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, 1997
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, 1997: 25,119,953
----------
1
<PAGE>
PART I--FINANCIAL INFORMATION
Item 1. Financial Statements
AMERICAN MOBILE SATELLITE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF LOSS
-------------------------------
(in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1997 1996
<S> <C> <C>
REVENUES
Services $4,153 $1,793
Sales of equipment 4,532 2,576
----- -----
Total Revenue 8,685 4,369
COSTS AND EXPENSES
Cost of service and operations 8,873 6,803
Cost of equipment sold 5,442 2,443
Sales and advertising 3,221 6,018
General and administrative 4,868 4,963
Depreciation and amortization 9,937 11,144
----- ------
Operating Loss (23,656) (27,002)
INTEREST AND OTHER INCOME 945 109
INTEREST EXPENSE (4,370) (2,984)
-------- --------
NET LOSS $(27,081) $(29,877)
========= =========
NET LOSS PER COMMON SHARE $(1.08) $(1.20)
======= =======
WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING
DURING THE PERIOD (000'S) 25,109 24,995
------ ------
See notes to consolidated financial statements.
</TABLE>
2
<PAGE>
PART I--FINANCIAL INFORMATION
Item 1. Financial Statements (continued)
AMERICAN MOBILE SATELLITE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
---------------------------
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
---- ----
ASSETS
Current Assets:
<S> <C> <C>
Cash and cash equivalents $1,572 $2,182
Inventory 41,517 38,034
Prepaid in-orbit insurance 3,387 5,080
Accounts receivable-trade 8,083 6,603
Other current assets 13,196 14,247
------- -------
Total current assets 67,755 66,146
PROPERTY AND EQUIPMENT - NET 259,546 267,863
DEFERRED CHARGES AND OTHER ASSETS - NET 18,327 16,164
------- ------
Total assets $345,628 $350,173
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses $31,537 $42,625
Obligations under capital leases due within one year 4,023 3,931
Current portion of long-term debt 8,113 11,113
------ ------
Total current liabilities 43,673 57,669
Long-term Liabilities:
Obligations under Bank Facility 162,000 127,000
Capital lease obligations 1,513 2,557
Fair value of assets acquired in excess
of purchase price 3,246 3,395
Other long-term liabilities 879 852
-------- --------
Total long-term liabilities 167,638 133,804
-------- -------
Total liabilities 211,311 191,473
Minority Interest 1,500 --
Stockholders' Equity:
Preferred stock, par value $0.01; no shares issued -- --
Common stock, voting, par value $0.01 251 251
Additional paid-in capital 451,507 451,259
Common stock purchase warrants 23,848 23,848
Unamortized guarantee warrants (16,150) (17,100)
Retained loss (326,639) (299,558)
--------- ---------
Total stockholders' equity 132,817 158,700
-------- -------
Total liabilities and stockholders' equity $345,628 $350,173
========= ========
See notes to consolidated financial statements.
</TABLE>
3
<PAGE>
PART I--FINANCIAL INFORMATION
Item 1. Financial Statements (continued)
AMERICAN MOBILE SATELLITE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net Loss $(27,081) $(29,877)
Adjustments to reconcile net loss to net cash used in operating activities:
Amortization of debt discount and issuance costs 1,754 996
Depreciation and amortization 9,937 11,144
Deferred and other items, net (37) 645
Changes in assets and liabilities:
Prepaid in-orbit insurance 1,693 1,608
Trade accounts receivable (1,480) (932)
Other current assets 1,051 (735)
Inventory (3,483) (4,321)
Accounts payable and accrued expenses (9,070) (6,709)
------- -------
Net cash used in operating activities (26,716) (28,181)
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in AMRC (3,000) --
Additions to property and equipment (3,574) (4,893)
------- -------
Net cash used in investing activities (6,574) (4,893)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of Common Stock 141 818
Proceeds from issuance of Common Stock of AMRC 1,500 --
Principal payments under capital leases (952) (577)
Proceeds from short-term borrowings -- 35,000
Proceeds from debt -- 1,700
Payments on long-term debt (3,000) (8,754)
Debt issuance costs -- (270)
Proceeds from long-term debt 35,000 --
Deferred charges and other assets (9) --
-------- ------
Net cash provided by financing activities 32,680 27,917
------ ------
Net decrease in cash and cash equivalents (610) (5,157)
CASH AND CASH EQUIVALENTS, beginning of period 2,182 8,865
----- -----
CASH AND CASH EQUIVALENTS, end of period $1,572 $3,708
====== ======
See notes to consolidated financial statements.
</TABLE>
4
<PAGE>
PART I--FINANCIAL INFORMATION
Item 1. Financial Statements (continued)
AMERICAN MOBILE SATELLITE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
March 31, 1997
(Unaudited)
1. Organization and Business
American Mobile Satellite Corporation 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 best be served by granting the license to a consortium of all
willing, qualified applicants. The FCC has authorized American Mobile Satellite
Corporation to construct, launch, and operate a mobile satellite services system
(the "SKYCELL System") 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, AMSC
Subsidiary Corporation ("AMSC Subsidiary"). On April 7, 1995, the Company
successfully launched its first satellite ("AMSC-1"), from Cape Canaveral,
Florida.
American Mobile Satellite Corporation together with its subsidiaries ("AMSC" or
the "Company") is devoting its efforts to expanding a developing business. As
further discussed in Management's Discussion and Analysis of Financial Condition
and Results of Operations, this effort involves substantial risk. Specifically,
future operating results will be subject to significant business, liquidity,
economic, regulatory, technical, and competitive uncertainties and
contingencies. The integration of the components of the SKYCELL System is a
complex undertaking. Delays in the integration of the SKYCELL System have
already occurred, and there can be no assurance that further delays would not
occur. 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 operating results.
On April 2, 1997, American Mobile Radio Corporation ("AMRC"), a subsidiary of
AMSC, was a winning bidder for an FCC license to provide satellite-based Digital
Audio Radio Service ("DARS") throughout the United States (see "Liquidity and
Financing"). As previously reported, AMSC entered into an agreement with
WorldSpace, Inc. ("WorldSpace"), by which WorldSpace acquired a 20%
participation in AMRC. In connection with the DARS auction, AMRC also arranged
for financing of the FCC license fees as well as for initial working capital
needs. The terms of the financing, which also included the issuance of options,
would, if the options were exercised, have a dilutive impact on AMSC's ownership
interest in AMRC. The operations and financing of AMRC are maintained separate
and apart from the operations and financing of AMSC.
American Mobile Satellite Corporation has five other subsidiaries, two of which
are inactive and three whose limited activities do not require material
resources at this time.
2. Basis of Presentation
The consolidated balance sheet as of March 31, 1997, and the consolidated
statements of loss and cash flows for the three months ended March 31, 1997 and
1996, 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, results of operations and
cash flows at March 31, 1997, and for all periods presented have been made. The
balance sheet at December 31, 1996 has been taken from the audited financial
statements.
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 presented not
misleading, these consolidated financial statements should be read in
conjunction with the consolidated financial statements and related notes
included in the Company's 1996 Annual Report on Form 10-K ("1996 10-K").
5
<PAGE>
The Company paid approximately $1.1 million and $2.1 million in the three-month
periods ended March 31, 1997 and 1996, respectively, to related parties for
capital assets, service-related obligations, and payments under financing
agreements. Total indebtedness to related parties as of March 31, 1997
approximated $2.7 million.
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.
In March 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share." This
Statement, applicable to reporting periods ending after December 15, 1997,
governs the calculation of Earnings per Share ("EPS"), and requires that EPS
calculations be presented as Basic Earnings per Share and Diluted Earnings per
Share. The impact of adopting the Statement is not expected to be material to
the financial statements.
3. Liquidity and Financing
Adequate liquidity and capital are critical to the ability of the Company to
continue as a going concern and to fund subscriber acquisition programs
necessary to reach cash positive and profitable operations. As previously
reported, the Company has established a debt facility with Morgan Guaranty Trust
Company and Toronto Dominion Bank (the "Bank Financing") consisting of a Term
Loan Facility and a Working Capital Facility. The Bank Financing is fully
guaranteed by certain AMSC shareholders. As previously reported, the Company, on
March 27, 1997, reached an agreement with the Guarantors to eliminate all
covenant tests in exchange for additional warrants and a re-pricing of warrants
previously issued (together, the "Guarantee Warrants"). Previously, the
Guarantee Warrants had been valued at $19.0 million. As of April 30, 1997, the
Guarantee Warrants had not yet been re-valued. As of April 30, 1997, the Company
had drawn down $144.0 million of the Term Loan Facility at annual interest rates
ranging from 5.8125% to 5.9375%, and $27.0 million of the Working Capital
Facility at annual interest rates ranging from 5.8125% to 6.0%.
The Company may need financing in 1997 beyond the Bank Financing. There can be
no assurance that, if additional financing is required, such financing will be
available or that the terms thereof will be favorable to the Company. If the
Bank Financing is not sufficient, the Company may not have adequate capital to
fund its future operations. The Company expects that operating revenues will be
insufficient to cover operating expenses until sometime in 1998 or beyond.
On March 12 1997, the Company received waivers of certain financial covenants
contained in the ground segment obligations ("Ground Segment Obligations") for
the remaining anticipated period of the Ground Segment Obligations, expected to
be satisfied in full on May 15, 1997.
As previously mentioned (see "Organization and Business"), AMRC was a winning
bidder for 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.
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 the SKYCELL System,
mobile data terminals and mobile telephones. The successful operation of the
SKYCELL System 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 its cash flows.
6
<PAGE>
The Company has the necessary regulatory approvals, some of which are pursuant
to special temporary authority, to continue full commercial revenue service. The
Company has filed applications with the FCC and expects to file applications in
the future with respect to the operation of its SKYCELL System and certain types
of mobile data terminals and mobile telephones. 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 on a timely
basis or that they 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 its cash flows.
The Company's license requires that it comply with a construction and launch
schedule specified by the FCC for each of the three authorized satellites. The
second and third satellites are not in compliance with the schedule for
commencement of construction. The Company has asked the FCC to grant extensions
of the deadlines for the second and third satellites. Certain of these extension
requests have been opposed by third parties. The FCC has not acted on the
Company's requests. The FCC has the authority to revoke the authorizations for
the second and third satellites and in connection with any such revocation could
exercise its authority to rescind the Company's license. The Company believes
that the exercise of such authority to rescind the license is unlikely.
In 1992, a former director of AMSC 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 judgement, filed on
June 30, 1994, was denied on April 18, 1996. The matter has now been set for
trial beginning December 1997. Management believes that the complaint is without
merit, and the ultimate outcome of this matter will not be material to the
Company's financial position, results of operations, or its cash flows.
5. Other Matters
At March 31, 1997, the Company had remaining contractual commitments to purchase
both mobile data terminal inventory and mobile telephone inventory in the
maximum amount of $26.4 million.
7
<PAGE>
PART I--FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of
Interim Financial Condition and Results of Operations
In addition to historical information, this Form 10-Q Quarterly Report contains
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. The
forward-looking statements contained herein are subject to certain risks and
uncertainties that could cause actual results to differ materially from those
reflected in the forward-looking statements. Factors that might cause such a
difference include, but are not limited to, those discussed in the "Factors that
could affect Future Operating Results" and "Liquidity and Capital Resources"
sections. Readers are cautioned not to place undue reliance on these
forward-looking statements, which reflect management's analysis only as of the
date hereof. The Company undertakes no obligation to publicly revise these
forward-looking statements to reflect events or circumstances that arise after
the date hereof. 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 by the Company
prior to this Form 10-Q, any Form 10-Q filed subsequent to this Form 10-Q, and
any Current Reports on Form 8-K filed by the Company.
General
The following discussion and analysis provides information that management
believes is relevant to an assessment and understanding of the consolidated
financial condition and results of operations of American Mobile Satellite
Corporation (with its subsidiaries, "AMSC" 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. The SKYCELL
System includes the Company's satellite ("AMSC-1") launched successfully in
April 1995, and a fixed communications ground segment (the "CGS"). In December
1995, the Company initiated commercial voice service. During 1996, the Company
transitioned to an operating company, and currently operates North America's
first high-powered, satellite-based, digital mobile communication system (the
"SKYCELL System").
On April 2, 1997, American Mobile Radio Corporation ("AMRC"), a subsidiary of
American Mobile Satellite Corporation, was a winning bidder for an FCC license
to provide satellite-based Digital Audio Radio Service ("DARS") throughout the
United States (see "Liquidity and Financing").
Factors that could affect Future Operating Results
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 SKYCELL System ("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
Authorized Sales Agents and other 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 AMSC-1 previously reported, (vii) additional
technical anomalies that may occur within the SKYCELL System, including those
relating to AMSC-1, which could impact, among other things, the operation of the
SKYCELL System and the cost, scope or availability of in-orbit insurance, (viii)
the ability of the Company to fully integrate certain components of the mobile
data service, (ix) 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, and (x) the Company's
ability to secure additional financing as may be necessary.
As of March 31, 1997, there were in excess of 23,000 subscribers on the SKYCELL
System.
In March 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share." This
Statement, applicable to reporting periods ending after December 15, 1997,
governs the calculation of Earnings per Share ("EPS"), and requires that EPS
calculations be presented as Basic Earnings per Share and Diluted Earnings per
Share. The impact of adopting the Statement is not expected to be material to
the financial statements.
8
<PAGE>
Results of Operations
Operating Revenues
Service revenues, which include both the Company's voice and data services,
approximated $4.2 million for the three-month period ended March 31, 1997.
Service revenue from voice services approximated $2.6 million for the
three-month period ended March 31, 1997, as compared to $960,000 for the
comparable period in 1996. This increase was primarily a result of (i) an 86%
increase in voice customers as compared to the first quarter of 1996 and (ii) a
39% increase in power and band width contracts, offset by approximately $841,000
received in the first quarter of 1996, attributable to satellite capacity leased
to TMI, under a commitment that was completed in May 1996. Service revenue from
the Company's data services approximated $1.6 million for the three-month period
ended March 31, 1997, compared to $805,000 for the same period in 1996, an
increase of $842,000. The increase was primarily a result of additional revenue
from dual mode subscribers added as a result of the acquisition, in November
1996, of Rockwell International Corporation's ("Rockwell") dual mode mobile
messaging and global positioning and monitoring service, as compared to the
revenue received in the first quarter of 1996 for satellite capacity leased by
Rockwell. Revenue from the sale of mobile data terminals and mobile telephones
increased from $2.6 million for the three months ended March 31, 1996 to $4.5
million for the three months ended March 31, 1997. This increase is attributable
to (i) the Company's introduction of additional Subscriber Equipment
configurations throughout 1996 and the resulting sale of mobile telephones, and
(ii) increased equipment sales of the dual mode mobile messaging product,
discussed above.
Costs and Expenses
The Company's costs and expenses have primarily increased in connection with the
continuing development of the business and related service costs. Cost of
service and operations for the three-month period ended March 31, 1997, which
includes costs to support subscribers and to operate the SKYCELL System, was
$8.9 million, $2.1 million greater than the comparable period in 1996. Cost of
service and operations for the three-month period ended March 31, 1997, as a
percentage of operating expenses, was 27% compared to 22% for the comparable
period in 1996. The dollar and percentage increase in cost of service and
operations was primarily attributable to (i) increased interconnect charges
associated with increased service usage by customers, and (ii) the
capitalization, in the first quarter of 1996, of certain costs associated with
the on-going development of the SKYCELL System, as compared to no capitalization
of costs in the same period in 1997. The cost of equipment sold increased to
$5.4 million from $2.4 million for the three months ended March 31, 1997 and
1996, respectively, and represented 17% and 8% of total operating expenses for
the three months ended March 31, 1997 and 1996, respectively. The increase in
both dollars and as a percentage of operating expenses of the cost of equipment
sold is primarily attributable to (i) the Company's introduction of additional
Subscriber Equipment configurations throughout 1996 and the resulting sale of
mobile telephones, and (ii) increased equipment sales of the dual mode mobile
messaging product, discussed above. Sales and advertising expenses were $3.2
million for the three-month period ended March 31, 1997, compared with $6.0
million for the same period in 1996. Sales and advertising expenses for the
three-month period ended March 31, 1997, were 10% as a percentage of operating
expenses, compared to 19% for the comparable period in 1996. Both the dollar
decrease and the percentage decrease of sales and advertising expenses were
primarily attributable to (i) a more focused approach to advertising as the
Company has moved from consumer markets to targeted business-to-business sales,
and the resulting reduction in print advertising, (ii) increased costs in the
first quarter of 1996 for the development of collateral material needed to
support the sales effort, and (iii) costs incurred in the first quarter of 1996
associated with the formal launch of service. General and administrative
expenses for the three-month period ended March 31, 1997, were $4.9 million,
$100,000 less than the comparable period in 1996. General and administrative
expenses for the three-month period ended March 31, 1997, were 15%, as a
percentage of operating expenses, compared to 16% for the same period in 1996.
Both the dollar and percentage decrease in general and administrative expenses
for the first three months of 1997 compared to 1996 were primarily attributable
to reductions made in staffing as a result of a management restructuring in the
third quarter of 1996. Depreciation and amortization expense was $9.9 million
for the three-month period ended March 31, 1997, compared with $11.1 million for
the same period in 1996. Depreciation and amortization for the three-month
period ended March 31, 1997, was 31%, as a percentage of operating expenses,
compared with 35% for the comparable period in 1996. Both the dollar decrease
and the decrease as a percentage of operating expenses in depreciation and
amortization expense were attributable to the reduction of the carrying value of
the satellite as a result of the resolution, in August 1996, of claims under the
Company's satellite insurance contracts and policies and the receipt of
approximately $66.0 million.
9
<PAGE>
Interest and Other Income
Interest income was $70,000 for the three-month period ended March 31, 1997,
compared to $109,000 in the same period in 1996. The decrease was a result of
lower average cash balances in the first three months of 1997 as compared to the
same period in 1996. The Company incurred $4.3 million of interest expense for
the three-month period ended March 31, 1997, compared to $3.0 million of
interest expense for the comparable period of 1996 reflecting (i) increased debt
balances during the first quarter of 1997 as compared to 1996, and (ii) the
amortization of debt discount and debt issuance costs in the first quarter of
1997 of approximately $1.8 million compared to $1.0 million in the first quarter
of 1996. Additionally, in the first quarter of 1997, the Company received other
income in the amount of $875,000 representing proceeds from the licensing of
certain technology associated with the SKYCELL System.
Capital Expenditures
Net capital additions, including additions financed through vendor financing
arrangements, for the first three months of 1997 were $1.8 million compared to
$5.4 million for the same period in 1996. The decrease was largely attributable
to the reduction in the acquisition of assets necessary to complete the SKYCELL
System.
Liquidity and Capital Resources
Adequate liquidity and capital are critical to the ability of the Company to
continue as a going concern and to fund subscriber acquisition programs
necessary to reach cash positive and profitable operations. As previously
reported, the Company has established a debt facility with Morgan Guaranty Trust
Company and Toronto Dominion Bank (the "Bank Financing") consisting of a Term
Loan Facility and a Working Capital Facility. The Bank Financing is fully
guaranteed by certain AMSC shareholders (the "Guarantors"). As previously
reported, the Company, on March 27, 1997, reached an agreement with the
Guarantors to eliminate all covenant tests, in exchange for additional warrants
and a re-pricing of warrants previously issued (together, the "Guarantee
Warrants"). Previously, the Guarantee Warrants had been valued at $19.0 million.
As of April 30, 1997, the Guarantee Warrants had not yet been re-valued. As of
April 30, 1997, the Company had drawn down $144.0 million of the Term Loan
Facility at annual interest rates ranging from 5.8125% to 5.9375%, and $27.0
million of the Working Capital Facility at annual interest rates ranging from
5.8125% to 6.0%.
The Company may need financing in 1997 beyond the Bank Financing. There can be
no assurance that, if additional financing is required, such financing will be
available or that the terms thereof will be favorable to the Company. If the
Bank Financing is not sufficient, the Company may not have adequate capital to
fund its future operations. The Company expects that operating revenues will be
insufficient to cover operating expenses until sometime in 1998 or beyond.
On March 12 1997, the Company received waivers of certain financial covenants
contained in the ground segment obligations ("Ground Segment Obligations") for
the remaining anticipated period of the Ground Segment Obligations, expected to
be satisfied in full on May 15, 1997.
As previously mentioned (see "General"), AMRC was a winning bidder for 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.
At March 31, 1997, the Company had remaining contractual commitments to purchase
both mobile data terminal inventory and mobile telephone inventory in the
maximum amount of $26.4 million.
For the first quarter of 1997, the Company has used $26.7 million of cash in
operating activities and $6.6 million of cash in investing activities and has
generated $32.7 million of cash from financing activities. Cash used in
operating activities was $26.7 million for the first three months of 1997
compared to $28.2 million for the same period in 1996, a decrease of $1.5
million. The decrease in cash used in operating activities was primarily
attributable to (i) decreased operating losses, and (ii) payments of inventory
commitments, partially offset by (iii) increased trade receivables as a result
of increased equipment and service revenue, and (iv) increased payments for
accounts payable and accrued expenses. Cash used in investing activities was
$6.6 million for the first three months of 1997 compared to $4.9 million for the
same period in 1996, an increase of $1.7 million. The increase was primarily
attributable to the initial funding of the acquisition of the DARS license,
partially offset by the reduction, in the first quarter of 1997 as compared to
the comparable period in 1996, in the acquisition of capital assets required to
complete the SKYCELL System. Cash provided by financing activities was $32.7
million for the first three months of 1997 compared to $27.9 million for the
same period in 1996, an increase of $4.8 million. The increase was largely
attributable to the reduction in payments made for repayment of long-term debt.
As of March 31, 1997, the Company had $1.6 million of cash and cash equivalents
and working capital of $24.1 million.
10
<PAGE>
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))
11.1 -- Computation of Net Loss Per Share (filed herewith)
27.0 -- Financial Data Schedule
(b) Reports on Form 8-K
The Company filed a Current Report dated
April 2, 1997 on Form 8-K, describing in
response to Item 5 - Other Events, in the
form of a press release, regarding American
Mobile Radio Corporation, a subsidiary of
American Mobile Satellite Corporation, which
was a winning bidder for an FCC license to
provide satellite-based Digital Audio Radio
Service throughout the United States.
11
<PAGE>
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, 1997 By: /s/GARY M. PARSONS
------------------
Gary M. Parsons
Chief Executive Officer and President
By: /s/CHRISTOPHER COLAVITO
-----------------------
Christopher Colavito
Controller and Vice President
(principal accounting officer)
12
<PAGE>
EXHIBIT INDEX
Exhibit
Number Exhibit
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))
11.1 -- Computation of Net Loss Per Share (filed herewith)
27.0 -- Financial Data Schedule (filed herewith)
<PAGE>
Exhibit 11.1
AMERICAN MOBILE SATELLITE CORPORATION
---------------------------------------
COMPUTATIONS OF EARNING PER COMMON SHARE
---------------------------------------
(in thousands, except per share amounts)
---------------------------------------
<TABLE>
<CAPTION>
Three Months
Ended March 31,
1997 1996
---- ----
PRIMARY CALCULATION
<S> <C> <C>
Net Loss $(27,081) $(29,877)
========= ==========
Net Loss per common share $ (1.08) $ (1.20)
======== ========
Weighted-average common shares outstanding 25,109 24,995
====== ======
FULLY DILUTED CALCULATION
- -----------------------------------------------
Net Loss (1) $(27,081) $ (27,968)
========= ==========
Net Loss per common share $(1.08) $ (1.05)
======= ========
Weighted-average common shares outstanding (2) 25,188 26,726
====== ======
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended
March 31,
(1) Calculated as follows: 1997 1996
---- ----
<S> <C> <C>
Primary net loss $(27,081) $(29,877)
Amortization of debt discount -- 995
Interest on convertible debt -- 914
--------- ----------
$(27,081) $(27,968)
(2) Calculated as follows:
Historical weighted average number of shares outstanding 25,109 24,995
--
Assumed exercise of stock options 17 86
Assumed exercise of stock purchase warrants 62 100
Assumed conversion of convertible short term borrowing -- 1,545
------- -----
25,188 26,726
====== =======
</TABLE>
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's unaudited Consolidated Statement of Loss, Consolidated Balance
Sheet, and Consolidated Statement of Cash Flows, in each case for the three
months ended March 31, 1997, and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<EXCHANGE-RATE> 1
<CASH> 1,572
<SECURITIES> 0
<RECEIVABLES> 8,083
<ALLOWANCES> 0
<INVENTORY> 41,517
<CURRENT-ASSETS> 67,755
<PP&E> 259,546
<DEPRECIATION> 0
<TOTAL-ASSETS> 345,628
<CURRENT-LIABILITIES> 43,673
<BONDS> 175,649
0
0
<COMMON> 251
<OTHER-SE> 132,566
<TOTAL-LIABILITY-AND-EQUITY> 345,628
<SALES> 4,532
<TOTAL-REVENUES> 8,685
<CGS> 5,442
<TOTAL-COSTS> 22,404
<OTHER-EXPENSES> 9,937
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,370
<INCOME-PRETAX> (27,081)
<INCOME-TAX> 0
<INCOME-CONTINUING> (27,081)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (27,081)
<EPS-PRIMARY> (1.08)
<EPS-DILUTED> 0
<PAGE>
</TABLE>
