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 September 30, 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 October 31, 1997: 25,151,255
<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 Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
---- ---- ---- ----
REVENUES
<S> <C> <C> <C> <C>
Services $5,626 $2,480 $14,758 $6,071
Sales of equipment 5,169 4,925 15,475 12,452
------ ------ ------- -------
Total Revenue 10,795 7,405 30,233 18,523
COSTS AND EXPENSES
Cost of service and operations 7,910 7,615 24,984 23,258
Cost of equipment sold 6,348 6,227 18,930 23,116
Sales and advertising 2,860 5,729 9,140 18,048
General and administrative 3,058 4,242 10,863 13,635
Depreciation and amortization 10,441 10,101 31,461 32,975
------- ------- ------- ------
Operating Loss (19,822) (26,509) (65,145) (92,509)
INTEREST AND OTHER INCOME 55 180 1,086 485
INTEREST EXPENSE (6,654) (3,673) (16,305) (11,364)
MINORITY INTEREST 157 -- 177 --
--------- ----------- --------- ----------
NET LOSS ($26,264) ($30,002) ($80,187) ($103,388)
========= ========= ========= ==========
NET LOSS PER COMMON SHARE ($1.04) ($1.20) ($3.19) ($4.13)
======= ======= ======= =======
WEIGHTED-AVERAGE COMMON SHARES
OUTSTANDING
DURING THE PERIOD (000'S) 25,145 25,065 25,125 25,024
======= ======= ======= ======
See notes to consolidated financial statements.
</TABLE>
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<PAGE>
PART I--FINANCIAL INFORMATION
Item 1. Financial Statements (continued)
AMERICAN MOBILE SATELLITE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
---------------------------
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
ASSETS
Current Assets:
<S> <C> <C>
Cash and cash equivalents $2,592 $2,182
Inventory 49,023 38,034
Prepaid in-orbit insurance -- 5,080
Accounts receivable-trade 7,632 6,603
Other current assets 2,799 14,247
------ ------
Total current assets 62,046 66,146
PROPERTY AND EQUIPMENT - NET 240,638 267,863
DEFERRED CHARGES AND OTHER ASSETS - NET 32,127 16,164
-------- --------
Total assets $334,811 $350,173
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses $32,562 $42,625
Obligations under capital leases due within one year 773 3,931
Current portion of long-term debt 8,095 11,113
-------- ------
Total current liabilities 41,430 57,669
Long-term Liabilities:
Obligations under Bank Facility 186,000 127,000
Debt of subsidiary 15,072 ---
Capital lease obligations 3,187 2,557
Fair value of assets acquired in excess of purchase price 2,898 3,395
Other long-term debt 772 ---
Other long-term liabilities 746 852
-------- -------
Total long-term liabilities 208,675 133,804
-------- -------
Total liabilities 250,105 191,473
Minority Interest 1,323 --
Stockholders' Equity:
Preferred stock, par value $0.01; no shares issued -- --
Common stock, voting, par value $0.01 252 251
Additional paid-in capital 451,809 451,259
Common stock purchase warrants 36,337 23,848
Unamortized guarantee warrants (25,270) (17,100)
Retained loss (379,745) (299,558)
--------- ---------
Total stockholders' equity 83,383 158,700
--------- -------
Total liabilities and stockholders' equity $334,811 $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>
Nine Months Ended
September 30,
1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net Loss ($80,187) ($103,388)
Adjustments to reconcile net loss to net cash used in operating activities:
Amortization of debt discount and issuance costs 6,825 4,015
Depreciation and amortization 31,461 32,975
Deferred and other items, net 202 1,621
Changes in assets and liabilities:
Prepaid in-orbit insurance 5,080 4,823
Trade accounts receivable (1,029) (5,668)
Other current assets 11,448 944
Inventory (10,989) (24,856)
Accounts payable and accrued expenses (8,671) 14,891
--------- --------
Net cash used in operating activities (45,860) (74,643)
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in AMRC (17,978) --
Insurance proceeds applied to equipment in service -- 66,000
Additions to property and equipment (6,370) (10,418)
Deferred charges and other assets -- (1,000)
--------- --------
Net cash (used in) provided by investing activities (24,348) 54,582
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of Common Stock 284 1,248
Proceeds from issuance of Common Stock of AMRC 1,500 --
Principal payments under capital leases (2,335) (2,671)
Proceeds from short-term borrowings -- 70,000
Payments on short-term borrowings -- (70,000)
Proceeds from Bank Financing 59,000 77,000
Proceeds from debt -- 1,700
Debt issued by subsidiary 15,072 --
Payments on long-term debt (5,225) (53,098)
Debt issuance costs (612) (10,595)
Acquisition of vendor financing 2,934 --
------- -------
Net cash provided by financing activities 70,618 13,584
------ ------
Net increase (decrease) in cash and cash equivalents 410 (6,477)
CASH AND CASH EQUIVALENTS, beginning of period 2,182 8,865
------- ------
CASH AND CASH EQUIVALENTS, end of period $2,592 $2,388
======= ======
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
------------------------------------------
September 30, 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 will 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 October 16, 1997, American Mobile Radio Corporation ("AMRC"), a subsidiary of
AMSC, 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. As previously reported, AMSC has
entered into an agreement with WorldSpace, Inc. ("WorldSpace"), by which
WorldSpace has acquired a 20% participation in AMRC. In connection with the DARS
auction, AMRC has also arranged for financing of the FCC license fees as well as
for initial working capital needs, which financing has included the issuance of
options. Under the terms of AMRC's financing and contingent on FCC approval,
exercise of the outstanding issued options could result in the dilution of
AMSC's ownership interest in AMRC to 28%. The operations and financing of AMRC
are maintained separate and apart from the operations and financing of AMSC (see
"Liquidity and Financing"), and, accordingly, it is anticipated that AMRC would
be deconsolidated from the financial results of the Company in the near future.
-5-
<PAGE>
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 September 30, 1997, and the consolidated
statements of loss and cash flows for the nine months ended September 30, 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 September 30, 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").
The Company paid approximately $2.0 million and $6.6 million in the nine-month
periods ended September 30, 1997 and 1996, respectively, to related parties for
capital assets, service-related obligations, and payments under financing
agreements. Payments from related parties for communications services totaled
$1.8 million in the nine-month period ended September 30, 1997 as compared to
$640,000 in the nine-month period ended September 30, 1996. Total indebtedness
to related parties as of September 30, 1997 approximated $2.84 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 ("FASB") 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.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income"
governing the reporting and display of comprehensive income and its components,
and SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information" requiring that public businesses report financial and descriptive
information about its reportable operating segments. Both Statements are
applicable to reporting periods beginning after December 15, 1997. The impact of
adopting the Statements 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
-6-
<PAGE>
Company and Toronto Dominion Bank (the "Bank Financing") consisting of a Term
Loan Facility and a Working Capital Facility totalling $200.0 million. 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 repricing of warrants previously issued (together, the "Guarantee
Warrants"). Previously, the Guarantee Warrants had been valued at $19.0 million.
The Guarantee Warrants were revalued at $21.9 million, effective March 27,1997.
As of October 31,1997, the Company had drawn down $144.0 million of the Term
Loan Facility at annual interest rates ranging from 6.00% to 6.25%, and $46.0
million of the Working Capital Facility at annual interest rates ranging from
6.00% to 6.25%.
As previously reported, as a result of slower than anticipated sales of
inventory, the Company has sought additional financing and strategic
arrangements ("Additional Transactions") to fund its operations through 1997 and
into 1998 or beyond. The Company has received a commitment from one of its
principal stockholders for an additional credit facility of up to $10.0 million
("Additional Borrowing") to be made available to the Company on commercial
terms. The commitment is subject to the negotiation and execution of definitive
documentation and the satisfaction of various conditions to be specified
therein. The Company is determining whether other principal stockholders wish to
participate in the proposed credit facility. While there can be no assurances,
the Company believes that it will be able to conclude the Additional Borrowing.
The Company is currently pursuing Additional Transactions, beyond the Additional
Borrowing, to provide adequate capital to fund its future operations. While the
Company believes that at least one of these Additional Transactions should be
consummated, there can be no assurance that any of the Additional Transactions
will be consummated or that the terms thereof will be favorable to the Company
and non-dilutive to its stockholders. If the Bank Financing, Additional
Borrowing or Additional Transactions are not consummated or sufficient, the
Company may not have adequate capital to fund its future operations and debt
obligations. The Company expects that operating revenues will be insufficient to
cover operating expenses until sometime in late 1998 or beyond.
During September, the Company arranged financing of certain current vendor
obligations ("Vendor Financing"). As of October 31, 1997, $2.9 million was
outstanding at an annual interest rate of 12%.
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.
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
-7-
<PAGE>
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.
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, while not necessary to achieve the Company's
current business plan, 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 trial in this matter,
previously set for December 1997, has been postponed to a date to be determined
in 1998. 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
The Company has received a current recommendation from a subcontractor to its
satellite manufacturer that, pending further results from an ongoing
investigation, the satellite should be operated at modified power management
levels. The Company and its satellite manufacturer are investigating the basis,
if any, for this recommendation. Based on the information available to date,
management believes that, even if maintained, the current power management
recommendation would not have a material negative effect on the Company's
business plan within the next three to five years, based on anticipated traffic
patterns and anticipated subscriber levels. In the event that traffic patterns
or subscriber levels materially exceed those anticipated, the power management
recommendation, if maintained, could have a material impact on the Company's
long-term business plan.
At September 30, 1997, the Company had remaining contractual commitments to
purchase both mobile data terminal inventory and mobile telephone inventory in
the maximum amount of $14.1 million.
-8-
<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 and Form 10-Q
Quarterly Reports 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 October 16, 1997, American Mobile Radio Corporation ("AMRC"), a subsidiary of
AMSC, 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. As previously reported, AMSC has
entered into an agreement with WorldSpace, Inc. ("WorldSpace"), by which
WorldSpace has acquired a 20% participation in AMRC. In connection with the DARS
auction, AMRC has also arranged for financing of the FCC license fees as well as
for initial working capital needs, which financing has included the issuance of
options. Under the terms of AMRC's financing and contingent on FCC approval,
exercise of the outstanding issued options could result in the dilution of
AMSC's ownership interest in AMRC to 28%. The operations and financing of AMRC
are maintained separate and apart from the operations and financing of AMSC (see
"Liquidity and Financing"), and, accordingly, it is anticipated that AMRC would
be deconsolidated from the financial results of the Company in the near future.
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<PAGE>
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 or the power management
recommendation 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 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.
The Company has received a current recommendation from a subcontractor to its
satellite manufacturer that, pending further results from an ongoing
investigation, the satellite should be operated at modified power management
levels. The Company and its satellite manufacturer are investigating the basis,
if any, for this recommendation. Based on the information available to date,
management believes that, even if maintained, the current power management
recommendation would not have a material negative effect on the Company's
business plan within the next three to five years, based on anticipated traffic
patterns and anticipated subscriber levels. In the event that traffic patterns
or subscriber levels materially exceed those anticipated, the power management
recommendation, if maintained, could have a material impact on the Company's
long-term business plan.
As of September 30, 1997, there were approximately 29,300 subscribers on the
SKYCELL System.
In March 1997, the Financial Accounting Standards Board ("FASB") 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.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income"
governing the reporting and display of comprehensive income and its components,
and SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information" requiring that public businesses report financial and descriptive
information about its reportable operating segments. Both Statements are
applicable to reporting periods beginning after December 15, 1997. The impact of
adopting the Statements is not expected to be material to the financial
statements.
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<PAGE>
Results of Operations
Operating Revenues
Service revenues, which include both the Company's voice and data services,
approximated $5.6 million and $14.7 million for the three-month and nine-month
period ended September 30, 1997. Service revenue from voice services
approximated $3.6 million for the three-month period ended September 30, 1997 as
compared to $1.1 million for the comparable period in 1996, and $9.2 million for
the nine-month period ended September 30,1997, as compared to $2.9 million for
the comparable period in 1996. This increase was primarily a result of (i) a
144% increase in voice customers as of September 30,1997, as compared to
September 30, 1996 and (ii) a 9% increase in power and band width contracts,
offset by approximately $1.3 million received in the first five months 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 $2.0 million and $5.5 million for the three-month and nine-month
period ended September 30, 1997, compared to $1.4 million and $3.2 million for
the same period in 1996, an increase of $601,000 and $2.3 million, respectively.
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 nine months of 1996 for satellite capacity leased by Rockwell. Revenue
from the sale of mobile data terminals and mobile telephones increased from $4.9
million for the three months ended September 30, 1996 to $5.2 million for the
three months ended September 30, 1997, and from $12.5 million for the nine-month
period ended September 30,1996 to $15.5 million for the nine-month period ended
September 30,1997. This increase is attributable to increased equipment sales of
the dual mode mobile messaging product, discussed above.
Costs and Expenses
The Company's overall costs and expenses have primarily decreased in the
nine-month period ended September 30,1997, as compared to the comparable period
in 1996, as a result of stringent cost controls and expense management. Cost of
service and operations for the three-month and nine-month periods ended
September 30, 1997, which includes costs to support subscribers and to operate
the SKYCELL System, was $7.9 million and $25.0 million, respectively, $295,000
and $1.7 million greater than the comparable periods in 1996. Cost of service
and operations for both the three-month and nine-month periods ended September
30, 1997, as a percentage of operating expenses, was 26%, compared to 22% and
21% for the comparable periods 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 additional cost associated with supporting the dual mode mobile
messaging product, discussed above. The cost of equipment sold increased to $6.3
million from $6.2 million for the three months ended September 30, 1997 and
1996, respectively, and represented 21% and 18% of total operating expenses for
the three months ended September 30, 1997 and 1996, respectively. The cost of
equipment sold decreased to $18.9 million from $23.1 million for the nine-month
periods ended September 30,1997 and 1996, respectively, and represented 20% and
21% for total operation expense for the same periods. The overall decrease in
both dollars and as a percentage of operating expense of the cost of equipment
sold was primarily attributable to certain charges in the second and third
quarters of 1996, totaling $8.8 million, for the reconfiguration of inventory
and the write down of certain assets, including inventory, to net realizable
value, offset by increased equipment sales of the dual mode mobile message
product, discussed above. Sales and advertising expenses were $2.9 million and
-11-
<PAGE>
$9.1 million for the three-month and nine-month periods ended September 30,
1997, compared with $5.7 million and $18.0 million for the same periods in 1996.
Sales and advertising expenses for the three-month and nine-month periods ended
September 30, 1997, were 9% and 10% as a percentage of operating expenses,
compared to 17% and 16% for the comparable periods 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 and nine-month periods ended September 30, 1997,
were $3.1 million and $10.9 million, respectively, $1.2 and $2.8 million less
than the comparable periods in 1996. General and administrative expenses for the
three-month and nine-month periods ended September 30, 1997, were 10% and 11%,
respectively, as a percentage of operating expenses, compared to 13% and 12% for
the same periods in 1996. Both the dollar and percentage decrease in general and
administrative expenses for the first nine 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 $10.4 million and $31.5 million for the three-month and
nine-month periods ended September 30, 1997, compared with $10.1 million and
$33.0 million for the same periods in 1996. Depreciation and amortization for
the three-month and nine-month periods ended September 30, 1997, was 34% and
33%, respectively, as a percentage of operating expenses, compared with 30% for
both of the comparable periods in 1996. The overall dollar decrease in
depreciation and amortization expense was 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, offset by a $1.0 million one-time charge
associated with increased amortization in accordance with SFAS No.86, in the
second quarter of 1997, of certain cost associated with software development for
the mobile data product.
Interest and Other Income
Interest income was $55,000 and $211,000 for the three-month and nine-month
periods ended September 30, 1997, compared to $180,000 and $485,000 in the same
periods in 1996. The decrease was a result of lower average cash balances in the
first nine months of 1997 as compared to the same period in 1996. The Company
incurred $6.7 million and $16.3 million of interest expense for the three-month
and nine-month periods ended September 30, 1997, compared to $3.7 million and
$11.4 million of interest expense for the comparable periods of 1996, reflecting
(i) increased debt balances during the first nine-months of 1997 as compared to
1996, and (ii) the amortization of debt discount and debt issuance costs in the
first nine-months of 1997 of approximately $6.8 million compared to $4.0 million
in the same period of 1996. Additionally, in the first nine months 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 nine months of 1997 were $4.7 million, compared to
$10.5 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.
-12-
<PAGE>
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 totalling $200.0 million. 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 repricing of warrants previously issued (together, the "Guarantee
Warrants"). Previously, the Guarantee Warrants had been valued at $19.0 million.
The Guarantee Warrants were revalued at $21.9 million, effective March 27,1997.
As of October 31,1997, the Company had drawn down $144.0 million of the Term
Loan Facility at annual interest rates ranging from 6.00% to 6.25%, and $46.0
million of the Working Capital Facility at annual interest rates ranging from
6.00% to 6.25%.
As previously reported, as a result of slower than anticipated sales of
inventory, the Company has sought additional financing and strategic
arrangements ("Additional Transactions") to fund its operations through 1997 and
into 1998 or beyond. The Company has received a commitment from one of its
principal stockholders for an additional credit facility of up to $10.0 million
("Additional Borrowing") to be made available to the Company on commercial
terms. The commitment is subject to the negotiation and execution of definitive
documentation and the satisfaction of various conditions to be specified
therein. The Company is determining whether other principal stockholders wish to
participate in the proposed credit facility. While there can be no assurances,
the Company believes that it will be able to conclude the Additional Borrowing.
The Company is currently pursuing Additional Transactions, beyond the Additional
Borrowing, to provide adequate capital to fund its future operations. While the
Company believes that at least one of these Additional Transactions should be
consummated, there can be no assurance that any of the Additional Transactions
will be consummated or that the terms thereof will be favorable to the Company
and non-dilutive to its stockholders. If the Bank Financing, Additional
Borrowing or Additional Transactions are not consummated or sufficient, the
Company may not have adequate capital to fund its future operations and debt
obligations. The Company expects that operating revenues will be insufficient to
cover operating expenses until sometime in late 1998 or beyond.
During September, the Company arranged financing of certain current vendor
obligations ("Vendor Financing"). As of October 31, 1997, $2.9 million was
outstanding at an annual interest rate of 12%.
-13-
<PAGE>
As previously mentioned (see "General"), 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.
As of September 30,1997, the company had remaining contractual commitments to
purchase both mobile data terminal inventory and mobile telephone inventory in
the maximum amount of $14.1 million.
For the first nine months of 1997, the Company has used $45.9 million of cash in
operating activities and $24.3 million of cash in investing activities and has
generated $70.6 million of cash from financing activities. Cash used in
operating activities was $45.9 million for the first nine months of 1997
compared to $74.6 million for the same period in 1996, a decrease of $28.7
million. The decrease in cash used in operating activities was primarily
attributable to (i) decreased operating losses, and (ii) reduced payments of
inventory commitments. Cash used in investing activities was $24.3 million for
the first nine months of 1997 compared to $54.6 million cash provided by
investment activities for the same period in 1996, a decrease of $78.9 million.
The decrease was primarily attributable to the insurance settlement in the
amount of $66.0 million received in the third quarter of 1996, offset by funding
of the DARS license, discussed above. Cash provided by financing activities was
$70.6 million for the first nine months of 1997 compared to $13.6 million for
the same period in 1996, an increase of $57 million. The increase was largely
attributable to the reduction in payments made for repayment of long-term debt
and debt acquisition costs incurred in 1996 associated with the establishment of
the Bank Financing, discussed above. As of September 30, 1997, the Company had
$2.6 million of cash and cash equivalents and working capital of $20.6 million.
-14-
<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 -- Computations of Earning Per Common Share (filed herewith)
27.0 -- Financial Data Schedule (filed herewith)
(b) Reports on Form 8-K:
On October 6, 1997, the Company filed a Current Report on Form
8-K describing in response to Item 5 - Other Events that the
Federal Communications Commission ("FCC") had announced that it
was prepared to grant a license to American Mobile Radio
Corproation, a subsidiary of the Company.
-15-
<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: November 14, 1997 By:/s/STEPHEN D. PECK
-------------------------------------
Stephen D. Peck
Vice President and Chief Financial Officer
(principal financial officer)
By:/s/CHRISTOPHER COLAVITO
-------------------------------------
Christopher Colavito
Controller and Vice President
(principal accounting officer)
-16-
<PAGE>
Exhibit 11.1
AMERICAN MOBILE SATELLITE CORPORATION
---------------------------------------
COMPUTATIONS OF EARNING PER COMMON SHARE
---------------------------------------
(in thousands, except per share amounts)
---------------------------------------
<TABLE>
<CAPTION>
Three Months Nine Months Ended
Ended September 30, September 30,
1997 1996 1997 1996
---- ---- ---- ----
PRIMARY CALCULATION
- -------------------
<S> <C> <C> <C> <C>
Net Loss ($26,264) ($30,002) ($80,187) ($103,388)
========= ========= ========= ==========
Net Loss per common share ($1.04) ($1.20) ($3.19) ($4.13)
======= ======= ======= =======
Weighted-average common shares outstanding 25,145 25,065 25,125 25,024
======= ====== ======= ======
FULLY DILUTED CALCULATION
- -----------------------------------------------
Net Loss (1) ($26,264) ($30,002) ($80,187) ($97,994)
========= ========= ========= =========
Net Loss per common share ($1.04) ($1.19) ($3.18) ($3.88)
======= ======= ======= =======
Weighted-average common shares outstanding (2) 25,213 25,200 25,189 25,229
======= ======= ======= ======
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
<C> <C> <C> <C> <C>
(1) Calculated as follows: 1997 1996 1997 1996
---- ---- ---- ----
Primary net loss ($26,264) ($30,002) ($80,187) ($103,388)
Amortization of debt discount --- --- --- 2,253
Interest on convertible debt --- --- --- 3,141
--------- --------- ---------- ----------
($26,264) ($30,002) ($80,187) ($97,994)
========= ========= ========== ==========
(2) Calculated as follows:
Historical weighted average number of shares 25,145 25,065 25,125 25,024
Assumed exercise of stock options 6 35 2 105
Assumed exercise of stock purchase warrants 62 100 62 100
------- ------- ------- ------
25,213 25,200 25,189 25,229
======= ======= ======= ======
</TABLE>
<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 September 30, 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> SEP-30-1997
<EXCHANGE-RATE> 1
<CASH> 2,592
<SECURITIES> 0
<RECEIVABLES> 7,632
<ALLOWANCES> 0
<INVENTORY> 49,023
<CURRENT-ASSETS> 62,046
<PP&E> 240,638
<DEPRECIATION> 0
<TOTAL-ASSETS> 334,811
<CURRENT-LIABILITIES> 41,430
<BONDS> 213,899
0
0
<COMMON> 252
<OTHER-SE> 83,131
<TOTAL-LIABILITY-AND-EQUITY> 334,811
<SALES> 5,169
<TOTAL-REVENUES> 10,795
<CGS> 7,910
<TOTAL-COSTS> 20,176
<OTHER-EXPENSES> 10,441
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,654
<INCOME-PRETAX> (26,264)
<INCOME-TAX> 0
<INCOME-CONTINUING> (26,264)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (26,264)
<EPS-PRIMARY> (1.04)
<EPS-DILUTED> 0
</TABLE>
