
plan. The additional 1.8 million authorized shares will be
voted on at the Company’s annual meeting of stockholders
scheduled for May 2000.
In January 2000, the Board of Directors approved certain
amendments to the Plan, including permitting non-employee
directors to be eligible for option grants under the Plan. These
amendments will be voted on at the Company’s meeting of
stockholders in May 2000.
The Company also has a Stock Option Plan for Non-Employee
Directors (the “Director Plan”) which provides for the
grant of options up to a total of 100,000 shares of Common Stock.
Effective March 25, 1999, Directors receive an initial
option to purchase 5,000 shares of Common Stock, with annual
option grants to purchase 2,500 shares of Common Stock. In
addition, the Board of Directors may also grant discretionary
options at such times and on such terms and conditions as it
deems appropriate. Options under the Director Plan can be
exercised at a price equal to the fair market value of the stock
on the date of the grant and are fully vested and immediately
exercisable on the date of grant. Each Director Plan option
expires on the earlier of (i) ten years from the date of
grant or (ii) seven months after the Director’s
termination.
In January 1998, the Board of Directors granted restricted
stock to certain members of senior management. These grants
include both a three-year vesting schedule as well as specific
corporate performance targets. These performance requirements
will remain in place, and unless further waived by the Board of
Directors, failure to meet a required performance target would
prevent the vesting of the restricted shares. As of
December 31, 1998, the Company recorded costs of
approximately $252,000 associated with the vesting of these
shares. As performance targets were not met or waived, there were
no such costs recorded in 1999.
Information regarding the Company’s stock option plans is
summarized below:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average |
|
|
Available |
|
Granted and |
|
Option Price |
|
|
for Grant |
|
Outstanding |
|
Per Share |
|
|
|
|
|
|
|
|
Balance, December 31, 1996 |
|
|
484,000 |
|
|
|
1,495,446 |
|
|
$ |
16.22 |
|
|
|
|
|
|
|
Additional shares authorized for grant |
|
|
1,500,000 |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
Granted |
|
|
(1,292,443 |
) |
|
|
1,292,443 |
|
|
|
12.67 |
|
|
|
|
|
|
|
Exercised and awarded |
|
|
— |
|
|
|
(120 |
) |
|
|
10.28 |
|
|
|
|
|
|
|
Forfeited and canceled |
|
|
1,104,828 |
|
|
|
(1,104,828 |
) |
|
|
17.15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 1997 |
|
|
1,796,385 |
|
|
|
1,682,941 |
|
|
|
13.08 |
|
|
|
|
|
|
|
Restricted stock granted |
|
|
(356,111 |
) |
|
|
356,111 |
|
|
|
— |
|
|
|
|
|
|
|
Restricted stock awarded |
|
|
— |
|
|
|
(356,111 |
) |
|
|
— |
|
|
|
|
|
|
|
Additional shares authorized for grant |
|
|
1,000,000 |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
Options granted |
|
|
(1,406,249 |
) |
|
|
1,406,249 |
|
|
|
8.81 |
|
|
|
|
|
|
|
Exercised and awarded |
|
|
— |
|
|
|
(10,681 |
) |
|
|
12.62 |
|
|
|
|
|
|
|
Forfeited |
|
|
349,438 |
|
|
|
(349,438 |
) |
|
|
10.85 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 1998 |
|
|
1,383,463 |
|
|
|
2,729,071 |
|
|
|
11.11 |
|
|
|
|
|
|
|
Restricted stock granted |
|
|
(40,000 |
) |
|
|
40,000 |
|
|
|
— |
|
|
|
|
|
|
|
Restricted stock awarded |
|
|
— |
|
|
|
(40,000 |
) |
|
|
— |
|
|
|
|
|
|
|
Restricted stock canceled |
|
|
30,785 |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
Additional shares authorized for grant |
|
|
50,000 |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
Options granted |
|
|
(1,040,226 |
) |
|
|
1,040,226 |
|
|
|
5.92 |
|
|
|
|
|
|
|
Exercised and awarded |
|
|
— |
|
|
|
(484,815 |
) |
|
|
11.74 |
|
|
|
|
|
|
|
Forfeited |
|
|
183,284 |
|
|
|
(183,284 |
) |
|
|
4.87 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 1999 |
|
|
567,306 |
|
|
|
3,101,198 |
|
|
$ |
8.73 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-30
AMERICAN MOBILE SATELLITE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements —
(Continued)
as of December 31, 1999, 1998 and 1997
Options Exercisable at December 31:
| |
|
|
|
|
|
|
|
|
|
|
|
|
Average |
|
|
Options |
|
Exercise Price |
|
|
|
|
|
|
1999 |
|
|
1,344,511 |
|
|
$ |
11.99 |
|
|
|
|
|
|
|
1998 |
|
|
957,617 |
|
|
$ |
13.29 |
|
|
|
|
|
|
|
1997 |
|
|
595,432 |
|
|
$ |
14.39 |
|
The Company accounts for stock compensation costs in accordance
with the provisions of APB No. 25, “Accounting for
Stock Issued to Employees.” Had compensation cost been
determined based on the fair value at the grant dates for awards
under the Company’s stock plans in accordance with SFAS
No. 123, “Accounting for Stock Based
Compensation”, the net loss would have been increased by
$6.2 million ($0.16 per share) in 1999, $8.9 million
($0.29 per share) in 1998, and $5.3 million in 1997 ($0.21
per share). As required by SFAS No. 123, the fair value of
each option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following assumptions
for 1999, 1998, and 1997: no historical dividend yield; an
expected life of 10 years for options and three years for
restricted stock; historical volatility of 115% in 1999, 95% in
1998 and 65% in 1997, and a risk-free rate of return ranging from
4.37% to 6.73%.
Exercise prices for options outstanding as of December 31,
1999, are as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding |
|
Options Exercisable |
|
|
|
|
|
|
|
Number |
|
Weighted |
|
|
|
Number |
|
|
|
|
Outstanding |
|
Average |
|
Weighted |
|
Exercisable |
|
Weighted |
|
|
as of |
|
Contractual |
|
Average |
|
as of |
|
Average |
| Range of |
|
December 31, |
|
Life |
|
Exercise |
|
December 31, |
|
Exercise |
| Exercise Prices |
|
1999 |
|
Remaining |
|
Price |
|
1999 |
|
Price |
|
|
|
|
|
|
|
|
|
|
|
|
$ 4.61 – $ 5.18 |
|
|
886,560 |
|
|
|
9.08 |
|
|
$ |
5.13 |
|
|
|
52,084 |
|
|
$ |
4.66 |
|
|
|
|
|
|
|
5.39 – 8.87 |
|
|
928,509 |
|
|
|
8.21 |
|
|
|
8.84 |
|
|
|
241,228 |
|
|
|
8.86 |
|
|
|
|
|
|
|
9.06 – 12.81 |
|
|
789,390 |
|
|
|
6.91 |
|
|
|
12.17 |
|
|
|
624,760 |
|
|
|
12.16 |
|
|
|
|
|
|
|
13.00 – 13.00 |
|
|
353,766 |
|
|
|
5.59 |
|
|
|
13.00 |
|
|
|
353,766 |
|
|
|
13.00 |
|
|
|
|
|
|
|
14.62 – 25.75 |
|
|
142,973 |
|
|
|
5.46 |
|
|
|
19.16 |
|
|
|
72,673 |
|
|
|
21.32 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ 4.61 – $25.75 |
|
|
3,101,198 |
|
|
|
7.70 |
|
|
$ |
9.58 |
|
|
|
1,344,511 |
|
|
$ |
11.99 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7. INCOME TAXES
The Company accounts for income taxes under the liability method
as required in the SFAS No. 109, “Accounting for Income
Taxes.” Under the liability method, deferred income taxes
are recognized for the tax consequences of “temporary
differences” by applying enacted statutory tax laws and
rates applicable to future years to differences between the
financial statement carrying amounts and the tax bases of
existing assets and liabilities. Under this method, the effect on
deferred taxes of a change in tax rates is recognized in income
in the period that includes the enactment date. Potential tax
benefits, related to net operating losses and temporary
differences, have been recorded as an asset, and a valuation
allowance for the same amount has
F-31
AMERICAN MOBILE SATELLITE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements —
(Continued)
as of December 31, 1999, 1998 and 1997
been established. The Company has paid no income taxes since
inception. The following is a summary of the Company’s net
deferred tax assets.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
1999 |
|
1998 |
|
|
|
|
|
|
|
|
|
|
(in thousands) |
|
|
|
|
|
|
Net Operating Loss Carryforwards |
|
$ |
342,791 |
|
|
$ |
276,034 |
|
|
|
|
|
|
|
Deferred Taxes Related to Temporary Differences: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tangible asset bases, lives and depreciation methods |
|
|
(43,156 |
) |
|
|
(61,977 |
) |
|
|
|
|
|
|
Other |
|
|
62,843 |
|
|
|
(11,266 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax asset |
|
|
362,478 |
|
|
|
202,791 |
|
|
|
|
|
|
|
Less valuation allowance |
|
|
(362,478 |
) |
|
|
(202,791 |
) |
|
|
|
|
|
|
|
|
|
|
Net deferred tax asset |
|
$ |
— |
|
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
Significant timing differences affecting deferred taxes in 1999
reflect the treatment of costs associated with the Space Segment
for financial reporting purposes compared to tax purposes. As of
December 31, 1999, the Company had estimated net operating
loss carryforwards (“NOLs”) of $852.7 million. In
July 1999, as a result of the Company’s investment in XM
Radio which triggered a change in control as defined by the
Internal Revenue Code, utilization of the Company’s NOLs
were limited to approximately $43 million per year.
8. LONG-TERM DEBT
| |
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
|
|
1999 |
|
1998 |
|
|
|
|
|
|
|
|
|
|
(in thousands) |
|
|
|
|
|
|
Senior Notes, net of discount |
|
$327,576 |
|
$327,147 |
|
|
|
|
|
|
New Bank Financing — Term Loan Facility |
|
41,000 |
|
100,000 |
|
|
|
|
|
|
New Bank Financing — Revolving Credit Facility |
|
44,000 |
|
32,000 |
|
|
|
|
|
|
Vendor Financing Commitment |
|
4,512 |
|
1,612 |
|
|
|
|
|
|
Convertible note payable due to related party |
|
50,138 |
|
— |
|
|
|
|
|
|
Deferred Trade Payables |
|
3,983 |
|
5,118 |
|
|
|
|
|
|
|
471,209 |
|
465,877 |
|
|
|
|
|
|
Less current maturities |
|
5,960 |
|
5,041 |
|
|
|
|
|
|
Long-term debt |
|
$465,249 |
|
$460,836 |
|
|
|
|
|
$335 Million Unit Offering
On March 31, 1998, Acquisition Company issued
$335 million of Units (the “Units”) consisting of
12 1/4% Senior Notes due 2008 (the “Senior
Notes”), and one warrant to purchase 3.75749 shares of
Common Stock of the Company for each $1,000 principal amount of
Senior Notes (the “Warrants”) at an exercise price of
$12.51 per share. The Warrants were valued at $8.5 million
and are reflected in the balance sheet as a debt discount. A
portion of the net proceeds of the sale of the Units were used to
finance the ARDIS Acquisition in 1998. In connection with the
Senior Notes, the Acquisition Company purchased approximately
$112.3 million of restricted investments that are restricted
for the payment of the first six interest payments on the Senior
Notes. Interest payments are due semi-annually, in arrears,
beginning October 1, 1998. At December 31, 1999,
approximately $59 million was available in restricted
investments to fund the next three interest payments. As a result
of the automatic application of certain adjustment provisions
following the issuance of
F-32
AMERICAN MOBILE SATELLITE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements —
(Continued)
as of December 31, 1999, 1998 and 1997
the 7.0 million shares in the public offering, the exercise
price of the warrants associated with the Senior Note was reduced
to $12.28 per share, the number of shares per warrant was
increased to 3.83 shares for each $1,000 principle amount of
Senior Notes, and the aggregate number of shares issuable upon
exercise of such warrants was increased by 24,294. The additional
Senior Note warrants and re-pricing were valued at $440,000.
This was recorded as additional debt discount in the third
quarter of 1999. The Senior Notes are fully guaranteed by
American Mobile Satellite Corporation.
New Bank Financing
In March 1998, the Company also restructured its existing
$200 million Bank Financing (the “New Bank
Financing”) to provide for two facilities: (i) the
Revolving Credit Facility, a $100 million unsecured
five-year reducing revolving credit facility maturing
March 31, 2003, and (ii) the Term Loan Facility, a
$100 million five-year, term loan facility with up to three
additional one-year extensions subject to the lenders’
approval. In 1999, the Company paid down $53 million on the
Revolving Credit Facility and the Term Loan Facility was reduced
to $41 million. See Debt Extinguishment below. The Revolving
Credit Facility ranks pari passu with the Senior Notes. The Term
Loan Facility is secured by the assets of the Company,
principally its stockholdings in XM Radio and the Acquisition
Company, and will be effectively subordinated to the Revolving
Credit Facility and the Senior Notes. The New Bank Financing is
severally guaranteed by Hughes Electronics Corporation, Singapore
Telecommunications Ltd. and Baron Capital Partners, L.P.
(collectively, the “Bank Facility Guarantors”). As of
February 29, 2000, the Company had outstanding borrowings of
$41 million under the Term Loan Facility at 7.1875%, and
$69 million under the Revolving Credit Facility at rates
ranging from 6.9375% to 7.1875%.
The Term Loan Facility
The Term Loan Facility bears an interest rate, generally, of 100
basis points above London Interbank Offered Rate
(“LIBOR”). The Term Loan Agreement does not include any
scheduled amortization until maturity, but does contain certain
provisions for prepayment based on certain proceeds received by
the Company, unless otherwise waived by the banks and the Bank
Facility Guarantors, including: (1) 100% of excess cash flow
obtained by the Company, as defined; (2) the first
$25.0 million of net proceeds from the lease or sale of
MSAT-2 received by the Company, and thereafter 75% of the
remaining proceeds received from such lease or sale (the
remaining 25% to be retained by the Acquisition Company for
business operations); (3) 100% of the proceeds of any other
asset sales by the Company; (4) 50% of the net proceeds of
any equity offerings of the Company (the remaining 50% to be
retained by the Company for business operations); and
(5) 100% of any major casualty proceeds of the Company. To
the extent that the Term Loan Facility is repaid, the
abovementioned proceeds that would otherwise have been used to
repay the Term Loan Facility will be used to repay and
permanently reduce the commitment under the Revolving Credit
Facility. At December 31, 1999 and 1998, $41 million
and $100 million, respectively, was outstanding on the Term
Loan Facility.
The Revolving Credit Facility
The Revolving Credit Facility bears an interest rate, generally,
of 100 basis points above LIBOR and is unsecured, with a negative
pledge on the assets of the Acquisition Company and its
subsidiaries and ranks pari passu with the Senior Notes. The
Revolving Credit Facility will be reduced $10 million each
quarter, beginning with the quarter ending June 30, 2002,
with the balance due on March 31, 2003. Certain proceeds
received by the Acquisition Company would be required to repay
and reduce the Revolving Credit Facility, unless otherwise waived
by the lenders and the Bank Facility Guarantors, including:
(1) 100% of excess cash flow obtained by the Acquisition
Company, as defined; (2) the first $25.0 million net of
proceeds of the lease or sale of MSAT-2 received by the
Acquisition Company, and thereafter 75% of the remaining proceeds
received from such lease or sale (the remaining 25% may be
retained by the Acquisition Company for
F-33
AMERICAN MOBILE SATELLITE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements —
(Continued)
as of December 31, 1999, 1998 and 1997
business operations); (3) 100% of the proceeds of any other
asset sales by the Acquisition Company; (4) 50% of the net
proceeds of any offerings of the Acquisition Company’s
equity (the remaining 50% to be retained by the Acquisition
Company for business operations); and (5) 100% of any major
casualty proceeds. At such time as the Revolving Credit Facility
is repaid in full, and subject to satisfaction of the restrictive
payments provisions of the Notes, any prepayment amounts that
would otherwise have been used to prepay the Revolving Credit
Facility will be dividended to American Mobile Satellite
Corporation. At December 31, 1999 and 1998, $44 million
and $32 million, respectively, was outstanding on the
Revolving Credit Facility.
Debt Extinguishment
On August 3, 1999, the Company raised $116 million, net
of underwriting discounts and expenses, through the issuance of
7.0 million shares of common stock in a public offering. Of
the net proceeds, $59 million was used to pay down a portion
of the Term Loan Facility, and is not available for
re-borrowing. The remainder of the net proceeds were used to pay
down a portion of the revolving credit facility, which will be
available for re-borrowing as needed for general working capital
purposes. As a result of the partial pay down of the Term
Facility, the Company recorded an extraordinary loss on
extinguishment of debt of approximately $12.1 million, which
reflects the write-off, on a pro-rata basis, of warrants held by
certain shareholder guarantors of the New Bank Financing (the
“Guarantee Warrants”) and deferred financing fees
associated with the placement of the New Bank Financing.
The Guarantees
In connection with the New Bank Financing, the Bank Facility
Guarantors extended separate guarantees of the obligations of
each of the Acquisition Company and the Company to the banks,
which on a several basis aggregated to $200 million. In
their agreement with each of the Acquisition Company and the
Company (the “Guarantee Issuance Agreement”), the Bank
Facility Guarantors agreed to make their guarantees available for
the New Bank Financing. In exchange for the additional risks
undertaken by the Bank Facility Guarantors in connection with the
New Bank Financing, the Company agreed to compensate the Bank
Facility Guarantors, principally in the form of 1 million
additional warrants and re-pricing of 5.5 million warrants
previously issued in connection with the original Bank Facility
(together, the “Guarantee Warrants”). The Guarantee
Warrants were issued with an exercise price of $12.51 and were
valued at approximately $17.7 million. The amounts initially
assigned to the Guarantee Warrants and subsequent repricings are
recorded as Common Stock Purchase Warrants and Unamortized
Guarantee Warrants in the accompanying consolidated balance
sheets. The amount assigned to Unamortized Guarantee Warrants is
amortized to interest expense over the life of the related debt.
On March 29, 1999, the Bank Facility Guarantors agreed to
eliminate certain covenants contained in the Guarantee Issuance
Agreement relating to earnings before interest, depreciation,
amortization, and taxes (“EBITDA”) and service revenue.
In exchange for this elimination of covenants, the Company
agreed to re-price their Guarantee Warrants, effective
April 1,1999, from $12.51 to $7.50. The value of the
re-pricing was approximately $1.5 million.
As a result of the automatic application of certain adjustment
provisions following the issuance of the 7.0 million shares
in the public offering, the exercise price of the Guarantee
Warrants was reduced to $7.3571 per share and the Guarantee
Warrants became exercisable for an additional 126,250 shares. The
additional Guarantee Warrants and re-pricing were valued at
$2.4 million.
Further, in connection with the Guarantee Issuance Agreement, the
Company has agreed to reimburse the Bank Facility Guarantors in
the event that the Guarantors are required to make payment under
the New Bank Financing guarantees, and, in connection with this
reimbursement commitment has provided the Bank Facility
Guarantors a junior security interest with respect to the assets
of the Company, principally its stockholdings in XM Radio and the
Acquisition Company.
F-34
AMERICAN MOBILE SATELLITE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements —
(Continued)
as of December 31, 1999, 1998 and 1997
In connection with the New Bank Financing, the Company entered
into an interest rate swap agreement, with an implied annual rate
of 6.51%. The swap agreement reduces the impact of interest rate
increases on the Term Loan Facility. The Company paid a fee of
approximately $17.9 million for the swap agreement. Under
the swap agreement, an amount equal to LIBOR plus 50 basis
points, is paid on a quarterly basis directly to the respective
banks on behalf of the Company, on a notional amount of
$100 million until the termination date of March 31,
2001. In connection with the pay down of a portion of the Term
Loan Facility, the Company reduced the notional amount of its
swap agreement from $100 million to $41 million and
realized net proceeds of approximately $6 million due to
early termination of a portion of the swap agreement. The Company
has reflected as an asset, the fee paid for the swap agreement
and is included in other assets in the accompanying consolidated
balance sheets. The interest rate swap fee is being amortized
over the life of the swap as a component of interest expense. The
Company is exposed to a credit loss in the event of
non-performance by the counter party under the swap agreement.
The Company does not believe there is a significant risk of
non-performance as the counter party to the swap agreement is a
major financial institution.
Baron XM Radio Convertible Note
In January 1999 the Company issued to Baron Asset Fund
(“Baron”), a stockholder and guarantor of our bank
facility, a $21.5 million note convertible into shares of
common stock of XM Radio (the “Convertible Note Payable to
Related Party” or “Baron XM Radio Convertible
Note”.) The Company subsequently loaned approximately
$21.4 million to XM Radio in exchange for XM Radio Common
stock and a note convertible into XM Radio shares (the “XM
Radio Note Receivable”). On October 8, 1999 XM Radio
completed its initial public offering of 10.2 million shares of
Class A common stock, see Note 13 below, which triggered the
conversion of the XM Radio Note receivable into approximately
1.5 million shares of XM Radio Class B common stock .
The Baron XM Radio Convertible Note ranks subordinate to all
other debt securities of the Company and is fully collateralized
by shares of XM Radio. The Baron XM Radio Convertible Note
accrues interest at the rate of 6% annually, with all payment
deferred until maturity, December 31, 2004, or extinguished
upon conversion. The Company has the option to satisfy the Baron
XM Radio Convertible Note by tendering the shares into which it
would have been convertible in lieu of any cash payments. In
January 2000, Baron exchanged this note into shares of XM
Radio. See Note 16 — Subsequent events.
The Baron XM Radio Convertible note is indexed to XM Radio stock
and thus the $50.1 million recorded in the consolidated
balance sheet at December 31, 1999 reflects
management’s best estimate of the fair value of the Baron XM
Radio Convertible Note. Changes in the fair value of the Baron
XM Radio Convertible Note are reflected in the accompanying
statement of operations as an unrealized gain or loss on note
payable to related party. Due to the increase in value of XM
Radio stock, the Company recorded an unrealized loss of $27.4
million for the year ended December 31, 1999 on the Baron XM
Radio Convertible Note. Prior to the XM Radio acquisition, the
Company also recorded the XM Radio Note Receivable at
management’s best estimate of its fair value, and as a
result, recorded an unrealized loss on the XM Radio Note
Receivable of $9.9 million for the year ended December 31,
1999.
XM Radio Series A Subordinated Convertible Notes
On July 7, 1999 XM Radio issued $250 million of
Series A subordinated convertible notes to several new
strategic and financial investors including General Motors, Clear
Channel Investments, DIRECTV, Telcom Ventures, Columbia Capital
and Madison Dearborn Partners. $75 million of the proceeds
were used to pay an outstanding note payable and the remaining
proceeds were used to fund working capital needs. The
Series A subordinated notes and all accrued interest thereon
are convertible into Series A convertible preferred stock
(in the case of the notes held by General Motors), or
Class A common stock (in the case the notes held by the
other investors) at a conversion price of $9.52 per share at the
election of the note holders or upon the occurrence of certain
events, including an initial public offering of a prescribed size
of XM Radio shares. On
F-35
AMERICAN MOBILE SATELLITE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements —
(Continued)
as of December 31, 1999, 1998 and 1997
October 8, 1999, XM Radio completed its initial public
offering of 10.2 million shares of Class A common
stock. Concurrent with this offering, the Series A
subordinated convertible notes were converted into
10.8 million shares of Series A convertible preferred
stock and 16.2 million shares of Class A common stock.
Motorola Vendor Financing
Motorola has entered into an agreement with the Company to
provide up to $10 million of Vendor Financing Commitment, to
finance up to 75% of the purchase price of additional network
base stations. Loans under this facility bear interest at a rate
equal to LIBOR plus 7.0% and will be guaranteed by the Company
and each subsidiary of the Acquisition Company. The terms of the
facility require that amounts borrowed be secured by the
equipment purchased therewith. Advances made during a quarter
constitute a loan, which is then amortized on a quarterly basis
over three years. As of December 31, 1999 and 1998,
$4.5 million and $1.6 million, respectively, was
outstanding under this facility at interest rates ranging from
12.07% to 13.0838%.
Deferred Trade Payables
The Company has arranged the financing of certain trade payables,
and as of December 31, 1999, $4.0 million of deferred
trade payables were outstanding at rates ranging from 6.07% to
12.00%. The deferred trade payables are classified as current in
the accompanying consolidated balance sheet. As of
December 31, 1998, $5.1 million was outstanding at
rates ranging from 6.10% to 12.00%.
Assets Pledged and Secured
All wholly owned subsidiaries of the Company are subject to
financing agreements that limit the amount of cash dividends and
loans that can be advanced to the Company. At December 31,
1999, all of the subsidiaries’ net assets were restricted
under these agreements. These restrictions will have an impact on
American Mobile Satellite Corporation’s ability to pay
dividends.
Covenants
The debt agreements and related Guarantee Agreements entered into
by the Company contain various restrictions, covenants,
defaults, and requirements customarily found in such financing
agreements. Among other restrictions, these provisions include
limitations on cash dividends, restrictions on transactions
between American Mobile and its subsidiaries, restrictions on
capital acquisitions, material adverse change clauses, and
maintenance of specified insurance policies.
9. RELATED PARTIES
In 1990, following a competitive bid process, American Mobile
signed contracts with Hughes Aircraft, the parent company of
Hughes Communications Satellite Services (“Hughes
Communications”), an American Mobile stockholder, to
construct MSAT-2 (the “Satellite Construction
Contract”). The contract contains flight performance
incentives payable by the Company to Hughes Aircraft if MSAT-2
performs according to the contract. As a result of certain
previously-disclosed performance considerations, additional
contract payment issues were raised by the Company. At present,
ongoing discussions are underway between the parties regarding
such payment.
The Company has entered into various transactions and agreements
with Motorola, Inc. (“Motorola”), an American Mobile
stockholder, which include the purchase by American Mobile of
services, network hardware and software maintenance services,
facility rentals, and network gateway fees. Additionally,
Motorola has
F-36
AMERICAN MOBILE SATELLITE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements —
(Continued)
as of December 31, 1999, 1998 and 1997
provided the Vendor Financing Commitment, which will be available
to finance up to 75% of the purchase price of additional network
base stations (see Note 8).
The following table represents a summary of all related party
transactions.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31 |
|
|
|
|
|
1999 |
|
1998 |
|
1997 |
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands) |
|
|
|
|
|
|
Payments made to (from) related parties: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions to property and equipment |
|
$ |
2,667 |
|
|
$ |
4,931 |
|
|
$ |
200 |
|
|
|
|
|
|
|
Proceeds from debt issuance |
|
|
(21,500 |
) |
|
|
(10,000 |
) |
|
|
— |
|
|
|
|
|
|
|
Payments on debt obligations |
|
|
1,033 |
|
|
|
10,017 |
|
|
|
292 |
|
|
|
|
|
|
|
Operating expenses |
|
|
4,496 |
|
|
|
7,568 |
|
|
|
2,706 |
|
|
|
|
|
|
|
Satellite capacity/airtime/equipment revenue |
|
|
— |
|
|
|
— |
|
|
|
(2,836 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net payments to related parties |
|
$ |
(13,304 |
) |
|
$ |
12,516 |
|
|
$ |
362 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due to (from) related parties: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
$ |
651 |
|
|
$ |
698 |
|
|
$ |
1,209 |
|
|
|
|
|
|
|
Capital leases |
|
|
— |
|
|
|
— |
|
|
|
249 |
|
|
|
|
|
|
|
Baron XM Radio convertible note |
|
|
50,138 |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
Vendor financing |
|
|
4,604 |
|
|
|
1,638 |
|
|
|
— |
|
|
|
|
|
|
|
Satellite capacity/airtime revenue |
|
|
(3 |
) |
|
|
(3 |
) |
|
|
(495 |
) |
|
|
|
|
|
|
Capital acquisitions |
|
|
115 |
|
|
|
450 |
|
|
|
2,120 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net amounts due to related parties |
|
$ |
55,505 |
|
|
$ |
2,783 |
|
|
$ |
3,083 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10. LEASES
Capital Leases
The Company leases certain office equipment, ground segment
equipment and switching equipment under agreements accounted for
as capital leases. Assets recorded as capital leases in the
accompanying balance sheets include the following:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
|
|
1999 |
|
1998 |
|
|
|
|
|
|
|
|
|
|
(in thousands) |
|
|
|
|
|
|
Ground segment equipment |
|
$ |
7,263 |
|
|
$ |
7,263 |
|
|
|
|
|
|
|
Switch equipment |
|
|
8,346 |
|
|
|
8,346 |
|
|
|
|
|
|
|
Office equipment |
|
|
3,743 |
|
|
|
3,069 |
|
|
|
|
|
|
|
Less accumulated amortization |
|
|
(8,961 |
) |
|
|
(6,612 |
) |
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
10,391 |
|
|
$ |
12,066 |
|
|
|
|
|
|
|
|
|
|
Operating Leases
The Company leases substantially all of its base station sites
through cancellable operating leases. The majority of these
leases provide for renewal options for various periods at their
fair rental value at the time of renewal. In the normal course of
business, the operating leases are generally renewed or replaced
by other leases. Additionally, the Company leases certain
facilities and equipment under arrangements accounted for as
operating leases. Certain of these arrangements have renewal
terms. Total rent expense, under all operating leases,
approximated $12.3 million, $9.1 million, and
$2.9 million in 1999, 1998, and 1997, respectively.
F-37
AMERICAN MOBILE SATELLITE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements —
(Continued)
as of December 31, 1999, 1998 and 1997
At December 31, 1999, minimum future lease payments under
noncancellable operating and capital leases are as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
Operating |
|
Capital |
|
|
|
|
|
|
|
|
|
|
(in thousands) |
|
|
|
|
|
|
2000 |
|
$ |
4,365 |
|
|
$ |
6,440 |
|
|
|
|
|
|
|
2001 |
|
|
5,675 |
|
|
|
207 |
|
|
|
|
|
|
|
2002 |
|
|
5,671 |
|
|
|
86 |
|
|
|
|
|
|
|
2003 |
|
|
5,112 |
|
|
|
— |
|
|
|
|
|
|
|
2004 |
|
|
4,227 |
|
|
|
— |
|
|
|
|
|
|
|
2005 and thereafter |
|
|
15,870 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
40,920 |
|
|
$ |
6,733 |
|
|
|
|
|
|
|
|
|
|
|
Less: Interest |
|
|
|
|
|
|
(332 |
) |
|
|
|
|
|
|
|
|
|
|
Present value of minimum lease payments |
|
|
|
|
|
$ |
6,401 |
|
|
|
|
|
|
|
Less: Current maturities |
|
|
|
|
|
|
(6,154 |
) |
|
|
|
|
|
|
|
|
|
|
Non current capital lease obligation |
|
|
|
|
|
$ |
247 |
|
|
|
|
|
|
|
|
|
|
11. OPERATING AGREEMENTS AND COMMITMENTS
Joint Operating and Satellite Capacity Agreements
The Company is party to a Joint Operating Agreement and a
Satellite Capacity Agreement with a Canadian entity, TMI
Communications and Company, Limited Partnership, under which the
parties would use their best efforts to construct, launch, and
operate compatible satellites. The parties of these agreements
will provide, among other things, emergency backup and restoral
services to each other during any period in which the
other’s satellite is not functioning properly. Additionally,
each party will be entitled to lease excess capacity from the
other party’s satellite under specified terms and
conditions. The implementation of these agreements requires
regulatory approvals by the FCC and Industry Canada (formerly
Canada’s Department of Industry and Science). The Company
has received, and expects to continue to seek approvals
contemplated under these agreements on a timely basis.
Commitments
At December 31,1999, the Company had remaining contractual
commitments to purchase subscriber equipment inventory, primarily
related to eLink and MobileMAX2, in the maximum amount of
$44.9 million during 2000 and 2001. The Company has the
right to terminate certain of these commitments by incurring a
cancellation penalty representing a percentage of the unfulfilled
portion of the contract. As of December 31,1999 the
cancellation penalty would have been approximately
$7.4 million.
The Company has also contracted for the purchase of
$10.4 million of base stations to expand its coverage and
complete certain necessary site build-outs, $0.4 million for
certain software development, and certain other operating
expense contract commitments that total approximately
$1.2 million over the next year.
The aggregate fixed and determinable portion of all inventory
commitments and obligations for other fixed contracts is
$56.9 million of which $39.7 million is due in 2000 and
the remainder of $17.2 million is due in 2001.
XM Radio is also subject to certain commitments and
contingencies. XM Radio has a distribution agreement with General
Motors that will require significant expenditures in the future.
Under its satellite contract with Hughes Space and
Communications, Inc., XM Radio will incur payment obligations of
approximately
F-38
AMERICAN MOBILE SATELLITE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements —
(Continued)
as of December 31, 1999, 1998 and 1997
$541.3 million of which $183.9 million had been paid as
of December 31, 1999. XM Radio has signed a contract with LCC
International, Inc., for the engineering of its terrestrial
repeater network with total contract payments expected to be
approximately $115 million through 2001. As of
December 31, 1999, XM Radio has paid $6.6 million under
this contract. In February 2000, XM Radio signed a contract
with Hughes Network Systems for the design, development, and
purchase of terrestrial repeater equipment. The total value of
this contract is $128 million and XM Radio has paid
$3.5 million under a letter agreement through
December 31, 1999 in anticipation of this contract. On
February 16, 2000, XM Radio and Sirius Satellite Radio, a
competitor of XM Radio, signed an agreement to develop a unified
standard for satellite radios to facilitate the ability of
consumers to purchase one radio capable of receiving both XM
Radio’s and Sirius Satellite Radio’s services. Refer to
XM Radio’s audited financial statements for additional
information regarding these contractual commitments.
12. EMPLOYEE BENEFITS
Defined Contribution Plan
The Company sponsors a 401(k) defined contribution plan
(“401(k) Savings Plan”) in which all employees of
American Mobile can participate. The 401(k) Savings Plan provides
for a Company match of employee contributions, in the form of
Common Stock, at a rate of $1 for every $1 of an employee’s
contribution not to exceed 4% of an employee’s eligible
compensation. The 401(k) Savings Plan was amended in 1998 to
reflect the following changes: (i) the addition of a
discretionary annual employer non-elective contribution,
(ii) the addition of the option to have plan benefits
distributed in the form of installment payments, and
(iii) provide for the reallocation of forfeitures, if any,
to active participants. In 1998 the ARDIS Individual Capital
Accumulation Plan was merged into the 401(k) Savings Plan to
allow for a combined company plan. The Company’s matching
expense was $1,116,000 for 1999, excluding costs incurred by XM
Radio under their separate plan, $847,538 for 1998, and $350,000
for 1997.
Employee Stock Purchase Plan
The Company has an Employee Stock Purchase Plan (“Stock
Purchase Plan”) to allow eligible employees to purchase
shares of the Company’s Common Stock at 85% of the lower of
market value on the first and last business day of the six-month
option period. An aggregate of 90,867 shares, 47,011 shares, and
29,930 shares of Common Stock were issued under the Stock
Purchase Plan in 1999, 1998, and 1997, respectively.
13. BUSINESS ACQUISITIONS
On July 7, 1999, the Company acquired all outstanding debt
and equity interests in XM Radio from the other investor, other
than a $75 million loan from the other investor to XM Radio,
in exchange for approximately 8.6 million shares of the
Company’s common stock (the “XM Acquisition”). The
total consideration given for the purchase of XM Radio was
$129 million. The Company also incurred approximately
$0.9 million for certain acquisition related expenses. In
conjunction with the XM Acquisition, XM Radio was recapitalized
and issued an $82 million convertible note receivable to the
Company. This note was convertible into Class B common
shares of XM Radio and was subsequently converted, see below.
Concurrently with this transaction, XM Radio issued $250 million
of Series A subordinated convertible notes to several new
strategic and financial investors, including General Motors
Corporation, Clear Channel Investments, DIRECTV, Telcom Ventures,
Columbia Capital and Madison Dearborn Partners. XM Radio used
$75 million of the proceeds from these notes to repay the
outstanding loan payable to the former investor. As a result of
these transactions, the Company owned all of the issued and
outstanding stock of XM Radio as of July 7, 1999.
On October 8, 1999, XM Radio consummated an initial public
offering (IPO) of 10.2 million shares of its
Class A Common Stock. The initial public offering price was
$12 per share. The Company purchased 200,000 shares of XM Radio
Class A Common Stock from the underwriters at the IPO price of
$12 per share. As a
F-39
AMERICAN MOBILE SATELLITE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements —
(Continued)
as of December 31, 1999, 1998 and 1997
result of the IPO, all of the Company’s convertible notes of
XM Radio were automatically converted into approximately
11 million shares of XM Radio Class B common stock.
Class B shares have three-for-one voting rights.
Additionally, the $250 million Series A convertible
notes of XM Radio converted into approximately 10.8 million
shares of Series A Convertible Preferred Stock of XM Radio
and approximately 16.2 million shares of Class A Common
Stock of XM Radio at a conversion price of $9.52. On
January 31, 2000, XM Radio completed a supplemental stock
offering of 4.4 million Class A shares and
2.0 million shares of convertible redeemable preferred
stock. See Note 16 — Subsequent events.
After conversion of its notes and the purchase of the 200,000
shares in XM Radio’s IPO, the Company’s voting interest
in XM Radio was reduced to approximately 64.42%, and its
economic interest in XM Radio was reduced to 37.82% (in each
case, excluding shares of XM Radio Class B stock owned by
the Company but pledged to Baron Asset Fund in connection with
the transaction described in Note 8 above). The Company will
continue to consolidate XM Radio’s financial results with
those of the Company until the Company no longer controls XM
Radio and the FCC approves the change of control of XM Radio from
American Mobile to a diffuse group of stockholders.
In connection with XM Radio’s IPO and in accordance with
Staff Accounting Bulletin 51 (SAB 51), the Company recorded a
$80.7 million increase to its investment in XM Radio. SAB 51
addresses the accounting for sales of stock by a subsidiary.
Because XM Radio is a development stage Company, SAB 51 requires
the difference in the carrying amount of the Company’s
investment in XM Radio and the net book value of XM Radio after
the stock issuance be reflected in the financial statements of
the Company as a capital transaction in the accompanying
consolidated statements of stockholders’ deficit.
Prior to July 7, 1999, the Company’s proportionate
share of XM Radio’s losses were included in the accompanying
statement of operations pursuant to the equity method of
accounting. In connection with the XM Acquisition, the Company
was required to restate its financial statements for the year
ended December 31, 1998 and for the quarter ended
March 31, 1999 to record its share of XM Radio losses
previously suspended under the equity method of accounting. This
resulted in the Company recording additional losses of
approximately $12.6 million for the year ended December 31,
1998, and $3.5 million for the quarter ended March 31,
1999. The acquisition was accounted for under the purchase method
of accounting for business combinations. The purchase price was
assigned to the assets and liabilities of XM Radio based on their
estimated fair values on the date of the acquisition. Subsequent
to the date of acquisition and upon valuation of certain
intangibles and licenses, the fair value of the assets acquired
in excess of the purchase price was $3.2 million and has
been allocated proportionately to the non-current assets acquired
in the acquisition. The results of XM Radio are included in the
consolidated financial statements as of the effective date of the
acquisition, July 7, 1999 through December 31, 1999.
On a pro forma basis, assuming the XM Acquisition had been
consummated on January 1 of each of the periods presented, the
following results would have been reflected. The pro forma
results are based on historical information and do not
necessarily reflect the actual results that would have occurred
if the combination occurred at the beginning of each year
presented, nor reflects the future results of the combined
entity.
| |
|
|
|
|
|
|
|
|
|
|
1999 |
|
1998 |
|
|
|
|
|
|
|
|
|
|
(in thousands, except |
|
|
per share data) |
|
|
|
|
|
|
Revenues |
|
$ |
91,071 |
|
|
$ |
87,221 |
|
|
|
|
|
|
|
Loss before extraordinary item |
|
|
(320,467 |
) |
|
|
— |
|
|
|
|
|
|
|
Net Loss |
|
|
(332,599 |
) |
|
|
(154,063 |
) |
|
|
|
|
|
|
Loss per share |
|
|
(7.53 |
) |
|
|
(3.94 |
) |
F-40
AMERICAN MOBILE SATELLITE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements —
(Continued)
as of December 31, 1999, 1998 and 1997
On March 31, 1998, the Company acquired ARDIS for a purchase
price of approximately $50 million in cash and
$50 million in the Company’s Common Stock (the
“Purchase Price”). The purchase method of accounting
for business combinations was used for the recording of this
acquisition. The operating results of ARDIS were included in the
Company’s consolidated statements of operations from the
date of acquisition. The purchase price for the net assets
acquired was allocated ($1.6) million to net current assets
and net current liabilities, $50.4 million to property and
equipment, $49.4 million to FCC licenses and
$1.3 million to goodwill. Additionally, the Company incurred
acquisition costs of approximately $2.6 million and
recorded additional liabilities of approximately
$2.3 million. The combination of the operations of the
Company and ARDIS provided pro forma revenue of
$97.1 million, pro forma net loss of ($164.2) million, and
pro forma loss per common share of ($5.11) for 1998. The pro
forma information is provided as if the acquisition had occurred
at the beginning of 1998.
14. LEGAL AND REGULATORY MATTERS
Like other mobile service providers in the telecommunications
industry, the Company is subject to substantial domestic, foreign
and international regulation including the need for regulatory
approvals to operate and expand the satellite network and operate
and modify subscriber equipment.
The ownership and operation of the mobile satellite services
system and ground-based two-way wireless data system are subject
to the rules and regulations of the FCC, which acts under
authority granted by the Communications Act and related federal
laws. Among other things, the FCC allocates portions of the radio
frequency spectrum to certain services and grants licenses to
and regulates individual entities using the spectrum. American
Mobile operates pursuant to various licenses granted by the FCC.
The successful operation of the satellite network is dependent on
a number of factors, including the amount of L-band spectrum
made available to the Company pursuant to an international
coordination process. The United States is currently engaged in
an international process of coordinating the Company’s
access to the spectrum that the FCC has assigned to the Company.
This international coordination process is not yet complete. In
the absence of a coordination agreement, American Mobile must
operate its system on a non-interference basis. The inability of
the United States government to secure sufficient spectrum could
have an adverse effect on the Company’s financial position,
results of operations and cash flows.
The Company has the necessary regulatory approvals, some of which
are pursuant to special temporary authority, to continue its
operations as currently contemplated. The Company has filed
applications with the FCC and expects to file applications in the
future with respect to the continued operations, change in
operation and expansion of the network and certain types of
subscriber equipment. Certain of its applications pertaining to
future service have been opposed. While the Company, for various
reasons, believes that it will receive the necessary approvals on
a timely basis, there can be no assurance that the requests will
be granted, will be granted on a timely basis or will be granted
on conditions favorable to the Company. Any significant changes
to the applications resulting from the FCC’s review process
or any significant delay in their approval could adversely affect
the Company’s financial position, results of operations and
cash flows.
On November 30,1999, the FCC granted two applications to use
TMI’s Canadian-licensed system to provide service in the
United States to up to 125,000 mobile terminals. TMI’s
system operates in the MSS L-Band and has a satellite footprint
that covers the United States. American Mobile is currently
appealing the FCC’s grant of these applications to the
United States Court of Appeals for the D.C. Circuit. There is no
assurance that this appeal will be successful. TMI’s entry
into the domestic U.S. marketplace provides additional
competition to American Mobile and may increase TMI’s demand
for spectrum in the international coordination process. The FCC
might grant additional applications to use TMI’s system or
other foreign-licensed L-Band systems. Such action would provide
additional competition and increase demand for spectrum in the
international coordination process.
F-41
AMERICAN MOBILE SATELLITE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements —
(Continued)
as of December 31, 1999, 1998 and 1997
American Mobile is authorized to build, launch, and operate three
geosynchronous satellites in accordance with a specific
schedule. American Mobile is not in compliance with the schedule
for commencement and construction of its second and third
satellites and has petitioned the FCC for changes to the
schedule. Certain of these extension requests have been opposed
by third parties. The FCC has not acted on American Mobile’s
requests. The FCC has the authority to revoke the authorizations
for the second and third satellites and in connection with such
revocation could exercise its authority to rescind American
Mobile’s license. American Mobile believes that the exercise
of such authority to rescind the license is unlikely. The term
of the license for each of American Mobile’s three
authorized satellites is ten years, beginning when American
Mobile certifies that the respective satellite is operating in
compliance with American Mobile’s license. The ten-year term
of MSAT-2 began August 21, 1995. Although American Mobile
anticipates that the authorization for MSAT-2 is likely to be
extended in due course to correspond to the useful life of the
satellite and a new license granted for any replacement
satellites, there is no assurance of such extension or grants.
XM Radio is also subject to the rules and regulations of the FCC.
The FCC has established certain system development milestones
that must be met in order for XM Radio to maintain its license to
operate its satellite system. XM Radio believes it is in
compliance with the FCC milestones.
One of the bidders for the DARS licenses filed an Application for
Review by the FCC of the Licensing Order which granted XM Radio
its FCC license. The Application for Review alleges that a prior
XM Radio shareholder had effectively taken control of XM Radio
without the approval of the FCC. The FCC or the U.S. Court of
Appeals has the authority to overturn the award of the FCC
license to XM Radio. XM Radio believes that it should be able to
maintain its FCC license since the party referenced is no longer
a stockholder of XM Radio. XM Radio is unable to predict the
outcome of this Application for Review.
In January 1999, a competitor of XM Radio, Sirius Radio,
filed an action against XM Radio for patent infringement. In
February 2000, this suit was resolved in accordance with the
terms of a joint development agreement between XM Radio and
Sirius Radio and both companies agreed to cross-license their
respective property.
15. SUPPLEMENTAL CASH FLOW INFORMATION
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, |
|
|
1999 |
|
1998 |
|
1997 |
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands) |
|
|
|
|
|
|
Cash payments for interest |
|
$ |
43,590 |
|
|
$ |
32,198 |
|
|
$ |
11,785 |
|
|
|
|
|
|
|
Noncash investing and financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leased asset and related obligations |
|
|
204 |
|
|
|
648 |
|
|
|
182 |
|
|
|
|
|
|
|
Issuance of Common Stock for XM Radio and ARDIS acquisitions |
|
|
129,213 |
|
|
|
49,781 |
|
|
|
— |
|
|
|
|
|
|
|
Issuance of Restricted Stock |
|
|
190 |
|
|
|
1,780 |
|
|
|
— |
|
|
|
|
|
|
|
Cancellation of Restricted Stock |
|
|
(504 |
) |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
Additional deferred compensation on Restricted Stock |
|
|
5,322 |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
Issuance and repricing of Common Stock purchase warrants |
|
|
4,290 |
|
|
|
26,210 |
|
|
|
12,490 |
|
|
|
|
|
|
|
Capital gain in connection with the sale of stock by XM Radio |
|
|
80,663 |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
Conversion of the XM Radio Note Receivable |
|
|
13,038 |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
Vendor financing for property in service |
|
|
4,191 |
|
|
|
1,628 |
|
|
|
— |
|
|
|
|
|
|
|
Issuance of Common Stock under the Defined Contribution Plan |
|
|
1,115 |
|
|
|
848 |
|
|
|
350 |
|
In connection with the partial pay down of the Term Loan
Facility, the Company’s extraordinary loss on extinguishment
of debt includes a pro-rata portion of the $2.4 million of
deferred financing fees associated with the placement of the New
Bank Facility and a pro-rata portion of the $9.7 million of
guarantee warrants held by shareholder guarantors of the New Bank
Facility.
F-42
AMERICAN MOBILE SATELLITE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements —
(Continued)
as of December 31, 1999, 1998 and 1997
NOTE 16. SUBSEQUENT EVENTS
In the first quarter of 2000, XM Radio completed a supplemental
stock offering of 4.4 million shares of Class A Common
Stock, at $32 per share, and 2.0 million shares of newly
designated Series B convertible redeemable preferred stock,
at $50 per share. The Series B convertible redeemable
preferred stock provides for 8.25% cumulative dividends that may
be paid in Class A common stock or cash. The Series B
convertible redeemable preferred stock is convertible into
Class A common stock at a conversion price of $40 per share
and is redeemable in Class A common stock on
February 3, 2003. Net proceeds raised from this stock
offering were approximately $228.5 million.
In connection with this stock offering and in accordance with SAB
51, the Company will record an increase to its investment in XM
Radio in the first quarter of 2000 to reflect the increase in the
net book value of XM Radio. As previously discussed in Note 13,
this gain will be reflected in the financial statements as a
capital transaction.
On January 13, 2000, Baron notified the Company of its
intention to exchange the Baron XM Radio Convertible Note for
1,314,914 shares of XM Radio Class B Stock. The exchange of
the convertible note will result in a first quarter 2000 gain of
approximately $37 million computed as the difference in the
carrying value of the Baron XM Radio Convertible Note and the
Company’s cost basis in XM Radio stock exchanged upon
conversion of this note.
In March 2000, XM Radio completed a high yield debt offering
of 325,000 units, each unit consisting of $1,000 principal
amount of 14% Senior Secured Notes due 2010 and one warrant to
purchase 8.024815 shares of Class A common stock of
XM Radio at an exercise price of $49.50 per share.
XM Radio realized net proceeds of $191.0 million,
excluding $123.0 million used to acquire securities which
will be used to pay interest payments due under the notes for the
first three years.
As a result of the conversion of the Baron XM Radio Convertible
Note, the supplemental stock offering by XM Radio, and XM
Radio’s high yield debt offering, the Company’s voting
interest in XM Radio was further reduced to 61.0%, while its
equity interest was reduced to 34.4% (or 25.5% on a fully diluted
basis).
NOTE 17. FINANCIAL STATEMENTS OF SUBSIDIARIES
In connection with the Company’s acquisition of ARDIS
Company on March 31, 1998, (the “ARDIS
Acquisition”) and related financing discussed above, the
Company formed a new wholly-owned subsidiary, AMSC Acquisition
Company, Inc. (“Acquisition Company”). The Company
contributed all of its inter-company notes receivables and
transferred its rights, title and interests in AMSC Subsidiary
Corporation, American Mobile Satellite Sales Corporation, and
AMSC Sales Corp. Ltd. (together with ARDIS, the “Subsidiary
Guarantors”) to Acquisition Company, and Acquisition Company
was the acquirer of ARDIS and the issuer of the Senior Notes.
American Mobile Satellite Corporation (“American Mobile
Parent”) is a guarantor of the Senior Notes. The Senior
Notes contain covenants that, among other things, limit the
ability of Acquisition Company and its Subsidiaries to incur
additional indebtedness, pay dividends or make other
distributions, repurchase any capital stock or subordinated
indebtedness, make certain investments, create certain liens,
enter into certain transactions with affiliates, sell assets,
enter into certain mergers and consolidations, and enter into
sale and leaseback transactions.
The Senior Notes are jointly and severally guaranteed on full and
unconditional basis by the Subsidiary Guarantors and American
Mobile Parent. The following unaudited condensed consolidating
information for these entities presents:
|
|
|
| |
• |
Condensed consolidating balance sheets as of December 31,
1999 and 1998, the condensed consolidating statements of
operations and cash flows for the years ended December 31,
1999, 1998, and 1997, and the condensed consolidating statements
of stockholders’ (deficit) equity for the period
January 1, 1997 through December 31, 1999. |
| |
• |
Elimination entries necessary to combine the entities comprising
American Mobile. |
F-43
AMERICAN MOBILE SATELLITE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements —
(Continued)
as of December 31, 1999, 1998 and 1997
Condensed Consolidating Balance Sheet
As of December 31, 1999
(unaudited)
(in thousands)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
American |
|
|
|
|
Subsidiary |
|
Acquisition |
|
|
|
Acquisition |
|
Mobile |
|
|
|
|
Guarantors |
|
Company |
|
Eliminations |
|
Company |
|
Parent |
|
XM Radio |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ASSETS |
|
|
|
|
|
|
CURRENT ASSETS: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
776 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
776 |
|
|
$ |
— |
|
|
$ |
50,698 |
|
|
|
|
|
|
|
Short-term investments |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
69,472 |
|
|
|
|
|
|
|
Inventory |
|
|
28,616 |
|
|
|
— |
|
|
|
— |
|
|
|
28,616 |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
Prepaid in-orbit insurance |
|
|
3,381 |
|
|
|
— |
|
|
|
— |
|
|
|
3,381 |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
Accounts receivable — net |
|
|
16,594 |
|
|
|
— |
|
|
|
— |
|
|
|
16,594 |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
Restricted short-term investments |
|
|
— |
|
|
|
41,038 |
|
|
|
— |
|
|
|
41,038 |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
Other current assets |
|
|
6,074 |
|
|
|
— |
|
|
|
— |
|
|
|
6,074 |
|
|
|
2,568 |
|
|
|
1,077 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
55,441 |
|
|
|
41,038 |
|
|
|
— |
|
|
|
96,479 |
|
|
|
2,568 |
|
|
|
121,247 |
|
|
|
|
|
|
|
PROPERTY AND EQUIPMENT — NET |
|
|
126,914 |
|
|
|
— |
|
|
|
(12,949 |
) |
|
|
113,965 |
|
|
|
— |
|
|
|
2,551 |
|
|
|
|
|
|
|
SYSTEM UNDER CONSTRUCTION |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
362,358 |
|
|
|
|
|
|
|
GOODWILL AND INTANGIBLES — NET |
|
|
51,158 |
|
|
|
— |
|
|
|
— |
|
|
|
51,158 |
|
|
|
— |
|
|
|
25,380 |
|
|
|
|
|
|
|
INVESTMENT IN XM RADIO |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
190,757 |
|
|
|
— |
|
|
|
|
|
|
|
INVESTMENT IN/ DUE FROM SUBSIDIARY |
|
|
— |
|
|
|
176,450 |
|
|
|
(176,450 |
) |
|
|
— |
|
|
|
(148,913 |
) |
|
|
— |
|
|
|
|
|
|
|
DEFERRED CHARGES AND OTHER ASSETS — NET |
|
|
2,977 |
|
|
|
26,507 |
|
|
|
— |
|
|
|
29,484 |
|
|
|
(10,597 |
) |
|
|
3,653 |
|
|
|
|
|
|
|
RESTRICTED INVESTMENTS |
|
|
320 |
|
|
|
18,360 |
|
|
|
— |
|
|
|
18,680 |
|
|
|
12,429 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
236,810 |
|
|
$ |
262,355 |
|
|
$ |
(189,399 |
) |
|
$ |
309,766 |
|
|
$ |
46,244 |
|
|
$ |
515,189 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| LIABILITIES AND STOCKHOLDERS’ (DEFICIT) |
|
|
|
|
|
|
CURRENT LIABILITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses |
|
$ |
31,073 |
|
|
$ |
10,866 |
|
|
$ |
— |
|
|
$ |
41,939 |
|
|
$ |
1,266 |
|
|
$ |
24,680 |
|
|
|
|
|
|
|
Obligations under capital leases due within one year |
|
|
5,982 |
|
|
|
— |
|
|
|
— |
|
|
|
5,982 |
|
|
|
— |
|
|
|
172 |
|
|
|
|
|
|
|
Current portion long-term debt |
|
|
5,960 |
|
|
|
— |
|
|
|
— |
|
|
|
5,960 |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
Other current liabilities |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,646 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
43,015 |
|
|
|
10,866 |
|
|
|
— |
|
|
|
53,881 |
|
|
|
1,266 |
|
|
|
26,498 |
|
|
|
|
|
|
|
DUE TO PARENT/ AFFILIATE |
|
|
769,564 |
|
|
|
— |
|
|
|
(769,626 |
) |
|
|
(62 |
) |
|
|
(14,934 |
) |
|
|
62 |
|
|
|
|
|
|
|
LONG-TERM LIABILITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note payable to/from Issuer/ Parent |
|
|
— |
|
|
|
14,000 |
|
|
|
— |
|
|
|
14,000 |
|
|
|
(14,000 |
) |
|
|
— |
|
|
|
|
|
|
|
Obligations under Bank Financing |
|
|
— |
|
|
|
44,000 |
|
|
|
— |
|
|
|
44,000 |
|
|
|
41,000 |
|
|
|
— |
|
|
|
|
|
|
|
Senior Notes, net of discount |
|
|
— |
|
|
|
327,576 |
|
|
|
— |
|
|
|
327,576 |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
Other long-term debt |
|
|
2,535 |
|
|
|
— |
|
|
|
— |
|
|
|
2,535 |
|
|
|
50,138 |
|
|
|
— |
|
|
|
|
|
|
|
Capital lease obligations |
|
|
35 |
|
|
|
— |
|
|
|
— |
|
|
|
35 |
|
|
|
— |
|
|
|
212 |
|
|
|
|
|
|
|
Net assets acquired in excess of purchase price |
|
|
1,333 |
|
|
|
— |
|
|
|
— |
|
|
|
1,333 |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
Other long-term liabilities |
|
|
555 |
|
|
|
— |
|
|
|
— |
|
|
|
555 |
|
|
|
— |
|
|
|
3,400 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term liabilities |
|
|
4,458 |
|
|
|
385,576 |
|
|
|
— |
|
|
|
390,034 |
|
|
|
77,138 |
|
|
|
3,612 |
|
|
|
|
|
|
|
Total liabilities |
|
|
817,037 |
|
|
|
396,442 |
|
|
|
(769,626 |
) |
|
|
443,853 |
|
|
|
63,470 |
|
|
|
30,172 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MINORITY INTEREST |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
STOCKHOLDERS’ EQUITY (DEFICIT) |
|
|
(580,227 |
) |
|
|
(134,087 |
) |
|
|
580,227 |
|
|
|
(134,087 |
) |
|
|
(17,226 |
) |
|
|
485,017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities, minority interest, and stockholders’
(deficit) |
|
$ |
236,810 |
|
|
$ |
262,355 |
|
|
$ |
(189,399 |
) |
|
$ |
309,766 |
|
|
$ |
46,244 |
|
|
$ |
515,189 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
[Additional columns below]
[Continued from above table, first column(s) repeated]
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
|
|
|
American |
|
|
|
|
Mobile |
|
|
Eliminations |
|
Parent |
|
|
|
|
|
|
|
|
ASS |
|
|
|
ETS |
|
|
|
|
|
|
|
CURRENT ASSETS: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
— |
|
|
$ |
51,474 |
|
|
|
|
|
|
|
Short-term investments |
|
|
— |
|
|
|
69,472 |
|
|
|
|
|
|
|
Inventory |
|
|
— |
|
|
|
28,616 |
|
|
|
|
|
|
|
Prepaid in-orbit insurance |
|
|
— |
|
|
|
3,381 |
|
|
|
|
|
|
|
Accounts receivable — net |
|
|
— |
|
|
|
16,594 |
|
|
|
|
|
|
|
Restricted short-term investments |
|
|
— |
|
|
|
41,038 |
|
|
|
|
|
|
|
Other current assets |
|
|
— |
|
|
|
9,719 |
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
— |
|
|
|
220,294 |
|
|
|
|
|
|
|
PROPERTY AND EQUIPMENT — NET |
|
|
— |
|
|
|
116,516 |
|
|
|
|
|
|
|
SYSTEM UNDER CONSTRUCTION |
|
|
(5,080 |
) |
|
|
357,278 |
|
|
|
|
|
|
|
GOODWILL AND INTANGIBLES — NET |
|
|
(14,327 |
) |
|
|
62,211 |
|
|
|
|
|
|
|
INVESTMENT IN XM RADIO |
|
|
(190,757 |
) |
|
|
— |
|
|
|
|
|
|
|
INVESTMENT IN/ DUE FROM SUBSIDIARY |
|
|
148,913 |
|
|
|
— |
|
|
|
|
|
|
|
DEFERRED CHARGES AND OTHER ASSETS — NET |
|
|
— |
|
|
|
22,540 |
|
|
|
|
|
|
|
RESTRICTED INVESTMENTS |
|
|
— |
|
|
|
31,109 |
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
(61,251 |
) |
|
$ |
809,948 |
|
|
|
|
|
|
|
|
|
|
|
|
LIABIL STOCKHOLDERS’ |
|
|
ITIES AND (DEFICIT |
) |
|
|
|
|
|
|
CURRENT LIABILITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses |
|
$ |
— |
|
|
$ |
67,885 |
|
|
|
|
|
|
|
Obligations under capital leases due within one year |
|
|
— |
|
|
|
6,154 |
|
|
|
|
|
|
|
Current portion long-term debt |
|
|
— |
|
|
|
5,960 |
|
|
|
|
|
|
|
Other current liabilities |
|
|
— |
|
|
|
1,646 |
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
— |
|
|
|
81,645 |
|
|
|
|
|
|
|
DUE TO PARENT/ AFFILIATE |
|
|
14,934 |
|
|
|
— |
|
|
|
|
|
|
|
LONG-TERM LIABILITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note payable to/from Issuer/ Parent |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
Obligations under Bank Financing |
|
|
— |
|
|
|
85,000 |
|
|
|
|
|
|
|
Senior Notes, net of discount |
|
|
— |
|
|
|
327,576 |
|
|
|
|
|
|
|
Other long-term debt |
|
|
— |
|
|
|
52,673 |
|
|
|
|
|
|
|
Capital lease obligations |
|
|
— |
|
|
|
247 |
|
|
|
|
|
|
|
Net assets acquired in excess of purchase price |
|
|
— |
|
|
|
1,333 |
|
|
|
|
|
|
|
Other long-term liabilities |
|
|
— |
|
|
|
3,955 |
|
|
|
|
|
|
|
|
|
|
|
Total long-term liabilities |
|
|
— |
|
|
|
470,784 |
|
|
|
|
|
|
|
Total liabilities |
|
|
14,934 |
|
|
|
552,429 |
|
|
|
|
|
|
|
|
|
|
|
MINORITY INTEREST |
|
|
274,745 |
|
|
|
274,745 |
|
|
|
|
|
|
|
STOCKHOLDERS’ EQUITY (DEFICIT) |
|
|
(350,930 |
) |
|
|
(17,226 |
) |
|
|
|
|
|
|
|
|
|
|
Total liabilities, minority interest, and stockholders’
(deficit) |
|
$ |
(61,251 |
) |
|
$ |
809,948 |
|
|
|
|
|
|
|
|
|
|
F-44
Condensed Consolidating Balance Sheet
As of December 31, 1998
(Unaudited)
(In Thousands)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
American |
|
|
|
|
Subsidiary |
|
Acquisition |
|
|
|
Acquisition |
|
Mobile |
|
|
|
|
Guarantors |
|
Company |
|
Eliminations |
|
Company |
|
Parent |
|
Eliminations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ASSETS |
|
|
|
|
|
|
CURRENT ASSETS: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
2,285 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
2,285 |
|
|
$ |
— |
|
|
$ |
— |
|
|
|
|
|
|
|
Inventory |
|
|
18,593 |
|
|
|
— |
|
|
|
— |
|
|
|
18,593 |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
Prepaid in-orbit insurance |
|
|
3,381 |
|
|
|
— |
|
|
|
— |
|
|
|
3,381 |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
Accounts receivable — net |
|
|
15,325 |
|
|
|
— |
|
|
|
— |
|
|
|
15,325 |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
Restricted short-term investments |
|
|
— |
|
|
|
41,038 |
|
|
|
— |
|
|
|
41,038 |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
Other current assets |
|
|
7,192 |
|
|
|
20 |
|
|
|
— |
|
|
|
7,212 |
|
|
|
6,019 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
46,776 |
|
|
|
41,058 |
|
|
|
— |
|
|
|
87,834 |
|
|
|
6,019 |
|
|
|
— |
|
|
|
|
|
|
|
PROPERTY AND EQUIPMENT — NET |
|
|
261,607 |
|
|
|
— |
|
|
|
(15,054 |
) |
|
|
246,553 |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
GOODWILL AND INTANGIBLES — NET |
|
|
53,235 |
|
|
|
— |
|
|
|
— |
|
|
|
53,235 |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
INVESTMENT IN/ DUE FROM SUBSIDIARY |
|
|
— |
|
|
|
304,192 |
|
|
|
(304,192 |
) |
|
|
— |
|
|
|
63,787 |
|
|
|
(63,787 |
) |
|
|
|
|
|
|
DEFERRED CHARGES AND OTHER ASSETS — NET |
|
|
386 |
|
|
|
33,460 |
|
|
|
— |
|
|
|
33,846 |
|
|
|
(4,892 |
) |
|
|
— |
|
|
|
|
|
|
|
RESTRICTED INVESTMENTS |
|
|
1,500 |
|
|
|
54,939 |
|
|
|
— |
|
|
|
56,439 |
|
|
|
10,760 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
363,504 |
|
|
$ |
433,649 |
|
|
$ |
(319,246 |
) |
|
$ |
477,907 |
|
|
$ |
75,674 |
|
|
$ |
(63,787 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) |
| |
|
|
|
|
|
|
CURRENT LIABILITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses |
|
$ |
23,003 |
|
|
$ |
10,715 |
|
|
$ |
— |
|
|
$ |
33,718 |
|
|
$ |
79 |
|
|
$ |
— |
|
|
|
|
|
|
|
Obligations under capital leases due within one year |
|
|
5,971 |
|
|
|
— |
|
|
|
— |
|
|
|
5,971 |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
Current portion long-term debt |
|
|
5,041 |
|
|
|
— |
|
|
|
— |
|
|
|
5,041 |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
Other current liabilities |
|
|
162 |
|
|
|
— |
|
|
|
— |
|
|
|
162 |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
34,177 |
|
|
|
10,715 |
|
|
|
— |
|
|
|
44,892 |
|
|
|
79 |
|
|
|
— |
|
|
|
|
|
|
|
DUE TO PARENT/ AFFILIATE |
|
|
681,029 |
|
|
|
— |
|
|
|
(681,029 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
LONG-TERM LIABILITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations under New Bank Financing |
|
|
— |
|
|
|
32,000 |
|
|
|
— |
|
|
|
32,000 |
|
|
|
100,000 |
|
|
|
— |
|
|
|
|
|
|
|
Senior Notes, net of discount |
|
|
— |
|
|
|
327,147 |
|
|
|
— |
|
|
|
327,147 |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
Other long-term debt |
|
|
1,689 |
|
|
|
— |
|
|
|
— |
|
|
|
1,689 |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
Capital lease obligations |
|
|
5,824 |
|
|
|
— |
|
|
|
— |
|
|
|
5,824 |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
Net assets acquired in excess of purchase price |
|
|
2,028 |
|
|
|
— |
|
|
|
— |
|
|
|
2,028 |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
Investment in XM Radio |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
12,618 |
|
|
|
— |
|
|
|
|
|
|
|
Other long-term liabilities |
|
|
540 |
|
|
|
— |
|
|
|
— |
|
|
|
540 |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term liabilities |
|
|
10,081 |
|
|
|
359,147 |
|
|
|
— |
|
|
|
369,228 |
|
|
|
112,618 |
|
|
|
— |
|
|
|
|
|
|
|
|
Total liabilities |
|
|
725,287 |
|
|
|
369,862 |
|
|
|
(681,029 |
) |
|
|
414,120 |
|
|
|
112,697 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS’ EQUITY (DEFICIT) |
|
|
(361,783 |
) |
|
|
63,787 |
|
|
|
361,783 |
|
|
|
63,787 |
|
|
|
(37,023 |
) |
|
|
(63,787 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders’ equity (deficit) |
|
$ |
363,504 |
|
|
$ |
433,649 |
|
|
$ |
(319,246 |
) |
|
$ |
477,907 |
|
|
$ |
75,674 |
|
|
$ |
(63,787 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
[Additional columns below]
[Continued from above table, first column(s) repeated]
| |
|
|
|
|
|
|
|
|
Consolidated |
|
|
American |
|
|
Mobile |
|
|
Parent |
|
|
|
|
|
|
ASSETS |
|
|
|
|
|
|
|
CURRENT ASSETS: |
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
2,285 |
|
|
|
|
|
|
|
Inventory |
|
|
18,593 |
|
|
|
|
|
|
|
Prepaid in-orbit insurance |
|
|
3,381 |
|
|
|
|
|
|
|
Accounts receivable — net |
|
|
15,325 |
|
|
|
|
|
|
|
Restricted short-term investments |
|
|
41,038 |
|
|
|
|
|
|
|
Other current assets |
|
|
13,231 |
|
|
|
|
|
|
|
|
Total current assets |
|
|
93,853 |
|
|
|
|
|
|
|
PROPERTY AND EQUIPMENT — NET |
|
|
246,553 |
|
|
|
|
|
|
|
GOODWILL AND INTANGIBLES — NET |
|
|
53,235 |
|
|
|
|
|
|
|
INVESTMENT IN/ DUE FROM SUBSIDIARY |
|
|
— |
|
|
|
|
|
|
|
DEFERRED CHARGES AND OTHER ASSETS — NET |
|
|
28,954 |
|
|
|
|
|
|
|
RESTRICTED INVESTMENTS |
|
|
67,199 |
|
|
|
|
|
|
|
|
Total assets |
|
$ |
489,794 |
|
|
|
|
|
|
|
1, |
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT |
) |
|
|
|
|
|
|
CURRENT LIABILITIES: |
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses |
|
$ |
33,797 |
|
|
|
|
|
|
|
Obligations under capital leases due within one year |
|
|
5,971 |
|
|
|
|
|
|
|
Current portion long-term debt |
|
|
5,041 |
|
|
|
|
|
|
|
Other current liabilities |
|
|
162 |
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
44,971 |
|
|
|
|
|
|
|
DUE TO PARENT/ AFFILIATE |
|
|
— |
|
|
|
|
|
|
|
LONG-TERM LIABILITIES: |
|
|
|
|
|
|
|
|
|
|
Obligations under New Bank Financing |
|
|
132,000 |
|
|
|
|
|
|
|
Senior Notes, net of discount |
|
|
327,147 |
|
|
|
|
|
|
|
Other long-term debt |
|
|
1,689 |
|
|
|
|
|
|
|
Capital lease obligations |
|
|
5,824 |
|
|
|
|
|
|
|
Net assets acquired in excess of purchase price |
|
|
2,028 |
|
|
|
|
|
|
|
Investment in XM Radio |
|
|
12,618 |
|
|
|
|
|
|
|
Other long-term liabilities |
|
|
540 |
|
|
|
|
|
|
|
|
Total long-term liabilities |
|
|
481,846 |
|
|
|
|
|
|
|
|
Total liabilities |
|
|
526,817 |
|
|
|
|
|
|
|
STOCKHOLDERS’ EQUITY (DEFICIT) |
|
|
(37,023 |
) |
|
|
|
|
|
|
|
Total liabilities and stockholders’ equity (deficit) |
|
$ |
489,794 |
|
|
|
|
|
|
F-45
Condensed Consolidating Statement of Operations
Year ended December 31, 1999
(Unaudited)
(In thousands)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
American |
|
|
|
|
Subsidiary |
|
Acquisition |
|
|
|
Acquisition |
|
Mobile |
|
|
|
|
Guarantors |
|
Company |
|
Eliminations |
|
Company |
|
Parent |
|
XM Radio |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
REVENUES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Services |
|
$ |
67,653 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
67,653 |
|
|
$ |
1,200 |
|
|
$ |
— |
|
|
|
|
|
|
|
Sales of equipment |
|
|
23,418 |
|
|
|
— |
|
|
|
— |
|
|
|
23,418 |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenues |
|
|
91,071 |
|
|
|
— |
|
|
|
— |
|
|
|
91,071 |
|
|
|
1,200 |
|
|
|
— |
|
|
COSTS AND EXPENSES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service and operations |
|
|
69,258 |
|
|
|
— |
|
|
|
— |
|
|
|
69,258 |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
Cost of equipment sold |
|
|
29,527 |
|
|
|
— |
|
|
|
— |
|
|
|
29,527 |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
Sales and advertising |
|
|
23,000 |
|
|
|
— |
|
|
|
— |
|
|
|
23,000 |
|
|
|
125 |
|
|
|
— |
|
|
|
|
|
|
|
General and administrative |
|
|
18,434 |
|
|
|
1,391 |
|
|
|
— |
|
|
|
19,825 |
|
|
|
850 |
|
|
|
20,861 |
|
|
|
|
|
|
|
Satellite and related assets impairment charge |
|
|
97,419 |
|
|
|
— |
|
|
|
— |
|
|
|
97,419 |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
54,923 |
|
|
|
— |
|
|
|
— |
|
|
|
54,923 |
|
|
|
— |
|
|
|
1,385 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Loss |
|
|
(201,490 |
) |
|
|
(1,391 |
) |
|
|
— |
|
|
|
(202,881 |
) |
|
|
225 |
|
|
|
(22,246 |
) |
|
|
|
|
|
|
INTEREST AND OTHER INCOME |
|
|
344 |
|
|
|
20,145 |
|
|
|
(15,416 |
) |
|
|
5,073 |
|
|
|
4,536 |
|
|
|
2,837 |
|
|
|
|
|
|
|
UNREALIZED LOSS ON NOTE RECEIVABLE FROM XM RADIO |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(9,919 |
) |
|
|
— |
|
|
|
|
|
|
|
UNREALIZED LOSS ON NOTE PAYABLE TO RELATED PARTY |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(27,399 |
) |
|
|
— |
|
|
|
|
|
|
|
MINORITY INTEREST |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
EQUITY IN LOSS OF SUBSIDIARIES |
|
|
— |
|
|
|
(218,444 |
) |
|
|
218,444 |
|
|
|
— |
|
|
|
(276,113 |
) |
|
|
— |
|
|
|
|
|
|
|
INTEREST EXPENSE |
|
|
(17,298 |
) |
|
|
(51,357 |
) |
|
|
15,416 |
|
|
|
(53,239 |
) |
|
|
(10,129 |
) |
|
|
(9,120 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LOSS BEFORE EXTRAORDINARY ITEM |
|
|
(218,444 |
) |
|
|
(251,047 |
) |
|
|
218,444 |
|
|
|
(251,047 |
) |
|
|
(318,799 |
) |
|
|
(28,529 |
) |
|
|
|
|
|
|
EXTRAORDINARY LOSS ON EXTINGUISHMENT ON DEBT |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(12,132 |
) |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET LOSS |
|
$ |
(218,444 |
) |
|
$ |
(251,047 |
) |
|
$ |
218,444 |
|
|
$ |
(251,047 |
) |
|
$ |
(330,931 |
) |
|
$ |
(28,529 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
[Additional columns below]
[Continued from above table, first column(s) repeated]
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
|
|
|
American |
|
|
|
|
Mobile |
|
|
Eliminations |
|
Parent |
|
|
|
|
|
|
REVENUES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Services |
|
$ |
(1,200 |
) |
|
$ |
67,653 |
|
|
|
|
|
|
|
Sales of equipment |
|
|
— |
|
|
|
23,418 |
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenues |
|
|
(1,200 |
) |
|
|
91,071 |
|
|
COSTS AND EXPENSES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service and operations |
|
|
— |
|
|
|
69,258 |
|
|
|
|
|
|
|
Cost of equipment sold |
|
|
— |
|
|
|
29,527 |
|
|
|
|
|
|
|
Sales and advertising |
|
|
— |
|
|
|
23,125 |
|
|
|
|
|
|
|
General and administrative |
|
|
(1,200 |
) |
|
|
40,336 |
|
|
|
|
|
|
|
Satellite and related assets impairment charge |
|
|
— |
|
|
|
97,419 |
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
(510 |
) |
|
|
55,798 |
|
|
|
|
|
|
|
|
|
|
|
Operating Loss |
|
|
510 |
|
|
|
(224,392 |
) |
|
|
|
|
|
|
INTEREST AND OTHER INCOME |
|
|
(3,982 |
) |
|
|
8,464 |
|
|
|
|
|
|
|
UNREALIZED LOSS ON NOTE RECEIVABLE FROM XM RADIO |
|
|
— |
|
|
|
(9,919 |
) |
|
|
|
|
|
|
UNREALIZED LOSS ON NOTE PAYABLE TO RELATED PARTY |
|
|
— |
|
|
|
(27,399 |
) |
|
|
|
|
|
|
MINORITY INTEREST |
|
|
7,067 |
|
|
|
7,067 |
|
|
|
|
|
|
|
EQUITY IN LOSS OF SUBSIDIARIES |
|
|
269,421 |
|
|
|
(6,692 |
) |
|
|
|
|
|
|
INTEREST EXPENSE |
|
|
6,560 |
|
|
|
(65,928 |
) |
|
|
|
|
|
|
|
|
|
|
LOSS BEFORE EXTRAORDINARY ITEM |
|
|
279,576 |
|
|
|
(318,799 |
) |
|
|
|
|
|
|
EXTRAORDINARY LOSS ON EXTINGUISHMENT ON DEBT |
|
|
— |
|
|
|
(12,132 |
) |
|
|
|
|
|
|
|
|
|
|
NET LOSS |
|
$ |
279,576 |
|
|
$ |
(330,931 |
) |
|
|
|
|
|
|
|
|
|
F-46
Condensed Consolidating Statement of Operations
Year ended December 31, 1998
(Unaudited)
(In Thousands)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
American |
|
|
|
|
Subsidiary |
|
Acquisition |
|
|
|
Acquisition |
|
Mobile |
|
|
|
|
Guarantors |
|
Company |
|
Eliminations |
|
Company |
|
Parent |
|
Eliminations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
REVENUES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Services |
|
$ |
57,994 |
|
|
$ |
— |
|
|
|
— |
|
|
$ |
57,994 |
|
|
$ |
1,200 |
|
|
$ |
(1,200 |
) |
|
|
|
|
|
|
Sales of equipment |
|
|
29,227 |
|
|
|
— |
|
|
|
— |
|
|
|
29,227 |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenues |
|
|
87,221 |
|
|
|
— |
|
|
|
— |
|
|
|
87,221 |
|
|
|
1,200 |
|
|
|
(1,200 |
) |
|
COSTS AND EXPENSES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service and operations |
|
|
55,781 |
|
|
|
— |
|
|
|
— |
|
|
|
55,781 |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
Cost of equipment sold |
|
|
30,449 |
|
|
|
— |
|
|
|
— |
|
|
|
30,449 |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
Sales and advertising |
|
|
19,038 |
|
|
|
— |
|
|
|
— |
|
|
|
19,038 |
|
|
|
121 |
|
|
|
— |
|
|
|
|
|
|
|
General and administrative |
|
|
17,355 |
|
|
|
110 |
|
|
|
— |
|
|
|
17,465 |
|
|
|
1,066 |
|
|
|
(1,199 |
) |
|
|
|
|
|
|
Depreciation and amortization |
|
|
53,233 |
|
|
|
— |
|
|
|
— |
|
|
|
53,233 |
|
|
|
— |
|
|
|
(526 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Loss |
|
|
(88,635 |
) |
|
|
(110 |
) |
|
|
— |
|
|
|
(88,745 |
) |
|
|
13 |
|
|
|
525 |
|
|
|
|
|
|
|
INTEREST AND OTHER INCOME |
|
|
319 |
|
|
|
14,908 |
|
|
|
(11,615 |
) |
|
|
3,612 |
|
|
|
8,472 |
|
|
|
(7,712 |
) |
|
|
|
|
|
|
EQUITY IN LOSS OF SUBSIDIARIES |
|
|
— |
|
|
|
(116,332 |
) |
|
|
116,332 |
|
|
|
— |
|
|
|
(150,753 |
) |
|
|
137,793 |
|
|
|
|
|
|
|
INTEREST EXPENSE |
|
|
(28,016 |
) |
|
|
(36,259 |
) |
|
|
11,615 |
|
|
|
(52,660 |
) |
|
|
(8,298 |
) |
|
|
7,187 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET LOSS |
|
$ |
(116,332 |
) |
|
$ |
(137,793 |
) |
|
$ |
116,332 |
|
|
$ |
(137,793 |
) |
|
$ |
(150,566 |
) |
|
$ |
137,793 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
[Additional columns below]
[Continued from above table, first column(s) repeated]
| |
|
|
|
|
|
|
|
|
Consolidated |
|
|
American |
|
|
Mobile |
|
|
Parent |
|
|
|
|
REVENUES |
|
|
|
|
|
|
|
|
|
|
Services |
|
$ |
57,994 |
|
|
|
|
|
|
|
Sales of equipment |
|
|
29,227 |
|
|
|
|
|
|
|
|
Total Revenues |
|
|
87,221 |
|
|
COSTS AND EXPENSES |
|
|
|
|
|
|
|
|
|
|
Cost of service and operations |
|
|
55,781 |
|
|
|
|
|
|
|
Cost of equipment sold |
|
|
30,449 |
|
|
|
|
|
|
|
Sales and advertising |
|
|
19,159 |
|
|
|
|
|
|
|
General and administrative |
|
|
17,332 |
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
52,707 |
|
|
|
|
|
|
|
Operating Loss |
|
|
(88,207 |
) |
|
|
|
|
|
|
INTEREST AND OTHER INCOME |
|
|
4,372 |
|
|
|
|
|
|
|
EQUITY IN LOSS OF SUBSIDIARIES |
|
|
(12,960 |
) |
|
|
|
|
|
|
INTEREST EXPENSE |
|
|
(53,771 |
) |
|
|
|
|
|
|
NET LOSS |
|
$ |
(150,566 |
) |
|
|
|
|
|
F-47
Condensed Consolidating Statement of Operations
Year ended December 31, 1997
(Unaudited)
(In Thousands)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
American |
|
|
|
|
Subsidiary |
|
Acquisition |
|
|
|
Acquisition |
|
Mobile |
|
|
|
|
Guarantors |
|
Company |
|
Eliminations |
|
Company |
|
Parent |
|
Eliminations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
REVENUES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Services |
|
$ |
20,684 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
20,684 |
|
|
$ |
1,200 |
|
|
$ |
(1,200 |
) |
|
|
|
|
|
|
Sales of equipment |
|
|
23,530 |
|
|
|
— |
|
|
|
— |
|
|
|
23,530 |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenues |
|
|
44,214 |
|
|
|
— |
|
|
|
— |
|
|
|
44,214 |
|
|
|
1,200 |
|
|
|
(1,200 |
) |
|
COSTS AND EXPENSES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service and operations |
|
|
31,959 |
|
|
|
— |
|
|
|
— |
|
|
|
31,959 |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
Cost of equipment sold |
|
|
40,335 |
|
|
|
— |
|
|
|
— |
|
|
|
40,335 |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
Sales and advertising |
|
|
12,030 |
|
|
|
— |
|
|
|
— |
|
|
|
12,030 |
|
|
|
36 |
|
|
|
— |
|
|
|
|
|
|
|
General and administrative |
|
|
14,890 |
|
|
|
— |
|
|
|
— |
|
|
|
14,890 |
|
|
|
1,129 |
|
|
|
(1,200 |
) |
|
|
|
|
|
|
Depreciation and amortization |
|
|
44,535 |
|
|
|
— |
|
|
|
— |
|
|
|
44,535 |
|
|
|
(2,105 |
) |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Loss |
|
|
(99,535 |
) |
|
|
— |
|
|
|
— |
|
|
|
(99,535 |
) |
|
|
2,140 |
|
|
|
— |
|
|
|
|
|
|
|
INTEREST AND OTHER INCOME |
|
|
1,122 |
|
|
|
— |
|
|
|
— |
|
|
|
1,122 |
|
|
|
29,520 |
|
|
|
(29,520 |
) |
|
|
|
|
|
|
EQUITY IN LOSS OF SUBSIDIARIES |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(150,867 |
) |
|
|
149,566 |
|
|
|
|
|
|
|
INTEREST EXPENSE |
|
|
(51,153 |
) |
|
|
— |
|
|
|
— |
|
|
|
(51,153 |
) |
|
|
— |
|
|
|
29,520 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET LOSS |
|
$ |
(149,566 |
) |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
(149,566 |
) |
|
$ |
(119,207 |
) |
|
$ |
149,566 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
[Additional columns below]
[Continued from above table, first column(s) repeated]
| |
|
|
|
|
|
|
|
|
Consolidated |
|
|
American |
|
|
Mobile |
|
|
Parent |
|
|
|
|
REVENUES |
|
|
|
|
|
|
|
|
|
|
Services |
|
$ |
20,684 |
|
|
|
|
|
|
|
Sales of equipment |
|
|
23,530 |
|
|
|
|
|
|
|
|
Total Revenues |
|
|
44,214 |
|
|
COSTS AND EXPENSES |
|
|
|
|
|
|
|
|
|
|
Cost of service and operations |
|
|
31,959 |
|
|
|
|
|
|
|
Cost of equipment sold |
|
|
40,335 |
|
|
|
|
|
|
|
Sales and advertising |
|
|
12,066 |
|
|
|
|
|
|
|
General and administrative |
|
|
14,819 |
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
42,430 |
|
|
|
|
|
|
|
Operating Loss |
|
|
(97,395 |
) |
|
|
|
|
|
|
INTEREST AND OTHER INCOME |
|
|
1,122 |
|
|
|
|
|
|
|
EQUITY IN LOSS OF SUBSIDIARIES |
|
|
(1,301 |
) |
|
|
|
|
|
|
INTEREST EXPENSE |
|
|
(21,633 |
) |
|
|
|
|
|
|
NET LOSS |
|
$ |
(119,207 |
) |
|
|
|
|
|
F-48
Condensed Consolidating Statements of Stockholders’
Equity (Deficit)
For the Period from January 1, 1997 through
December 31, 1999
(Unaudited)
(In thousands)
| |
|
|
|
|
|
|
|
|
|
|
|
Subsidiary |
|
Acquisition |
|
|
Guarantors |
|
Company |
|
|
|
|
|
|
Balance, December 31, 1996 |
|
$ |
(205,754 |
) |
|
$ |
— |
|
|
|
|
|
|
|
Net loss |
|
|
(149,566 |
) |
|
|
— |
|
|
|
|
|
|
|
Issuance of Common stock |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
Contributions to paid-in- capital |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
Issuance of capital contributions |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
Issuance of options |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
Issuance of common stock purchase warrants |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31,1997 |
|
|
(355,320 |
) |
|
|
— |
|
|
|
|
|
|
|
Net loss |
|
|
(116,332 |
) |
|
|
(137,793 |
) |
|
|
|
|
|
|
Capitalization of Acquisition Company |
|
|
— |
|
|
|
201,580 |
|
|
|
|
|
|
|
Acquisition of ARDIS |
|
|
109,869 |
|
|
|
— |
|
|
|
|
|
|
|
Issuance of common stock |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
Issuance of common stock purchase warrants |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
Amortization of guarantee warrants |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
Amortization of compensation expense |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31,1998 |
|
|
(361,783 |
) |
|
|
63,787 |
|
|
|
|
|
|
|
Net Loss |
|
|
(218,444 |
) |
|
|
(251,047 |
) |
|
|
|
|
|
|
Issuance of common stock |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
Acquisition of XM Satellite Radio Holdings Inc. |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
Investment in Acquisition Company |
|
|
— |
|
|
|
53,173 |
|
|
|
|
|
|
|
Common stock issued in public offering |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
Amortization of guarantee warrants |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
Initial Public offering |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
Conversion of Series A convertible debt |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
Conversion of subordinated convertible notes payable to American
Mobile |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
Issuance of shares to key executive |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
Increase in FCC license, goodwill and intangibles from American
Mobile acquisition |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
Charge for beneficial conversion feature of note issued to
American Mobile |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
Non-cash stock compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantee warrants revaluation |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
Reduction of guarantee warrants related to extinguishment of debt |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
Capital gain in connection with sale of stock by XM Satellite
Radio Holdings Inc. |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31,1999 |
|
$ |
(580,227 |
) |
|
$ |
(134,087 |
) |
|
|
|
|
|
|
|
|
|
[Additional columns below]
[Continued from above table, first column(s) repeated]
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
American |
|
|
|
|
Acquisition |
|
Mobile |
|
|
Eliminations |
|
Company |
|
Parent |
|
|
|
|
|
|
|
|
Balance, December 31, 1996 |
|
$ |
— |
|
|
$ |
(205,754 |
) |
|
$ |
158,700 |
|
|
|
|
|
|
|
Net loss |
|
|
— |
|
|
|
(149,566 |
) |
|
|
(119,207 |
) |
|
|
|
|
|
|
Issuance of Common stock |
|
|
— |
|
|
|
— |
|
|
|
634 |
|
|
|
|
|
|
|
Contributions to paid-in- capital |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
Issuance of capital contributions |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
Issuance of options |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
Issuance of common stock purchase warrants |
|
|
— |
|
|
|
— |
|
|
|
6,004 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31,1997 |
|
|
— |
|
|
|
(355,320 |
) |
|
|
46,131 |
|
|
|
|
|
|
|
Net loss |
|
|
116,332 |
|
|
|
(137,793 |
) |
|
|
(150,566 |
) |
|
|
|
|
|
|
Capitalization of Acquisition Company |
|
|
355,320 |
|
|
|
556,900 |
|
|
|
— |
|
|
|
|
|
|
|
Acquisition of ARDIS |
|
|
(109,869 |
) |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
Issuance of common stock |
|
|
— |
|
|
|
— |
|
|
|
51,042 |
|
|
|
|
|
|
|
Issuance of common stock purchase warrants |
|
|
— |
|
|
|
— |
|
|
|
8,490 |
|
|
|
|
|
|
|
Amortization of guarantee warrants |
|
|
— |
|
|
|
— |
|
|
|
7,628 |
|
|
|
|
|
|
|
Amortization of compensation expense |
|
|
— |
|
|
|
— |
|
|
|
252 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31,1998 |
|
|
361,783 |
|
|
|
63,787 |
|
|
|
(37,023 |
) |
|
|
|
|
|
|
Net Loss |
|
|
218,444 |
|
|
|
(251,047 |
) |
|
|
(330,931 |
) |
|
|
|
|
|
|
Issuance of common stock |
|
|
— |
|
|
|
— |
|
|
|
7,380 |
|
|
|
|
|
|
|
Acquisition of XM Satellite Radio Holdings Inc. |
|
|
— |
|
|
|
— |
|
|
|
129,213 |
|
|
|
|
|
|
|
Investment in Acquisition Company |
|
|
— |
|
|
|
53,173 |
|
|
|
— |
|
|
|
|
|
|
|
Common stock issued in public offering |
|
|
— |
|
|
|
— |
|
|
|
115,989 |
|
|
|
|
|
|
|
Amortization of guarantee warrants |
|
|
— |
|
|
|
— |
|
|
|
7,372 |
|
|
|
|
|
|
|
Initial Public offering |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
Conversion of Series A convertible debt |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
Conversion of subordinated convertible notes payable to American
Mobile |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
Issuance of shares to key executive |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
Increase in FCC license, goodwill and intangibles from American
Mobile acquisition |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
Charge for beneficial conversion feature of note issued to
American Mobile |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
Non-cash stock compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantee warrants revaluation |
|
|
— |
|
|
|
— |
|
|
|
440 |
|
|
|
|
|
|
|
Reduction of guarantee warrants related to extinguishment of debt |
|
|
— |
|
|
|
— |
|
|
|
9,671 |
|
|
|
|
|
|
|
Capital gain in connection with sale of stock by XM Satellite
Radio Holdings Inc. |
|
|
— |
|
|
|
— |
|
|
|
80,663 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31,1999 |
|
$ |
580,227 |
|
|
$ |
(134,087 |
) |
|
$ |
(17,226 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
[Additional columns below]
[Continued from above table, first column(s) repeated]
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
|
|
|
|
|
American |
|
|
|
|
|
|
Mobile |
|
|
XM Radio |
|
Eliminations |
|
Parent |
|
|
|
|
|
|
|
|
Balance, December 31, 1996 |
|
$ |
— |
|
|
$ |
205,754 |
|
|
$ |
158,700 |
|
|
|
|
|
|
|
Net loss |
|
|
(1,659 |
) |
|
|
151,225 |
|
|
|
(119,207 |
) |
|
|
|
|
|
|
Issuance of Common stock |
|
|
— |
|
|
|
— |
|
|
|
634 |
|
|
|
|
|
|
|
Contributions to paid-in- capital |
|
|
143 |
|
|
|
(143 |
) |
|
|
— |
|
|
|
|
|
|
|
Issuance of capital contributions |
|
|
9,000 |
|
|
|
(9,000 |
) |
|
|
— |
|
|
|
|
|
|
|
Issuance of options |
|
|
1,500 |
|
|
|
(1,500 |
) |
|
|
— |
|
|
|
|
|
|
|
Issuance of common stock purchase warrants |
|
|
— |
|
|
|
— |
|
|
|
6,004 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31,1997 |
|
|
8,984 |
|
|
|
346,336 |
|
|
|
46,131 |
|
|
|
|
|
|
|
Net loss |
|
|
(16,167 |
) |
|
|
153,960 |
|
|
|
(150,566 |
) |
|
|
|
|
|
|
Capitalization of Acquisition Company |
|
|
— |
|
|
|
(556,900 |
) |
|
|
— |
|
|
|
|
|
|
|
Acquisition of ARDIS |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
Issuance of common stock |
|
|
— |
|
|
|
— |
|
|
|
51,042 |
|
|
|
|
|
|
|
Issuance of common stock purchase warrants |
|
|
— |
|
|
|
— |
|
|
|
8,490 |
|
|
|
|
|
|
|
Amortization of guarantee warrants |
|
|
— |
|
|
|
— |
|
|
|
7,628 |
|
|
|
|
|
|
|
Amortization of compensation expense |
|
|
— |
|
|
|
— |
|
|
|
252 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31,1998 |
|
|
(7,183 |
) |
|
|
(56,604 |
) |
|
|
(37,023 |
) |
|
|
|
|
|
|
Net Loss |
|
|
(36,896 |
) |
|
|
287,943 |
|
|
|
(330,931 |
) |
|
|
|
|
|
|
Issuance of common stock |
|
|
304 |
|
|
|
(304 |
) |
|
|
7,380 |
|
|
|
|
|
|
|
Acquisition of XM Satellite Radio Holdings Inc. |
|
|
— |
|
|
|
— |
|
|
|
129,213 |
|
|
|
|
|
|
|
Investment in Acquisition Company |
|
|
— |
|
|
|
(53,173 |
) |
|
|
— |
|
|
|
|
|
|
|
Common stock issued in public offering |
|
|
— |
|
|
|
— |
|
|
|
115,989 |
|
|
|
|
|
|
|
Amortization of guarantee warrants |
|
|
— |
|
|
|
— |
|
|
|
7,372 |
|
|
|
|
|
|
|
Initial Public offering |
|
|
114,134 |
|
|
|
(114,134 |
) |
|
|
— |
|
|
|
|
|
|
|
Conversion of Series A convertible debt |
|
|
246,349 |
|
|
|
(246,349 |
) |
|
|
— |
|
|
|
|
|
|
|
Conversion of subordinated convertible notes payable to American
Mobile |
|
|
106,955 |
|
|
|
(106,955 |
) |
|
|
— |
|
|
|
|
|
|
|
Issuance of shares to key executive |
|
|
140 |
|
|
|
(140 |
) |
|
|
— |
|
|
|
|
|
|
|
Increase in FCC license, goodwill and intangibles from American
Mobile acquisition |
|
|
51,624 |
|
|
|
(51,624 |
) |
|
|
— |
|
|
|
|
|
|
|
Charge for beneficial conversion feature of note issued to
American Mobile |
|
|
5,520 |
|
|
|
(5,520 |
) |
|
|
— |
|
|
|
|
|
|
|
Non-cash stock compensation |
|
|
4,070 |
|
|
|
(4,070 |
) |
|
|
— |
|
|
|
|
|
|
|
Guarantee warrants revaluation |
|
|
— |
|
|
|
— |
|
|
|
440 |
|
|
|
|
|
|
|
Reduction of guarantee warrants related to extinguishment of debt |
|
|
— |
|
|
|
— |
|
|
|
9,671 |
|
|
|
|
|
|
|
Capital gain in connection with sale of stock by XM Satellite
Radio Holdings Inc. |
|
|
— |
|
|
|
— |
|
|
|
80,663 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31,1999 |
|
$ |
485,017 |
|
|
$ |
(350,930 |
) |
|
$ |
(17,226 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
F-49
Condensed Consolidating Statement of Cash flow
As of December 31, 1999
(Unaudited)
(In thousands)
| |
|
|
|
|
|
|
|
|
|
|
|
|
Subsidiary |
|
Acquisition |
|
|
Guarantors |
|
Company |
|
|
|
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(218,444 |
) |
|
$ |
(251,047 |
) |
|
|
|
|
|
|
Adjustments to reconcile net loss to net cash (used in) provided
by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of Guarantee Warrants and debt related costs |
|
|
— |
|
|
|
7,261 |
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
54,923 |
|
|
|
— |
|
|
|
|
|
|
|
Satellite and related assets impairment charge |
|
|
97,419 |
|
|
|
— |
|
|
|
|
|
|
|
Extraordinary loss |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
Equity in loss in XM Radio |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
Non cash stock compensation of XM Radio |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
Non-cash charge for beneficial conversion feature of note issued
to parent |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
Minority Interest |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
Net unrealized loss on marketable securities |
|
|
— |
|
|
|
— |
|
|
Changes in assets & liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventory |
|
|
(10,023 |
) |
|
|
— |
|
|
|
|
|
|
|
|
Prepaid in-orbit insurance |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
Trade accounts receivable |
|
|
(3,897 |
) |
|
|
— |
|
|
|
|
|
|
|
|
Other current assets |
|
|
(5,799 |
) |
|
|
20 |
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses |
|
|
11,073 |
|
|
|
151 |
|
|
|
|
|
|
|
|
Accrued interest on Senior Note |
|
|
— |
|
|
|
(83 |
) |
|
|
|
|
|
|
|
Deferred trade payables |
|
|
(1,135 |
) |
|
|
— |
|
|
|
|
|
|
|
|
Deferred Items — net |
|
|
171 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by operating activities |
|
|
(75,712 |
) |
|
|
(243,698 |
) |
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions to property & equipment |
|
|
(13,810 |
) |
|
|
— |
|
|
|
|
|
|
|
Purchase of XM Radio note receivable |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
Investment in XM Radio |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
XM Radio Acquisition costs |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
Payment of escrow interest |
|
|
— |
|
|
|
41,006 |
|
|
|
|
|
|
|
System under construction |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
Purchase of short-term investments by XM Radio |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
Other investing activities by XM Radio |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
Purchase of long-term, restricted investments |
|
|
1,180 |
|
|
|
(4,427 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(12,630 |
) |
|
|
36,579 |
|
[Additional columns below]
[Continued from above table, first column(s) repeated]
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
American |
|
|
|
|
Acquisition |
|
Mobile |
|
|
Eliminations |
|
Company |
|
Parent |
|
|
|
|
|
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
218,444 |
|
|
$ |
(251,047 |
) |
|
$ |
(330,931 |
) |
|
|
|
|
|
|
Adjustments to reconcile net loss to net cash (used in) provided
by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of Guarantee Warrants and debt related costs |
|
|
— |
|
|
|
7,261 |
|
|
|
8,563 |
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
— |
|
|
|
54,923 |
|
|
|
— |
|
|
|
|
|
|
|
Satellite and related assets impairment charge |
|
|
— |
|
|
|
97,419 |
|
|
|
— |
|
|
|
|
|
|
|
Extraordinary loss |
|
|
— |
|
|
|
— |
|
|
|
12,132 |
|
|
|
|
|
|
|
Equity in loss in XM Radio |
|
|
— |
|
|
|
— |
|
|
|
6,692 |
|
|
|
|
|
|
|
Non cash stock compensation of XM Radio |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
Non-cash charge for beneficial conversion feature of note issued
to parent |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
Minority Interest |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
Net unrealized loss on marketable securities |
|
|
— |
|
|
|
— |
|
|
|
37,318 |
|
|
Changes in assets & liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventory |
|
|
— |
|
|
|
(10,023 |
) |
|
|
— |
|
|
|
|
|
|
|
|
Prepaid in-orbit insurance |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
Trade accounts receivable |
|
|
— |
|
|
|
(3,897 |
) |
|
|
— |
|
|
|
|
|
|
|
|
Other current assets |
|
|
— |
|
|
|
(5,779 |
) |
|
|
3,451 |
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses |
|
|
— |
|
|
|
11,224 |
|
|
|
1,266 |
|
|
|
|
|
|
|
|
Accrued interest on Senior Note |
|
|
— |
|
|
|
(83 |
) |
|
|
— |
|
|
|
|
|
|
|
|
Deferred trade payables |
|
|
— |
|
|
|
(1,135 |
) |
|
|
— |
|
|
|
|
|
|
|
|
Deferred Items — net |
|
|
— |
|
|
|
171 |
|
|
|
(1,148 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by operating activities |
|
|
218,444 |
|
|
|
(100,966 |
) |
|
|
(262,657 |
) |
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions to property & equipment |
|
|
— |
|
|
|
(13,810 |
) |
|
|
— |
|
|
|
|
|
|
|
Purchase of XM Radio note receivable |
|
|
— |
|
|
|
— |
|
|
|
(21,419 |
) |
|
|
|
|
|
|
Investment in XM Radio |
|
|
— |
|
|
|
— |
|
|
|
(2,400 |
) |
|
|
|
|
|
|
XM Radio Acquisition costs |
|
|
— |
|
|
|
— |
|
|
|
(951 |
) |
|
|
|
|
|
|
Payment of escrow interest |
|
|
— |
|
|
|
41,006 |
|
|
|
— |
|
|
|
|
|
|
|
System under construction |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
Purchase of short-term investments by XM Radio |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
Other investing activities by XM Radio |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
Purchase of long-term, restricted investments |
|
|
— |
|
|
|
(3,247 |
) |
|
|
(1,669 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
— |
|
|
|
23,949 |
|
|
|
(26,439 |
) |
[Additional columns below]
[Continued from above table, first column(s) repeated]
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
|
|
|
|
|
American |
|
|
|
|
|
|
Mobile |
|
|
XM Radio |
|
Eliminations |
|
Parent |
|
|
|
|
|
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(28,529 |
) |
|
$ |
279,576 |
|
|
$ |
(330,931 |
) |
|
|
|
|
|
|
Adjustments to reconcile net loss to net cash (used in) provided
by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of Guarantee Warrants and debt related costs |
|
|
477 |
|
|
|
— |
|
|
|
16,301 |
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
1,385 |
|
|
|
(510 |
) |
|
|
55,798 |
|
|
|
|
|
|
|
Satellite and related assets impairment charge |
|
|
— |
|
|
|
— |
|
|
|
97,419 |
|
|
|
|
|
|
|
Extraordinary loss |
|
|
— |
|
|
|
— |
|
|
|
12,132 |
|
|
|
|
|
|
|
Equity in loss in XM Radio |
|
|
— |
|
|
|
— |
|
|
|
6,692 |
|
|
|
|
|
|
|
Non cash stock compensation of XM Radio |
|
|
4,210 |
|
|
|
— |
|
|
|
4,210 |
|
|
|
|
|
|
|
Non-cash charge for beneficial conversion feature of note issued
to parent |
|
|
5,520 |
|
|
|
(5,520 |
) |
|
|
— |
|
|
|
|
|
|
|
Minority Interest |
|
|
— |
|
|
|
(7,067 |
) |
|
|
(7,067 |
) |
|
|
|
|
|
|
Net unrealized loss on marketable securities |
|
|
— |
|
|
|
— |
|
|
|
37,318 |
|
|
Changes in assets & liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventory |
|
|
— |
|
|
|
— |
|
|
|
(10,023 |
) |
|
|
|
|
|
|
|
Prepaid in-orbit insurance |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
Trade accounts receivable |
|
|
— |
|
|
|
— |
|
|
|
(3,897 |
) |
|
|
|
|
|
|
|
Other current assets |
|
|
(963 |
) |
|
|
3,842 |
|
|
|
551 |
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses |
|
|
5,126 |
|
|
|
(901 |
) |
|
|
16,715 |
|
|
|
|
|
|
|
|
Accrued interest on Senior Note |
|
|
— |
|
|
|
— |
|
|
|
(83 |
) |
|
|
|
|
|
|
|
Deferred trade payables |
|
|
— |
|
|
|
— |
|
|
|
(1,135 |
) |
|
|
|
|
|
|
|
Deferred Items — net |
|
|
— |
|
|
|
— |
|
|
|
(977 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by operating activities |
|
|
(12,774 |
) |
|
|
269,420 |
|
|
|
(106,977 |
) |
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions to property & equipment |
|
|
(1,728 |
) |
|
|
— |
|
|
|
(15,538 |
) |
|
|
|
|
|
|
Purchase of XM Radio note receivable |
|
|
— |
|
|
|
— |
|
|
|
(21,419 |
) |
|
|
|
|
|
|
Investment in XM Radio |
|
|
— |
|
|
|
— |
|
|
|
(2,400 |
) |
|
|
|
|
|
|
XM Radio Acquisition costs |
|
|
163 |
|
|
|
— |
|
|
|
(788 |
) |
|
|
|
|
|
|
Payment of escrow interest |
|
|
— |
|
|
|
— |
|
|
|
41,006 |
|
|
|
|
|
|
|
System under construction |
|
|
(141,154 |
) |
|
|
— |
|
|
|
(141,154 |
) |
|
|
|
|
|
|
Purchase of short-term investments by XM Radio |
|
|
(69,472 |
) |
|
|
— |
|
|
|
(69,472 |
) |
|
|
|
|
|
|
Other investing activities by XM Radio |
|
|
(3,422 |
) |
|
|
— |
|
|
|
(3,422 |
) |
|
|
|
|
|
|
Purchase of long-term, restricted investments |
|
|
— |
|
|
|
— |
|
|
|
(4,916 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(215,613 |
) |
|
|
— |
|
|
|
(218,103 |
) |
F-50
Condensed Consolidating Statement of Cash Flow —
(Continued)
As of December 31, 1999
(Unaudited)
(In thousands)
| |
|
|
|
|
|
|
|
|
|
|
|
Subsidiary |
|
Acquisition |
|
|
Guarantors |
|
Company |
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
Funding from parent/subsidiary |
|
|
94,105 |
|
|
|
195,119 |
|
|
|
|
|
|
|
Principal payments under capital leases |
|
|
(5,982 |
) |
|
|
— |
|
|
|
|
|
|
|
Principal payments under Vendor Financing |
|
|
(1,290 |
) |
|
|
— |
|
|
|
|
|
|
|
Proceeds from Series A subordinated convertible notes of XM
Radio |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
Proceeds from bank financing |
|
|
— |
|
|
|
65,000 |
|
|
|
|
|
|
|
Proceeds from note payable to related party |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
Repayment of XM Radio Bank loan |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
Repayment of WorldSpace loan by XM Radio |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
Repayment of revolver |
|
|
— |
|
|
|
(53,000 |
) |
|
|
|
|
|
|
Repayment of term loan |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
Proceeds from reduction of interest rate swap |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
Debt issuance costs |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities |
|
|
86,833 |
|
|
|
207,119 |
|
|
|
|
|
|
|
Net (decrease)increase in cash and cash equivalents |
|
|
(1,509 |
) |
|
|
— |
|
|
|
|
|
|
|
CASH & CASH EQUIVALENTS, beginning of period |
|
|
2,285 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
CASH & CASH EQUIVALENTS, end of period |
|
$ |
776 |
|
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
[Additional columns below]
[Continued from above table, first column(s) repeated]
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
American |
|
|
|
|
Acquisition |
|
Mobile |
|
|
Eliminations |
|
Company |
|
Parent |
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock |
|
|
— |
|
|
|
— |
|
|
|
122,253 |
|
|
|
|
|
|
|
Funding from parent/subsidiary |
|
|
(218,444 |
) |
|
|
70,780 |
|
|
|
198,640 |
|
|
|
|
|
|
|
Principal payments under capital leases |
|
|
— |
|
|
|
(5,982 |
) |
|
|
— |
|
|
|
|
|
|
|
Principal payments under Vendor Financing |
|
|
— |
|
|
|
(1,290 |
) |
|
|
— |
|
|
|
|
|
|
|
Proceeds from Series A subordinated convertible notes of XM
Radio |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
Proceeds from bank financing |
|
|
— |
|
|
|
65,000 |
|
|
|
— |
|
|
|
|
|
|
|
Proceeds from note payable to related party |
|
|
— |
|
|
|
— |
|
|
|
21,500 |
|
|
|
|
|
|
|
Repayment of XM Radio Bank loan |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
Repayment of WorldSpace loan by XM Radio |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
Repayment of revolver |
|
|
— |
|
|
|
(53,000 |
) |
|
|
— |
|
|
|
|
|
|
|
Repayment of term loan |
|
|
— |
|
|
|
— |
|
|
|
(59,000 |
) |
|
|
|
|
|
|
Proceeds from reduction of interest rate swap |
|
|
— |
|
|
|
— |
|
|
|
6,009 |
|
|
|
|
|
|
|
Debt issuance costs |
|
|
— |
|
|
|
— |
|
|
|
(306 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities |
|
|
(218,444 |
) |
|
|
75,508 |
|
|
|
289,096 |
|
|
|
|
|
|
|
Net (decrease)increase in cash and cash equivalents |
|
|
— |
|
|
|
(1,509 |
) |
|
|
— |
|
|
|
|
|
|
|
CASH & CASH EQUIVALENTS, beginning of period |
|
|
— |
|
|
|
2,285 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH & CASH EQUIVALENTS, end of period |
|
$ |
— |
|
|
$ |
776 |
|
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
[Additional columns below]
[Continued from above table, first column(s) repeated]
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
|
|
|
|
|
American |
|
|
|
|
|
|
Mobile |
|
|
XM Radio |
|
Eliminations |
|
Parent |
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock |
|
|
114,428 |
|
|
|
— |
|
|
|
236,681 |
|
|
|
|
|
|
|
Funding from parent/subsidiary |
|
|
— |
|
|
|
(269,420 |
) |
|
|
— |
|
|
|
|
|
|
|
Principal payments under capital leases |
|
|
— |
|
|
|
— |
|
|
|
(5,982 |
) |
|
|
|
|
|
|
Principal payments under Vendor Financing |
|
|
— |
|
|
|
— |
|
|
|
(1,290 |
) |
|
|
|
|
|
|
Proceeds from Series A subordinated convertible notes of XM
Radio |
|
|
250,000 |
|
|
|
— |
|
|
|
250,000 |
|
|
|
|
|
|
|
Proceeds from bank financing |
|
|
— |
|
|
|
— |
|
|
|
65,000 |
|
|
|
|
|
|
|
Proceeds from note payable to related party |
|
|
— |
|
|
|
— |
|
|
|
21,500 |
|
|
|
|
|
|
|
Repayment of XM Radio Bank loan |
|
|
(73 |
) |
|
|
— |
|
|
|
(73 |
) |
|
|
|
|
|
|
Repayment of WorldSpace loan by XM Radio |
|
|
(75,000 |
) |
|
|
— |
|
|
|
(75,000 |
) |
|
|
|
|
|
|
Repayment of revolver |
|
|
— |
|
|
|
— |
|
|
|
(53,000 |
) |
|
|
|
|
|
|
Repayment of term loan |
|
|
— |
|
|
|
— |
|
|
|
(59,000 |
) |
|
|
|
|
|
|
Proceeds from reduction of interest rate swap |
|
|
— |
|
|
|
— |
|
|
|
6,009 |
|
|
|
|
|
|
|
Debt issuance costs |
|
|
(10,270 |
) |
|
|
— |
|
|
|
(10,576 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities |
|
|
279,085 |
|
|
|
(269,420 |
) |
|
|
374,269 |
|
|
|
|
|
|
|
Net (decrease)increase in cash and cash equivalents |
|
|
50,698 |
|
|
|
— |
|
|
|
49,189 |
|
|
|
|
|
|
|
CASH & CASH EQUIVALENTS, beginning of period |
|
|
— |
|
|
|
— |
|
|
|
2,285 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH & CASH EQUIVALENTS, end of period |
|
$ |
50,698 |
|
|
$ |
— |
|
|
$ |
51,474 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-51
Condensed Consolidating Statement of Cash Flow
As of December 31, 1998
(Unaudited)
(In thousands)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
American |
|
|
Subsidiary |
|
Acquisition |
|
|
|
Acquisition |
|
Mobile |
|
|
Guarantors |
|
Company |
|
Eliminations |
|
Company |
|
Parent |
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss |
|
$ |
(116,332 |
) |
|
$ |
(137,793 |
) |
|
$ |
116,332 |
|
|
$ |
(137,793 |
) |
|
$ |
(150,566 |
) |
|
|
|
|
|
|
Adjustments to reconcile net loss to net cash used in operating
activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of guarantee warrants, debt discount and issuance
costs |
|
|
— |
|
|
|
10,845 |
|
|
|
— |
|
|
|
10,845 |
|
|
|
5,326 |
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
53,233 |
|
|
|
— |
|
|
|
— |
|
|
|
53,233 |
|
|
|
(526 |
) |
|
|
|
|
|
|
Equity in loss in XM Radio |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
12,960 |
|
|
|
|
|
|
|
Changes in assets & liabilities Inventory |
|
|
21,947 |
|
|
|
— |
|
|
|
— |
|
|
|
21,947 |
|
|
|
— |
|
|
|
|
|
|
|
|
Prepaid in-orbit insurance |
|
|
1,183 |
|
|
|
— |
|
|
|
— |
|
|
|
1,183 |
|
|
|
— |
|
|
|
|
|
|
|
|
Accounts receivable — trade |
|
|
(105 |
) |
|
|
— |
|
|
|
— |
|
|
|
(105 |
) |
|
|
— |
|
|
|
|
|
|
|
|
Other current assets |
|
|
7,185 |
|
|
|
— |
|
|
|
— |
|
|
|
7,185 |
|
|
|
55 |
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses |
|
|
(14,484 |
) |
|
|
— |
|
|
|
— |
|
|
|
(14,484 |
) |
|
|
12 |
|
|
|
|
|
|
|
|
Accrued interest on Senior Notes |
|
|
— |
|
|
|
10,715 |
|
|
|
— |
|
|
|
10,715 |
|
|
|
— |
|
|
|
|
|
|
|
|
Deferred trade payables |
|
|
(6,567 |
) |
|
|
— |
|
|
|
— |
|
|
|
(6,567 |
) |
|
|
— |
|
|
|
|
|
|
|
|
Deferred items — net |
|
|
(7,396 |
) |
|
|
— |
|
|
|
— |
|
|
|
(7,396 |
) |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operations |
|
|
(61,336 |
) |
|
|
(116,233 |
) |
|
|
116,332 |
|
|
|
(61,237 |
) |
|
|
(132,739 |
) |
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions to property & equipment |
|
|
(12,470 |
) |
|
|
— |
|
|
|
— |
|
|
|
(12,470 |
) |
|
|
— |
|
|
|
|
|
|
|
Cash paid for acquisition of ARDIS |
|
|
— |
|
|
|
(52,373 |
) |
|
|
— |
|
|
|
(52,373 |
) |
|
|
— |
|
|
|
|
|
|
|
Purchase of long-term, restricted investments |
|
|
(1,500 |
) |
|
|
(116,109 |
) |
|
|
— |
|
|
|
(117,609 |
) |
|
|
(28,152 |
) |
|
|
|
|
|
|
Payment of escrow interest |
|
|
— |
|
|
|
20,633 |
|
|
|
— |
|
|
|
20,633 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(13,970 |
) |
|
|
(147,849 |
) |
|
|
— |
|
|
|
(161,819 |
) |
|
|
(28,152 |
) |
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of Common Stock |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
412 |
|
|
|
|
|
|
|
Funding from parent |
|
|
83,829 |
|
|
|
118,307 |
|
|
|
(116,332 |
) |
|
|
85,804 |
|
|
|
51,989 |
|
|
|
|
|
|
|
Principal payments under capital leases |
|
|
(3,395 |
) |
|
|
— |
|
|
|
— |
|
|
|
(3,395 |
) |
|
|
— |
|
|
|
|
|
|
|
Payments under Vendor Financing |
|
|
(16 |
) |
|
|
— |
|
|
|
— |
|
|
|
(16 |
) |
|
|
— |
|
|
|
|
|
|
|
Repayment of bank financing |
|
|
— |
|
|
|
(166,000 |
) |
|
|
— |
|
|
|
(166,000 |
) |
|
|
100,000 |
|
|
|
|
|
|
|
Payments on long-term debt |
|
|
(4,933 |
) |
|
|
— |
|
|
|
— |
|
|
|
(4,933 |
) |
|
|
— |
|
|
|
|
|
|
|
Debt issuance costs |
|
|
— |
|
|
|
(14,735 |
) |
|
|
— |
|
|
|
(14,735 |
) |
|
|
— |
|
|
|
|
|
|
|
Proceeds from Notes and stock purchase warrants |
|
|
— |
|
|
|
326,510 |
|
|
|
— |
|
|
|
326,510 |
|
|
|
8,490 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities |
|
|
75,485 |
|
|
|
264,082 |
|
|
|
(116,332 |
) |
|
|
223,235 |
|
|
|
160,891 |
|
|
|
|
|
|
|
Net increase in cash and cash equivalents |
|
|
179 |
|
|
|
— |
|
|
|
— |
|
|
|
179 |
|
|
|
— |
|
|
|
|
|
|
|
CASH and CASH EQUIVALENTS, beginning of period |
|
|
2,106 |
|
|
|
— |
|
|
|
— |
|
|
|
2,106 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH and CASH EQUIVALENTS, end of period |
|
$ |
2,285 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
2,285 |
|
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
[Additional columns below]
[Continued from above table, first column(s) repeated]
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
|
|
|
American |
|
|
|
|
Mobile |
|
|
Eliminations |
|
Parent |
|
|
|
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss |
|
$ |
137,793 |
|
|
$ |
(150,566 |
) |
|
|
|
|
|
|
Adjustments to reconcile net loss to net cash used in operating
activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of guarantee warrants, debt discount and issuance
costs |
|
|
— |
|
|
|
16,171 |
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
— |
|
|
|
52,707 |
|
|
|
|
|
|
|
Equity in loss in XM Radio |
|
|
— |
|
|
|
12,960 |
|
|
|
|
|
|
|
Changes in assets & liabilities Inventory |
|
|
— |
|
|
|
21,947 |
|
|
|
|
|
|
|
|
Prepaid in-orbit insurance |
|
|
— |
|
|
|
1,183 |
|
|
|
|
|
|
|
|
Accounts receivable — trade |
|
|
— |
|
|
|
(105 |
) |
|
|
|
|
|
|
|
Other current assets |
|
|
— |
|
|
|
7,240 |
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses |
|
|
— |
|
|
|
(14,472 |
) |
|
|
|
|
|
|
|
Accrued interest on Senior Notes |
|
|
— |
|
|
|
10,715 |
|
|
|
|
|
|
|
|
Deferred trade payables |
|
|
— |
|
|
|
(6,567 |
) |
|
|
|
|
|
|
|
Deferred items — net |
|
|
— |
|
|
|
(7,396 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash used in operations |
|
|
137,793 |
|
|
|
(56,183 |
) |
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions to property & equipment |
|
|
— |
|
|
|
(12,470 |
) |
|
|
|
|
|
|
Cash paid for acquisition of ARDIS |
|
|
— |
|
|
|
(52,373 |
) |
|
|
|
|
|
|
Purchase of long-term, restricted investments |
|
|
— |
|
|
|
(145,761 |
) |
|
|
|
|
|
|
Payment of escrow interest |
|
|
— |
|
|
|
20,633 |
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
— |
|
|
|
(189,971 |
) |
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of Common Stock |
|
|
— |
|
|
|
412 |
|
|
|
|
|
|
|
Funding from parent |
|
|
(137,793 |
) |
|
|
— |
|
|
|
|
|
|
|
Principal payments under capital leases |
|
|
— |
|
|
|
(3,395 |
) |
|
|
|
|
|
|
Payments under Vendor Financing |
|
|
— |
|
|
|
(16 |
) |
|
|
|
|
|
|
Repayment of bank financing |
|
|
— |
|
|
|
(66,000 |
) |
|
|
|
|
|
|
Payments on long-term debt |
|
|
— |
|
|
|
(4,933 |
) |
|
|
|
|
|
|
Debt issuance costs |
|
|
— |
|
|
|
(14,735 |
) |
|
|
|
|
|
|
Proceeds from Notes and stock purchase warrants |
|
|
— |
|
|
|
335,000 |
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities |
|
|
(137,793 |
) |
|
|
246,333 |
|
|
|
|
|
|
|
Net increase in cash and cash equivalents |
|
|
— |
|
|
|
179 |
|
|
|
|
|
|
|
CASH and CASH EQUIVALENTS, beginning of period |
|
|
— |
|
|
|
2,106 |
|
|
|
|
|
|
|
|
|
|
|
CASH and CASH EQUIVALENTS, end of period |
|
$ |
— |
|
|
$ |
2,285 |
|
|
|
|
|
|
|
|
|
|
F-52
Condensed Consolidating Statement of Cash Flow
As of December 31, 1997
(Unaudited)
(In thousands)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
American |
|
|
Subsidiary |
|
Acquisition |
|
|
|
Acquisition |
|
Mobile |
|
|
Guarantors |
|
Company |
|
Eliminations |
|
Company |
|
Parent |
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss |
|
$ |
(149,566 |
) |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
(149,566 |
) |
|
$ |
(119,207 |
) |
|
|
|
|
|
|
Adjustments to reconcile net loss to net cash used in operating
activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of guarantee warrants, debt discount and issuance
costs |
|
|
9,350 |
|
|
|
— |
|
|
|
— |
|
|
|
9,350 |
|
|
|
— |
|
|
|
|
|
|
|
Depreciation and
amortization |
|
|
44,535 |
|
|
|
— |
|
|
|
— |
|
|
|
44,535 |
|
|
|
(2,105 |
) |
|
|
|
|
|
|
Equity in loss in XM Radio |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,301 |
|
|
Changes in assets and liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventory |
|
|
(2,287 |
) |
|
|
— |
|
|
|
— |
|
|
|
(2,287 |
) |
|
|
— |
|
|
|
|
|
|
|
|
Prepaid in-orbit insurance |
|
|
516 |
|
|
|
— |
|
|
|
— |
|
|
|
516 |
|
|
|
— |
|
|
|
|
|
|
|
|
Accounts receivable — trade |
|
|
(1,537 |
) |
|
|
— |
|
|
|
— |
|
|
|
(1,537 |
) |
|
|
— |
|
|
|
|
|
|
|
|
Other current assets |
|
|
4,639 |
|
|
|
— |
|
|
|
— |
|
|
|
4,639 |
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses |
|
|
(5,844 |
) |
|
|
— |
|
|
|
— |
|
|
|
(5,844 |
) |
|
|
24 |
|
|
|
|
|
|
|
|
Deferred trade payables |
|
|
11,685 |
|
|
|
— |
|
|
|
— |
|
|
|
11,685 |
|
|
|
— |
|
|
|
|
|
|
|
|
Deferred items — net |
|
|
8,038 |
|
|
|
— |
|
|
|
— |
|
|
|
8,038 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operations |
|
|
(80,471 |
) |
|
|
— |
|
|
|
— |
|
|
|
(80,471 |
) |
|
|
(119,987 |
) |
| |
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions to property and equipment |
|
|
(8,598 |
) |
|
|
— |
|
|
|
— |
|
|
|
(8,598 |
) |
|
|
— |
|
|
|
|
|
|
|
Investment in XM Radio |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(1,643 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(8,598 |
) |
|
|
— |
|
|
|
— |
|
|
|
(8,598 |
) |
|
|
(1,643 |
) |
| |
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of Common Stock |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
284 |
|
|
|
|
|
|
|
Funding from parent |
|
|
28,220 |
|
|
|
— |
|
|
|
— |
|
|
|
28,220 |
|
|
|
121,346 |
|
|
|
|
|
|
|
Principal payments under capital leases |
|
|
(2,576 |
) |
|
|
— |
|
|
|
— |
|
|
|
(2,576 |
) |
|
|
— |
|
|
|
|
|
|
|
Proceeds from bank financing |
|
|
71,000 |
|
|
|
— |
|
|
|
— |
|
|
|
71,000 |
|
|
|
— |
|
|
|
|
|
|
|
Payments on long-term debt |
|
|
(6,180 |
) |
|
|
— |
|
|
|
— |
|
|
|
(6,180 |
) |
|
|
— |
|
|
|
|
|
|
|
Debt issuance costs |
|
|
(1,471 |
) |
|
|
— |
|
|
|
— |
|
|
|
(1,471 |
) |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities |
|
|
88,993 |
|
|
|
— |
|
|
|
— |
|
|
|
88,993 |
|
|
|
121,630 |
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents |
|
|
(76 |
) |
|
|
— |
|
|
|
— |
|
|
|
(76 |
) |
|
|
— |
|
|
|
|
|
|
|
CASH and CASH EQUIVALENTS, beginning of period |
|
|
2,182 |
|
|
|
— |
|
|
|
— |
|
|
|
2,182 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH and CASH EQUIVALENTS, end of period |
|
$ |
2,106 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
2,106 |
|
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
[Additional columns below]
[Continued from above table, first column(s) repeated]
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
|
|
|
American |
|
|
|
|
Mobile |
|
|
Eliminations |
|
Parent |
|
|
|
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss |
|
$ |
149,566 |
|
|
$ |
(119,207 |
) |
|
|
|
|
|
|
Adjustments to reconcile net loss to net cash used in operating
activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of guarantee warrants, debt discount and issuance
costs |
|
|
— |
|
|
|
9,350 |
|
|
|
|
|
|
|
Depreciation and
amortization |
|
|
— |
|
|
|
42,430 |
|
|
|
|
|
|
|
Equity in loss in XM Radio |
|
|
— |
|
|
|
1,301 |
|
|
Changes in assets and liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventory |
|
|
— |
|
|
|
(2,287 |
) |
|
|
|
|
|
|
|
Prepaid in-orbit insurance |
|
|
— |
|
|
|
516 |
|
|
|
|
|
|
|
|
Accounts receivable — trade |
|
|
— |
|
|
|
(1,537 |
) |
|
|
|
|
|
|
|
Other current assets |
|
|
— |
|
|
|
4,639 |
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses |
|
|
— |
|
|
|
(5,820 |
) |
|
|
|
|
|
|
|
Deferred trade payables |
|
|
— |
|
|
|
11,685 |
|
|
|
|
|
|
|
|
Deferred items — net |
|
|
— |
|
|
|
8,038 |
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operations |
|
|
149,566 |
|
|
|
(50,892 |
) |
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions to property and equipment |
|
|
— |
|
|
|
(8,598 |
) |
|
|
|
|
|
|
Investment in XM Radio |
|
|
— |
|
|
|
(1,643 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
— |
|
|
|
(10,241 |
) |
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of Common Stock |
|
|
— |
|
|
|
284 |
|
|
|
|
|
|
|
Funding from parent |
|
|
(149,566 |
) |
|
|
— |
|
|
|
|
|
|
|
Principal payments under capital leases |
|
|
— |
|
|
|
(2,576 |
) |
|
|
|
|
|
|
Proceeds from bank financing |
|
|
— |
|
|
|
71,000 |
|
|
|
|
|
|
|
Payments on long-term debt |
|
|
— |
|
|
|
(6,180 |
) |
|
|
|
|
|
|
Debt issuance costs |
|
|
— |
|
|
|
(1,471 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities |
|
|
(149,566 |
) |
|
|
61,057 |
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents |
|
|
— |
|
|
|
(76 |
) |
|
|
|
|
|
|
CASH and CASH EQUIVALENTS, beginning of period |
|
|
— |
|
|
|
2,182 |
|
|
|
|
|
|
|
|
|
|
|
CASH and CASH EQUIVALENTS, end of period |
|
$ |
— |
|
|
$ |
2,106 |
|
|
|
|
|
|
|
|
|
|
F-53
QUARTERLY FINANCIAL DATA (unaudited)
(dollars in thousands, except for per share data)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1999-quarters |
|
1998-quarters (2) |
|
|
|
|
|
|
|
1st |
|
2nd |
|
3rd |
|
4th |
|
1st |
|
2nd |
|
3rd |
|
4th |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
20,230 |
|
|
$ |
22,873 |
|
|
$ |
22,970 |
|
|
$ |
24,998 |
|
|
$ |
10,022 |
|
|
$ |
22,410 |
|
|
$ |
21,802 |
|
|
$ |
32,987 |
|
|
|
|
|
|
|
Operating expenses(1) |
|
|
45,688 |
|
|
|
47,171 |
|
|
|
56,910 |
|
|
|
165,694 |
|
|
|
28,425 |
|
|
|
47,274 |
|
|
|
44,178 |
|
|
|
55,551 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations |
|
|
(25,458 |
) |
|
|
(24,298 |
) |
|
|
(33,940 |
) |
|
|
(140,696 |
) |
|
|
(18,403 |
) |
|
|
(24,864 |
) |
|
|
(22,376 |
) |
|
|
(22,564 |
) |
|
|
|
|
|
|
Interest and other income (expense) |
|
|
(14,191 |
) |
|
|
(14,998 |
) |
|
|
(17,146 |
) |
|
|
(11,129 |
) |
|
|
(6,497 |
) |
|
|
(14,099 |
) |
|
|
(13,922 |
) |
|
|
(14,881 |
) |
|
|
|
|
|
|
Unrealized loss on note receivable from XM Radio |
|
|
— |
|
|
|
(9,919 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
Unrealized (loss) gain on note payable to related party |
|
|
— |
|
|
|
10,036 |
|
|
|
(2,807 |
) |
|
|
(34,628 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
Minority Interest |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
7,067 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
Equity in loss of XM Radio |
|
|
(3,494 |
) |
|
|
(3,198 |
) |
|
|
— |
|
|
|
— |
|
|
|
(2,506 |
) |
|
|
(4,026 |
) |
|
|
(3,086 |
) |
|
|
(3,342 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before extraordinary item |
|
|
(43,143 |
) |
|
|
(42,377 |
) |
|
|
(53,893 |
) |
|
|
(179,386 |
) |
|
|
(27,406 |
) |
|
|
(42,989 |
) |
|
|
(39,384 |
) |
|
|
(40,787 |
) |
|
|
|
|
|
|
Extraordinary loss on extinguishment of debt |
|
|
— |
|
|
|
— |
|
|
|
(12,132 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
Net Loss |
|
|
(43,143 |
) |
|
|
(42,377 |
) |
|
|
(66,025 |
) |
|
|
(179,386 |
) |
|
|
(27,406 |
) |
|
|
(42,989 |
) |
|
|
(39,384 |
) |
|
|
(40,787 |
) |
|
|
|
|
|
|
Basic and Diluted Loss Per Share of common stock before
extraordinary item |
|
$ |
(1.34 |
) |
|
$ |
(1.31 |
) |
|
$ |
(1.18 |
) |
|
$ |
(3.70 |
) |
|
$ |
(1.09 |
) |
|
$ |
(1.36 |
) |
|
$ |
(1.24 |
) |
|
$ |
(1.27 |
) |
|
|
|
|
|
|
Basic and Diluted Loss Per Share extraordinary item |
|
|
— |
|
|
|
— |
|
|
$ |
(0.27 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
Basic and Diluted Net loss per common share(3) |
|
$ |
(1.34 |
) |
|
$ |
(1.31 |
) |
|
$ |
(1.45 |
) |
|
$ |
(3.70 |
) |
|
$ |
(1.09 |
) |
|
$ |
(1.36 |
) |
|
$ |
(1.24 |
) |
|
$ |
(1.27 |
) |
|
|
|
|
|
|
Weighted-average common shares outstanding during the period |
|
|
32,225 |
|
|
|
32,416 |
|
|
|
45,421 |
|
|
|
48,500 |
|
|
|
25,241 |
|
|
|
31,719 |
|
|
|
31,773 |
|
|
|
32,154 |
|
|
Market price per share(4) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High |
|
$ |
8.31 |
|
|
$ |
21.94 |
|
|
$ |
23.50 |
|
|
$ |
23.13 |
|
|
$ |
16.13 |
|
|
$ |
14.31 |
|
|
$ |
10.69 |
|
|
$ |
6.25 |
|
|
|
|
|
|
|
Low |
|
$ |
3.94 |
|
|
$ |
7.19 |
|
|
$ |
15.38 |
|
|
$ |
8.31 |
|
|
$ |
6.75 |
|
|
$ |
9.25 |
|
|
$ |
4.50 |
|
|
$ |
3.50 |
|
|
|
| (1) |
Operating expenses include charges of
approximately $4.2 million in the fourth quarter of 1999
related to the realizability of the Company’s inventory
investment. In addition, operating expenses include a $97.4
million charge in the fourth quarter of 1999 relating to the
impairment of the Company’s investment in the satellite and
related assets. See footnote 2 to the financial statements.
|
| |
| (2) |
The 1998 quarters were restated to record the
Company’s portion of XM Radio losses that were previously
suspended under the equity method. As a result of the XM
Acquisition, the Company was required to record the additional
losses. |
| |
| (3) |
Loss per share calculations for each of the
quarters are based on the weighted average number of shares
outstanding for each of the periods, and the sum of the quarters
is not equal to the full year loss per share amount. |
| |
| (4) |
The Company’s Common Stock is listed under
the symbol SKYC on the Nasdaq National Market System. The
quarterly high and low sales price represents the closing price
in the Nasdaq National Market System. The quotations represent
inter-dealer quotations, without retail markups, markdowns or
commissions, and may not necessarily represent actual
transactions. As of February 29, 2000, there were 325
stockholders of record of the Company’s Common Stock. |
F-54
Selected Financial Data
Set forth below is the selected financial data for the Company
for the five fiscal years ended December 31, 1999:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1999 |
|
1998 |
|
1997 |
|
1996 |
|
1995 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands, except for per share data) |
|
|
|
|
|
|
Revenues |
|
$ |
91,071 |
|
|
$ |
87,221 |
|
|
$ |
44,214 |
|
|
$ |
27,730 |
|
|
$ |
8,797 |
|
|
|
|
|
|
|
Net Loss |
|
|
(330,931 |
) |
|
|
(150,566 |
) |
|
|
(119,207 |
) |
|
|
(134,638 |
) |
|
|
(66,917 |
) |
|
|
|
|
|
|
Basic and diluted Loss per Common Share |
|
$ |
(8.33 |
) |
|
$ |
(4.94 |
) |
|
$ |
(4.74 |
) |
|
$ |
(5.38 |
) |
|
$ |
(2.69 |
) |
|
|
|
|
|
|
Dividends on Common Stock (1) |
|
|
None |
|
|
|
None |
|
|
|
None |
|
|
|
None |
|
|
|
None |
|
|
|
|
|
|
|
Consolidated Balance Sheet Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents |
|
$ |
51,474 |
|
|
$ |
2,285 |
|
|
$ |
2,106 |
|
|
$ |
2,182 |
|
|
$ |
8,865 |
|
|
|
|
|
|
|
System Under Construction |
|
|
357,278 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
Total Assets |
|
|
809,948 |
|
|
|
489,794 |
|
|
|
311,447 |
|
|
|
350,173 |
|
|
|
398,351 |
|
|
|
|
|
|
|
Current Liabilities |
|
|
81,645 |
|
|
|
44,971 |
|
|
|
59,433 |
|
|
|
57,669 |
|
|
|
104,772 |
|
|
|
|
|
|
|
Long-Term Liabilities |
|
|
470,784 |
|
|
|
481,846 |
|
|
|
205,883 |
|
|
|
133,804 |
|
|
|
6,052 |
|
|
|
|
|
|
|
Minority Interest |
|
|
274,745 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
Stockholders’ (Deficit) Equity |
|
|
(17,226 |
) |
|
|
(37,023 |
) |
|
|
46,131 |
|
|
|
158,700 |
|
|
|
287,527 |
|
|
|
| (1) |
The Company has paid no dividends on its Common Stock since
inception and does not plan to pay dividends on its Common Stock
in the foreseeable future. In addition, the payment of dividends
is subject to restrictions described in Note 8 to the financial
statements and discussed in Management’s Discussion and
Analysis. |
F-55
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To American Mobile Satellite Corporation
We have audited, in accordance with auditing standards generally
accepted in the United States, the consolidated financial
statements of American Mobile Satellite Corporation and
Subsidiaries (a Delaware corporation) included in this
Form 10-K and have issued our report thereon dated
March 15, 2000. Our audits were made for the purpose of
forming an opinion on the basic financial statements taken as a
whole. The schedule listed in Item 14 is the responsibility
of the Company’s management and is presented for purposes of
complying with the Securities and Exchange Commission’s
rules and is not part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in
the audits of the basic financial statements and, in our
opinion, fairly states, in all material respects, the financial
data required to be set forth therein in relation to the basic
financial statements taken as a whole.
/s/ Arthur Andersen LLP
Washington, D.C.,
March 15, 2000
S-1
SCHEDULE I
AMERICAN MOBILE SATELLITE CORPORATION
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
(Parent Company Only)
Condensed Balance Sheets
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
|
|
1999 |
|
1998 |
|
|
|
|
|
|
|
|
|
|
(in thousands) |
|
|
|
|
|
| ASSETS |
| |
|
|
|
|
|
|
Current portion of prepaid interest |
|
$ |
2,445 |
|
|
$ |
6,019 |
|
|
|
|
|
|
|
Other current assets |
|
|
123 |
|
|
|
— |
|
|
|
|
|
|
|
Long term portion of prepaid interest |
|
|
611 |
|
|
|
7,942 |
|
|
|
|
|
|
|
Restricted long-term investments |
|
|
12,429 |
|
|
|
10,760 |
|
|
|
|
|
|
|
Note payable from subsidiary |
|
|
14,000 |
|
|
|
— |
|
|
|
|
|
|
|
Investment in subsidiaries |
|
|
45,570 |
|
|
|
38,335 |
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
75,178 |
|
|
$ |
63,056 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| LIABILITIES AND STOCKHOLDERS’ DEFICIT |
| |
|
|
|
|
|
|
Accounts payable and accrued expenses |
|
$ |
1,266 |
|
|
$ |
79 |
|
|
|
|
|
|
|
Term Loan payable |
|
|
41,000 |
|
|
|
100,000 |
|
|
|
|
|
|
|
Note payable to related party |
|
|
50,138 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities |
|
|
92,404 |
|
|
|
100,079 |
|
|
|
|
|
|
|
Stockholders’ Deficit: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred Stock |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
Common Stock |
|
|
485 |
|
|
|
322 |
|
|
|
|
|
|
|
Additional paid-in capital |
|
|
844,181 |
|
|
|
508,084 |
|
|
|
|
|
|
|
Common stock purchase warrants |
|
|
63,290 |
|
|
|
59,108 |
|
|
|
|
|
|
|
Deferred compensation |
|
|
(6,536 |
) |
|
|
(1,528 |
) |
|
|
|
|
|
|
Unamortized guarantee warrants |
|
|
(18,384 |
) |
|
|
(33,678 |
) |
|
|
|
|
|
|
Accumulated loss |
|
|
(900,262 |
) |
|
|
(569,331 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total Stockholders’ Deficit |
|
|
(17,226 |
) |
|
|
(37,023 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders’ Deficit |
|
$ |
75,178 |
|
|
$ |
63,056 |
|
|
|
|
|
|
|
|
|
|
S-2
SCHEDULE I
AMERICAN MOBILE SATELLITE CORPORATION
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
(Parent Company Only)
Condensed Statements of Operations
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31, |
|
|
|
|
|
1999 |
|
1998 |
|
1997 |
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands) |
|
|
|
|
|
|
Management fees from wholly-owned subsidiary |
|
$ |
1,200 |
|
|
$ |
1,200 |
|
|
$ |
1,200 |
|
|
Operating Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing |
|
|
125 |
|
|
|
121 |
|
|
|
36 |
|
|
|
|
|
|
|
General and administrative |
|
|
850 |
|
|
|
1,066 |
|
|
|
1,129 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
975 |
|
|
|
1,187 |
|
|
|
1,165 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations |
|
|
225 |
|
|
|
13 |
|
|
|
35 |
|
|
|
|
|
|
|
Interest income |
|
|
4,536 |
|
|
|
8,472 |
|
|
|
31,625 |
|
|
|
|
|
|
|
Unrealized loss on note receivable from XM Radio |
|
|
(9,919 |
) |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
Unrealized loss on note payable to related party |
|
|
(27,399 |
) |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
Interest expense |
|
|
(10,129 |
) |
|
|
(8,298 |
) |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before net loss of subsidiaries |
|
|
(42,686 |
) |
|
|
187 |
|
|
|
31,660 |
|
|
|
|
|
|
|
Net loss of subsidiaries — Note A |
|
|
(276,113 |
) |
|
|
(150,753 |
) |
|
|
(150,867 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss before extraordinary item |
|
|
(318,799 |
) |
|
|
(150,566 |
) |
|
|
(119,207 |
) |
|
|
|
|
|
|
Extraordinary loss on debt extinguishment |
|
|
(12,132 |
) |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss |
|
$ |
(330,931 |
) |
|
$ |
(150,566 |
) |
|
$ |
(119,207 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
S-3
SCHEDULE I
AMERICAN MOBILE SATELLITE CORPORATION
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
(Parent Company Only)
Condensed Statements of Cash Flows
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31, |
|
|
|
|
|
1999 |
|
1998 |
|
1997 |
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands) |
|
|
|
|
|
|
Cash Provided from Operating Activities |
|
$ |
13,456 |
|
|
$ |
18,014 |
|
|
$ |
30,880 |
|
|
Investing Activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of XM Radio note receivable |
|
|
(21,419 |
) |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
Investment in XM Radio |
|
|
(3,351 |
) |
|
|
— |
|
|
|
(1,643 |
) |
|
|
|
|
|
|
Purchase of restricted securities |
|
|
(1,669 |
) |
|
|
(28,152 |
) |
|
|
— |
|
|
|
|
|
|
|
Advances to and investment in subsidiaries |
|
|
(77,473 |
) |
|
|
(98,764 |
) |
|
|
(29,521 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash used in investing activities |
|
|
(103,912 |
) |
|
|
(126,916 |
) |
|
|
(31,164 |
) |
|
Financing Activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from the issuance of Warrants |
|
|
— |
|
|
|
8,490 |
|
|
|
— |
|
|
|
|
|
|
|
Proceeds from reduction of interest rate swap |
|
|
6,009 |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
Proceeds from note payable to related party |
|
|
21,500 |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
Debt issuance costs |
|
|
(306 |
) |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
Proceeds (repayment of) Term Facility |
|
|
(59,000 |
) |
|
|
100,000 |
|
|
|
— |
|
|
|
|
|
|
|
Proceeds from sale of Common Stock |
|
|
122,253 |
|
|
|
412 |
|
|
|
284 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Provided by Financing Activities |
|
|
90,456 |
|
|
|
108,902 |
|
|
|
284 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase for the period |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
Beginning of period |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
End of period |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
S-4
SCHEDULE I
AMERICAN MOBILE SATELLITE CORPORATION
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
(Parent Company Only)
Notes to Condensed Financial Statements
Note A — Background and Basis of Presentation
American Mobile Satellite Corporation (the “Company”
or, with its subsidiaries, “American Mobile” ) was
incorporated on May 1988, and until 1996, was a development
stage company, engaged primarily in the design, development,
construction, deployment and financing of a mobile satellite
communication system. American Mobile has expanded its network
through acquisitions over the last several years. In late 1996,
American Mobile expanded its mobile data messaging service
through the acquisition of Rockwell International
Corporation’s dual mode mobile messaging and global
positioning and monitoring service. On March 31, 1998,
American Mobile acquired ARDIS Company (“ARDIS”), a
wholly-owned subsidiary of Motorola, Inc., that owns and operates
a terrestrial two-way wireless data communications network. With
these acquisitions, American Mobile became a leading provider of
nationwide wireless communications services, including data,
dispatch, and voice services, primarily to business customers in
the United States. American Mobile offers a broad range of
end-to-end wireless solutions utilizing a seamless network
consisting of the nation’s largest, most fully deployed
terrestrial wireless data network and a satellite in
geosynchronous orbit. Combined, American Mobile refers to these
as the network.
As of March 15, 2000, the Company had an equity interest in
XM Satellite Radio Holdings Inc. (“XM Radio”) of
approximately 34.4% (25.5% on a fully diluted basis); however,
the Company continues to control XM Radio through its Board of
Director membership and common stock voting rights. The Company
will continue to consolidate XM Radio until the Company no longer
controls XM Radio. The Company must request and receive FCC
approval to relinquish control of XM Radio. As a result of
acquiring the outstanding debt and equity interest in XM Radio
from the other investor (“the XM Acquisition”), XM
Radio’s financial results for the period July 7, 1999,
to December 31, 1999, have been included in the
Company’s Consolidated Financial Statements. Prior to
July 7, 1999, the Company’s investment in XM Radio was
accounted for pursuant to the equity method of accounting. The
operations and financing of XM Radio are maintained separate and
apart from the operations and financing of American Mobile. XM
Radio completed its initial public offering in October 1999.
Please refer to XM Radio’s audited financial statements,
included in its reports and filings with the SEC, for more detail
about its business plan, risks, and financial results.
In the Parent Company-only condensed financial statements, the
Company’s investment in subsidiaries is stated at cost less
losses of subsidiaries. The net loss of subsidiaries is based on
the equity method of accounting. Certain amounts have been
reclassified from prior years to reflect the push down of
interest expense related to the Revolving Credit Facility (see
below) held by its subsidiaries. The Company has entered into
various transactions with its subsidiaries which have not been
eliminated in the December 31, 1999, 1998, and 1997 audited
condensed financial statements and are summarized as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1999 |
|
1998 |
|
1997 |
|
|
|
|
|
|
|
|
Investment in and amounts due from subsidiaries |
|
$ |
45,570 |
|
|
$ |
38,335 |
|
|
$ |
46,167 |
|
|
|
|
|
|
|
Management fees |
|
|
1,200 |
|
|
|
1,200 |
|
|
|
1,200 |
|
|
|
|
|
|
|
Interest income |
|
|
3,982 |
|
|
|
7,712 |
|
|
|
29,520 |
|
|
|
|
|
|
|
Interest expense allocated to subsidiaries |
|
|
4,211 |
|
|
|
3,804 |
|
|
|
6,005 |
|
Note B — Investment in Subsidiaries and Liquidity
and Financing Requirements
As stated in Note A, the Company records its investment in
subsidiaries on the equity method. In connection with the ARDIS
Acquisition, the Company formed a new wholly-owned subsidiary
(“Acquisition Company”) to hold the stock of all
current wholly-owned operating subsidiaries. The Acquisition
Company has four
S-5
AMERICAN MOBILE SATELLITE CORPORATION
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
(Parent Company Only)
Notes to Condensed Financial
Statements — (Continued)
wholly-owned subsidiaries. Additionally, the Company has an
equity investment in XM Radio. The recoverability of such
investments is subject to the risks associated with expanding a
developing business. Specifically, future operating results will
be subject to significant business, economic, regulatory,
technical, and competitive uncertainties and contingencies.
Depending on their extent and timing, these factors, individually
or in the aggregate, could have an adverse effect on the
Subsidiaries’ financial condition and future results of
operations.
Adequate liquidity and capital are critical to the ability of
American Mobile to continue as a going concern and to fund
subscriber acquisition programs necessary to achieve positive
cash flow and profitable operations. American Mobile expects to
continue to make significant capital outlays for the foreseeable
future to fund interest expense, capital expenditures and working
capital prior to the time that it begins to generate positive
cash flow from operations and for the foreseeable future
thereafter.
American Mobile is party to the following debt financings:
(i) a bank financing consisting of a $100 million
Revolving Credit Facility issued by AMSC Acquisition Company,
Inc. (“Acquisition Company”), and guaranteed by the
Company, maturing March 31, 2003, and a $100 million
Term Loan Facility issued by the Company which matures
March 31, 2003 with up to three one-year extensions subject
to lender approval. On August 3, 1999, the Company raised
$116 million, net of underwriting discounts and expenses,
through the issuance of 7.0 million shares of its common
stock in a public offering. As required by the terms of the bank
facility, $59 million of the proceeds from this issuance of
common stock was used to pay down, and permanently reduce, a
portion of the term loan facility. As a result of the partial pay
down of the term loan facility, the Company recorded an
extraordinary loss on extinguishment of debt of approximately
$12.1 million, which reflects the write-off, on a pro-rata
basis, of warrants held by certain shareholder guarantors of the
bank financings and deferred financing fees associated with the
placement of the bank financings. As of February 29, 2000,
the Company had $41 million outstanding under the term loan
facility at a rate of 7.1875% and the Acquisition Company had
$69 million outstanding under the revolving credit facility
at rates ranging from 6.9375% to 7.1875%.
In connection with the bank financings, the Bank Facility
Guarantors extended separate guarantees of the obligations of
each of the Acquisition Company and the Company to the banks,
which on a several basis aggregated to $200 million. In
their agreement with each of the Acquisition Company and the
Company (the “Guarantee Issuance Agreement”), the Bank
Facility Guarantors agreed to make their guarantees available for
the bank financings. In exchange for the additional risks
undertaken by the Bank Facility Guarantors, the Company agreed to
compensate the Bank Facility Guarantors, principally in the form
of 1 million additional warrants and re-pricing of
5.5 million warrants previously issued in connection with
the original bank facility (together, the “Guarantee
Warrants”). The Guarantee Warrants were issued with an
exercise price of $12.51 and were valued at approximately
$17.7 million. The amounts initially assigned to the
Guarantee Warrants and subsequent repricings are recorded as
Common Stock Purchase Warrants and Unamortized Guarantee Warrants
in the accompanying balance sheets. The amount assigned to
Unamortized Guarantee Warrants is amortized to interest expense
over the life of the related debt. On March 29, 1999, the
Bank Facility Guarantors agreed to eliminate certain covenants
contained in the Guarantee Issuance Agreement relating to
earnings before interest, depreciation, amortization and taxes
(“EBITDA”) and service revenues. In exchange for this
elimination of covenants, the Company agreed to re-price their
Guarantee Warrants, effective April 1, 1999, from $12.51 to
$7.50. The value of the re-pricing was approximately
$1.5 million.
As a result of the automatic application of certain adjustment
provisions following the issuance of the 7.0 million shares
of common stock of the Company in a public offering, described
above, the exercise price of the Guarantee Warrants was reduced
to $7.3571 per share and the Guarantee Warrants became
exercisable
S-6
AMERICAN MOBILE SATELLITE CORPORATION
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
(Parent Company Only)
Notes to Condensed Financial
Statements — (Continued)
for an additional 126,250 shares. The additional Guarantee
Warrants and re-pricing were valued at $2.4 million.
On March 31, 1998, Acquisition Company issued
$335 million of units consisting of 12 1/4% Senior
Notes due 2008 (the “Senior Notes”), and one warrant to
purchase 3.75749 shares of Common Stock. As a result of the
August 1999 common stock offering and the automatic
application of certain adjustment provisions, the exercise price
of the warrants associated with the Senior Notes was reduced to
$12.28 per share, the number of shares per warrant was increased
to 3.83 shares for each $1,000 principle amount of Senior Notes,
and the aggregate number of shares issuable upon exercise of such
warrants was increased by 24,294. The additional Senior Note
warrants and re-pricing were valued at $440,000 and recorded as
additional debt discount. The Senior Notes are fully guaranteed
by the Company.
Additionally, Motorola has entered into an agreement with the
Acquisition Company to provide up to $10 million of vendor
financing (the “Vendor Financing Commitment”), to
finance up to 75% of the purchase price of additional network
base stations. Loans under this facility bear interest at a rate
equal to LIBOR plus 7.0% and will be guaranteed by the Company
and each subsidiary of the Acquisition Company. The terms of the
facility require that amounts borrowed be secured by the
equipment purchased therewith. Advances made during a quarter
constitute a loan, which is then amortized on a quarterly basis
over three years. As of December 31, 1999 and 1998,
$4.5 million and $1.6 million, respectively, was
outstanding under this facility at interest rates ranging from
12.07% to 13.0838%.
American Mobile’s current operating assumptions and
projections reflect management’s best estimate of subscriber
and revenue growth and operating expenses. American Mobile
anticipates that capital expenditures, operating losses, working
capital and debt service requirements through 2000, and beyond,
can be met by (i) borrowings available under the bank
financing and the vendor financing, (ii) proceeds from the
exercise of stock options and warrants, and (iii) additional
debt or equity financing transactions. The Company also believes
that its investment in XM Radio may provide the Company, in the
future, with flexibility for obtaining additional liquidity,
should that be necessary. However, there are various restrictions
on the Company’s ability to realize liquidity on its
investment in XM Radio. American Mobile’s ability to meet
its projections is subject to numerous uncertainties and there
can be no assurance that American Mobile’s current
projections regarding the timing of its ability to achieve
positive operating cash flow will be accurate. If American
Mobile’s cash requirements are more than projected, American
Mobile may require additional financing in amounts which may be
material. The type, timing and terms of financing selected by the
American Mobile will be dependent upon its cash needs, the
availability of other financing sources and the prevailing
conditions in the financial markets. The Company cannot guarantee
that additional financing sources will be available at any given
time or available on favorable terms.
XM Radio is operated, managed, and funded separately from the
Company. While the Company does not have any obligation or
commitments to provide additional funding to XM Radio, and does
not expect to provide such funding, it may choose to provide
additional financing in the future. XM Radio is currently
exploring several financing arrangements, which may include
selling debt or equity securities or obtaining loans from
commercial banks or other financial institutions (See Note
D — Subsequent Events). The failure of XM Radio to
obtain required financing could have a material adverse effect on
the value of the Company’s investment in XM Radio.
In January 1999 the Company issued to Baron Asset Fund
(“Baron”), a stockholder and guarantor of our bank
facility, a $21.5 million note convertible into shares of
common stock of XM Radio ( the “Convertible Note Payable to
Related Party” or “Baron XM Radio Convertible
Note”). The Company subsequently loaned approximately
$21.4 million to XM Radio in exchange for XM Radio Common
Stock and a note convertible into XM Radio shares (the “XM
Radio Note Receivable”). On October 8, 1999, XM Radio
S-7
AMERICAN MOBILE SATELLITE CORPORATION
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
(Parent Company Only)
Notes to Condensed Financial
Statements — (Continued)
completed its initial public offering of 10.2 million shares of
Class A common stock, which triggered the conversion of the
XM Radio Note Receivable into approximately 1.5 million
shares of XM Radio Class B common stock. The Baron XM Radio
Convertible Note ranks subordinate to all other debt securities
of the Company and is fully collateralized by shares of XM Radio.
The Baron XM Radio Convertible Note accrues interest at the rate
of 6% annually, with all payment deferred until maturity,
December 31, 2004, or extinguished upon conversion. The
Company has opted to satisfy the Baron XM Radio Convertible Note
by tendering the shares into which it would have been convertible
in lieu of any cash payments. In January 2000, Baron
exchanged this note into shares of XM Radio. See Note
D — Subsequent Events.
The Baron XM Radio Convertible note is indexed to XM Radio stock
and thus the $50.1 million recorded in the condensed
consolidated balance sheet at December 31, 1999 reflects
management’s best estimate of the fair value of the Baron XM
Radio Convertible Note. Changes in the fair value of the Baron
XM Radio Convertible Note are reflected in the accompanying
condensed statement of operations as an unrealized gain or loss
on note payable to related party. Due to the significant increase
in value of XM Radio stock, the Company recorded an unrealized
loss of $27.4 million for the year ended December 31,
1999 on the Baron XM Radio Convertible Note. Prior to the XM
Radio acquisition, the Company also recorded the XM Radio Note
Receivable at management’s best estimate of its fair value,
and as a result, recorded an unrealized loss on the XM Radio Note
Receivable of $9.9 million for the year ended December 31,
1999.
In connection with XM Radio’s October 8, 1999 stock
offering, discussed above, and in accordance with Staff
Accounting Bulletin (“SAB”) 51, the Company recorded a
$80.7 million increase to its investment in XM Radio. SAB 51
addresses the accounting for sales of stock by a subsidiary.
Because XM Radio is a development stage company, SAB 51 requires
the difference in the carrying amount of the Company’s
investment in XM Radio and the net book value of XM Radio after
the stock issuance be reflected in the financial statements of
the Company as a capital transaction in the accompanying
financial statements.
Note C — Guarantees
The Company has guaranteed various obligations of Acquisition
Company. These guaranteed obligations include amounts borrowed
under the Revolving Credit Facility, Vendor Financing Commitment,
and obligations of Acquisition Company and its subsidiaries
under certain vendor financing agreements, office lease
agreements and various capital equipment leases.
All wholly owned subsidiaries of the Company are subject to
financing agreements that limit the amount of cash dividends and
loans that can be advanced to the Company. At December 31,
1999, all of the subsidiaries’ net assets were restricted
under these agreements. These restrictions will have an impact on
the Company’s ability to pay dividends.
Note D — Subsequent Events
In the first quarter of 2000, XM Radio completed a supplemental
stock offering of 4.4 million shares of Class A Common
Stock, at $32 per share, and 2.0 million shares of newly
designated Series B convertible redeemable preferred stock,
at $50 per share. The Series B convertible redeemable
preferred stock provides for 8.25% cumulative dividends that may
be paid in Class A common stock or cash. The Series B
convertible redeemable preferred stock is convertible into
Class A common stock at a conversion price of $40 per share
and is redeemable in Class A common stock on
February 3, 2003. Net proceeds from this stock offering were
approximately $228.5 million.
S-8
AMERICAN MOBILE SATELLITE CORPORATION
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
(Parent Company Only)
Notes to Condensed Financial
Statements — (Continued)
In connection with this stock offering and in accordance with SAB
51, discussed above, the Company will record an increase to its
Investment in XM Radio in the first quarter of 2000 to reflect
the increase in the net book value of XM Radio. This gain will be
reflected in the financial statements as a capital transaction.
On January 13, 2000, Baron notified the Company of its
intention to exchange the Baron XM Radio Convertible Note for
1,314,914 shares of XM Radio Satellite Class B stock. The
exchange of the convertible note will result in a first quarter
2000 gain of approximately $37 million computed as the
difference in the carrying value of the Baron XM Radio
Convertible Note and the Company’s cost basis in XM Radio
stock exchanged upon conversion of this note.
In March 2000, XM Radio completed a high yield debt offering
of 325,000 units, each unit consisting of
$1,000 principal amount of 14% Senior Secured Notes due
2010 and one warrant to purchase 8.024815 shares of Class A
common stock of XM Radio at an exercise price of $49.50 per
share. XM Radio realized net proceeds of $191.0 million,
excluding $123.0 million used to acquire securities which
will be used to pay interest payments due under the notes for the
first three years.
As a result of the conversion of the Baron XM Radio Convertible
Note, the supplemental stock offering by XM Radio, and XM
Radio’s high yield debt offering, the Company’s voting
interest in XM Radio was further reduced to 61.0%, while its
equity interest was reduced to 34.4%, or 25.5% on a fully diluted
basis. The Company will continue to consolidate XM Radio’s
financial results with those of the Company for the same reasons
discussed in Note A above.
S-9
