SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
Commission file number 0-23044
AMERICAN MOBILE SATELLITE CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 93-0976127
(State or other (I.R.S. Employer
jurisdiction of Identification No.)
incorporation or
organization)
10802 Parkridge Boulevard
Reston, VA 20191-5416
(Address of principal (Zip Code)
executive offices)
(703) 758-6000
(Registrant's telephone number,
including area code)
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
Number of shares of Common Stock outstanding at April 30, 1998: 30,582,782
PART I-FINANCIAL INFORMATION
Item 1. Financial Statements
AMERICAN MOBILE SATELLITE CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF LOSS
(in thousands, except per share data)
(Unaudited)
1998 1997
---- ----
REVENUES
Services $6,418 $4,153
Sales of equipment 3,604 4,532
------ ------
Total Revenues 10,022 8,685
COSTS AND EXPENSES:
Cost of service and operations 7,728 8,873
Cost of equipment sold 3,881 5,442
Sales and advertising 3,022 3,221
General and administrative 3,631 4,868
Depreciation and amortization 10,163 9,937
------ -----
Operating Loss (18,403) (23,656)
INTEREST EXPENSE (6,638) (4,370)
INTEREST AND OTHER INCOME 141 945
EQUITY IN LOSS OF AMRC (342) --
------ ------
NET LOSS ($25,242) ($27,081)
========= =========
BASIC AND DILUTED LOSS PER SHARE OF COMMON STOCK ($1.00) ($1.08)
WEIGHTED-AVERAGE COMMON SHARES 25,241 25,109
OUTSTANDING DURING THE PERIOD (000's)
See notes to consolidated condensed financial statements.
PART I-FINANCIAL INFORMATION
Item 1. Financial Statements (continued)
AMERICAN MOBILE SATELLITE CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(In thousands)
(Unaudited)
March 31, December 31,
ASSETS 1998 1997
---- ----
CURRENT ASSETS:
Cash and cash equivalents $21,279 $2,106
Inventory 38,554 40,321
Accounts receivable-trade, net 11,477 8,140
Restricted cash-current portion 41,038 --
Prepaid in-orbit insurance 2,889 4,564
Other current assets 21,288 9,608
------- ------
Total current assets 136,525 64,739
PROPERTY AND EQUIPMENT - NET 264,261 233,174
GOODWILL 67,616 --
DEFERRED CHARGES AND OTHER ASSETS-NET 34,164 13,534
RESTRICTED CASH - NON-CURRENT 82,962 --
------- -------
Total assets $585,528 $311,447
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses 28,042 $35,861
Obligations under capital leases due within one year 4,133 798
Current portion of long-term debt 21,932 15,254
Other current liabilities 7,626 7,520
------- -------
Total current liabilities 61,733 59,433
LONG-TERM LIABILITIES:
Obligations under Bank Financing 100,000 198,000
Obligations under Senior Notes, net 326,510 --
Capital lease obligations 12,005 3,147
Net assets acquired in excess of purchase price 2,550 2,725
Other long-term debt 1,126 1,364
Other long-term liabilities 610 647
------- -------
Total long-term liabilities 442,801 205,883
------- -------
Total liabilities 504,534 265,316
------- -------
STOCKHOLDERS' EQUITY:
Preferred Stock, par value $0.01: no shares issued -- --
Common Stock, voting, par value $0.01 317 252
Additional paid-in capital 501,757 451,892
Common Stock purchase warrants 62,547 36,338
Unamortized guarantee warrants (39,621) (23,586)
Retained loss (444,006) (418,765)
--------- ---------
Total stockholders' equity 80,994 46,131
--------- ---------
Total liabilities and stockholders' equity $585,528 $311,447
======== ========
See notes to consolidated condensed financial statements.
PART I-FINANCIAL INFORMATION
Item 1. Financial Statements (continued)
AMERICAN MOBILE SATELLITE CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
Three Months Ended
March 31
------------------------
1998 1997
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ($25,242) ($27,081)
Adjustments to reconcile net loss to net cash used
in operating activities:
Amortization of guarantee warrants, debt discount and issuance costs 2,524 1,754
Depreciation and amortization 10,163 9,937
Equity in loss from AMRC 342 --
Changes in assets and liabilities:
Inventory 1,986 (3,483)
Prepaid in-orbit insurance 1,675 1,693
Trade accounts receivable 3,744 (1,480)
Other current assets (661) 1,051
Accounts payable and accrued expenses (12,197) (9,070)
Deferred trade payables 6,436 --
Deferred items - net 293 (37)
-------- --------
Net cash used in operating activities (10,937) (26,716)
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (1,126) (3,574)
Acquisition of ARDIS (51,382) --
Purchase of restricted cash securities (123,000) --
Purchase of interest swap agreement (17,892) --
Investment in AMRC -- (3,000)
--------- -------
Net cash used in investing activities (193,400) (6,574)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of Common Stock 103 141
Proceeds from issuance of Common Stock of AMRC -- 1,500
Principal payments under capital leases (135) (952)
Proceeds from Bank Financing 2,000 35,000
Repayment of Bank Financing (100,000) --
Proceeds from bridge financing 10,000 --
Repayment of bridge financing (10,000) --
Proceeds from Senior Notes and Warrants 335,000 --
Payments on long-term debt -- (3,000)
Debt issuance costs (13,458) (9)
-------- -------
Net cash provided by financing activities 223,510 32,680
Net increase (decrease) in cash and cash equivalents 19,173 (610)
CASH AND CASH EQUIVALENTS, beginning of period 2,106 2,182
------ ------
CASH AND CASH EQUIVALENTS, end of period $21,279 $1,572
======= =======
See notes to consolidated condensed financial statements.
PART I-FINANCIAL INFORMATION
Item 1. Financial Statements (continued)
AMERICAN MOBILE SATELLITE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
March 31, 1998
(Unaudited)
1. Organization and Business
- ----------------------------
American Mobile Satellite Corporation (with its subsidiaries, "American Mobile"
or the "Company") was incorporated on May 3, 1988, by eight of the initial
applicants for the mobile satellite services license, following a determination
by the Federal Communications Commission ("FCC") that the public interest would
be best served by granting the license to a consortium of all willing, qualified
applicants. The FCC has authorized American Mobile to construct, launch, and
operate a mobile satellite services system (the "Satellite Network ") to provide
a full range of mobile voice and data 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, U.S. coastal
waters, international waters and airspace and any foreign territory where the
local government has authorized the provision of service. In March 1991,
American Mobile Satellite Corporation transferred the mobile satellite services
license ("MSS license") to a wholly owned subsidiary, American Mobile Subsidiary
Corporation ("AMSC Subsidiary"). On April 7, 1995, the Company successfully
launched its first satellite ("MSAT-2"), from Cape Canaveral, Florida.
On December 31, 1997, the Company (through its newly-formed, wholly-owned
subsidiary, AMSC Acquisition Company, Inc. ("Acquisition Company"), entered into
a Stock Purchase Agreement (the "Purchase Agreement") with Motorola, Inc.
("Motorola"), for the acquisition (the "Acquisition") of ARDIS Company
("ARDIS"), a wholly-owned subsidiary of Motorola that owns and operates a
two-way wireless data communications network. On March 3, 1998, the FCC granted
consent to consummate the Acquisition, and on March 31, 1998, the Acquisition
and related financing were completed. The Company, through the acquisition of
ARDIS, becomes a nationwide provider of wireless communications services,
including data, dispatch, and voice services, primarily to business customers in
the United States.
On October 16, 1997, American Mobile Radio Corporation, an indirect subsidiary
of American Mobile through its subsidiary AMRC Holdings, Inc. (together with
American Mobile Radio Corporation, "AMRC"), was awarded a license by the FCC to
provide satellite-based Digital Audio Radio Service ("DARS") throughout the
United States, following its successful $89.9 million bid at auction on April 2,
1997. AMRC has and will continue to receive funding for this business from an
independent source in exchange for debt and an equity interest in AMRC.
Accordingly, it is not expected that the development of this business will have
a material impact on the Company's financial position, results of operations, or
cash flows.
American Mobile is devoting its efforts to expanding a developing business. This
effort involves substantial risk, including successfully integrating ARDIS.
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.
2. Significant Accounting Policies
- -----------------------------------
Basis of Presentation
- ---------------------
The unaudited consolidated condensed financial statements included herein have
been prepared pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. While the Company believes
that the disclosures made are adequate to make the information not misleading,
these consolidated financial statements should be read in conjunction with the
consolidated financial statements and related notes included in the Company's
1997 Annual Report on Form 10-K.
The consolidated balance sheet as of March 31, 1998, and the consolidated
statements of loss and cash flows for the three months ended March 31, 1998 and
1997, have been prepared by the Company without audit. In the opinion of
management, all adjustments (consisting of normal recurring adjustments)
necessary to present fairly the financial position, result of operations and
cash flows at March 31, 1998, and for all periods presented have been made. The
balance sheet at December 31, 1997 has been taken from the audited financial
statements.
Acquisition
- -----------
Subject to certain purchase price adjustment provisions, the Company acquired
ARDIS for a purchase price of $50 million in cash and $50 million in the
Company's Common Stock and warrants (the "Purchase Price"). Approximately $11.5
million of the shares that are issuable to Motorola are contingent upon
stockholer approval at the May 20, 1998 annual meeting of stockholders. These
have been included in the purchase price shares since holders of approximately
76% of the Company's Common Stock have entered into an agreement with Motorola
to approve the issuance of the additional shares. The purchase method of
accounting for business combinations was used for the recording of the
Acquisition. The operating results of ARDIS have not been included in the
Company's consolidated statements of loss, since the Acquisition occurred on
March 31, 1998; however, the balance sheet of ARDIS as of March 31, 1998 has
been included in the consolidated balance sheet of the Company. The Company's
preliminary estimate of the excess of the purchase price over the fair value of
net assets acquired is $67.6 million. The Company has not specifically
identified amounts to assign to certain intangibles and licenses; changes in the
amounts allocated to such assets could result in changes to the amount of
goodwill recorded. A preliminary amortization period of twenty years has been
selected for the pro forma financial information, which is expected in all
material respects to be representative of the amortization expense that will
result from the ultimate allocation to the specific intangible assets.
The unaudited pro forma results give effect to (i) the Acquisition, (ii) the
Offering and (iii) the New Bank Financing as if such transactions had been
consummated on January 1 of each of the periods presented.
Three Months Ended
March 31,
(dollars in thousands, except per share data) 1998 1997
-------- --------
Revenues $19,954 $19,513
Net loss $(38,849) $(41,257)
Loss per share $(1.23) $(1.32)
Weighted-average shares outstanding 31,503 31,371
Net Loss Per Share
- ------------------
Basic and diluted loss per common share is based on the weighted-average number
of shares of Common Stock outstanding during the period. Stock options and
common stock purchase warrants are not reflected since their effect would be
antidilutive.
Recently Adopted Accounting Pronouncements
- ------------------------------------------
In June 1997, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive
Income," and SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information." The Company adopted SFAS No. 130 during the three month
period ended March 31, 1998.
SFAS No. 130 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 "total comprehensive income" for the
three months ended March 31, 1997 and 1998.
SFAS No. 131 requires an entity to disclose financial and descriptive
information about its reportable operating segments. It also establishes
standards for related disclosures about products and services, geographic areas,
and major customers. SFAS No. 131 is not required for interim financial
reporting purposes during 1998. The Company is in the process of assessing the
additional disclosures, if any, required by SFAS No. 131. However, such adoption
will not impact the Company's results of operations or financial position, since
it relates only to disclosures.
Other
- -----
The Company paid approximately $1.5 million and $1.1 million in the three-month
periods ended March 31, 1998 and 1997, respectively, to related parties for
capital assets, service-related obligations, and payments under pre-existing
agreements. Payments from related parties for communication services and
equipment purchases totaled $1.1 million in the three-month period ended March
31, 1998 and $471,000 million in the three-month period ended March 31, 1997.
Total indebtedness to related parties as of March 31, 1998 approximated $3.1
million.
3. Liquidity and Financing
- ---------------------------
$335 Million Unit Offering
- --------------------------
In connection with the Acquisition, discussed above, the Company, through
Acquisition Company, issued $335 million of Units (the "Units") consisting of 12
1/4% Senior Notes due 2008 (the "Notes"), and Warrants to purchase shares of
Common Stock of the Company. Each Unit consists of $1,000 principal amount of
Notes and one Warrant to purchase 3.75749 shares of Common Stock 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 Acquisition. In connection
with the Notes, the Company has purchased approximately $113.0 million of
pledged securities that are intended to provide for the payment of the first six
interest payments on the Notes. The Company incurred approximately $15 million
in costs associated with the placement of the Notes and the Acquisition.
Interest payments are due semi-annually, in arrears, beginning October 1, 1998.
New Bank Financing
- ------------------
In connection with the Acquisition, the Company, the Acquisition Company and its
subsidiaries restructured the existing $200 million Bank Financing (the "Bank
Financing") to provide for two facilities: (i) the Revolving Credit Facility, a
$100 million unsecured five-year reducing revolving credit facility, 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. The
Revolving Credit Facility bears an interest rate, generally, of 50 basis points
above LIBOR and is unsecured, with a negative pledge on the assets of the
Acquisition Company and its subsidiaries ranking pari passu with the 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 maturity of March
31, 2003. Borrowings under the Revolving Credit Facility are subject to certain
conditions beginning in the fourth quarter of 1998. In the event the Company is
unable to borrow amounts under the Revolving Credit Facility, the Company's cash
needs will significantly exceed its available resources, which would have a
material adverse effect on the Company. The Revolving Credit Facility ranks pari
passu with the Notes. The Term Loan Facility is secured by the assets of the
Company, principally its stockholdings in AMRC and the Acquisition Company, and
will be effectively subordinated to the Revolving Credit Facility and the Notes.
The New Bank Financing is severally guaranteed by Hughes Electronics Corporation
("Hughes"), Singapore Telecommunications Ltd. ("Singapore Telecom") and Baron
Capital Partners, L.P. (the "Bank Facility Guarantors"). 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
repricing of 5.5 million warrants previously issued (together, the "Guarantee
Warrants"). The Guarantee Warrants have an exercise price of $12.51 and have
been valued at approximately $17.7 million. As of April 30, 1998, the Company
had outstanding borrowings of $100 million of the Term Loan Facility at 6.51%,
and $5.0 million under the Revolving Credit Facility at 6.1875%.
In connection with the New Bank Financing, the Company entered into an interest
rate swap agreement. 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, the Company will
receive an amount equal to LIBOR plus 50 basis points, paid on a quarterly
basis, on a notional amount of $100 million until the termination date of March
31, 2001. The Company has reflected as an asset the fee paid for the swap
agreement in the accompanying financial statements. 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.
Motorola Vendor Financing
- -------------------------
Motorola has agreed to provide the Acquisition Company with up to $10.0 million
of vendor financing (the "Vendor Financing Commitment"), which will be available
to finance up to 75% of the purchase price of additional network base stations.
Loans under this facility will 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 such facility will require that amounts borrowed be
secured by the equipment purchased therewith. This commitment is subject to
customary conditions, including due diligence, and there can be no assurance
that the facility will be obtained by the Acquisition Company on these terms or
at all. No amounts were outstanding under this facility as of April 30, 1998.
The Company believes the proceeds from the issuance of the Notes, net of cash
used for the Acquisition, together with the borrowings under the New Bank
Financing and the Vendor Financing Commitment, will be sufficient to fund
operating losses, capital expenditures, working capital, and scheduled principal
and interest payments on debt through 1998 and beyond; however, 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, and that the
Company will not need additional financing in the future.
AMRC
- ----
As previously mentioned (see "Organization and Business"), AMRC was a winning
bidder for, and on October 16, 1997, was awarded an FCC license to provide DARS
throughout the United States. AMRC has and will continue to receive funding for
this business from an independent source in exchange for debt and an equity
interest in AMRC. Accordingly, it is not expected that the development of this
business will have a material impact on the Company's financial position,
results of operations, or cash flows. The Company's equity interest in AMRC may,
however, even on a fully diluted basis, become a material asset of the Company.
Summarized financial information for AMRC as of March 31, 1998, and for the
three months ended March 31, 1998 and 1997, and for the period from December 15,
1992 (date of inception) through March 31, 1998 is set forth below.
December 15, 1992
Three Months through
dollars in thousands Ended March 31, March 31,
--------------- ---------
1998 1997 1998
---- ---- -----
Gross sales $ -- $ -- $ --
Operating expenses 1,367 -- 2,477
Loss from operations 1,367 -- 2,477
Interest expense 39 -- 588
Net loss 1,406 -- 3,065
As of As of
March 31, December 31,
1998 1997
----- ----
Current assets $ -- $ --
Noncurrent assets 99,194 91,933
Current liabilities 4,696 82,949
Noncurrent liabilities 86,921 --
Total stockholders' equity 7,577 8,983
Deferred Trade Payables
- -----------------------
In the last quarter of 1997 and the first quarter of 1998, the Company arranged
the financing of certain trade payables, and as of March 31, 1998, $18.1 million
of deferred trade payables were outstanding at rates ranging from 6.23% to 14%
and are generally payable by the end of 1998.
Purchase and Lease Agreement
- ----------------------------
As previously disclosed, the Company has entered into certain agreements to
acquire a one-half ownership interest in TMI Communications and Company, Limited
Partnership's ("TMI") satellite, MSAT-1, at a cost of $60 million payable over a
five-year period, as well as entered into a five-year lease of the Company's
satellite, MSAT-2, with African Continental Telecommunications Ltd. ("ACTEL")
that provides for aggregate lease payments to the Company of $182.5 million.
Closing under the agreements is subject to a number of conditions, including:
United States and Canadian regulatory approvals, a successful financing by ACTEL
of at least $120 million, and completion of certain satellite testing, inversion
and relocation activities with respect to AMSC-1. It is anticipated that the
closing under both the purchase and lease agreements will occur simultaneously
in the third quarter of 1998.
4. 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 owneship and operation of American Mobile's (MSS) system and ARDIS'
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 that spectrum. American Mobile and ARDIS
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. While the
Company believes that substantial progress has been made in the coordination
process and expects that the United States government will be successful in
securing the necessary spectrum, the process is not yet complete. 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.
American Mobile is authorized to build, launch and operate three geosynchronous
satellites in accordance with a specified 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
a 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 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.
As a provider of interstate telecommunications services, the Company is required
to contribute to the FCC's universal service fund, which supports the provision
of telecommunication services to high-cost areas, and establishes funding
mechanisms to support the provision of service to schools, libraries and rural
health care providers. The regulation became effective on January 1, 1998. This
cost is not born by the Company, but is passed on to its customers as is
universally practiced in the industry.
On June 5, 1996, the FCC waived its one-year construction requirement and
granted ARDIS extensions of time to complete the buildouts of approximately 190
sites, as required to maintain previously granted licenses. As of April 30,
1998, ARDIS intends but has yet to construct 94 of these sites. The extended
construction deadlines vary by site between June 27, 1998 and March 31, 1999.
Failure to complete the buildouts in a timely manner could result in a loss of
licenses for such sites from the FCC. In addition, at 11 of 104 uncompleted
sites ARDIS is required to erect a new tower, and there is no assurance that
local zoning regulations will not affect the timetable for the completion of
these sites.
In 1992, a former director of American Mobile filed an Amended Complaint against
the Company alleging violations of the Communications Act of 1934, as amended,
and of the Sherman Act and breach of contract. The suit seeks damages for not
less than $100 million trebled under the antitrust laws plus punitive damages,
interest, attorneys fees and costs. In mid-1992, the Company filed its response
denying all allegations. The Company's motion for summary judgment, filed on
March 31, 1994, was denied on April 18, 1996. The trial in this matter has been
postponed to a date to be determined in 1998. Management believes that the
ultimate outcome of this matter will not be material to the Company's financial
position, results of operations or cash flows.
5. Other Matters
- -----------------
At March 31, 1998, the Company had remaining contractual commitments to purchase
both mobile data terminal inventory and mobile telephone inventory in the
maximum amount of $6.4 million.
6. AMSC Acquisition Company Financial Statements
- -------------------------------------------------
In connection with the Acquisition and related financing discussed above, the
Company formed a new wholly-owned subsidiary, AMSC Acquisition Company, Inc.
("Acquisition Company"). The Company transferred all of its inter-company notes
receivables from and its rights, title and interests in AMSC Subsidiary
Corporation, American Mobile Satellite Sales Corporation, and AMSC Sales Corp.
Ltd. to Acquisition Company, and AMSC Acquisition Company, Inc. was the acquirer
of ARDIS and the issuer of the $335 million of Senior Notes. American Mobile
Satellite Corporation ("Parent") has guaranteed the Senior Notes. The Senior
Notes contain covenants that, among other things, limit the ability of
Acquisition Company 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.
Major differences between the financial statements of Parent and Acquisition
Company include (i) as of the Acquisition, the Term Loan Facility is an
obligation of Parent and, as such, the related debt and interest costs are not
included in the Acquisition Company financial statements for the period ended
and as of March 31, 1998, as discussed in Note 3, and (ii) certain intercompany
management fees and expenses between the Parent and Acquisition Company that are
not eliminated at the Acquisition Company level.
The combined condensed financial statements of Acquisition Company are set forth
below.
AMSC Acquisition Company, Inc.
Combined Condensed Statements of Loss
(dollars in thousands)
(Unaudited)
Three Months Ended
March 31,
1998 1997
--------- --------
REVENUES
Services $6,418 $4,173
Sales of equipment 3,604 4,532
------ ------
Total Revenues 10,022 8,705
COSTS AND EXPENSES:
Cost of service and operations 7,728 8,873
Cost of equipment sold 3,881 5,442
Sales and advertising 2,993 3,221
General and administrative 3,659 4,777
Depreciation and amortization 10,689 10,463
------ ------
Operating Loss (18,928) (24,071)
INTEREST AND OTHER INCOME 141 945
INTEREST EXPENSE (13,826) (11,622)
-------- --------
NET LOSS $(32,613) $(34,748)
========= =========
AMSC Acquisition Company, Inc.
Combined Condensed Balance Sheets
(dollars in thousands)
(Unaudited)
March 31, December 31,
ASSETS 1998 1997
---- ----
CURRENT ASSETS:
Cash and cash equivalents $21,279 $2,106
Inventory 38,554 40,321
Accounts receivable-trade, net of allowance for doubtful accounts 11,477 8,140
Restricted cash-current portion 41,038 --
Prepaid in-orbit insurance 2,889 4,564
Other current assets 15,324 9,608
------- -------
Total current assets 130,561 64,739
PROPERTY AND EQUIPMENT - NET 280,894 250,335
GOODWILL - NET 67,616 --
RESTRICTED CASH - Non-Current 72,962 --
DEFERRED CHARGES AND OTHER ASSETS - NET 33,823 36,722
------- -------
Total assets $585,856 $351,796
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $27,990 $35,825
Obligations under capital leases due within one year 4,133 798
Current portion of long-term debt 21,932 15,254
Other current liabilities 7,626 7,520
-------- --------
Total current liabilities 61,681 59,397
DUE TO PARENT -- 441,836
LONG-TERM LIABILITIES:
Obligations under Bank Financing -- 198,000
Senior Notes, net of discount 326,510 --
Capital lease obligations 12,005 3,147
Other long-term debt 1,126 1,364
Net assets acquired in excess of purchase price (Note 12) 2,550 2,725
Other long-term liabilities 610 647
-------- --------
Total long-term liabilities 342,801 205,883
Total liabilities 404,482 707,116
------- -------
STOCKHOLDERS' EQUITY: 181,374 (355,320)
------- ---------
Total liabilities and stockholders' equity $585,856 $351,796
======== ========
AMSC Acquisition Company, Inc.
Combined Condensed Statements of Cash Flows
(dollars in thousands)
(Unaudited)
Three Months Ended
March 31,
--------------------------------
1998 1997
---- ----
CASH FLOWS USED IN OPERATING ACTIVITIES:
Net loss $(32,613) $(35,598)
Adjustments to reconcile net loss to net cash used in
operating activities:
Amortization of debt discount 2,524 1,754
Depreciation and amortization 10,689 10,463
Changes in assets and liabilities:
Inventory 1,986 (3,483)
Prepaid in-orbit insurance 1,675 1,693
Trade accounts receivable 3,744 (1,480)
Other current assets (661) 1,051
Accounts payable and accrued expenses (12,182) (9,065)
Deferred trade payables 6,436 --
Deferred items - net 293 --
------- ------
Net cash used in operating activities (18,109) (34,665)
CASH FLOWS USED IN INVESTING ACTIVITIES:
Additions to property and equipment (1,126) (3,574)
Acquisition of ARDIS (51,382) --
Purchase of restricted cash securities (113,050) --
--------- ------
Net cash used in investing activities (165,508) (3,574)
CASH FLOWS FROM FINANCING ACTIVITIES:
Funding from Parent (12,127) 6,590
Principal payments under capital leases (135) (952)
Proceeds from Bank Financing 2,000 35,000
Repayment of Bank Financing (100,000) --
Proceeds from bridge financing 10,000 --
Repayment of bridge financing (10,000) --
Proceeds from Senior Notes 326,510 --
Payments on long-term debt -- (3,000)
Debt issuance costs (13,458) (9)
-------- -------
Net cash provided by financing activities 202,790 37,629
Net increase (decrease) in cash and cash equivalents 19,173 (610)
CASH AND CASH EQUIVALENTS, beginning of period 2,106 2,182
-------- -------
CASH AND CASH EQUIVALENTS, end of period $21,279 $1,572
======== =======
PART I-FINANCIAL STATEMENTS
Item 2. Management's Discussion and Analysis of
Interim Financial Condition and Results of Operations
This Quarterly Report on Form 10-Q includes "forward-looking statements" within
the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. Such statements are identified by the use of
forward-looking words or phrases including, but not limited to, "believes,"
"intended," "will be positioned," "expects," "expected," "estimates,"
"anticipates" and "anticipated." These forward-looking statements are based on
the Company's current expectations. All statements other than statements of
historical facts included in this Annual Report, including those regarding the
Company's financial position, business strategy, projected costs and financing
needs, and plans and objectives of management for future operations, are
forward-looking statements. Although the Company believes that the expectations
reflected in such forward-looking statements are reasonable, there can be no
assurance that such expectations will prove to have been correct. Because
forward-looking statements involve risks and uncertainties, the Company's actual
results could differ materially. Important factors that could cause actual
results to differ materially from the Company's expectations ("Cautionary
Statements") are disclosed under "Business" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations," and elsewhere in
this Annual Report, including, without limitation, in conjunction with the
forward-looking statements included in this Annual Report. These forward-looking
statements represent the Company's judgment as of the date hereof and readers
are cautioned not to place undue reliance on these forward-looking statements.
All subsequent written and oral forward-looking statements attributable to the
Company or persons acting on behalf of the Company are expressly qualified in
their entirety by the Cautionary Statements. Readers should carefully review the
risk factors described in other documents the Company files from time to time
with the Securities and Exchange Commission, including the Form 10-K Annual
Report filed on March 31, 1998, the Form 10-K/A Amended Annual Report filed on
April 15, 1998, the Current Report on Form 8-K filed on April 15, 1998, and Form
10-Q Quarterly Reports to be filed by the Company subsequent to this Form 10-Q
Quarterly Report and any Current Reports on Form 8-K and registration statements
filed by the Company.
General
- -------
The following discussion and analysis provides information which management
believes 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 Satellite Corporation 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. On December 31, 1997, the Company (through its
newly-formed subsidiary AMSC Acquisition Company, Inc. ("Acquisition Company")),
entered into a Stock Purchase Agreement (the "Purchase Agreement") with
Motorola, Inc. ("Motorola"), for the acquisition (the "Acquisition") of ARDIS
Company ("ARDIS"), a wholly-owned subsidiary of Motorola that owns and operates
a two-way wireless data communications network. On March 3, 1998, the FCC
granted consent to consummate the Acquisition. On March 31, 1998, the
Acquisition and related financing were completed. See "Liquidity and Capital
Resources." With the acquisition of ARDIS, the Company becomes 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 (the "ARDIS Network") and a
satellite in geosynchronous orbit (the "Satellite Network") (together, the
"Network").
In connection with the Acquisition, the Company and its subsidiaries entered
into agreements with respect to the following financings and refinancings: (1)
$335 million of Units; (2) the restructuring of its existing $200 million
Revolving Credit Facility and Term Loan Facility (collectively, the "New Bank
Financings"); and (3) $10 million commitment with respect to Motorola vendor
financing. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Liquidity and Capital Resources." Additionally, in
connection with the Acquisition and related financing, the Company transferred
all of its rights, title and interests in AMSC Subsidiary Corporation, American
Mobile Satellite Sales Corporation, and AMSC Sales Corp. Ltd. (together,
"American Mobile Subsidiaries") to Acquisition Company.
On October 16, 1997, American Mobile Radio Corporation, an indirect subsidiary
of American Mobile through its subsidiary AMRC Holdings, Inc. (together with
American Mobile Radio Corporation, "AMRC"), was awarded a license by the FCC to
provide satellite-based Digital Audio Radio Service ("DARS") throughout the
United States, following its successful $89.9 million bid at auction on April 2,
1997. The operations and financing of AMRC are maintained separate and apart
from the operations and financing of American Mobile (see "Liquidity and
Financing").
Management believes the period to period comparison of the Company's financial
results are not necessarily meaningful and should not be relied upon as an
indication of future operating performance due to the Company's historically
high growth rate and the acquisition of ARDIS.
Overview
- --------
Each of American Mobile and ARDIS has incurred significant operating losses and
negative cash flows in each year since it commenced operations, due primarily to
start-up costs, the costs of developing and building each network and the cost
of developing, selling and providing its respective products and services. The
Company is, and will continue to be, highly leveraged. As of March 31, 1998, the
Company had indebtedness of approximately $465.7 million.
The Company's future operating results could be adversely affected by a number
of uncertainties and factors, including (i) the timely completion and deployment
of future products and related services, including among other things,
availability of mobile telephones, data terminals and other equipment to be used
with the Network ("Subscriber Equipment") being manufactured by third parties
over which the Company has limited control, (ii) the market's acceptance of the
Company's services, (iii) the ability and the commitment of the Company's
distribution channels to market and distribute the Company's services, (iv) the
Company's ability to modify its organization, strategy and product mix to
maximize the market opportunities in light of changes therein, (v) competition
from existing companies that provide services using existing communications
technologies and the possibility of competition from companies using new
technology in the future, (vi) capacity constraints arising from the
reconfiguration of MSAT-2, subsequent anomalies affecting MSAT-2 and MSAT-1, or
the power management recommendation affecting both MSAT-2 and MSAT-1 previously
reported, (vii) additional technical anomalies that may occur within the
Satellite Network, including those relating to MSAT-1 and MSAT-2, which could
impact, among other things, the operation of the Satellite Network and the cost,
scope or availability of in-orbit insurance, (viii) subscriber equipment
inventory responsibilities and liabilities assumed by the Company including the
ability of the Company to realize the value of its inventory in a timely manner,
(ix) the Company's ability to secure additional financing as may be necessary,
(x) the Company's ability to respond and react to changes in its business and
the industry as a result of being highly leveraged, (xi) the ability of the
Company to successfully integrate ARDIS and to achieve certain business
synergies, and (xii) the ability of the Company to manage growth effectively.
As of March 31, 1998, there were approximately 85,200 units on the Network.
Quarter Ended March 31, 1998 and 1997
- -------------------------------------
Service revenues, which include both the Company's voice and data services,
approximated $6.4 million for the quarter ended March 31, 1998 as compared to
$4.2 million for the same period in 1997 and represents a 52% increase year over
year. Service revenue from voice services increased 78% from approximately $1.8
million in the first quarter of 1997 to approximately $3.2 million in the
comparable period of 1998. The $1.4 million increase was primarily a result of
an 85% increase in voice customers during the first quarter of 1998 as compared
to the comparable period in 1997. Service revenue from the Company's data
services approximated $2.3 million in the first quarter of 1998, as compared to
$1.6 million for the comparable quarter of 1997, an increase of $700,000 or 44%.
The increase was primarily a result of a 25% increase in data units. Service
revenue from capacity resellers, who handle both voice and data services,
approximated $805,000 in the first quarter of 1998, as compared to $518,000 for
the first quarter of 1997, an increase of $287,000 or 55%. As of March 31, 1998
and 1997, receivables relating to service revenues were $4.0 million and $3.0
million, respectively.
Revenue from the sale of mobile data terminals and mobile telephones decreased
20% from $4.5 million in the first quarter of 1997 to $3.6 million in the first
quarter of 1998. The decrease was primarily attributable to reduced sales of
voice products, as well as certain price reductions made in the first quarter of
1998. As of March 31, 1998 and 1997, receivables relating to equipment revenue
were $2.5 million and $7.0 million respectively.
Cost of service and operations for the first quarter of 1998, which includes
costs to support subscribers and to operate the Satellite Network, were $7.7
million for 1998 and $8.9 million for the same period of 1997. Cost of service
and operations for the first quarter of 1998 and 1997, as a percentage of
revenues, were 77% and 102%, respectively. The decrease in cost of service and
operations was primarily attributable to a reduction in information technology
costs affected by dramatically reducing the dependence on outside consultants,
offset by increased interconnect charges associated with increased service
usage.
The cost of equipment sold decreased 28% from $5.4 million in the first quarter
of 1997 to $3.9 million for the same period in 1998. The dollar decrease in the
cost of equipment sold is primarily attributable to (i) a corresponding decrease
in voice equipment sales and (ii) the impact of the inventory valuation
allowance recorded in the fourth quarter of 1997.
Sales and advertising expenses were $3.0 million in the first quarter of 1998,
compared to $3.2 million for the same period in 1997. Sales and advertising
expenses as a percentage of revenue were 30% in the first quarter of 1998 and
37% in the first quarter of 1997. The decrease of sales and advertising expenses
was primarily attributable to a reduction in subscriber acquisition costs as the
first quarter marketing and promotional initiatives were put on hold pending the
Acquisition. It is anticipated that these costs will increase as the Company
rolls out new marketing programs associated with the new corporate strategy.
General and administrative expenses for the first quarter of 1998 were $3.6
million, compared to $4.9 million in the first quarter of 1997. As a percentage
of revenue, general and administrative expenses represented 36% in the first
quarter of 1998 and 56% in the first quarter of 1997. The decrease in general
and administrative expenses for 1998 compared to 1997 was primarily attributable
to (i) a $775,000 reduction in personnel expenses as a result of deferred hiring
decisions and (ii) a $371,000 reduction in insurance premiums, primarily related
to the negotiation of better rates on certain key insurance policies.
Depreciation and amortization expense was $10.2 million and $9.9 million for the
first quarter of 1998 and 1997, respectively, representing approximately 101%
and 114% of revenue for the first quarter of 1998 and 1997, respectively.
The increase in depreciation and amortization expense was attributable to
depreciation on newly-acquired assets.
Interest and other income was $141,000 for the first quarter of 1998 compared to
$945,000 for the same period in 1997. The decrease was a result of other income
in the amount of $875,000 representing proceeds from the licensing of certain
technology associated with the Satellite Network received in the first quarter
of 1997, offset by a $100,000 increase in interest income earned on certain
escrowed monies. The Company incurred $6.6 million of interest expense in the
first quarter of 1998 compared to $4.4 million for the same period in 1997,
reflecting (i) the amortization of debt discount and debt offering costs in the
amount of $2.5 million in 1998, compared to $1.8 million in 1997, and (ii)
higher outstanding loan balances as compared to 1997.
Interest expense in the first quarter of 1998 was significant as a result of
borrowings under the Bank Financing, as well as the amortization of borrowing
costs incurred in conjunction with securing the facility. It is anticipated that
interest costs will continue to be significant as a result of the Bank
Financing, Bridge Financing, and Acquisition, (see "Liquidity and Capital
Resources").
Net capital expenditures, including additions financed through vendor financing
arrangements, for the first quarter of 1998 for property and equipment were $
1.1 million compared to $1.8 million for the same period in 1997. The decrease
was largely attributable to the reduction in the acquisition of assets necessary
to complete the satellite network.
Liquidity and Capital Resources
- -------------------------------
$335 Million Unit Offering
- --------------------------
In connection with the Acquisition, discussed above, the Company, through
Acquisition Company, issued $335 million of Units (the "Units") consisting of 12
1/4% Senior Notes due 2008 (the "Notes"), and Warrants to purchase shares of
Common Stock of the Company. Each Unit consists of $1,000 principal amount of
Notes and one Warrant to purchase 3.75749 shares of Common Stock 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 Acquisition. In connection
with the Notes, the Company has purchased approximately $113.0 million of
pledged securities that are intended to provide for the payment of the first six
interest payments on the Notes. The Company incurred approximately $15 million
in costs associated with the placement of the Notes and the Acquisition.
Interest payments are due semi-annually, in arrears, beginning October 1, 1998.
New Bank Financing
- ------------------
In connection with the Acquisition, the Company, the Acquisition Company and its
subsidiaries restructured the existing $200 million Bank Financing (the "Bank
Financing") to provide for two facilities: (i) the Revolving Credit Facility, a
$100 million unsecured five-year reducing revolving credit facility, 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. The
Revolving Credit Facility bears an interest rate, generally, of 50 basis points
above LIBOR and is unsecured, with a negative pledge on the assets of the
Acquisition Company and its subsidiaries ranking pari passu with the 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 maturity of March
31, 2003. Borrowings under the Revolving Credit Facility are subject to certain
conditions beginning in the fourth quarter of 1998. In the event the Company is
unable to borrow amounts under the Revolving Credit Facility, the Company's cash
needs will significantly exceed its available resources, which would have a
material adverse effect on the Company. The Revolving Credit Facility ranks pari
passu with the Notes. The Term Loan Facility is secured by the assets of the
Company, principally its stockholdings in AMRC and the Acquisition Company, and
will be effectively subordinated to the Revolving Credit Facility and the Notes.
The New Bank Financing is severally guaranteed by Hughes Electronics Corporation
("Hughes"), Singapore Telecommunications Ltd. ("Singapore Telecom") and Baron
Capital Partners, L.P. (the "Bank Facility Guarantors"). 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
repricing of 5.5 million warrants previously issued (together, the "Guarantor
Warrants"). The Guarantee Warrants have an exercise price of $12.51 and have
been valued at approximately $17.7 million. As of April 30, 1998, the Company
had outstanding borrowings of $100 million of the Term Loan Facility at 6.51%,
and $5.0 million under the Revolving Credit Facility at 6.1875%.
In connection with the New Bank Financing, the Company entered into an interest
rate swap agreement. 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, the Company will
receive an amount equal to LIBOR plus 50 basis points, paid on a quarterly
basis, on a notional amount of $100 million until the termination date of March
31, 2001. The Company has reflected as an asset the fee paid for the swap
agreement in the accompanying financial statements. 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.
Motorola Vendor Financing
- -------------------------
Motorola has agreed to provide the Acquisition Company with up to $10.0 million
of vendor financing (the "Vendor Financing Commitment"), which will be available
to finance up to 75% of the purchase price of additional network base stations.
Loans under this facility will 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 such facility will require that amounts borrowed be
secured by the equipment purchased therewith. This commitment is subject to
customary conditions, including due diligence, and there can be no assurance
that the facility will be obtained by the Acquisition Company on these terms or
at all. No amounts were outstanding under this facility as of April 30, 1998.
The Company believes the proceeds from the issuance of the Notes, net of cash
used for the Acquisition, together with the borrowings under the New Bank
Financing and the Vendor Financing Commitment, will be sufficient to fund
operating losses, capital expenditures, working capital, and scheduled principal
and interest payments on debt through 1998 and beyond; however, 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, and that the
Company will not need additional financing in the future.
AMRC
- ----
As previously mentioned (see "Organization and Business"), AMRC was a winning
bidder for, and on October 16, 1997, was awarded an FCC license to provide DARS
throughout the United States. AMRC has and will continue to receive funding for
this business from an independent source in exchange for debt and an equity
interest in AMRC. Accordingly, it is not expected that the development of this
business will have a material impact on the Company's financial position,
results of operations, or cash flows. The Company's equity interest in AMRC may,
however, even on a fully diluted basis, become a material asset of the Company.
Deferred Trade Payables
- -----------------------
In the last quarter of 1997 and the first quarter of 1998, the Company arranged
the financing of certain trade payables, and as of March 31, 1998, $18.1 million
of deferred trade payables were outstanding at rates ranging from 6.23% to 14%
and are generally payable by the end of 1998.
Purchase and Lease of Satellite
- -------------------------------
As previously disclosed, the Company has entered into certain agreements to
acquire a one-half ownership interest in TMI Communications and Company, Limited
Partnership's ("TMI") satellite, MSAT-1, at a cost of $60 million payable over a
five-year period, as well as entered into five-year lease of the Company's
satellite, MSAT-2, with African Continental Telecommunications Ltd. that
provides for aggregate lease payments to the Company of $182.5 million. Closing
under the agreements is subject to a number of conditions, including: United
States and Canadian regulatory approvals, a successful financing by ACTEL of at
least $120 million, and completion of certain satellite testing, inversion and
relocation activities with respect to AMSC-1. It is anticipated that the closing
under both the purchase and lease agreements will occur simultaneously in
the third quarter of 1998.
Other
- -----
At March 31, 1998, the Company had remaining contractual commitments to purchase
both mobile data terminal inventory and mobile telephone inventory approximating
$6.4 million.
Cash used in operating activities for the first quarter of 1998 was $10.9
million as compared to $26.7 million for the first quarter of 1997. The decrease
in cash used in operating activities was primarily attributable to (i) decreased
operating losses, and (ii) decreased inventory and accounts receivable balances.
Cash used by investing activities was $193.4 million for the first quarter of
1998 compared to $6.6 million during the first quarter of 1997. The increase was
primarily attributable to the acquisition of ARDIS and the funding of certain
escrows required in connection with the Acquisition. Cash provided by financing
activities was $223.5 million during the first quarter of 1998 as compared to
$32.7 million during the first quarter of 1997, reflecting (i) the proceeds from
the Notes Bank, offset by (ii) the repayment of a portion of the Bank Financing
and (iii) payment of financing fees associated with the acquisition of the
Notes. As of March 31, 1998, the Company had $21.3 million of cash and cash
equivalents and working capital of $71.4 million.
Other Matters
- -------------
In June 1997, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive
Income," and SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information." The Company adopted SFAS No. 130 standards during the
three month period ended March 31, 1998.
SFAS No. 130 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 "total comprehensive income" for the
three months ended March 31, 1997 and 1998.
SFAS No. 131 requires an entity to disclose financial and descriptive
information about its reportable operating segments. It also establishes
standards for related disclosures about products and services, geographic areas,
and major customers. SFAS No. 131 is not required for interim financial
reporting purposes during 1998. The Company is in the process of assessing the
additional disclosures, if any, required by SFAS No. 131. However, such adoption
will not impact the Company's results of operations or financial position, since
it relates only to disclosures.
PART II -- OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
3.1 - Restated Certificate of Incorporation of AMSC (as restated
effective May 1, 1996) (Incorporated by reference to Exhibit 3.1
to the Company's Quarterly Report on Form 10-Q for the periods
ending March 31,1996 and June 30, 1996 (File No. 0-23044))
3.2 - Amended and Restated Bylaws of AMSC (as amended and restated
effective February 29, 1996) (Incorporated by reference to
Exhibit 3.2 to the Company's Annual Report on Form 10-K for the
fiscal year ending December 31, 1995 (File No. 0-23044))
4.1 - 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 even date herewith.)
4.2 - 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 even date herewith.)
4.3 - Unit Agreement Among American Mobile Satellite Corporation, 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 even date herewith.)
4.4 - Warrant Agreement between American Mobile Satellite Corporation
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 even date herewith.)
4.5 - Warrant Registration Rights Agreement dated March 31, 1998 By and
Among American Mobile Satellite Corporation 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 even date
herewith.)
4.6 - 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 even date herewith.)
10.65 - 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
Satellite Corporation, 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)).
10.65(a) - Amendment No. 1dated 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 Satellite Corporation
(Incorporated by reference to Exhibit 4.2 to the Schedule 13D
dated March 31, 1998, filed by Motorola, Inc.)
10.66 - Participation Rights Agreement by and among Motorola, Inc.,
American Mobile Satellite Corporation, and the parties listed on
Schedule A, dated as of December 31, 1997 (Incorporated by
reference to Exhibit 10.66 previously filed with the Report on
Form 10-K for the period ending December 31, 1997 (File No.
0-23044)).
10.67 - Registration Rights Agreement by and among Motorola, Inc.,
American Mobile Satellite Corporation 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.)
10.68 - 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. )
10.69 - Warrant for the Purchase of Shares of Common Stock of American
Mobile Satellite Corporation, 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. )
10.70 - Amended and Restated Registration Rights Agreement, dated as of
March 31, 1998, among American Mobile Satellite Corporation 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.)
10.71 - 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. )
10.72 - Term Credit Agreement dated as of March 31, 1998 among American
Mobile Satellite Corporation, Morgan Guaranty Trust Company of
New York, Toronto Dominion (Texas), Inc. and other banks party
thereto (filed herewith.)
10.73 - Revolving Credit Agreement dated as of March 31, 1998 among AMSC
Acquisition Company, Inc., American Mobile Satellite Corporation,
Morgan Guaranty Trust Company of New York and Toronto Dominion
(Texas), Inc. and other banks party thereto (filed herewith.)
11.1 - Computations of Earning Per Common Share (filed herewith)
27.0 - Financial Data Schedule (filed herewith)
(b) Reports on Form 8-K:
On April 15, 1998, the Company filed a Current Report on Form 8-K,
describing in response to Item 2-Acquisition or Disposition of Assets,
the acquisition of ARDIS Company from Motorola, Inc.
SIGNATURE
Pursuant to the requirements 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
(Registrant)
Date: May 14, 1998 By:/s/STEPHEN D. PECK
--------------------------------------------
Stephen D. Peck
Vice President and Chief Financial Officer
(principal financial and accounting officer)
EXHIBIT INDEX
Number Description
3.1 - Restated Certificate of Incorporation of AMSC (as restated
effective May 1, 1996) (Incorporated by reference to Exhibit 3.1
to the Company's Quarterly Report on Form 10-Q for the periods
ending March 31,1996 and June 30, 1996 (File No. 0-23044))
3.2 - Amended and Restated Bylaws of AMSC (as amended and restated
effective February 29, 1996) (Incorporated by reference to
Exhibit 3.2 to the Company's Annual Report on Form 10-K for the
fiscal year ending December 31, 1995 (File No. 0-23044))
4.1 - 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 even date herewith.)
4.2 - 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 even date herewith.)
4.3 - Unit Agreement Among American Mobile Satellite Corporation, 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 even date herewith.)
4.4 - Warrant Agreement between American Mobile Satellite Corporation
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 even date herewith.)
4.5 - Warrant Registration Rights Agreement dated March 31, 1998 By and
Among American Mobile Satellite Corporation 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 even date
herewith.)
4.6 - 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 even date herewith.)
10.65 - 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
Satellite Corporation, 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)).
10.65(a) - Amendment No. 1dated 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 Satellite Corporation
(Incorporated by reference to Exhibit 4.2 to the Schedule 13D
dated March 31, 1998, filed by Motorola, Inc.)
10.66 - Participation Rights Agreement by and among Motorola, Inc.,
American Mobile Satellite Corporation, and the parties listed on
Schedule A, dated as of December 31, 1997 (Incorporated by
reference to Exhibit 10.66 previously filed with the Report on
Form 10-K for the period ending December 31, 1997 (File No.
0-23044)).
10.67 - Registration Rights Agreement by and among Motorola, Inc.,
American Mobile Satellite Corporation 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.)
10.68 - 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. )
10.69 - Warrant for the Purchase of Shares of Common Stock of American
Mobile Satellite Corporation, 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. )
10.70 - Amended and Restated Registration Rights Agreement, dated as of
March 31, 1998, among American Mobile Satellite Corporation 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.)
10.71 - 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. )
10.72 - Term Credit Agreement dated as of March 31, 1998 among American
Mobile Satellite Corporation, Morgan Guaranty Trust Company of
New York, Toronto Dominion (Texas), Inc. and other banks party
thereto (filed herewith.)
10.73 - Revolving Credit Agreement dated as of March 31, 1998 among AMSC
Acquisition Company, Inc., American Mobile Satellite Corporation,
Morgan Guaranty Trust Company of New York and Toronto Dominion
(Texas), Inc. and other banks party thereto (filed herewith.)
11.1 - Computations of Earning Per Common Share (filed herewith)
27.0 - Financial Data Schedule (filed herewith)