SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
March 31, 1998
Date of Report (Date of earliest event reported)
AMERICAN MOBILE SATELLITE CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 0-23044 93-0976127
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
10802 Parkridge Boulevard, Reston, Virginia 20191-5416
(Address of principal executive offices) (Zip Code)
(703) 758-6000
(Registrant's telephone number, including area code)
<PAGE>
Item 2. Acquisition or Disposition of Assets
As previously reported, on March 31, 1998, the Company acquired (the
"Acquisition") ARDIS Company ("ARDIS") from Motorola, Inc. ("Motorola"), and
combined the ARDIS terrestrial-based business with the satellite-based business
operated through its subsidiary AMSC Subsidiary Corporation.
The Acquisition was completed in accordance with a purchase agreement (the
"Purchase Agreement") entered into with Motorola on December 31, 1997. As
previously reported, subject to certain purchase price adjustment provisions,
the Company acquired the stock of ARDIS for a purchase price of $100 million
(the "Purchase Price") paid as follows: (i) $50 million in cash, paid at the
closing of the Acquisition; (ii) approximately $38 million in shares of the
Company's Common Stock, paid at the closing of the Acquisition; and (iii)
approximately $12 million in shares of the Company's Common Stock and warrants
for shares of the Company's Common Stock only if, at the annual meeting of
Company's stockholders, the stockholders approve the issuance of the additional
shares and warrants to Motorola. The holders of approximately 76% of Company's
Common Stock outstanding and entitled to vote thereon have agreed with Motorola
that they will vote for approval of such issuance.
As previously reported, in connection with the Acquisition, the Company and its
subsidiaries entered into agreements with respect to three financings and
refinancings: (1) $335 million of Units consisting of 12 1/4% Senior Notes due
2008 and Warrants to purchase shares of Common Stock of the Company (the
"Offering"); (2) a $100 million Revolving Credit Facility and a $100 million
Term Loan Facility (the "New Bank Financing"); and (3) a $10 million commitment
with respect to Motorola vendor financing.
<PAGE>
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
(a) Financial Statements.
Audited financial statements of ARDIS Holding Company, a
wholly-owned business of Motorola, Inc. as of December 31,
1997 and 1996 together with the report of the independent
auditors thereon. (Filed herewith).
(b) Pro Forma Financial Statements.
Unaudited pro forma combined balance sheet as if the
acquisition occurred on December 31, 1997, and unaudited pro
forma combined income statement for the year ended December
31, 1997, as if the acquisition occurred on January 1, 1997
(Filed herewith).
(c) Exhibits.
10.65 Stock Purchase Agreement for the Acquisition of
Motorola ARDIS Acquisition, Inc. and Motorola
ARDIS, Inc. by AMSC Acquisition Company, Inc., a
Wholly-Owned Subsidiary of American Mobile Satellite
Corporation, Dated as of December 31, 1997
(Incorporated by reference to Exhibit 10.65
previously filed with the Report on Form 10-K for the
period ending December 31, 1997 (File No. 0-23044)).
23.3 Consent of KPMG Peat Marwick LLP.
99(16) American Mobile Satellite Corporation Press Release
No. 98-7 dated March 31, 1998.
99(17) Audited financial statements of ARDIS Holding
Company, a wholly-owned business unit of Motorola,
Inc. as of December 31, 1996 and 1997 together with
the report of the independent public accountants
thereon.
99(18) Unaudited pro forma combined balance sheet as if the
acquisition occurred on December 31, 1997, and
unaudited pro forma combined income statements for
the year ended December 31, 1997 as if the
acquisition occurred on January 1, 1997.
<PAGE>
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 hereunto duly authorized.
AMERICAN MOBILE SATELLITE CORPORATION
(Registrant)
Date: April 15, 1998 /s/Randy S. Segal
Randy S. Segal
Secretary
<PAGE>
EXHIBIT INDEX
Exhibit
Number Exhibit
10.65 -- Stock Purchase Agreement for the Acquisition of Motorola
ARDIS Acquisition, Inc. and Motorola ARDIS, Inc. by AMSC
Acquisition Company, Inc., a Wholly-Owned Subsidiary of
American Mobile Satellite Corporation, Dated as of December
31, 1997 (Incorporated by reference to Exhibit 10.65
previously filed with the Report on Form 10-K for the period
ending December 31, 1997 (File No. 0-23044)).
23.3 -- Consent of KPMG Peat Marwick LLP
99(16) -- American Mobile Satellite Corporation Press Release No. 98-7
dated March 31, 1998.
99(17) -- Audited financial statements of ARDIS Holding Company, a
wholly-owned business of Motorola, Inc. as of December 31,
1996 and 1997 together with the report of independent
auditors thereon.
99(18) -- Unaudited pro forma combined balance sheet as if the
acquisition had occurred on December 31, 1997 and unaudited
pro forma combined income statements for the year ended
December 31, 1997 as if the acquisition had occurred on
January 1, 1997.
EXHIBIT 23.3
Consent of KPMG Peat Marwick LLP
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference of our report dated February 13,
1998 relating to the combined financial statements of ARDIS Holding Company as
of December 31, 1996 and 1997 and for each of the years in the three-year period
ended December 31, 1997, included in this Form 8-K, into American Mobile
Satellite Corporation's previously filed Registration Statements on Form S-8
(file nos. 33-72852, 33-34250, 33-91714, and 333-30099).
/s/ KPMG Peat Marwick LLP
April 14, 1998
Chicago, Illinois
EXHIBIT 99(16)
NEWS RELEASE
Reference: 98 - # 7
American Mobile Completes Acquisition of ARDIS, Creating
Integrated Terrestrial/Satellite Data Network
$335 Million Bond Offering Funds Acquisition, Company Growth
RESTON, Va., March 31, 1998 - American Mobile Satellite Corporation
(NASDAQ: SKYC) today completed its acquisition of ARDIS Company, which owns and
operates the nation's largest terrestrial, two-way wireless data communications
network. With the merger, American Mobile is positioned to leverage an
integrated terrestrial/satellite network to advance its leadership in wireless
data services.
The combined company serves more than 80,000 subscribers, and has annual
service revenue in excess of $60 million. The new American Mobile has proven
nationwide wireless communications services, including data and voice dispatch
communications for the transportation, field services, maritime and emergency
response markets, as well as two-way messaging, and telemetry services.
"This transaction solidifies our position as a single-source for a broad
range of cost-effective nationwide wireless communications services," said
President Walt Purnell. "It represents the culmination of a long-term
partnership between ARDIS and American Mobile, and enables us to provide the
first fully-deployed and owned terrestrial/satellite network that provides
complete U.S. coverage. We have the expertise, products and financial strength
to leverage our integrated network to meet accelerating market demand for
wireless communications services."
Walt Purnell, formerly president and chief executive officer of ARDIS, was
named president of American Mobile. Purnell joined ARDIS as chief financial
officer in 1990 and was named president in 1995. Gary Parsons, previously
president of American Mobile, continues as chief executive and becomes chairman
of the board, while former board Chairman Jack Shaw continues to serve as a
director of the company and chairman of the executive committee.
In a simultaneous transaction, the company closed a $335 million high yield
debt offering that consists of 335,000 units of 12 1/4 percent senior notes due
2008 and warrants to purchase 1.26 million shares of the company's common stock
at an exercise price of $12.51. The offering was made pursuant to regulation
144A in the private market, with proceeds used to fund the cash portion of the
ARDIS acquisition, pay down the company's existing debt, purchase a portfolio of
government securities sufficient to fund three years of interest payments, and
provide for the working capital needs of the company. "We are clearly pleased
with the successful financing and the strategic position of the combined
company," said Gary Parsons. "The strength of the combined network technologies,
customer base and market strategy was recognized by the bond investors, and Wall
Street in general." Also completed today was a restructuring of the company's
existing $200 million guaranteed bank financing. The new facility is
underwritten by Morgan Guaranty Trust Company, Toronto Dominion Bank and Bank of
America NT&SA, and is guaranteed by Hughes Electronics Corporation, Singapore
Telecommunications Ltd. and Baron Capital Partners, L.P., three of the company's
largest shareholders. American Mobile Satellite Corporation (www.AmMobile.com)
owns and operates an integrated terrestrial/satellite network and provides a
wide range of mobile communication services, including digital voice dispatch,
data communications, mobile messaging and position reporting services, and
satellite telephone to the continental U.S., Alaska, Hawaii, Puerto Rico, the
<PAGE>
Virgin Islands, and hundreds of miles of U.S. coastal waters. American Mobile
services are used in the transportation, field service, maritime, two-way
messaging and telemetry markets. As a result of the acquisition agreement,
Motorola, Inc., joins Hughes Communications Inc., Baron Capital, Singapore
Telecom, and AT&T Wireless Services as the company's major shareholders.
###
Renate Brown Neely/Naomi Yeransian Jennifer Riggle/Jon Bornstein
American Mobile Copithorne & Bellows
703-716-6558/847-913-4233 202-973-5847/919-562-6787
[email protected] [email protected]
Factors that could cause forward-looking statements in this news release to
differ materially from actual results are discussed in American Mobile Satellite
Corporation's Form 10K for the year ended December 31, 1997 and other periodic
filings the company has made with the Securities and Exchange Commission. Copies
of the filings are available upon request from American Mobile Satellite
Corporation's investor relations department.
EXHIBIT 99(17)
Audited Financial Statements
ARDIS HOLDING COMPANY
Combined Financial Statements
December 31, 1996 and 1997
(With Independent Auditors' Report Thereon)
<PAGE>
Independent Auditors' Report
The Board of Directors
Motorola, Inc.:
We have audited the accompanying combined balance sheets of ARDIS Holding
Company (Company), a wholly-owned business of Motorola, Inc. (Parent) as
described in Note 2, Basis of Presentation, as of December 31, 1996 and 1997,
and the related combined statements of operations, stockholders' equity, and
cash flows for each of the years in the three-year period ended December 31,
1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of ARDIS Holding
Company as of December 31, 1996 and 1997, and the results of their operations
and their cash flows for each of the years in the three-year period ended
December 31, 1997 in conformity with generally accepted accounting principles.
/s/KPMG Peat Marwick LLP
February 13, 1998
Chicago, Illinois
<PAGE>
ARDIS HOLDING COMPANY
<TABLE>
Combined Balance Sheets
December 31, 1996 and 1997
(amounts in thousands)
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Assets 1996 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 5,289 $ 2,082
Accounts receivable, less allowance for doubtful
accounts of $754 in 1996 and $264 in 1997,
including amounts due from Parent of $142
in 1996 and $47 in 1997 7,809 7,642
Inventory, including $514 in 1996 and $154 in
1997, acquired from Parent 1,211 342
Prepaid site rent, including, $2,500 in 1996
to Parent 4,418 2,075
Prepaid expenses and other current assets 2,184 1,104
- -------------------------------------------------------------------------------------------------------------------
Total current assets 20,911 13,245
- -------------------------------------------------------------------------------------------------------------------
Property and equipment - net, principally acquired
from Parent 53,302 41,801
- -------------------------------------------------------------------------------------------------------------------
Intangible assets, net 16,303 14,567
Other noncurrent assets 736 217
- -------------------------------------------------------------------------------------------------------------------
$91,252 $69,830
- -------------------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable, including amounts due to Parent
of $340 in 1996 and $471 in 1997 $ 4,011 $ 4,012
Accrued expenses, including amounts due to
Parent of $492 in 1996 and $204 in 1997 2,646 1,717
Accrued payroll and related taxes 2,153 1,070
Capital lease obligation 3,565 3,900
Advance deposits - 1,402
Accrued taxes 906 706
- -------------------------------------------------------------------------------------------------------------------
Total current liabilities 13,281 12,807
- -------------------------------------------------------------------------------------------------------------------
Capital lease obligation 12,830 8,931
- -------------------------------------------------------------------------------------------------------------------
Stockholders' equity 65,141 48,092
- -------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $91,252 $69,830
- -------------------------------------------------------------------------------------------------------------------
See accompanying notes to combined financial statements.
</TABLE>
<PAGE>
ARDIS HOLDING COMPANY
<TABLE>
Combined Statements of Operations
Years ended December 31, 1995, 1996, and 1997
(amounts in thousands)
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
1995 1996 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues:
Services, including revenues from Parent of $622, $613, and $294
for the years ended December 31,
1995, 1996, and 1997, respectively. $40,006 $43,413 $41,923
Equipment 1,266 1,884 2,326
- -------------------------------------------------------------------------------------------------------------------
Total revenues 41,272 45,297 44,249
- -------------------------------------------------------------------------------------------------------------------
Costs and expenses:
Costof service and operations, including costs of providing
services to Parent of $9,180, $7,694, and $7,569 for the
years ended December 31, 1995, 1996, and 1997, respectively. 39,884 32,805 31,940
Cost of equipment sold, including costs of equipment
purchased from Parent of $938, $1,033, and $1,324 for the years
ended December 31, 1995, 1996, and 1997, respectively. 1,878 1,350 2,233
Sales and advertising, including expenses from Parent
of $734, $50, and $54 for the years ended December 31,
1995, 1996, and 1997, respectively. 15,164 13,677 5,888
General and administrative, including expenses related
to Parent of $300, and $150 for the years ended
December 31, 1995 and 1996, respectively. 10,623 9,364 6,970
Depreciation and amortization principally
related to assets acquired from Parent 14,355 17,269 14,586
- -------------------------------------------------------------------------------------------------------------------
81,904 74,465 61,617
- -------------------------------------------------------------------------------------------------------------------
Operating loss (40,632) (29,168) (17,368)
Interest income 481 198 150
Interest expense (688) (1,556) (1,331)
- -------------------------------------------------------------------------------------------------------------------
Loss before income tax benefit (40,839) (30,526) (18,549)
Income tax benefit 15,586 11,528 6,807
- -------------------------------------------------------------------------------------------------------------------
Net loss $(25,253) $(18,998) $(11,742)
- -------------------------------------------------------------------------------------------------------------------
See accompanying notes to combined financial statements.
</TABLE>
<PAGE>
ARDIS HOLDING COMPANY
<TABLE>
Combined Statements of Stockholders' Equity
Years ended December 31, 1995, 1996, and 1997
(amounts in thousands)
<CAPTION>
- --------------------------------------------------------------------------------
Stockholders'
Equity
- --------------------------------------------------------------------------------
<S> <C>
Balance at January 1, 1995 68,906
Contributions from Parent 44,200
Tax benefit utilized by Parent (15,586)
Net loss (25,253)
- --------------------------------------------------------------------------------
Balance at December 31, 1995 72,267
Contributions from Parent 23,400
Tax benefit utilized by Parent (11,528)
Net loss (18,998)
- --------------------------------------------------------------------------------
Balance at December 31, 1996 65,141
Contributions from Parent 1,500
Tax benefit utilized by Parent (6,807)
Net loss (11,742)
- --------------------------------------------------------------------------------
Balance at December 31, 1997 $48,092
- --------------------------------------------------------------------------------
See accompanying notes to combined financial statements.
</TABLE>
<PAGE>
ARDIS HOLDING COMPANY
<TABLE>
Combined Statements of Cash Flows
Years ended December 31, 1995, 1996, and 1997
(amounts in thousands)
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
1995 1996 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net loss $(25,253) $(18,998) $(11,742)
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:
Depreciation and amortization 14,355 17,269 14,586
Gain on sale of fixed assets - - (33)
Write-off of recorded assets - - 419
Tax benefit utilized by Parent (15,586) (11,528) (6,807)
Changes in assets and liabilities:
Accounts receivable (3,030) 1,240 167
Inventory 1,329 (1,025) 869
Prepaid site rent (685) (1,398) 2,343
Prepaid expenses and other assets 792 (1,432) 1,080
Accounts payable (1,817) (16) 1
Accrued expenses 1,085 (2,556) (929)
Accrued payroll 785 (902) (1,083)
Accrued taxes (1,381) 245 (200)
Advance deposits - - 1,402
Other 1,191 435 520
- -------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities (28,215) (18,666) 593
- -------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Capital expenditures (18,811) (3,410) (1,431)
Purchases of FCC licenses (4,724) (1,396) (305)
- -------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (23,535) (4,806) (1,736)
- -------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Contributions from Parent 44,200 23,400 1,500
Payments of capital lease obligations (1,500) (1,624) (3,564)
- -------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 42,700 21,776 (2,064)
- -------------------------------------------------------------------------------------------------------------------
Decrease in cash and cash equivalents (9,050) (1,696) (3,207)
Cash and cash equivalents at beginning of year 16,035 6,985 5,289
- -------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $6,985 $5,289 $2,082
- -------------------------------------------------------------------------------------------------------------------
Supplemental disclosure of cash flow information:
Cash paid for interest on capital lease obligations $688 $1,556 $1,331
Supplemental disclosure of noncash activities:
Assets acquired through capital leases $18,831 - -
See accompanying notes to combined financial statements.
</TABLE>
<PAGE>
ARDIS HOLDING COMPANY
Notes to Combined Financial Statements
- --------------------------------------------------------------------------------
(1) Description of Business
-----------------------
ARDIS Holding Company (Company) is engaged in the operation of a
terrestrial-based wireless data network that provides service coverage to
substantially all areas of the United States, Puerto Rico, and the U.S.
Virgin Islands. This network includes radio frequency towers, or base
stations, for transmitting and receiving radio signals among data
terminals. The network operates in the 800 MHZ frequency band utilizing
licenses owned by the Company. The base stations are located on leased
antenna sites.
The Company provides wireless data services primarily to business customers
in many varying market segments, including field services and
transportation market segments which require nationwide, reliable wireless
data services. The Company derives revneues from monthly variable and fixed
usage charges, as well as access fees, rental fees, and equipment sales.
The Company obtains and supports customers through direct sales efforts and
reseller arrangements.
(2) Basis of Presentation
---------------------
The accompanying financial statements present the combined financial
position, results of operations, adn cash flows of Motorola ARDIS
Acquisition, Inc. (MAA) and Motorola ARDIS, Inc. (MAI), each wholly-owned
subsidiaries of Motorola, Inc. (Parent). Each of MAA and MAI own a 50%
partnership interest in ARDIS Holding Company. ARDIS Holding Company was
formed in April, 1990 as a 50/50 joint venture between Motorola, Inc.
(Motorola) and International Business Machine Corporation (IBM) to deploy a
terrestrial based wireless data network in the United States. Hereinafter,
except as otherwise indicated, MAA and MAI are referred to on a combined
basis as ARDIS Holding Company or the Company. In December, 1994 MAA
acquired IBM's partnership interest in ARDIS Holding Company for $33,800.
All significant intercompany transactions and balances have been eliminated
in the combination.
(3) Summary of Significant Accounting Policies
------------------------------------------
Cash and Cash Equivalents
-------------------------
Cash and cash equivalents include all highly liquid investments with a
maturity of three months or less when purchased.
Accounts Receivable
-------------------
Accounts receivable includes amounts owed by customers for airtime services
and equipment. A related provision for uncollectible amounts is calculated
based on management's estimates of amounts, which, based upon the credit
risk associated with the various classifications of customer accounts, are
subject to substantial collection risk.
<PAGE>
Inventory
---------
Inventory consists of reseller hardware devices and is stated at lower of
cost or market. Cost is determined using the weighted average method.
Appropriate consideration is given to obsolescence in evaluating net
realizable value.
Prepaid Expenses and Other Assets
---------------------------------
Prepaid expenses and other assets consists principally of prepaid costs
incurred for airpasses. These airpasses expire beginning in 1999 through
2000. The Company reduces the asset for actual usage each year and performs
an assessment of the net realizable value of the asset based on projected
usage through the expiration period. The current portion of the asset is
reflected as a prepaid expense and the noncurrent portion is reflected as
an other noncurrent asset.
Property and Equipment
----------------------
Property and equipment consists of leasehold improvements, network
equipment, and other equipment and are stated at cost or, for assets
contributed, net book value as of the date of contribution. Depreciation of
furniture and equipment is provided using the straight-line method over the
estimated useful lives of the assets which range from 3 to 10 years.
Leasehold improvements are amortized over the remaining terms of the
respective leases. Maintenance and repairs are expensed as incurred, while
improvements are capitalized.
Intangible Assets
-----------------
Intangible assets, which include license rights and excess of cost over
fair value, are stated at cost. License rights represent costs incurred for
FCC issued licenses and are amortized on a straight-line basis over an
estimated useful life of 10 years. The excess of cost over fair value,
resulting from MAA's acquisition of IBM's interest in the Company, is
amortized on a straight-line basis over an estimated useful life of 10
years. The Company assesses the recoverability of intangible assets by
determining whether the amount of the balances over their remaining lives
can be recovered through undiscounted future operating cash flows of the
operations.
Long-lived Assets
-----------------
Long-lived assets and identifiable intangible assets to be held and used
are reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amounts should be evaluated. Impairment is
measured by comparing the carrying value to the estimated undiscounted
future cash flows expected to result from the use of the assets and their
eventual disposition. The Company has determined that as of December 31,
1996 and 1997 there has been no impairment in the carrying values of
long-lived assets.
Income Taxes
------------
ARDIS Holding Company is included in the consolidated U.S. income tax
return of the Parent. The tax benefit of losses have been recorded in the
statements of operations as the benefits are used by the Parent.
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards (SFAS) 109, Accounting for Income Taxes.
Cumulative deferred taxes have been settled through stockholders' equity.
<PAGE>
Revenue Recognition
-------------------
The Company recognizes revenues under service agreements over the period in
which related services are provided. Sales of equipment are recognized upon
delivery. To the extent that management considers certain recognized
revenues to be uncollectible, a provision for doubtful accounts is
recognized as a general and administrative expense in the period such
determination is made.
Use of Estimates
----------------
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities in connection with the preparation of
these financial statements in conformity with generally accepted accounting
principles. Actual results could differ from those estimates.
Concentration of Customer and Credit Risks
------------------------------------------
The Company's customers are comprised of subscribers which utilize airtime
services and purchase related equipment. Financial instruments which
potentially subject the Company to concentrations of credit risk consist
principally of accounts receivable. As of December 31, 1996 and 1997 three
and five customers' account balances individually accounted for more than
5% of the Company's accounts receivable balance, respectively. In the
aggregate those customers accounted for 42% and 63%, of the total accounts
receivable balance as of December 31, 1996 and 1997, respectively. For the
years ended December 31, 1996 and 1997, four and five customers
individually accounted for more than 5% of the Company's sales,
respectively. In the aggregate, these customers accounted for 62% and 69%
of total sales for the years ended December 31, 1996 and 1997,
respectively.
Accounts receivable are generally unsecured; management believes its
allowance for doubtful accounts is adequate to cover any exposure to loss.
Concentration of Suppliers
--------------------------
The Company currently purchases all of its base station equipment, an
important component of its network, from its Parent. Although there are a
limited number of manufacturers of this particular equipment, management
believes that other suppliers could provide similar equipment on comparable
terms. A change in suppliers, however, could cause a delay in procurement
or deployment of equipment and a possible reduction in the quality of
service, which could affect operating results adversely.
The Company currently leases approximately one-third of its transmission
sites, an important component of its network, from its Parent under
cancelable operating lease agreements. Although there are a limited number
of lessors of transmission sites, management believes that other lessors
could provide acceptable sites on comparable terms. A change in lessors,
however, could cause a possible reduction in the quality of service, which
could affect operating results adversely.
Fair Value of Financial Instruments
-----------------------------------
Financial instruments, including accounts receivable, accounts payable, and
accrued liabilities are reflected in the financial statements at fair
value. The fair values of all financial instruments were not materially
different from their carrying or contract values.
(4) Liquidity
-------
Operations for the current and prior year did not generate sufficient cash
flow to cover current obligations. The Parent has funded such obligations
and has made a commitment to continue to provide financing to the Company
<PAGE>
until the transaction described in Note (12) is consummated. The Parent's
plans include the planned sale of the Company in exchange for consideration
expected to include a combination of cash and securities of the acquirer.
See Note (12) for a description of this pending transaction.
(5) Property and Equipment
----------------------
Property and equipment as of December 31, 1996 and 1997 consists of the
following:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1996 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
Network equipment $84,868 $86,765
Construction in progress 5,830 3,836
Personal terminals 5,703 5,826
Computer equipment 20,258 21,263
Leasehold improvements-building 3,255 3,268
Furniture and fixtures 3,458 3,601
- --------------------------------------------------------------------------------
123,372 124,559
Less accumulated depreciation 70,070 82,758
- --------------------------------------------------------------------------------
$53,302 $41,801
- --------------------------------------------------------------------------------
</TABLE>
(6) Intangible Assets
Intangible assets consist of the following at December 31, 1996 and
1997:
<TABLE>
<CAPTION>
1996 1997
<S> <C> <C>
Excess cost over fair value of assets acquired $ 12,966 $ 12,966
FCC licenses 7,462 7,767
20,428 20,773
Less accumulated amortization 4,125 6,166
$ 16,303 $ 14,567
</TABLE>
FCC licenses as of December 31, 1996 and 1997 consists of certain FCC license
rights to 800 MHz channel frequencies, for which an agreement exists to sell
these license rights to third parties. The agreement contains three traunches
which provide that a total of eighty-four frequencies will be sold in three
separate transactions. The first transaction, is expected to be consummated
during the first quarter of 1998, and will result in proceeds to the Parent of
$5,141. A cash deposit was received during December, 1997 and is reflected as an
advance deposit at December 31, 1997. The second and third transactions are
expected to be consummated during the last half of 1998 and will result in
proceeds of $976 to the Company. The carrying value of these frequencies is
$3,170 and $3,022 at December 31, 1996 and 1997, respectively. The completion of
these transactions is dependent on obtaining FCC regulatory approval.
<PAGE>
(7) Related Party Transactions
--------------------------
The Company engages in transactions with its Parent in the normal course of
its business. These transactions include purchases of services, network
hardware and software maintenance services, facility rentals, and network
gateway fees, among various other transactions as follows:
The Parent owns certain structures and equipment used by the Company in its
operations under operating lease arrangements. Related rental expenses were
approximately $2,500, $2,700, and $2,700 for the years ended December 31,
1995, 1996, and 1997, respectively.
The Parent provides maintenance services under service contracts. The
Company incurred related expenses of $4,735, $4,513, and $4,830, for the
years ended December 31, 1995, 1996, and 1997, respectively.
Network equipment is purchased from the Parent. Purchases aggregated $1,021
and $290 for the years ended December 31, 1996 and 1997, respectively.
Inventory is purchased from the Parent. Purchases aggregated $3,066 and
$880 for the years ended December 31, 1996 and 1997, respectively.
The Parent charges certain payroll and other consulting expenses to the
Company. Charges aggregated $3,234, $649, and $60 for the years ended
December 31, 1995, 1996, and 1997, respectively.
During 1995 the Company expensed $1,727 in amounts paid to Parent, which
were to entitle the Company to participate in a contract to provide its
services to customers through another third party. The agreement was
terminated during 1997.
In management's opinion, the foregoing transactions were consummated based
on amounts agreed upon between the respective parties and are reasonable.
However, the amounts disclosed may not represent the amounts that would
have been reported had these transactions occurred with third parties at
"arms-length."
(8) Leases
------
Capital Leases
--------------
The Company is obligated under a capital lease for equipment that expires
on December 31, 2000. The gross amounts of equipment and related
accumulated depreciation recorded under capital lease was as follows for
December 31, 1996 and 1997:
---------------------------------------------------------------------------
1996 1997
---------------------------------------------------------------------------
Network equipment $18,831 18,831
Less accumulated depreciation 5,136 8,560
---------------------------------------------------------------------------
$13,695 $10,271
---------------------------------------------------------------------------
Depreciation of assets held under the capital lease is included with
depreciation expense.
The Company's obligations require monthly payments in varying amounts
through December 31, 2000. The obligations have been discounted to reflect
an implicit interest rates 9.381%.
<PAGE>
At December 31, 1997, future minimum lease commitment together with the
present value of obligations under lease that have initial or remaining
noncancelable terms in excess of one year were as follows:
---------------------------------------------------------------------------
Period ended December 31,
---------------------------------------------------------------------------
1998 $4,896
1999 4,896
2000 4,896
---------------------------------------------------------------------------
Total minimum lease payments 14,688
Less amount representing 1,857
---------------------------------------------------------------------------
Present value of minimum lease payments 12,831
Less current portion of capital lease obligations 3,900
---------------------------------------------------------------------------
Noncurrent portion of capital lease obligations $8,931
---------------------------------------------------------------------------
Operating Leases
----------------
The Company leases substantially all of its base station sites through
cancelable operating leases. The majority of these leases provide for
renewal options for various periods at their fair rental value at the time
of renewal. In the normal course of business, operating leases are
generally renewed or replaced by other leases.
In addition, the Company leases certain office space and computers under
non-cancelable operating leases. Future minimum lease payments under such
leases as of December 31, 1997 for each of the next four years and in the
aggregate are as follows:
---------------------------------------------------------------------------
1998 $1,340
1999 1,378
2000 1,416
2001 38
---------------------------------------------------------------------------
Total lease obligations $4,172
---------------------------------------------------------------------------
Rent expense under all lease agreements for the years ended December
31, 1995, 1996, and 1997 was $7,791, $8,044, and $8,440, respectively.
(9) Employee Benefits
-----------------
The Company maintains an Individual Accumulation Plan to provide retirement
assistance to all eligible employees. The plan consists of two components,
a defined contribution plan and an employee savings plan. Under the defined
contribution plan, the Company will contribute 5% of each employee's
compensation to the plan. The employee savings plan allows participants to
contribute up to 12% of their compensation as an elective deferral. The
Company matches these contributions up to 4% of the participant's
compensation. Company contributions under both plans were $1,382, $1,409,
and $1,103, for the years ended December 31, 1995, 1996, and 1997,
respectively. Participant contributions are vested at all times.
Contributions made by the Company to all participants commencing employment
prior to or on April 30, 1990 are fully vested. Contributions made by the
Company to all participants commencing employment after April 30, 1990 vest
over three years.
<PAGE>
(10) Income Taxes
------------
<TABLE>
Income tax benefit for the years ended December 31, 1995, 1996, and 1997
consists of:
<CAPTION>
---------------------------------------------------------------------------
Current Deferred Total
---------------------------------------------------------------------------
<S> <C> <C> <C>
Year ended December 31, 1995:
U.S. Federal $(14,950) $ 2,123 $(12,827)
State and local (3,215) 456 (2,759)
---------------------------------------------------------------------------
$(18,165) $ 2,579 $(15,586)
---------------------------------------------------------------------------
Year ended December 31, 1996:
U.S. Federal (11,094) 1,606 (9,488)
State and local (2,386) 346 (2,040)
---------------------------------------------------------------------------
$(13,480) $ 1,952 $(11,528)
---------------------------------------------------------------------------
Year ended December 31, 1997:
U.S. Federal (8,061) 2,459 (5,602)
State and local (1,734) 529 (1,205)
---------------------------------------------------------------------------
$ (9,795) $ 2,988 $ (6,807)
---------------------------------------------------------------------------
</TABLE>
<TABLE>
Income tax benefit differed from the amounts computed by applying the U.S.
Federal income tax rate of 35% to losses before income tax expense as a
result of the following:
<CAPTION>
---------------------------------------------------------------------------------------------------
1995 1996 1997
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Computed "expected" tax benefit $(14,294) $(10,684) $(6,492)
Increase (decrease) in tax benefit resulting from:
Amortization of goodwill 454 454 454
State and local income taxes, net of federal benefit (1,793) (1,327) (783)
Other 47 29 14
---------------------------------------------------------------------------------------------------
$(15,586) $(11,528) $(6,807)
---------------------------------------------------------------------------------------------------
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities at December 31,
1996 and 1997 are presented below:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------
1996 1997
---------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Intangible assets, principally due
to differences in amortization $1,789 $ 1,162
Accruals not deductible for tax purposes 3,096 1,514
Employee benefits, principally
due to accrual for financial
reporting purposes 370 32
Other (16) 1,425
---------------------------------------------------------------------------
Net deferred tax assets 5,239 4,133
---------------------------------------------------------------------------
Deferred tax liabilities:
Property and equipment, principally
due to differences in depreciation (6,770) (8,588)
---------------------------------------------------------------------------
Net deferred tax liabilities (6,770) (8,588)
---------------------------------------------------------------------------
Net deferred tax asset (liability) $(1,531) $(4,455)
---------------------------------------------------------------------------
</TABLE>
<PAGE>
At December 31, 1996 and 1997, $(1,531) and $(4,455), respectively,
of cumulative deferred taxes have been settled through stockholders'
equity. At December 31, 1996 and 1997, the basis of excess cost over
fair value of assets acquired for financial reporting purposes exceeds
the basis for tax purposes by $(253) and $(168), respectively.
(11) Commitments and Contingencies
-----------------------------
The Company is obligated under the terms of a take-or-pay supplier
agreement entered into in January, 1997 to purchase prior to August 31,
1998, a minimum of $2,375 of product. The agreement requires the Company to
pay certain additional amounts if the Company or certain of its customers
does not purchase a total of $9,500 of product by August 31, 1998. At
December 31, 1997 the Company had purchased a total of $774. The Company
believes that it will fulfill its obligations under the agreement;
accordingly, no amount has been accrued at December 31, 1997 for the
Company's obligation under the agreement.
(12) Stock Purchase Agreement
------------------------
In December 1997 the Parent entered into a Stock Purchase Agreement
(Agreement) with American Mobile Satellite Communications (AMSC) to
transfer ownership of the stock of MAA and MAI in exchange for cash and
shares of AMSC common stock. In connection with this Agreement, the value
exchanged between the Parent and AMSC is subject to adjustment to the
extent that the working capital of the Company, as defined in the
Agreement, differs from the amount stipulated in the Agreement. The
transaction is designed as a tax-free exchange to the Parent and AMSC.
Closing of the Agreement is subject to a number of significant conditions,
including, among others, the receipt of approval from the FCC, the filing
of all necessary reports and documents with the Department of Justice
pursuant to the Hart-Scott-Rodino Anti-Trust Improvements Act of 1976 and
the expiration or termination of all applicable waiting periods thereunder,
other governmental approvals, and the satisfaction of certain other
conditions. The Parent has the right to terminate this Agreement if the
market value of AMSC common stock calculated as of the closing date has
declined by more than 30% from the market value calculated as of the date
of the Agreement.
EXHIBIT 99(18)
AMERICAN MOBILE SATELLITE CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET
<TABLE>
<CAPTION>
As of December 31, 1997
-----------------------
Pro Forma Pro Forma
--------- ---------
AMSC ARDIS Adjustment Consolidated
---- ----- ---------- ------------
Acquisition Offering
----------- --------
(Dollars in thousands)
Assets:
Current Assets:
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents $ 2,106 $ 2,082 $(2,082)(2) $24,100 (1) $ 26,206
Inventory 40,321 342 40,663
Accounts receivable-trade, net of allowance for doubtful
accounts 8,140 7,642 (92)(4) 15,690
Pledged Securities -- -- 41,037 (1) 41,037
Other current assets 14,172 3,179 5,967 (1) 23,318
-------- ------ -------
Total current assets 64,739 13,245 146,914
Property and equipment, net 233,174 41,801 274,975
Goodwill -- -- 68,557 (2) 71,107
2,550 (1)(2)
Deferred charges and other assets, net 13,534 14,784 (14,567)(2) 12,250 (1) 37,934
11,933 (1)
Pledged Securities -- -- 10,000 (1) 71,963 (1) 81,963
-------- ------- -------
Total assets $311,447 $69,830 $612,893
======== ======= ========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued expenses $ 35,861 $ 8,907 $ (92)(4) $(2,200) $ 42,476
Current portion of obligations under capital leases 798 3,900 4,698
Current portion of long-term debt 15,254 -- (5,000)(1) 10,254
Other current liabilities 7,520 -- 7,520
-------- ------- --------
Total current liabilities 59,433 12,807 64,948
Long-term liabilities:
Obligations under Bank Facility 198,000 -- (98,000)(1) 100,000(1)
12 1/4% Senior Notes -- -- 326,500 (1) 326,500
Capital lease obligations 3,147 8,931 12,078
Fair value of assets acquired in excess of purchase price 2,725 -- 2,725
Other long-term debt 1,364 -- 1,364
Other long-term liabilities 647 -- 647
-------- ------- --------
Total long-term liabilities 205,883 8,931 443,314
-------- ------- -------
Total liabilities 265,316 21,738 508,262
Stockholders' equity:
Net Assets of ARDIS 48,092 (48,092)(2) --
Preferred Stock, par value $0.01: authorized 200,000
shares; no shares issued -- -- --
Common Stock, voting, par value $0.01: authorized
75,000,000 shares 252 -- 63 (2) 315
Additional paid-in capital 451,892 -- 47,747 (2) 499,639
Common Stock purchase warrants 36,338 -- 2,190 (2) 64,748
8,500 (1)
17,720 (3)
Unamortized Guarantee Warrants (23,586) -- (17,720)(3) (41,306)
Retained loss (418,765) -- (418,765)
--------- ------- ---------
Total stockholders' equity 46,131 48,092 104,631
--------- ------- ---------
Total liabilities and stockholders' equity $311,447 $69,830 $612,893
========= ======= ========
See Notes to Pro Forma Financial Information on following pages.
</TABLE>
<PAGE>
AMERICAN MOBILE SATELLITE CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
Year Ended December 31, 1997
----------------------------
Pro Forma Adjustments Pro Forma
--------------------- ---------
AMSC ARDIS Acquisition Offering Consolidated
---- ----- ----------- -------- ------------
(Dollars in thousands, except per share data)
Revenues:
<S> <C> <C> <C> <C> <C>
Services $ 20,684 $41,923 $ (498)(9) $ 62,109
Equipment and consulting 23,530 2,326 25,856
-------- ------- --------
Total revenue 44,214 44,249 87,965
Cost of service and operations 31,959 31,940 (498)(9) 63,401
Cost of equipment sold 40,335 2,233 42,568
Sales and advertising 12,066 5,888 17,954
General and administrative 14,819 6,970 21,789
Depreciation and amortization 42,430 14,586 (1,297)(5) 59,274
3,555 (6)
-------- ------- --------
Operating loss (97,395) (17,368) (117,021)
Interest and other (expense) income (179) 150 500 (8) 5,208 (10) 5,679
Interest expense (21,633) (1,331) (42,076)(7) (65,040)
--------- -------- --------
Net loss before income tax benefit (119,207) (18,549) (176,382)
Income tax benefit -- 6,807 (6,807)(12) --
--------- ------- ----------
Net loss $(119,207) $(11,742) $(176,382)
========= ========= ==========
Loss per share of Common Stock $ (4.74) $ (5.62)
========= ==========
Weighted-average common shares outstanding
during the period (000's) 25,131 6,262(11) 31,393
========= ======= ==========
See Notes to Pro Forma Financial Information on following pages.
</TABLE>
<PAGE>
NOTES TO PRO FORMA FINANCIAL INFORMATION
The pro forma financial information is based on the following assumptions and
adjustments:
(1) Reflects the $335.0 million in total proceeds from the Offering (comprised
of $326.5 million of proceeds from the issuance of Notes and $8.5 million of
proceeds from the issuance of the Warrants) and application of the proceeds
therefrom as if the Offering, the Acquisition and the New Bank Financing had
occurred on December 31, 1997, as follows:
<TABLE>
<CAPTION>
Amount
------
(Dollars in
thousands)
----------
<S> <C>
Purchase of Pledged Securities $113,000
Cash portion of the Acquisition 50,000
Cash escrow for UPS Guarantee 10,000
Repayment of Bank Financing of American Mobile 98,000 (a)
Pre-funding of three years of interest on the Term Loan 17,900
Facility
Repayment of other deferred obligations 7,200 (b)
Payment of acquisition and financing costs 14,800 (c)
Working capital 24,100 (d)
-------
Gross proceeds from the sale of the Units $335,000
========
</TABLE>
(a) Reflects $98.0 million repayment of the Bank Financing outstanding at
December 31, 1997. It is expected that the Company will have the ability,
subject to certain conditions, to borrow $100.0 million under the Revolving
Credit Facility.
(b) Consists of $2.2 million of accrued expenses and $5.0 million of
deferred vendor financing.
(c) Consists of $12.2 million of financing costs and $2.6 million of
acquisition costs.
(d) Subsequent to December 31, 1997, American Mobile incurred $12.0 million
of additional debt prior to the Offering. Proceeds from the Offering, in
the amount of $10.1 million, will be used to repay the Bridge Financing,
including accrued interest thereon and $2.0 million will be used to repay
additional borrowing made on the Bank Facility.
(2) Reflects the Acquisition. All share and warrant amounts assume final
shareholder approval for the issuance of $50.0 million in shares and warrants.
No assumptions have been made regarding any purchase price adjustments as
outlined in the ARDIS Acquisition Agreement.
Total acquisition costs are anticipated to be as follows:
<TABLE>
<CAPTION>
(Dollars in thousands) Amount
- ---------------------- ------
<S> <C>
6,262,000 shares of American Mobile Satellite Corporation at $7.63 per share (average
of closing price 20 days prior to acquisition agreement) issued to Motorola $ 47,810
287,000 warrants of American Mobile Satellite Corporation at a strike price of
$.01--valued at $7.63 per share issued to Motorola 2,190
Cash payment to Motorola 50,000
Estimated transaction costs 2,550
--------
$102,550
========
</TABLE>
<PAGE>
The anticipated acquisition costs have been allocated for pro forma purposes as
follows:
<TABLE>
<CAPTION>
(Dollars in thousands) Amount
------
<S> <C>
Current assets $ 11,163
Equipment and fixtures, net 41,801
Other assets, net 217
Excess of purchase price over fair market value 71,107
Accounts payable, accrued expenses and other liabilities (8,907)
Capital leases (12,831)
---------
$102,550
</TABLE>
The above allocation of acquisition costs is preliminary and may change upon
final determination of the fair value of assets acquired. The Company has not
specifically identified amounts to assign to certain intangibles and licenses;
changes in the amounts allocated to such assets could result in changes to the
amount of goodwill recorded. A preliminary amortization period of twenty years
has been selected and utilized in the pro forma financial information which is
expected in all material respects to be representative of the amortization
expense that will result from the ultimate allocation to the specific intangible
assets.
(3) Reflects the re-pricing and extension of life of 5.5 million existing
Guarantee Warrants and issuance of 1.0 million additional Guarantee Warrants in
connection with the restructuring of the Bank Facility. The existing 5.5 million
Guarantee Warrants will be extended an additional 3.75 years and the exercise
price will be changed to reflect a 10% premium over AMSC's closing Common Stock
price on the date of closing of the Offering. The exercise price of the
Guarantee Warrants is $12.51, a 10% premium over AMSC's Common Stock price on
March 25, 1998. The 1.0 million additional Guarantee Warrants will be issued
with a seven-year life and exercise price equal to the new exercise price of the
existing 5.5 million Guarantee Warrants. The Guarantee Warrants will be
amortized over five years (the life of the guarantee) to interest expense.
(4) Reflects the elimination of inter-company balances resulting from
transactions between American Mobile and ARDIS.
(5) Reflects the elimination of goodwill amortization recorded by ARDIS.
(6) Reflects the amortization, over a 20-year life, of the excess of purchase
price of ARDIS over fair market value of assets acquired.
(7) Reflects adjustments to interest expense as follows:
<TABLE>
<CAPTION>
Year Ended
December 31,
1997
------------
(Dollars in thousands)
<S> <C>
(a) Adjustment of interest expense and debt costs on New Bank $(10,548)
Financing
(b) Interest expense on the Notes and amortization of debt discount 41,888
(c) Amortization of Note issuance costs 1,225
(d) Amortization of Guarantee Warrants and debt issuance costs 3,544
(e) Amortization of pre-funded interest 5,967
---------
$ 42,076
=========
</TABLE>
The assumptions in connection with the above pro forma interest expense
adjustments are as follows:
(a) Reflects the elimination of interest expense applicable to the Bank
Financing and vendor financing which is to be partially repaid with the
proceeds from the sale of the Units.
(b) Reflects interest expense on the Notes at 12 1/4% and amortization of
the $8.5 million debt discount.
(c) Reflects the amortization, over a ten year period, of debt issuance
costs of approximately $12.2 million associated with the Offering and the
New Bank Financing.
(d) Reflects the amortization, over a five year period, of the Guarantee
Warrants and the amortization of capitalized costs related to the New Bank
Financing.
<PAGE>
(e) Reflects the interest expense on the New Bank Financing.
(8) Reflects interest earned on funds escrowed in connection with a customer
guarantee at an average interest rate of 5.0%.
(9) Reflects the elimination of revenues and related operating expenses on
transactions between American Mobile and ARDIS.
(10) Reflects interest income earned on the Pledged Securities at an average
interest rate of 5.0%.
(11) Reflects shares issued to Motorola in connection with the Acquisition.
(12) Reflects the elimination of a tax sharing arrangement between ARDIS and
Motorola.
