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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16 OR
15d-16 OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE MONTH OF OCTOBER 2001
COMMISSION FILE NO. 333-8880
SATELITES MEXICANOS, S.A. DE C.V.
BLVD. M. AVILA CAMACHO NO. 40
COL. LOMAS DE CHAPULTEPEC
11000 MEXICO, D.F.
MEXICO
(525) 201-0800
The registrant files annual reports under cover of Form 20-F.
The registrant is not furnishing the information contained in this form to
the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of
1934.
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SATELITES MEXICANOS, S.A. de C.V.
FINANCIAL INFORMATION
INDEX
<Table>
<Caption>
PAGE
----
Financial Statements (Unaudited):
Condensed Balance Sheets as of September 30, 2001 and
December 31, 2000...................................... 2
Condensed Statements of Operations for the three and nine
months ended September 30, 2001 and 2000............... 3
Condensed Statements of Cash Flows for the nine months
ended September 30, 2001 and 2000...................... 4
Notes to Unaudited Condensed Financial Statements......... 5
Operating and Financial Review and Prospects................ 8
</Table>
1
SATELITES MEXICANOS, S.A. DE C.V.
(SUBSIDIARY OF SERVICIOS CORPORATIVOS SATELITALES, S.A. DE C.V.)
CONDENSED BALANCE SHEETS
(Amounts in thousands of U.S. dollars )
<Table>
<Caption>
SEPTEMBER 30, DECEMBER 31,
2001 2000
------------- ------------
(UNAUDITED) (NOTE)
ASSETS
Current assets:
Cash and cash equivalents................................. $ 15,821 $ 24,625
Restricted and segregated cash............................ 182,078
Insurance proceeds receivable (Note 1).................... 235,338
Accounts receivable, net.................................. 3,793 7,902
Prepaid insurance......................................... 4,157 7,312
Due from related parties.................................. 5,544 2,525
Deferred income taxes..................................... 2,364
---------- ----------
Total current assets.............................. 213,757 277,702
Satellites and equipment, net............................... 388,563 354,422
Concessions, net............................................ 466,747 476,426
Prepaid insurance, non current.............................. 4,035 6,597
Deferred financing costs, net............................... 6,505 8,195
Other assets................................................ 431 235
---------- ----------
Total assets...................................... $1,080,038 $1,123,577
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt...................... $ 1,000 $ 1,000
Accounts payable.......................................... 5,403 4,919
Accrued expenses.......................................... 7,815 11,332
Due to related parties.................................... 4,194 9,928
Interest payable.......................................... 5,678 14,610
Deferred revenue -- customers............................. 1,019 3,957
Deferred revenue -- Mexican government.................... 2,200 2,200
Deferred income taxes..................................... 8,590
---------- ----------
Total current liabilities......................... 27,309 56,536
Accrued expenses, non current............................... 15,181 15,181
Deferred revenue -- Mexican government...................... 77,285 78,935
Deferred income taxes....................................... 15,173 10,205
Long-term debt.............................................. 555,250 571,000
---------- ----------
Total liabilities................................. 690,198 731,857
---------- ----------
Commitments and contingencies (Note 6)
Stockholders' equity:
Common stock.............................................. 383,171 382,040
Preferred stock........................................... 31,886 31,886
Accumulated deficit....................................... (25,217) (22,206)
---------- ----------
Total stockholders' equity........................ 389,840 391,720
---------- ----------
Total liabilities and stockholders' equity........ $1,080,038 $1,123,577
========== ==========
</Table>
---------------
Note: The December 31, 2000 balance sheet has been derived from the audited
financial statements at that date.
See notes to unaudited condensed financial statements.
2
SATELITES MEXICANOS, S.A. DE C.V.
(SUBSIDIARY OF SERVICIOS CORPORATIVOS SATELITALES, S.A. DE C.V.)
CONDENSED STATEMENTS OF OPERATIONS
(Amounts in thousands of U.S. dollars)
(Unaudited)
<Table>
<Caption>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- -------------------
2001 2000 2001 2000
-------- -------- -------- --------
Service revenue...................................... $ 30,906 $ 34,979 $ 97,610 $101,232
-------- -------- -------- --------
Operating expenses:
Satellite operations............................... 4,906 4,890 14,881 14,465
Selling and administrative expenses................ 5,793 5,360 16,457 15,311
License and management fees........................ 765 1,878 2,764 4,095
Depreciation expense and amortization of
concessions..................................... 11,859 14,082 35,388 44,876
-------- -------- -------- --------
23,323 26,210 69,490 78,747
-------- -------- -------- --------
Operating income..................................... 7,583 8,769 28,120 22,485
Gain on in-orbit failure of Solidaridad 1............ 103,114 103,114
Interest income...................................... 1,948 292 7,752 1,095
Interest expense and amortization of deferred
financing costs.................................... (13,187) (16,732) (43,838) (49,935)
Net foreign exchange gain (loss)..................... 124 (151) 100 (160)
-------- -------- -------- --------
Income (loss) before income taxes.................... (3,532) 95,292 (7,866) 76,599
Deferred income tax benefit (expense)................ 9,268 (33,912) 5,986 (29,958)
-------- -------- -------- --------
Net income (loss).................................... 5,736 61,380 (1,880) 46,641
Preferred stock dividend requirement................. (377) (377) (1,131) (1,131)
-------- -------- -------- --------
Net income (loss) applicable to common
stockholders....................................... $ 5,359 $ 61,003 $ (3,011) $ 45,510
======== ======== ======== ========
</Table>
See notes to unaudited condensed financial statements.
3
SATELITES MEXICANOS, S.A. DE C.V.
(SUBSIDIARY OF SERVICIOS CORPORATIVOS SATELITALES, S.A. DE C.V.)
CONDENSED STATEMENTS OF CASH FLOWS
(Amounts in thousands of U.S. dollars)
(Unaudited)
<Table>
<Caption>
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------
2001 2000
-------- --------
OPERATING ACTIVITIES
Net income (loss)........................................... $ (1,880) $ 46,641
Adjustments to reconcile net income (loss) to operating cash
flow:
Depreciation expense and amortization of concessions...... 35,388 44,876
Amortization of deferred financing costs.................. 1,726 1,625
Gain on in-orbit failure of Solidaridad 1................. (103,114)
Deferred revenue -- customers............................. (2,938) (2,941)
Deferred revenue -- Mexican Government.................... (1,650) (1,650)
Deferred income taxes..................................... (5,986) 29,958
Interest income from restricted and segregated cash....... (6,273)
Changes in assets and liabilities:
Accounts receivable....................................... 4,109 2,410
Prepaid insurance......................................... 5,717 9,773
Accounts payable and accrued expenses..................... (3,033) 852
Interest payable.......................................... (3,961) (7,822)
Due from/to related parties............................... (8,753) 4,194
Deferred financing costs and other assets................. (232) (508)
-------- --------
Cash flow provided by operating activities.................. 12,234 24,294
-------- --------
INVESTING ACTIVITIES
Use of restricted and segregated cash....................... 54,312
Construction in progress -- Satmex 6........................ (59,062)
Acquisition of equipment, net............................... (788) (1,215)
-------- --------
Cash flow used in investing activities...................... (5,538) (1,215)
-------- --------
FINANCING ACTIVITIES
Use of restricted and segregated cash....................... 250
Repayment of senior secured notes........................... (750) (750)
Repayment of revolving credit facility...................... (15,000) (15,000)
-------- --------
Cash flow used in financing activities...................... (15,500) (15,750)
-------- --------
Increase (decrease) in cash and cash equivalents............ (8,804) 7,329
Cash and cash equivalents -- beginning of period............ 24,625 6,450
-------- --------
Cash and cash equivalents -- end of period.................. $ 15,821 $ 13,779
======== ========
SUPPLEMENTAL DISCLOSURE
Interest paid............................................... $ 52,480 $ 55,962
======== ========
</Table>
See notes to unaudited condensed financial statements.
4
SATELITES MEXICANOS, S.A. DE C.V.
(SUBSIDIARY OF SERVICIOS CORPORATIVOS SATELITALES, S.A. DE C.V.)
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
(Amounts in U.S. dollars)
1. THE COMPANY
Satelites Mexicanos, S.A. de C.V. ("Satmex" or the "Company") owns and
operates two geosynchronous communications satellites, Solidaridad 2 and Satmex
5. Satmex also owns another satellite, Morelos 2, which is in an inclined orbit.
Satmex operates in one business segment and is the leading provider of fixed
satellite services ("FSS") to broadcasting and telecommunications customers in
Mexico. Satmex has landing rights to provide broadcasting and telecommunications
transmission capacity in Mexico, the United States, Canada and 29 nations and
territories in the Latin American region.
On November 17, 1997, Loral Space & Communications Ltd. (together with its
subsidiaries "Loral") and Principia, S.A. de C.V., ("Principia") acquired 75% of
the issued and outstanding capital stock of Satmex from the government of Mexico
for $647 million through Firmamento Mexicano, S. de R. L. de C.V.
("Firmamento"). Loral owns 65% of Firmamento and Principia owns 35%. Principia
holds 51% of Firmamento's voting interests. The remaining 25% of the capital
stock of Satmex was retained by the Mexican government.
On August 29, 2000, the Company's Solidaridad 1 satellite ceased operating
and was considered irretrievably lost. The loss was caused by the failure of the
back-up control processor on board the satellite. Solidaridad 1, which was built
by Hughes Space and Communications and commenced service in January 1994,
experienced a failure of its primary control processor in April 1999, and the
satellite had been operating on its back-up processor since that time.
Solidaridad 1 was insured for $250 million. At the date of the loss, Solidaridad
1 had a net book value of approximately $109.6 million. After deducting prepaid
insurance of $1.6 million, the unpaid insurance premiums of $12.5 million and
on-going monitoring costs and the excess of the estimated cost over revenue for
the currently committed transponder capacity to be provided to customers of
$23.2 million, the net gain on the in-orbit failure of Solidaridad 1 was
approximately $103.1 million. In January 2001, Satmex received insurance
proceeds of approximately $235.3 million, net of the unpaid insurance premiums
and related value added tax. Satmex is using the net insurance proceeds towards
the construction, launch and insurance of a replacement satellite as well as for
debt service and Satmex has contracted with Space Systems/Loral, Inc., a wholly
owned subsidiary of Loral, to build the replacement satellite. This satellite,
known as Satmex 6, is scheduled to be launched in January 2003, and is designed
to provide broader coverage and higher power levels than any other satellite
currently in the Satmex fleet.
2. BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have been
prepared pursuant to the rules of the Securities and Exchange Commission ("SEC")
and, in the opinion of the Company, include all adjustments (consisting of
normal recurring accruals) necessary for a fair presentation of results of
operations, financial position and cash flows. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with accounting principles generally accepted in the United States have been
condensed as permitted pursuant to such SEC rules. The Company believes that the
disclosures made are adequate to keep the information presented from being
misleading. The results of operations for the three and nine months ended
September 30, 2001, are not necessarily indicative of the results to be expected
for the year. It is suggested that these financial statements be read in
conjunction with the audited financial statements and notes thereto of Satmex,
included in Satmex's latest Annual Report on Form 20-F.
3. SIGNIFICANT ACCOUNTING POLICIES
Restricted and segregated cash
In accordance with the Company's debt agreements, the insurance proceeds
from the failure of Solidaridad 1 are restricted to use for debt service on the
Company's senior secured notes and revolving credit facility and for payments
toward the construction and launch of Satmex 6. Upon receipt of the net
insurance
5
SATELITES MEXICANOS, S.A. DE C.V.
(SUBSIDIARY OF SERVICIOS CORPORATIVOS SATELITALES, S.A. DE C.V.)
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
proceeds of $235.3 million, Satmex allocated $50.0 million of the proceeds for
debt service and the remainder of the proceeds towards the construction and
launch of Satmex 6. At September 30, 2001, Satmex had $182.1 million of
restricted and segregated cash of which $46.2 million is available for debt
service on the senior secured notes and revolving credit facility and $135.9
million is available for the construction and launch of Satmex 6.
4. ACCOUNTS RECEIVABLE
<Table>
<Caption>
SEPTEMBER 30, DECEMBER 31,
2001 2000
------------- ------------
(IN THOUSANDS)
Customers................................................... $ 5,745 $ 6,243
Value added tax recoverable................................. 1,853
Other....................................................... 298 1,514
Allowance for uncollectible accounts........................ (2,250) (1,708)
------- -------
$ 3,793 $ 7,902
======= =======
</Table>
5. SATELLITES AND EQUIPMENT
<Table>
<Caption>
SEPTEMBER 30, DECEMBER 31,
2001 2000
------------- ------------
(IN THOUSANDS)
Satellites.................................................. $ 409,119 $409,119
Equipment................................................... 25,645 24,627
Furniture and fixtures...................................... 5,891 5,817
Leasehold improvements...................................... 2,767 2,763
Construction in progress.................................... 1,697 2,187
Construction in progress -- Satmex 6........................ 62,234 3,172
--------- --------
507,353 447,685
Accumulated depreciation.................................... (118,790) (93,263)
--------- --------
$ 388,563 $354,422
========= ========
</Table>
6. BALANCES AND TRANSACTIONS WITH RELATED PARTIES
<Table>
<Caption>
SEPTEMBER 30, DECEMBER 31,
2001 2000
------------- ------------
(IN THOUSANDS)
AMOUNTS RECEIVABLE:
Principia................................................... $ 2,508 $ 605
Loral....................................................... 583
Service companies........................................... 17
Mexican government agencies................................. 3,036 1,320
-------- --------
$ 5,544 $ 2,525
======== ========
AMOUNTS PAYABLE:
Loral....................................................... $ 842 $ 6,275
Principia................................................... 193 380
Service companies........................................... 3,159 3,255
Firmamento.................................................. 18
-------- --------
$ 4,194 $ 9,928
======== ========
</Table>
6
SATELITES MEXICANOS, S.A. DE C.V.
(SUBSIDIARY OF SERVICIOS CORPORATIVOS SATELITALES, S.A. DE C.V.)
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
Transactions with related parties, not otherwise disclosed, are as follows:
Revenue
Revenue from related parties, primarily the Mexican government, was $11.4
million and $9.0 million for the nine months ended September 30, 2001 and 2000,
respectively.
Replacement Capacity
Loral Skynet, a wholly owned subsidiary of Loral, billed Satmex $5.0
million for the nine months ended September 30, 2001, for providing capacity on
its satellites.
Management fee
Loral and Principia are responsible for managing the Company. Loral and
Principia receive a management fee, based on a sliding scale, up to a maximum of
3.75% of the Company's quarterly gross revenue, as defined. For the nine months
ended September 30, 2001 and 2000, the management fee was $1.4 million and $2.6
million, respectively.
License fee
Loral has licensed certain intellectual property to the Company for an
annual fee of 1.5% of the Company's gross revenue, as defined. For the nine
months ended September 30, 2001 and 2000, the fee was $1.3 million and $1.5
million respectively.
Rent
The equipment in the satellite control centers is owned by the Company,
while the buildings and land that house these centers are property of the
Mexican government. The Company pays rent to the Mexican government for the use
of the buildings and land. The rent expense under this agreement was $235,000
and $213,000 for the nine months ended September 30, 2001 and 2000,
respectively.
Service companies
Satmex uses external services from affiliated companies to perform its
activities. Satmex pays these companies for the actual personnel costs incurred
plus a fee. For the nine months ended September 30, 2001 and 2000, the fee was
$787,000 and $740,000, respectively.
Guarantee arrangements
In connection with the loan agreements certain related parties have
provided and continue to provide guarantees on behalf of the Company.
7
OPERATING AND FINANCIAL REVIEW AND PROSPECTS
Except for the historical information contained herein, the matters
discussed in the following Operating and Financial Review and Prospects of
Satelites Mexicanos, S.A. de C.V. ("Satmex" or the "Company") are not historical
facts, but are "forward-looking statements," as that term is defined in the
Private Securities Litigation Reform Act of 1995. In addition, the Company or
its representatives have made and may continue to make forward-looking
statements, orally or in writing, in other contexts, such as in reports filed
with the SEC, press releases or statements made with the approval of an
authorized executive officer of the Company. These forward-looking statements
can be identified by the use of forward-looking terminology such as "believes,"
"expects," "plans," "may," "will," "would," "could," "should," "anticipates,"
"estimates," "projects," "intend," or "outlook" or the negative of these words
or other variations of these words or other comparable words, or by discussion
of strategy that involve risks and uncertainties. These forward-looking
statements are only predictions, and actual events or results may differ
materially as a result of a wide variety of factors and conditions, many of
which are beyond the Company's control. Some of these factors and conditions
include: partial or total failure of the Company's in-orbit satellites; the
Company's reliance on certain customers; the Company's operations are located in
Mexico; competition in the Company's industry; and the Company owes significant
amounts of money. For a detailed discussion of these factors and conditions,
please refer to the periodic reports filed by the Company with the SEC. In
addition, the Company operates in an industry sector where securities values may
be volatile and may be influenced by economic and other factors beyond the
Company's control. The Company undertakes no obligation to update any forward-
looking statement.
The following should be read in conjunction with the financial statements
of the Company for the three and nine months ended September 30, 2001 and 2000
and the audited financial statements and notes thereto of Satmex, included in
Satmex's latest Annual Report on Form 20-F.
OVERVIEW
Satmex owns and operates two geosynchronous communications satellites,
Solidaridad 2 and Satmex 5. Satmex also owns another satellite, Morelos 2, which
is in an inclined orbit. Satmex operates in one business segment and is the
leading provider of fixed satellite services ("FSS") to broadcasting and
telecommunications customers in Mexico. Satmex has landing rights to provide
broadcasting and telecommunications transmission capacity in Mexico, the United
States, Canada and 29 nations and territories in the Latin American region.
On August 29, 2000, the Company's Solidaridad 1 satellite ceased operating
and was considered irretrievably lost. The loss was caused by the failure of the
back-up control processor on board the satellite. Solidaridad 1, which was built
by Hughes Space and Communications and commenced service in January 1994,
experienced a failure of its primary control processor in April 1999, and the
satellite had been operating on its back-up processor since that time.
Solidaridad 1 was insured for $250 million. At the date of the loss, Solidaridad
1 had a net book value of approximately $109.6 million. After deducting prepaid
insurance of $1.6 million, the unpaid insurance premiums of $12.5 million and
on-going monitoring costs and the excess of the estimated cost over revenue for
the currently committed transponder capacity to be provided to customers of
$23.2 million, the net gain on the in-orbit failure of Solidaridad 1 was
approximately $103.1 million. In January 2001, Satmex received insurance
proceeds of approximately $235.3 million, net of the unpaid insurance premiums
and related value added tax. Satmex is using the net insurance proceeds towards
the construction, launch and insurance of a replacement satellite as well as for
debt service and Satmex has contracted with Space Systems/Loral, Inc., a wholly
owned subsidiary of Loral, to build the replacement satellite. This satellite,
known as Satmex 6, is scheduled to be launched in January 2003, and is designed
to provide broader coverage and higher power levels than any other satellite
currently in the Satmex fleet.
In April 2001, Satmex 5 experienced temporary difficulties starting the
back-up propulsion subsystem of the Xenon Ion Propulsion System ("XIPS"). The
XIPS provides station-keeping capability for the satellite. Using procedures
provided by the satellite manufacturer, the Company was able to start the
back-up propulsion subsystem, and at no time was service on Satmex 5
interrupted. Both the primary and the back-up subsystems are currently operating
normally.
8
RESULTS OF OPERATIONS THREE MONTHS ENDED SEPTEMBER 30, 2001 COMPARED TO
SEPTEMBER 30, 2000
Revenue
Revenue for the third quarter of 2001 decreased $4.1 million to $30.9
million, as compared to $35.0 million for the third quarter of 2000. The
decrease is due to contract cancellations and non-renewals from U.S. customers
affected by the economic slowdown partially offset by higher average prices on
Solidaridad 2 and Satmex 5. The failure of Solidaridad 1 did not have a
significant effect on revenue for the third quarter of 2001 because most of its
customers were provided with alternative capacity on Solidaridad 2, Satmex 5 or
on satellites operated by Loral Skynet.
Operating expenses
Operating expenses decreased to $23.3 million in the third quarter of 2001,
from $26.2 million in the third quarter of 2000, as described below.
Satellite operations. Satellite operations costs, which consist primarily
of satellite insurance and the personnel costs related to the operation of the
satellites, were $4.9 million in each quarter. The third quarter of 2001
included the cost of replacement capacity on other satellites for customers on
Solidaridad 1 of $1.7 million and increased salary expense, offset by a
reduction in insurance expense related to Solidaridad 1.
Selling and administrative expenses. Selling and administrative expenses
in the third quarter of 2001 were $5.8 million as compared to $5.4 million in
the third quarter of 2000. The increase is primarily due to higher compensation.
License and management fees. Loral and Principia are responsible for
managing the Company. Loral and Principia receive a management fee, based on a
sliding scale, up to a maximum of 3.75% of the Company's quarterly gross
revenue, as defined. For the three months ended September 30, 2001 and 2000, the
management fee was $339,000 and $1.3 million, respectively. Loral has licensed
certain intellectual property to the Company for an annual fee of 1.5% of the
Company's gross revenue, as defined. For the three months ended September 30,
2001 and 2000, the fee was $426,000 and $548,000, respectively. License and
management fees decreased due to the Company's decrease in revenue.
Depreciation and amortization. Depreciation expense for the third quarter
of 2001 was $8.7 million as compared to $10.9 million for the third quarter of
2000. The decrease in depreciation expense is due to the write-off of
Solidaridad 1 after it ceased operating in August 2000. Amortization expense
relating to the concessions was $3.2 million in each quarter.
Interest income
Interest income for the third quarter of 2001 was $1.9 million as compared
to $292,000 for the third quarter of 2000. The increase is due to interest
earned on the restricted and segregated cash of $1.8 million during the third
quarter of 2001.
Interest
Total interest cost, including $1.1 million of capitalized interest related
to the construction of Satmex 6, was $14.3 million in the third quarter of 2001
as compared to $16.7 million in 2000. Total interest cost decreased due to lower
average outstanding debt in the third quarter of 2001 and lower interest rates
on the Company's variable rate debt.
Net foreign exchange gain (loss)
The Company recorded a net foreign exchange gain of $124,000 in the third
quarter of 2001 and a loss of $151,000 in the third quarter of 2000. The peso
remained stable against the dollar in each quarter.
Deferred income tax benefit (expense)
Income tax is determined following interperiod allocation procedures under
the liability method. Under this method, deferred income taxes are recognized
for the estimated future tax effects attributable to temporary differences and
tax loss and tax credit carryforwards. For the three months ended September 30,
2001, the Company recorded a deferred income tax benefit of $9.3 million on a
loss before income taxes of
9
$3.5 million as compared to an expense of $33.9 million on income of $95.3
million for 2000. The change is primarily attributable to the current year tax
benefit on the loss recognized for Mexican income tax purposes when remeasuring
dollar denominated assets and liabilities into pesos and the net effect of
inflation on the Company's monetary assets, liabilities and tax loss
carryforward.
Preferred stock dividend requirement
The preferred stock dividend requirement was $377,000 in each quarter.
RESULTS OF OPERATIONS NINE MONTHS ENDED SEPTEMBER 30, 2001 COMPARED TO SEPTEMBER
30, 2000
Revenue
Revenue for the first nine months of 2001 was $97.6 million, as compared to
$101.2 million for the first nine months of 2000. The decrease is due to
contract cancellations and non-renewals offset by higher average prices on
Solidaridad 2 and Satmex 5. The failure of Solidaridad 1 did not have a
significant effect on revenue for the first nine months of 2001 because most of
its customers were provided with alternative capacity on Solidaridad 2, Satmex 5
or on satellites operated by Loral Skynet.
Operating expenses
Operating expenses decreased to $69.5 million in the first nine months of
2001, from $78.7 million in the first nine months of 2000, as described below.
Satellite operations. Satellite operations costs, which consist primarily
of satellite insurance and the personnel costs related to the operation of the
satellites, were $14.9 million for the first nine months of 2001, as compared to
$14.5 million in the first nine months of 2000. The increase is primarily due to
the cost of replacement capacity on other satellites for customers on
Solidaridad 1 of $5.0 million and increased salary expense, offset by a
reduction in insurance expense related to Solidaridad 1.
Selling and administrative expenses. Selling and administrative expenses
in the first nine months of 2001 were $16.5 million as compared to $15.3 million
in the first nine months of 2000. The increase is primarily due to higher
compensation.
License and management fees. Loral and Principia are responsible for
managing the Company. Loral and Principia receive a management fee, based on a
sliding scale, up to a maximum of 3.75% of the Company's quarterly gross
revenue, as defined. For the nine months ended September 30, 2001 and 2000, the
management fee was $1.4 million and $2.6 million, respectively. Loral has
licensed certain intellectual property to the Company for an annual fee of 1.5%
of the Company's gross revenue, as defined. For the nine months ended September
30, 2001 and 2000, the fee was $1.3 million and $1.5 million, respectively.
Depreciation and amortization. Depreciation expense for the first nine
month of 2001 was $25.7 million as compared to $35.2 million during the first
nine months of 2000. The decrease in depreciation expense is due to the
write-off of Solidaridad 1 after it ceased operating in August 2000.
Amortization expense relating to the concessions was $9.7 million in each
period.
Interest income
Interest income for the first nine months of 2001 was $7.8 million as
compared to $1.1 million for the first nine months of 2000. The increase is
primarily due to interest earned on the restricted and segregated cash of $6.3
million
Interest
Total interest cost, including $1.7 million of capitalized interest related
to the construction of Satmex 6, was $45.5 million in the first nine months of
2001 as compared to $50.0 million in 2000. Total interest cost decreased due to
lower average outstanding debt in the first nine months of 2001 and lower
interest rates on the Company's variable rate debt.
10
Net foreign exchange gain (loss)
The Company recorded a net foreign exchange gain of $100,000 in the first
nine months of 2001 as compared to a loss of $160,000 in the first nine months
of 2000. The peso remained stable against the dollar in each period.
Deferred income tax benefit (expense)
For the nine months ended September 30, 2001, the Company recorded a
deferred income tax benefit of $6.0 million on a loss before income taxes of
$7.9 million, an effective rate of 76%, as compared to an expense of $30.0
million on income of $76.6 million, an effective rate of 39%, for 2000. The
change in the effective rate is primarily attributed to the relative impact on
income (loss) for each period of the inflation adjustment recognized for Mexican
income tax purposes to update the Company's tax loss carryforward.
Preferred stock dividend requirement
The preferred stock dividend requirement was $1.1 million in each period.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2001, the Company had total debt of $556.3 million, and
the Company was in compliance with all covenants governing its debt agreements.
The Company's primary source of liquidity for working capital purposes is cash
flow from operations. At September 30, 2001, the Company had cash and cash
equivalents of $15.8 million. The Company believes that its cash flow from
operations and the availability of its revolving credit facility will be
adequate to service its interest and debt repayment requirements and ensure
compliance with the covenants of its debt agreements. At September 30, 2001,
Satmex had $182.1 million of restricted and segregated cash of which $46.2
million is available for debt service on the senior secured notes and revolving
credit facility and $135.9 million is available for the construction and launch
of Satmex 6.
Cash used and provided. Net cash provided by operating activities for the
nine months ended September 30, 2001 of $12.2 million, consisted of $18.4
million of funds generated by earnings before non-cash items and interest income
on the restricted and segregated cash and decreases in accounts receivable of
$4.1 million and prepaid insurance of $5.7 million; partially offset by an
increase in accounts payable, accrued expenses and interest payable of $7.0
million, a net increase in the amounts due from/to related parties of $8.8
million and a decrease in deferred financing costs and other assets of $0.2
million. During the quarter ended September 30, 2001, the Company used $5.0
million of restricted and segregated cash for debt service.
Cash used in investing activities for the nine months ended September 30,
2001 was $5.5 million. Capital expenditures in the first nine months of 2001
were $59.9 million as compared to $1.2 million in the first nine months of 2000.
Capital expenditures for the first nine months of 2001 primarily related to the
construction of Satmex 6, of which $54.3 million was funded through the use of
the restricted and segregated cash account. Satmex believes that the funds
available in the restricted and segregated cash account allocated for the
construction and launch of Satmex 6 of $135.9 million and cash flow from
operations will be sufficient to fund the on-orbit delivery of Satmex 6.
Substantially all capital expenditures are denominated in U.S. dollars.
Cash used in financing activities for the first nine months of 2001 was
$15.8 million and reflects the scheduled repayment of the Company's senior
secured notes of $750,000 and repayment of borrowings under the Company's
revolving credit facility of $15 million, of which $250,000 was funded through
the use of restricted and segregated cash.
ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement No. 133, "Accounting for Derivative Instruments and Hedging
Activities" ("SFAS 133"), which requires that all derivative instruments be
recorded on the balance sheet at their fair value. Changes in the fair value of
derivatives are recorded each period in current earnings or other comprehensive
income, depending on
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whether a derivative is designated as part of a hedge transaction and, if it is,
the type of hedge transaction. The Company adopted SFAS 133, as amended, on
January 1, 2001. The adoption of SFAS 133 did not have an effect on its earnings
or financial position.
In September 2000, the FASB issued Statement No. 140, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities"
("SFAS 140"), which replaces Statement No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities" ("SFAS 125").
SFAS 140 revises the standards for accounting for securitizations and other
transfers of financial assets and collateral and requirements certain
disclosures, but it carries over most of SFAS 125's provisions without
reconsideration. The adoption SFAS 140, on March 31, 2001 did not have an effect
on the Company's financial position or results of operations.
In June 2001, the FASB issued Statement No. 141, Business Combinations
("SFAS 141") and SFAS No. 142, Goodwill and Other Intangible Assets ("SFAS
142"). SFAS 141 requires that all business combinations initiated after June 30,
2001, be accounted for under the purchase method and addresses the initial
recognition and measurement of goodwill and other intangible assets acquired in
a business combination. SFAS 142 addresses the initial recognition and
measurement of intangible assets acquired outside of a business combination and
the accounting for goodwill and other intangible assets subsequent to their
acquisition. SFAS 142 provides that intangible assets with finite useful lives
be amortized and that goodwill and intangible assets with indefinite lives not
be amortized, but will rather be tested at least annually for impairment. The
Company will adopt SFAS 142 on January 1, 2002. The Company is currently
evaluating the impact of adopting SFAS 142.
In June 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement
Obligations. SFAS 143 addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and the
associated asset retirement costs. It applies to legal obligations associated
with the retirement of long-lived assets that result from the acquisition,
construction, development and the normal operation of a long-lived asset, except
for certain obligations of lessees. The Company is required to adopt SFAS 143 on
January 1, 2003. The Company has not yet determined the impact that the adoption
of SFAS 143 will have on its results of operations or its financial position.
In August 2001, the FASB issued SFAS 144, Accounting for the Impairment or
Disposal of Long-Lived Assets. SFAS 144 addresses financial accounting and
reporting for the impairment or disposal of long-lived assets. It supersedes
SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-
Lived Assets to Be Disposed Of, and the accounting and reporting provisions of
APB 30, Reporting the Results of Operations -- Reporting the Effects of Disposal
of a Segment of a Business, and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions, for the disposal of a segment of a business.
The Company is required to adopt SFAS 144 on January 1, 2002. The Company has
not yet determined the impact that the adoption of SFAS 144 will have on its
results of operations or its financial position.
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SIGNATURES
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.
SATELITES MEXICANOS, S.A. de C.V.
By: Cynthia Pelini
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Cynthia Pelini
Chief Financial Officer
Date: October 29, 2001