<PAGE>
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, 1999
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, 1999: 48,496,077
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
American Mobile Satellite Corporation and Subsidiaries
Consolidated Condensed Statements of Operations
-----------------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------- -------------
1999 1998 1999 1998
---- ---- ---- ----
(in thousands, except per share data)
REVENUES
<S> <C> <C> <C> <C>
Services $ 17,290 $ 17,661 $50,076 $40,749
Sales of equipment 5,680 4,141 15,997 13,485
------ ------ ------ ------
Total Revenues 22,970 21,802 66,073 54,234
COSTS AND EXPENSES
Cost of service and operations 17,287 15,545 51,673 39,498
Cost of equipment sold 6,045 4,826 17,167 14,122
Sales and advertising 5,548 5,429 16,018 13,855
General and administrative 13,119 4,514 22,596 13,918
Depreciation and amortization 14,911 13,864 42,315 38,484
------ ------ ------ ------
Operating Loss (33,940) (22,376) (83,696) (65,643)
INTEREST EXPENSE (18,136) (15,504) (50,957) (37,848)
INTEREST AND OTHER INCOME 990 1,582 4,622 3,330
UNREALIZED LOSS ON NOTE RECEIVABLE FROM
XM RADIO -- -- (9,919) --
UNREALIZED (LOSS) GAIN ON NOTE PAYABLE TO
RELATED PARTY (2,807) -- 7,229 --
EQUITY IN LOSS OF XM RADIO -- (3,086) (6,692) (9,618)
------- ------- ------- -------
LOSS BEFORE EXTRAORDINARY ITEM (53,893) (39,384) (139,413) (109,779)
EXTRAORDINARY LOSS ON EXTINGUISHMENT OF
DEBT (12,132) -- (12,132) --
-------- ------- --------- --------
NET LOSS $(66,025) $(39,384) $(151,545) $(109,779)
======== ======= ========= ========
Basic and Diluted Loss Per Share of common stock before
extraordinary item $ (1.18) $ ( 1.24) $(3.79) $(3.71)
Basic and Diluted Loss Per Share Extraordinary item $ (0.27) --- $(0.33) ---
Basic and Diluted Net Loss Per Share of common stock $ (1.45) $ (1.24) $(4.12) $(3.71)
Weighted-average common shares outstanding during the
period 45,421 31,773 36,740 29,604
</TABLE>
See notes to consolidated condensed financial statements.
<PAGE>
American Mobile Satellite Corporation and Subsidiaries
Consolidated Condensed Balance Sheets
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
------------- ------------
1999 1998
---- ----
(In thousands)
ASSETS
CURRENT ASSETS
<S> <C> <C>
Cash and cash equivalents $ 61,431 $ 2,285
Inventory 19,597 18,593
Prepaid in-orbit insurance 4,830 3,381
Accounts receivable-- net 18,062 15,325
Restricted short-term investments 41,038 41,038
Other current assets 17,401 13,231
------- -------
Total current assets 162,359 93,853
PROPERTY & EQUIPMENT-- net 220,478 246,553
SYSTEM UNDER CONSTRUCTION 279,549 --
GOODWILL & INTANGIBLES-- net 85,533 53,235
RESTRICTED INVESTMENTS 50,308 67,199
DEFERRED CHARGES & OTHER ASSETS-- net 31,740 28,954
------- --------
Total assets $ 829,967 $489,794
======= ========
LIABILITIES & STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable & accrued expenses $ 58,790 $ 33,797
Obligations under capital leases due within one year 2,854 5,971
Vendor financing due to related party within one year 1,715 543
Deferred trade payables due within one year 6,094 4,498
Other current liabilities -- 162
------ ------
Total current liabilities 69,453 44,971
LONG-TERM LIABILITIES
Obligations under Bank Financing 72,000 132,000
Obligations under Senior Notes, net of discount 327,351 327,147
Series A subordinated convertible notes of XM Radio
and accrued interest thereon 256,258 --
Capital lease obligations 5,034 5,824
Net assets acquired in excess of purchase price 1,507 2,028
Vendor financing due to related party 2,438 1,069
Convertible note payable to related party, at fair value 15,188 --
Deferred trade payables -- 620
Investment in XM Radio -- 12,618
Other long-term liabilities 1,906 540
------- -------
Total long-term liabilities 681,682 481,846
------- -------
Total liabilities 751,135 526,817
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred Stock -- --
Common Stock 485 322
Additional paid-in capital 763,318 508,084
Deferred compensation (5,431) (1,528)
Common Stock purchase warrants 63,397 59,108
Unamortized guarantee warrants (22,061) (33,678)
Cumulative loss (720,876) (569,331)
--------- ---------
Total stockholders' equity (deficit) 78,832 (37,023)
------ --------
Total liabilities and stockholders' equity (deficit) $829,967 $489,794
======== ========
</TABLE>
See notes to consolidated condensed financial statements.
<PAGE>
American Mobile Satellite Corporation and Subsidiaries
Consolidated Condensed Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-------------
1999 1998
---- ----
(in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net loss ($151,545) ($109,779)
Adjustments to reconcile net loss to net cash used in
operating activities:
Amortization of guarantee warrants, debt discount
and issuance costs 13,151 11,622
Depreciation and amortization 42,315 38,484
Extraordinary loss on extinguishment of debt 12,132 --
Equity in loss of XM Radio 6,692 9,618
Net unrealized loss on marketable securities 2,690 --
Changes in assets and liabilities:
Inventory (1,004) 3,938
Prepaid in-orbit insurance (1,449) (266)
Trade accounts receivable (5,395) 2,126
Other current assets (7,629) 281
Accounts payable and accrued expenses (9,778) (12,558)
Interest payable on Senior notes 20,519 20,519
Deferred trade payables 975 (5,330)
Deferred items-- net 393 6
------ ------
Net cash used in operating activities (77,933) (41,339)
------ ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (9,928) (7,376)
System under construction (75,579) --
Purchase of XM Radio note receivable (21,419) --
XM Radio Acquisition costs (788) --
Acquisition of ARDIS -- (51,440)
Purchase of long-term, restricted investments (3,613) (143,312)
------- -------
Net cash used in investing activities (111,327) (202,128)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of Common Stock 121,974 412
Principal payments under capital leases (4,421) (2,541)
Principal payments under Vendor Financing (861) --
Proceeds from Bank Financing 52,000 39,000
Proceeds from Series A subordinated convertible
notes of XM Radio 250,000 --
Repayment of Term loan (59,000) --
Repayment of XM Radio bank loan (73) --
Repayment of WorldSpace loan by XM Radio (75,000) --
Repayments on Revolver (53,000) --
Proceeds from reduction of interest rate swap 6,009 --
Proceeds from note payable to related party 21,500 --
Repayment of Bank Financing -- (100,000)
Proceeds from bridge financing -- 10,000
Repayment of bridge financing -- (10,000)
Payments on long-term debt -- (4,933)
Proceeds from Senior Notes and Stock Purchase Warrants -- 335,000
Debt issuance costs & deferred charges (10,722) (14,982)
------ ------
Net cash provided by financing activities 248,406 251,956
------- -------
Net increase in cash and cash equivalents 59,146 8,489
CASH AND CASH EQUIVALENTS, beginning of period 2,285 2,106
------- -------
CASH AND CASH EQUIVALENTS, end of period $61,431 $10,595
======= =======
</TABLE>
See notes to consolidated condensed financial statements.
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (continued)
American Mobile Satellite Corporation and Subsidiaries
Notes to Consolidated Condensed Financial Statements
September 30, 1999
(Unaudited)
1. Organization and Business
American Mobile Satellite Corporation (with its subsidiaries, "American
Mobile" or the "Company") is a nationwide provider of wireless communications
services, including data, dispatch, and voice services, primarily to business
customers in the United States. American Mobile is devoting its efforts to
expanding its business. This effort involves substantial risk. Specifically,
future operating results will be subject to significant business, economic,
regulatory, technical, and competitive uncertainties and contingencies.
Depending on their extent and timing, these factors, individually or in the
aggregate, could have an adverse effect on the Company's financial condition and
future results of operations.
In addition to its core wireless communications business, American Mobile
has a controlling interest in XM Satellite Radio Holdings Inc., a development
stage company. On July 7, 1999, the Company acquired certain debt and equity
interests in XM Satellite Radio Holdings Inc., then owned by WorldSpace, Inc.,
in exchange for approximately 8.6 million shares of the Company's stock ( the
"XM Acquisition"). XM Satellite Radio Holdings Inc., through its subsidiary XM
Satellite Radio Inc. (together with XM Satellite Radio Holdings Inc., "XM
Radio"), is one of two entities awarded a license by the FCC to provide
satellite-based Digital Audio Radio Service ("DARS") throughout the United
States. XM Radio is currently engaged in efforts to construct its satellite
system. As a result of the XM Acquisition, XM Radio's financial results for the
period July 7, 1999 through September 30, 1999 have been included in the
Company's Consolidated Condensed Financial Statements. Prior to July 7, 1999,
the Company's investment in XM Radio was accounted for pursuant to the equity
method of accounting. See Note 3-Purchase of XM Radio and Note 9-Subsequent
events regarding XM Radio's initial public offering.
2. Significant Accounting Policies
Basis of Presentation
The unaudited consolidated condensed financial statements included herein
have been prepared pursuant to the rules and regulations of the Securities and
Exchange Commission (the "SEC"). 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 not make the information
misleading, these consolidated financial statements should be read in
conjunction with the consolidated financial statements and related notes
included in the Company's filings and the filings of XM Radio with the
Securities and Exchange Commission.
The consolidated balance sheet as of September 30, 1999, and the
consolidated statements of operations for the three and nine months ended
September 30, 1999 and 1998, and the cash flows for the nine months ended
September 30, 1999 and 1998, have been prepared by the Company and are
<PAGE>
unaudited. 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, 1999, and for all periods
presented have been made. As a result of the XM Acquisition and pursuant to
generally accepted accounting principles, the balance sheet at December 31,
1998, the statement of operations for the three and nine months ended September
30, 1998, and the statement of cash flow for the nine months ended September 30,
1998, have been restated to record the Company's portion of the losses from XM
Radio which had been previously suspended under the equity method of accounting.
The effect of this restatement was to increase the Company's previously reported
net loss for the three and nine months ended September 30, 1998 from $36.3
million to $39.4 million and from $100.5 million to $109.8 million respectively.
The loss per share increased from $1.14 to $1.24 for the three months ended
September 30, 1998 and from $3.39 to $3.71 for the nine months ended September
30, 1998.
Certain amounts from prior years have been reclassified to conform to
current year presentation.
Net Loss Per Share
Basic and diluted loss per common share is based on the weighted-average
number of shares of Common Stock outstanding during the period. Stock options
and common stock purchase warrants are not reflected since their effect would be
antidilutive. As of September 30, 1999, there were approximately 5.6 million
options and warrants that would have been included in this calculation had the
effect not been antidilutive.
Comprehensive Income
SFAS No. 130, "Reporting of Comprehensive Income," requires "comprehensive
income" and the components of "other comprehensive income" to be reported in the
financial statements and/or notes thereto. Since the Company does not have any
components of "other comprehensive income," reported net income is the same as
"comprehensive income" for the three and nine months ended September 30, 1999
and 1998.
Segment Disclosures
In accordance with SFAS 131, "Disclosures about Segments of an Enterprise
and Related Information," the Company has two operating segments: wireless
communications and satellite-based digital audio radio service. The Company
provides wireless communications services within North America, the Caribbean,
and U.S. coastal waters. All revenues are derived from customers within the
United States. XM Radio is in the process of constructing its satellite system
to provide digital radio programming transmitted from satellites to vehicles,
homes, and portable radios. XM Radio is currently in the development stage and
thus has no revenue generating operations. The following summarizes the
Company's core wireless communications service and equipment revenue by major
product lines:
<TABLE>
<CAPTION>
Revenue for the Revenue for the
Three Months Nine Months Ended
Ended September 30, September 30,
1999 1998 1999 1998
(in millions)
<S> <C> <C> <C> <C>
Voice Service $ 3.5 $ 3.9 $9.7 $ 10.6
Data Service 12.6 12.8 36.9 27.3
Equipment 5.7 4.1 16.0 13.5
Capacity Resellers and Other 1.2 1.0 3.5 2.8
</TABLE>
<PAGE>
Recently Adopted Accounting Pronouncements
In June 1998, FASB issued Statement No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which requires the recognition of all
derivatives as either assets or liabilities measured at fair value. This
statement is effective for the year ending December 31, 2000. In June 1999, FASB
issued Statement No. 137, which defers the effective date of Statement No. 133
until fiscal quarters beginning after June 15, 2000. The Company does not
believe that the adoption of this statement will have a material impact on its
financial position, results of operations and cash flows.
Concentration of Credit Risk
For the nine months ended September 30, 1999, four customers accounted for
approximately 29% of the Company's service revenue, with one of those customers
representing approximately 14%.
Other
The Company paid approximately $6.2 million and $7.6 million in the
nine-month periods ended September 30, 1999 and 1998, respectively, to related
parties for capital assets, service-related obligations, and payments under
pre-existing financing agreements. There were no payments from related parties
in the nine-month period ended September 30, 1999, as compared to $4.3 million
for communication services and equipment purchases in the nine-month period
ended September 30, 1998. Total indebtedness to related parties as of September
30, 1999 approximated $19.8 million.
3. Purchase of XM Radio
On July 7, 1999, the Company acquired WorldSpace's debt and equity
interests in XM Radio, other than a $75 million loan from WorldSpace to XM
Radio, in exchange for approximately 8.6 million shares of the Company's common
stock. The total consideration given for the purchase of XM Radio was $129
million. The Company also incurred approximately $0.9 million for certain
acquistion related expenses. In conjunction with the XM Acquisition, XM Radio
was recapitalized and issued an $82 million convertible note receivable to the
Company. This note is convertible into Class B common shares of XM Radio.
Concurrently with this transaction, XM Radio issued $250 million of Series A
subordinated convertible notes to several new strategic and financial investors,
including General Motors Corporation, Clear Channel Investments, DIRECTV, Telcom
Ventures, Columbia Capital and Madison Dearborn Partners. XM Radio used $75
million of the proceeds from these notes to repay the outstanding loan payable
to WorldSpace. As a result of these transactions, the Company owned all of the
issued and outstanding stock of XM Radio as of July 7, 1999.
On October 8, 1999, XM Radio consummated an initial public offering of 10.2
million shares of its Class A Common Stock. As a result of this transaction, the
Company's convertible notes were converted into additional shares of XM Radio
Class B stock and the Company's voting interest in XM Radio was reduced to 62.3%
and its economic interest in XM Radio was reduced to 30.5% (in each case,
excluding shares of XM Radio Class B stock owned by the Company but pledged to
Baron Asset Fund in connection with the transaction described in Note 5 below).
See Note 9- Subsequent Events.
<PAGE>
Prior to July 7, 1999, the Company's proportionate share of XM Radio's
losses have been included in the accompanying statement of operations pursuant
to the equity method of accounting. In connection with the XM Acquisition and in
accordance with generally accepted accounting principles, the Company was
required to restate its financial statements for the year ended December 31,
1998 and for the quarter ended March 31, 1999 to record its share of XM Radio
losses previously suspended under the equity method of accounting. This resulted
in the Company recording additional losses of approximately $12.6 million for
the year ended December 31, 1998, and $3.5 million for the quarter ended March
31, 1999. The acquisition was accounted for under the purchase method of
accounting for business combinations. The purchase price was preliminary
assigned to the assets and liabilities of XM Radio based on their estimated fair
values on the date of the acquisition. The Company's preliminary estimate of the
excess of the purchase price over the fair market value of the net assets
acquired is $34 million. The Company has not yet 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 fifteen years has been selected, which is
expected in all material respects to be representative of the amortization
expense that will result from the ultimate allocation to the specific intangible
assets. The results of XM Radio are included in the consolidated condensed
financial statements as of the effective date of the acquisition, July 7, 1999
through September 30, 1999.
On a pro forma basis, assuming the XM Acquisition had been consummated on
January 1 of each of the periods presented, the following results would have
been reflected. The pro forma results are based on historical information and do
not necessarily reflect the actual results that would have occurred if the
combination occurred at the beginning of each year presented, nor reflects the
future results of the combined entity.
<TABLE>
<CAPTION>
Nine Months Nine Months
Ended Ended
September 30, September 30,
1999 1998
------------- -------------
<S> <C> <C>
Revenues $66,073 $54,234
Loss before extraordinary item (142,222) (113,854)
Net Loss (154,354) (113,854)
Loss per share (3.62) (2.98)
</TABLE>
4. Liquidity and Financing
Liquidity and Financing Requirements
Adequate liquidity and capital are critical for the Company to continue as
a going concern and to fund subscriber acquisition programs necessary to achieve
positive cash flow and profitable operations. The Company expects to continue to
make significant capital outlays to fund interest expense, capital expenditures
and working capital prior to the time that it begins to generate positive cash
flow from operations and for the foreseeable future thereafter.
XM Radio is operated, managed, and funded separately from the Company.
While the Company does not have any obligation or commitments to provide
additional funding to XM Radio, and does not expect to provide such funding, it
may choose to provide additional financing in the future. XM Radio will require
significant additional financing in the future. XM Radio is currently exploring
several financing arrangements, which may include selling debt or equity
securities or obtaining loans from commercial banks or other financial
institutions. The failure of XM Radio to obtain required financing could have a
material adverse effect on the value of the Company's investment in XM Radio.
<PAGE>
On March 31, 1998, Acquisition Company issued $335 million of units
consisting of 12 1/4% Senior Notes due 2008 (the "Senior Notes"), and one
warrant to purchase 3.75749 shares of Common Stock of the Company for each
$1,000 principal amount of Senior Notes (the "Warrants"), and also restructured
its existing bank financing (the "New Bank Financing"). The New Bank Financing
consists of a $100 million unsecured five-year reducing Revolving Credit
Facility maturing March 31, 2003 and a $100 million five-year Term Loan Facility
with up to three additional one-year extensions subject to lender approval, a
portion of which has been permanently reduced, as discussed below. Additionally,
on March 29, 1999, the Bank Facility Guarantors (as defined in Item 2 under the
caption "Liquidity and Capital Resources") agreed to eliminate certain covenants
relating to the Company's future earnings before interest, taxes, depreciation,
and amortization ("EBITDA") and service revenue. In exchange for this
elimination of covenants, the Company agreed to reprice the Guarantee Warrants
(as defined in Item 2 under the caption "Liquidity and Capital Resources"),
effective April 1, 1999, from $12.51 to $7.50. The value of the repricing was
approximately $1.5 million. As of September 30, 1999, the Company had $69.0
million available for borrowing under the Revolving Credit Facility.
Additionally, Motorola has agreed to provide the Company with up to $10 million
of vendor financing (the "Vendor Financing Commitment"), which is available to
finance up to 75% of the purchase price of additional base stations needed to
meet the Company's buildout requirements under certain customer contracts. As of
September 30, 1999, $4.2 million was outstanding under this facility.
On August 3, 1999, the Company raised $116 million, net of underwriting
discounts and expenses, through the issuance of 7.0 million shares of its common
stock in a public offering. Of these proceeds, approximately $59 million was
used to pay down a portion of the Term Loan Facility, and is not available for
re-borrowing. The remainder of the proceeds were used to pay down a portion of
the Revolving Credit Facility, which will be available for re-borrowing as
needed for general working capital purposes. As a result of the partial pay down
of the Term Loan Facility, the Company recorded an extraordinary loss on
extinguishment of debt of approximately $12.1 million, which reflects the
write-off, on a pro-rata basis, of warrants held by certain shareholder
guarantors of the New Bank Financing (the "Guarantee Warrants") and deferred
financing fees associated with the placement of the New Bank Financing. There
was no tax benefit recognized for the extraordinary loss because it increases
the Company's current net loss position.
As a result of the automatic application of certain adjustment provisions
following the issuance of the 7.0 million shares in the public offering, the
exercise price of the Guarantee Warrants was reduced to $7.3571 per share and
the Guarantee Warrants became exercisable for an additional 126,246 shares.
Additionally, the exercise price of the warrants associated with the Senior
Notes was reduced to $12.28 per share and the aggregate number of shares
issuable upon the exercise of such warrants was increased by 24,291 shares. The
additional Guarantee Warrants and repricing were valued at $2.4 million, and the
additional Senior Notes warrants and repricing were valued at $440,000.
On July 7, 1999 XM Radio issued $250 million of Series A subordinated
convertible notes to several new strategic and financial investors including
General Motors Corporation, Clear Channel Investments, DIRECTV, Telcom Ventures,
Columbia Capital and Madison Dearborn Partners. The notes bear interest at a
rate equal to six-month LIBOR plus 5% per annum, and mature on December 31,
2004, unless extended in certain circumstances if XM Radio issues high yield
debt securities. The principal amount and all accrued interest is payable in a
single installment on the maturity date or on the date of conversion. The notes
and all accrued interest thereon are convertible into Class A Common Stock or
Series A convertible preferred stock of XM Radio at a conversion price of $9.52
per share at the election of the note holders or upon the occurrence of certain
events, including an initial public offering of a prescribed size of XM Radio
shares. Subsequent to September 30, 1999, XM Radio completed its initial public
offering, which triggered the conversion of these notes into 10.8 million shares
of Series A convertible preferred stock and 16.2 million shares of Class A
common stock. See Note 9- Subsequent events.
XM Radio estimates that it will require in total approximately $1.1 billion
from its inception through the commencement of commercial operations, which is
targeted for the second quarter of 2001, to develop and implement the XM Radio
system as well as to provide working capital needs. Including the funds raised
in its initial public offering, XM Radio has raised $445 million to date, net of
expenses and repayment of debt, through the issuance of debt and equity. The
<PAGE>
funds have been used to acquire its FCC license, make payments under its
satellite contract and various other contractual commitments with vendors and
strategic partners, as well as for working capital and operating expenses. Total
capital expenditures from XM Radio's inception through September 30, 1999 were
$228.4 million.
The Company's current operating assumptions and projections, which reflect
management's best estimate of subscriber and revenue growth and operating
expenses, indicate that anticipated capital expenditures, operating losses,
working capital and debt service requirements through 1999 and beyond, can be
met by cash flows from operations, the net proceeds from the issuance of common
stock in August 1999, the net proceeds from the sale of the Senior Notes and
Warrants, together with the borrowings under the New Bank Financing and the
Vendor Financing Commitment; however, the Company's ability to meet its
projections is subject to numerous uncertainties and there can be no assurance
that the Company's current projections regarding the timing of its ability to
achieve positive operating cash flow will be accurate, and if the Company's cash
requirements are more than projected, the Company may require additional
financing in amounts which may be material. The type, timing and terms of
financing selected by the Company will be dependent upon the Company's cash
needs, the availability of other financing sources and the prevailing conditions
in the financial markets. There can be no assurance that any such sources will
be available to the Company at any given time or available on favorable terms.
5. Baron XM Radio Convertible Note
On January 15, 1999, the Company issued to Baron Asset Fund ("Baron"), a
related party, a $21.5 million note convertible into shares of common stock of
XM Radio (the "Baron XM Radio Convertible Note"). The Company subsequently
loaned approximately $21.4 million to XM Radio in exchange for XM Radio common
stock and a note convertible into XM Radio shares (the "XM Radio Note
Receivable"). The Baron XM Radio Convertible Note ranks subordinate to all other
debt securities of the Company and is fully collateralized by shares of XM
Radio. The XM Radio Note Receivable is a non-recourse note. The XM Radio Note
Receivable earns interest at LIBOR plus 5% and is due on December 31, 2004,
unless extended, in certain circumstances if XM Radio issues high yield debt
securities. Subsequent to September 30, 1999, XM Radio completed its initial
public offering, which triggered the conversion of the XM Radio Note Receivable
into 1.5 million shares of XM Radio Class B common stock. See Note 9- Subsequent
events. The Baron XM Radio Convertible Note accrues interest at the rate of 6%
annually, with all payments deferred until maturity, December 31, 2004, or
extinguished upon conversion. The Company has the option to satisfy the Baron XM
Radio Convertible Note by tendering the shares into which it would have been
convertible in lieu of any cash payments.
The Company's September 30, 1999 consolidated condensed balance sheet
reflects management's estimate of the fair value of the Baron XM Radio
Convertible Note. Changes in the fair value of the Baron XM Radio Convertible
Note are reflected in the accompanying statement of operations as an unrealized
gain or loss on note payable to related party ($2.8 million loss and $7.2
million gain for the three and nine-months ended September 30, 1999,
respectively). Prior to the XM Acquisition, the Company also recorded the XM
Radio Note Receivable at management's best estimate of its fair value, and as a
result, recorded an unrealized loss on the XM Radio Note Receivable of $9.9
million for the six months ended June 30, 1999. As a result of the XM
Acquisition, the XM Radio Note Receivable is eliminated in consolidation.
6. Legal and Regulatory Matters
The ownership and operation of the mobile satellite services system and
ground-based two-way wireless data system are subject to the rules and
regulations of the FCC, which acts under authority granted by the Communications
Act and related federal laws. Among other things, the FCC allocates portions of
the radio frequency spectrum to certain services and grants licenses to and
regulates individual entities using the spectrum. American Mobile operates
pursuant to various licenses granted by the FCC.
The successful operation of the satellite network is dependent on a number
of factors, including the amount of L-band spectrum made available to the
Company pursuant to an international coordination process. The United States is
currently engaged in an international process of coordinating the Company's
access to the spectrum that the FCC has assigned to the Company. While the
Company believes that substantial progress has been made in the coordination
process and expects that the United States government will be successful in
<PAGE>
securing the necessary spectrum, the process is not yet complete. The inability
of the United States government to secure sufficient spectrum could have an
adverse effect on the Company's financial position, results of operations and
cash flows.
The Company has the necessary regulatory approvals, some of which are
pursuant to special temporary authority, to continue its operations as currently
contemplated. The Company has filed applications with the FCC and expects to
file applications in the future with respect to the continued operations, change
in operation and expansion of its network and certain types of subscriber
equipment. Certain of its applications pertaining to future service have been
opposed. While the Company, for various reasons, believes that it will receive
the necessary approvals on a timely basis, there can be no assurance that the
requests will be granted; granted on a timely basis or will be granted on
conditions favorable to the Company. Any significant changes to the applications
resulting from the FCC's review process or any significant delay in their
approval could adversely affect the Company's financial position, results of
operations and cash flows.
There are applications now pending before the FCC to use the Inmarsat
system and TMI's Canadian-licensed system, both of which operate in the Mobile
Satellite Services ("MSS") L-band and have satellite footprints covering the
United States, to provide service in the United States. American Mobile has
opposed these filings. In addition to providing additional competition to
American Mobile, a grant of domestic authority by the FCC to use any of these
foreign systems may increase the demand by these systems for spectrum in the
international coordination process and could adversely affect American Mobile's
ability to coordinate its spectrum access.
On July 20, 1998, the International Bureau of the FCC granted SatCom
Systems, Inc. a Special Temporary Authority ("STA") to use TMI's space segment
to conduct market tests in the U.S. for six months using up to 500 mobile
terminals for 180 days on a private carrier basis so that it may conduct
marketing trials; this special temporary authority is likely to be extended
until the FCC acts on SatCom's underlying application for a blanket license to
operate up to 25,000 mobile terminals in the United States on a permanent basis.
On July 30, 1998, American Mobile filed an Application for Review and a Motion
for Stay of this STA grant with the FCC, and these filings remain pending.
American Mobile is authorized to build, launch, and operate three
geosynchronous satellites in accordance with a specific schedule. American
Mobile is not in compliance with the schedule for commencement and construction
of its second and third satellites and has petitioned the FCC for changes to the
schedule. Certain of these extension requests have been opposed by third
parties. The FCC has not acted on American Mobile's requests. The FCC has the
authority to revoke the authorizations for the second and third satellites and
in connection with such revocation could exercise its authority to rescind
American Mobile's license. American Mobile believes that the exercise of such
authority to rescind the license is unlikely. The term of the license for each
of American Mobile's three authorized satellites is ten years, beginning when
American Mobile certifies that the respective satellite is operating in
compliance with American Mobile's license. The ten-year term of MSAT-2 began
August 21, 1995. Although American Mobile anticipates that the authorization for
MSAT-2 is likely to be extended in due course to correspond to the useful life
of the satellite and a new license granted for any replacement satellites, there
is no assurance of such extension or grants.
7. Commitments and Contingencies
At September 30, 1999, the Company had remaining contractual commitments to
purchase both mobile data terminal inventory and mobile telephone inventory in
the maximum amount of $4.0 million during the remainder of 1999. Additionally,
the Company had remaining contractual commitments for the development and
production of certain next generation data terminals of approximately $32.1
million, subject to final pricing negotiations, over a three-year period, with
delivery starting in the fourth quarter of 1999. The Company has the right to
terminate the research and development and inventory commitment by paying
cancellation fees of between $1.0 million and $2.3 million, depending on when
the termination option is exercised during the term of the contract. The Company
also has the right to terminate the inventory commitment by incurring a
cancellation penalty representing a percentage of the unfulfilled portion of the
contract. The Company has also contracted for the purchase of $25.9 million of
next generation wireless data terminals to be delivered beginning in the third
quarter of 1999. The contract contains a 50% cancellation penalty.
<PAGE>
XM Radio is also subject to certain commitments and contingencies. XM Radio
has a distribution agreement with General Motors that will require significant
expenditures in the future. Additionally, under its satellite contract, XM Radio
will incur approximately $541.3 million, of which $147.9 million has been paid
at September 30,1999. XM Radio also has a contract for the design and
development of its terrestrial repeater network with payments under this
contract expected to be approximately $115 million. Additional information with
respect to these contractual commitments is provided in XM Radio's filings and
periodic reports with the SEC.
In January 1999, a competitor of XM Radio filed an action against XM Radio
for patent infringement. In February 1999, XM Radio filed an answer to the
action. XM Radio does not believe that it has infringed, and it believes that it
will not infringe any of the competitor's patents and intends to vigorously
defend against the suit; however, the outcome is uncertain at this time.
8. Condensed Consolidating Financial Statements
In connection with the Company's acquisition of ARDIS Company on March 31,
1998 (the "ARDIS Acquisition") and related financing discussed above, the
Company formed AMSC Acquisition. The Company contributed all of its
inter-company notes receivables and transferred its rights, title and interests
in AMSC Subsidiary Corporation, American Mobile Satellite Sales Corporation, and
AMSC Sales Corp. Ltd. (together with ARDIS, the "Subsidiary Guarantors") to
Acquisition Company, and Acquisition Company was the acquirer of ARDIS and the
issuer of the Senior Notes. American Mobile Satellite Corporation ("American
Mobile Parent") is a guarantor of the Senior Notes. The Senior Notes contain
covenants that, among other things, limit the ability of Acquisition Company and
its Subsidiaries to incur additional indebtedness, pay dividends or make other
distributions, repurchase any capital stock or subordinated indebtedness, make
certain investments, create certain liens, enter into certain transactions with
affiliates, sell assets, enter into certain mergers and consolidations, and
enter into sale and leaseback transactions.
The $335 million of Senior Notes are jointly and severally guaranteed on a
full and unconditional basis by the Subsidiary Guarantors and American Mobile
Parent. The following unaudited condensed consolidating information for these
entities presents:
o Condensed consolidating balance sheets as of September 30, 1999 and
December 31, 1998, the condensed consolidating statements of operations for
the three and nine month periods ended September 30, 1999 and 1998, and the
condensed consolidating cash flows for the nine month period ending
September 30, 1999 and 1998.
o Elimination entries necessary to combine the entities comprising American
Mobile.
<PAGE>
Condensed Consolidating Balance Sheet
As of September 30, 1999
(Unaudited)
(In Thousands)
<TABLE>
<CAPTION>
Consolidated American
Subsidiary Acquisition Acquisition Mobile Consolidated
Guarantors Company Eliminations Company Parent XM Radio Eliminations Parent
---------- ------- ------------ ------- ------ -------- ------------ ------
ASSETS
------
CURRENT ASSETS:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Cash and cash equivalents $7,075 $ -- $ -- $7,075 $ -- $54,356 $ -- $61,431
Inventory 19,597 -- -- 19,597 -- -- -- 19,597
Prepaid in-orbit insurance 4,830 -- -- 4,830 -- -- -- 4,830
Accounts receivable-- net 18,062 -- -- 18,062 -- -- -- 18,062
Restricted short-term
investments -- 41,038 -- 41,038 -- -- -- 41,038
Note receivable from XM
Radio, at fair value -- -- -- -- 13,038 -- (13,038) --
Other current assets 8,291 -- -- 8,291 2,446 6,664 -- 17,401
----- ------ ------ ------ ----- ----- -------- ------
Total current assets 57,855 41,038 -- 98,893 15,484 61,020 (13,038) 162,359
PROPERTY AND EQUIPMENT-- NET 232,800 -- (13,475) 219,325 -- 1,153 -- 220,478
SYSTEM UNDER CONSTRUCTION -- -- -- -- -- 282,316 (2,767) 279,549
GOODWILL & INTANGIBLES-- NET 51,461 -- -- 51,461 -- 50,823 (16,751) 85,533
INVESTMENT IN XM RADIO -- -- -- -- 29,179 -- (29,179) --
NOTE RECEIVABLE FROM XM RADIO -- -- -- -- 83,720 -- (83,720) --
INVESTMENT IN/DUE FROM
SUBSIDIARY -- 292,515 (292,515) -- (184) -- 184 --
DEFERRED CHARGES AND OTHER
ASSETS-- NET 3,016 29,696 -- 32,712 (12,476) 11,504 -- 31,740
RESTRICTED INVESTMENTS 68 37,620 -- 37,688 12,620 -- -- 50,308
-------- ------ -------- ------ ------ ------- -------- ------
Total assets $345,200 $400,869 ($305,990) $440,079 $128,343 $406,816 ($145,271) $829,967
======== ========== ======== ======== ======== ======== ========== ========
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
----------------------------------------------
CURRENT LIABILITIES:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Accounts payable and
accrued expenses $18,250 $20,891 $ -- $ 39,141 $ 706 $ 18,943 $ -- $ 58,790
Obligations under capital
leases due within one year 2,747 -- -- 2,747 -- 107 -- 2,854
Current portion long-term debt 7,809 -- -- 7,809 -- -- -- 7,809
----- ------- ----- ----- ----- ------ ----- -----
Total current liabilities 28,806 20,891 -- 49,697 706 19,050 -- 69,453
DUE TO PARENT/AFFILIATE 755,641 -- (755,814) (173) 6,618 173 (6,618) --
LONG-TERM LIABILITIES:
Note payable to/from Issuer/Parent -- 14,000 -- 14,000 (14,000) -- -- --
Obligations under Bank Financing -- 31,000 -- 31,000 41,000 -- -- 72,000
Senior Notes, net of discount -- 327,351 -- 327,351 -- -- -- 327,351
Series A subordinated
convertible notes -- -- -- -- -- 256,258 -- 256,258
Other long-term debt 2,439 -- -- 2,439 15,187 -- -- 17,626
Capital lease obligations 4,725 -- -- 4,725 -- 309 -- 5,034
Net assets acquired in excess
of purchase price 1,507 -- -- 1,507 -- -- -- 1,507
Convertible Note payable -- -- -- -- -- 106,693 (106,693) --
Other long-term liabilities 1,906 -- -- 1,906 -- -- -- 1,906
----- ------- ------ ----- ------- -------- -------- -------
Total long-term liabilities 10,577 372,351 -- 382,928 42,187 363,260 (106,693) 681,682
Total liabilities 795,024 393,242 (755,814) 432,511 49,518 382,483 (113,311) 751,135
------- --------- ------ ------- ------ ------- -------- -------
STOCKHOLDERS' EQUITY (DEFICIT) (449,824) 7,627 449,824 7,627 78,832 24,333 (31,960) 78,832
--------- --------- ------- ----- ------- ------ -------- ------
Total liabilities and
stockholders' equity
(deficit) $345,200 $400,869 ($305,990) $440,079 $128,343 $406,816 ($145,271) $829,967
======== ========== ======== ======== ======== ======== ========== ========
</TABLE>
<PAGE>
Condensed Consolidating Balance Sheet
As of December 31, 1998
(Unaudited)
(In Thousands)
<TABLE>
<CAPTION>
Consolidated American
Subsidiary Acquisition Acquisition Mobile Consolidated
Guarantors Company Eliminations Company Parent Eliminations Parent
---------- ------- ------------ ------- ------ ------------ ------
ASSETS
------
CURRENT ASSETS:
<S> <C> <C> <C> <C> <C> <C> <C>
Cash and cash equivalents $2,285 $ -- $ -- $ 2,285 $ -- $ -- $2,285
Inventory 18,593 -- -- 18,593 -- -- 18,593
Prepaid in-orbit insurance 3,381 -- -- 3,381 -- -- 3,381
Accounts receivable-- net 15,325 -- -- 15,325 -- -- 15,325
Restricted short-term investments -- 41,038 -- 41,038 -- -- 41,038
Other current assets 7,192 20 -- 7,212 6,019 -- 13,231
------ ------ ------- ------- ----- ------ ------
Total current assets 46,776 41,058 -- 87,834 6,019 -- 93,853
PROPERTY AND EQUIPMENT-- NET 261,607 -- (15,054) 246,553 -- -- 246,553
GOODWILL & INTANGIBLES-- NET 53,235 -- -- 53,235 -- -- 53,235
INVESTMENT IN/DUE FROM
SUBSIDIARY -- 304,192 (304,192) -- 63,787 (63,787) --
DEFERRED CHARGES AND OTHER
ASSETS-- NET 386 33,460 -- 33,846 (4,892) -- 28,954
RESTRICTED INVESTMENTS 1,500 54,939 -- 56,439 10,760 -- 67,199
-------- -------- --------- -------- ------- -------- --------
Total assets $363,504 $433,649 ($319,246) $477,907 $75,674 ($63,787) $489,794
======== ======== ========= ======== ======= ========= ========
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
----------------------------------------------
CURRENT LIABILITIES:
<S> <C> <C> <C> <C> <C> <C> <C>
Accounts payable and accrued expenses $23,003 $10,715 $ -- $33,718 $79 $ -- $33,797
Obligations under capital leases due
within one year 5,971 -- -- 5,971 -- -- 5,971
Current portion long-term debt 5,041 -- -- 5,041 -- -- 5,041
Other current liabilities 162 -- -- 162 -- -- 162
------ ------ -------- ------- ------- ------- ------
Total current liabilities 34,177 10,715 -- 44,892 79 -- 44,971
DUE TO PARENT/AFFILIATE 681,029 -- (681,029) -- -- -- --
LONG-TERM LIABILITIES:
Obligations under New Bank Financing -- 32,000 -- 32,000 100,000 -- 132,000
Senior Notes, net of discount -- 327,147 -- 327,147 -- -- 327,147
Other long-term debt 1,689 -- -- 1,689 -- 1,689
Capital lease obligations 5,824 -- -- 5,824 -- -- 5,824
Net assets acquired in excess
of purchase price 2,028 -- -- 2,028 -- -- 2,028
Investment in XM Radio -- -- -- -- 12,618 -- 12,618
Other long-term liabilities 540 -- -- 540 -- -- 540
------ ------- -------- ------- ------- ------- -------
Total long-term liabilities 10,081 359,147 -- 369,228 112,618 -- 481,846
Total liabilities 725,287 369,862 (681,029) 414,120 112,697 -- 526,817
STOCKHOLDERS' EQUITY (DEFICIT) (361,783) 63,787 361,783 63,787 (37,023) (63,787) (37,023)
--------- ------- -------- ------- -------- -------- -------
Total liabilities and
stockholders' equity (deficit) $363,504 $433,649 ($319,246) $477,907 $75,674 ($63,787) $489,794
======== ======== ======== ======== ======= ======= ========
</TABLE>
<PAGE>
Condensed Consolidating Statement of Operations
Three Months Ended September 30, 1999
(Unaudited)
(In Thousands)
<TABLE>
<CAPTION>
Consolidated American
Subsidiary Acquisition Acquisition Mobile Consolidated
Guarantors Company Eliminations Company Parent XM Radio Eliminations Parent
---------- ------- ------------ ------- ------ -------- ------------ ------
REVENUES
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Services $17,290 $ --- $ --- $17,290 $300 $ --- ($300) $17,290
Sales of equipment 5,680 --- --- 5,680 --- --- --- 5,680
------- -------- -------- ------- ------ ------- ----- -------
Total Revenues 22,970 --- --- 22,970 300 --- (300) 22,970
COSTS AND EXPENSES
Cost of service and operations 17,287 --- --- 17,287 --- --- --- 17,287
Cost of equipment sold 6,045 --- --- 6,045 --- --- --- 6,045
Sales and advertising 5,524 --- --- 5,524 24 --- --- 5,548
General and administrative 4,316 339 --- 4,655 258 8,506 (300) 13,119
Depreciation and amortization 14,794 --- (526) 14,268 --- 865 (222) 14,911
------- ----- ------ ------ ----- ----- ------ -------
Operating Loss (24,996) (339) 526 (24,809) 18 (9,371) 222 (33,940)
INTEREST AND OTHER INCOME 85 4,883 (3,885) 1,083 2,651 854 (3,598) 990
UNREALIZED LOSS ON NOTE
PAYABLE TO RELATED PARTY --- --- --- --- (2,807) --- --- (2,807)
EQUITY IN LOSS OF
SUBSIDIARIES --- (29,437) 29,437 --- (54,407) --- 54,407 ---
INTEREST EXPENSE (4,526) (12,638) 3,885 (13,279) (2,324) (8,885) 6,352 (18,136)
------- -------- ------ -------- -------- ------- ------ --------
LOSS BEFORE EXTRAORDINARY
ITEM (29,437) (37,531) 29,963 (37,005) (56,869) (17,402) 57,383 (53,893)
EXTRAORDINARY LOSS ON
EXTINGUISHMENT ON DEBT --- --- --- --- (12,132) --- --- (12,132)
------ ------- ------ ------- -------- -------- ------ --------
NET LOSS ($29,437) ($37,531) $29,963 ($37,005) ($69,001) ($17,402) $57,383 ($66,025)
======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
<PAGE>
Condensed Consolidating Statement of Operations
Three Months Ended September 30, 1998
(Unaudited)
(In Thousands)
<TABLE>
<CAPTION>
Consolidated American
Subsidiary Acquisition Acquisition Mobile Consolidated
Guarantors Company Eliminations Company Parent Eliminations Parent
---------- ------- ------------ ------- ------ ------------ ------
REVENUES
<S> <C> <C> <C> <C> <C> <C> <C>
Services $17,823 $ -- ($162) $17,661 $300 ($300) $17,661
Sales of equipment 4,141 -- -- 4,141 -- -- 4,141
----- ---- ----- ----- ---- ---- -----
Total Revenues 21,964 -- (162) 21,802 300 (300) 21,802
COSTS AND EXPENSES
Cost of service and operations 15,707 -- (162) 15,545 -- -- 15,545
Cost of equipment sold 4,826 -- -- 4,826 -- -- 4,826
Sales and advertising 5,364 -- -- 5,364 65 -- 5,429
General and administrative 4,514 42 -- 4,556 258 (300) 4,514
Depreciation and amortization 14,391 -- (527) 13,864 -- -- 13,864
------ ----- ----- ------ ------ ----- ------
Operating Loss (22,838) (42) 527 (22,353) (23) -- (22,376)
INTEREST AND OTHER INCOME 71 5,312 (3,886) 1,497 85 -- 1,582
EQUITY IN LOSS OF
SUBSIDIARIES -- (4,827) 4,827 -- (36,828) 33,742 (3,086)
INTEREST EXPENSE (4,828) (11,090) 3,032 (12,886) (2,618) -- (15,504)
------- -------- ------- -------- ------- -- --------
NET LOSS ($27,595) ($10,647) $4,500 ($33,742) ($39,384) $33,742 ($39,384)
========= ========= ====== ========= ========= ======= =========
</TABLE>
<PAGE>
<TABLE>
Condensed Consolidating Statement of Operations
For the Nine Months ended September 30, 1999
(Unaudited)
(In Thousands)
<CAPTION>
Consolidated American
Subsidiary Acquisition Acquisition Mobile Consolidated
Guarantors Company Eliminations Company Parent XM Radio Eliminations Parent
---------- ------- ------------ ------- ------ -------- ------------ ------
REVENUES
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Services $50,076 $ -- $ -- $50,076 $ 900 $ -- ($900) $50,076
Sales of equipment 15,997 -- -- 15,997 -- -- -- 15,997
------ ----- -------- ------ ------ ------ ------- -------
Total Revenue 66,073 -- -- 66,073 900 -- (900) 66,073
COSTS AND EXPENSES
Cost of service
and operations 51,673 -- -- 51,673 -- -- -- 51,673
Cost of equipment 17,167 -- -- 17,167 -- -- -- 17,167
Sales and Advertising 15,893 -- -- 15,893 125 -- -- 16,018
General and Administrative 13,355 1,030 -- 14,385 605 8,506 (900) 22,596
Depreciation and amortization 43,251 -- (1,579) 41,672 -- 865 (222) 42,315
------ ----- ------- ------ ----- ----- ----- ------
Operating Loss (75,266) (1,030) 1,579 (74,717) 170 (9,371) 222 (83,696)
INTEREST AND OTHER INCOME 257 14,695 (11,530) 3,422 3,944 854 (3,598) 4,622
UNREALIZED LOSS ON NOTE
RECEIVABLE FROM XM RADIO -- -- -- -- (9,919) -- -- (9,919)
UNREALIZED GAIN ON NOTE
PAYABLE TO RELATED PARTY -- -- -- -- 7,229 -- -- 7,229
EQUITY IN LOSS OF SUBSIDIARIES -- (88,041) 88,041 -- (135,208) -- 128,516 (6,692)
INTEREST EXPENSE (13,032) (38,317) 11,530 (39,819) (8,605) (8,885) 6,352 (50,957)
-------- -------- ------ -------- -------- ------- ------- --------
LOSS BEFORE EXTRAORDINARY (88,041) (112,693) 89,620 (111,114) (142,389) (17,402) 131,492 (139,413)
ITEM
EXTRAORDINARY LOSS ON
EXTINGUISHMENT OF DEBT -- -- -- -- (12,132) -- -- (12,132)
------- ------- ------ ------- -------- ------- ------ --------
NET LOSS ($88,041) ($112,693) $89,620 ($111,114) ($154,521) ($17,402) $131,492 ($151,545)
========= ========== ======= ========== ========== ========= ======== ==========
</TABLE>
<PAGE>
Condensed Consolidating Statement of Operations
For the Nine Months ended September 30, 1998
(Unaudited)
(In Thousands)
<TABLE>
<CAPTION>
Consolidated American
Subsidiary Acquisition Acquisition Mobile Consolidated
Guarantors Company Eliminations Company Parent Eliminations Parent
---------- ------- ------------ ------- ------ ------------ ------
REVENUES
<S> <C> <C> <C> <C> <C> <C> <C>
Services $42,864 $ -- ($2,115) $40,749 $ 900 ($900) $40,749
Sales of equipment 13,485 -- -- 13,485 -- -- 13,485
------ ----- ------ ------ ---- ---- ------
Total Revenues 56,349 -- (2,115) 54,234 900 (900) 54,234
COSTS AND EXPENSES
Cost of service and operations 39,813 -- (315) 39,498 -- -- 39,498
Cost of equipment sold 14,122 -- -- 14,122 -- -- 14,122
Sales and advertising 13,743 -- -- 13,743 116 (4) 13,855
General and administrative 15,751 71 (1,800) 14,022 791 (895) 13,918
Depreciation and amortization 40,064 -- (1,054) 39,010 (525) (1) 38,484
------ ------ ------- ------ ----- ----- ------
Operating Loss (67,144) (71) 1,054 (66,161) 518 -- (65,643)
INTEREST AND OTHER INCOME 277 10,581 (7,729) 3,129 7,389 (7,188) 3,330
EQUITY IN LOSS OF
SUBSIDIARIES -- (67,847) 67,847 -- (112,154) 102,536 (9,618)
INTEREST EXPENSE (23,748) (22,073) 6,317 (39,504) (5,532) 7,188 (37,848)
-------- -------- ----- -------- ------- ----- --------
NET LOSS ($90,615) ($79,410) $67,489 ($102,536) ($109,779) $102,536 ($109,779)
========= ========= ======== ========== ========== ======== ==========
</TABLE>
<PAGE>
<TABLE>
Condensed Consolidating Statements of Cash Flow
Nine Months Ended September 30, 1999
(Unaudited)
(In thousands)
<CAPTION>
Consolidated American
Subsidiary Acquisition Acquisition Mobile Consolidated
Guarantors Company Eliminations Company Parent XM Radio Eliminations Parent
---------- ------- ------------ ------- ------ -------- ------------ ------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net loss ($88,041) ($112,693) $89,620 ($111,114) ($154,521) ($17,402) $131,492 ($151,545)
Adjustments to reconcile
net loss to net cash
(used in) provided by
operating activities:
Amortization of
Guarantee Warrants and
debt related costs -- 5,823 -- 5,823 6,850 478 -- 13,151
Depreciation and
amortization 41,673 -- -- 41,673 -- 642 -- 42,315
Extraordinary loss
on extinguishment of debt -- -- -- -- 12,132 -- -- 12,132
Equity in loss in XM Radio -- -- -- -- 6,692 -- -- 6,692
Net unrealized loss on
marketable securities -- -- -- -- 2,690 -- -- 2,690
Changes in assets/liabilities
Inventory (1,004) -- -- (1,004) -- -- -- (1,004)
Prepaid in-orbit insurance (1,449) -- -- (1,449) -- -- -- (1,449)
Trade accounts receivable (5,395) -- -- (5,395) -- -- (5,395)
Other current assets (7,618) 20 -- (7,598) 3,573 (3,604) -- (7,629)
Accounts payable and
accrued expenses (30,315) 37,485 -- 7,170 706 (17,654) -- (9,778)
Accrued interest on
Senior Notes -- 20,519 -- 20,519 -- -- -- 20,519
Deferred trade payables 975 -- -- 975 -- -- -- 975
Deferred Items--net 1,423 -- -- 1,423 (1,030) -- -- 393
----- -------- -------- ----- ------- ------- ------ ------
Net cash (used in) provided
by operating activities (89,751) (48,846) 89,620 (48,977) (122,908) (37,540) 131,492 (77,933)
CASH FLOWS FROM INVESTING
ACTIVITIES:
Additions to property &
equipment (9,730) -- -- (9,730) -- (198) -- (9,928)
System under construction -- -- -- -- -- (75,579) -- (75,579)
Purchase of XM Radio note
receivable -- -- -- -- (21,419) -- -- (21,419)
XM Radio Acquisition costs -- -- -- -- (951) 163 (788)
Purchase of long-term,
restricted investments (536) (1,217) -- (1,753) (1,860) -- -- (3,613)
----- ------- ------ ------- ------- ------- ----- -------
Net cash used in investing
activities (10,266) (1,217) -- (11,483) (24,230) (75,614) -- (111,327)
CASH FLOWS FROM FINANCING
ACTIVITIES:
Common Stock -- -- -- -- 121,974 -- -- 121,974
Funding from parent/subsidiary 110,089 51,063 (89,620) 71,532 56,984 2,976 (131,492) --
Principal payments under
capital leases (4,421) -- -- (4,421) -- -- -- (4,421)
Principal payments under
Vendor Financing (861) -- -- (861) -- -- -- (861)
Proceeds from bank financing -- 52,000 -- 52,000 -- -- -- 52,000
Proceeds from Series A
subordinated
convertible notes -- -- -- -- -- 250,000 -- 250,000
Repayments on Revolver -- (53,000) -- (53,000) -- -- -- (53,000)
Repayment of term loan -- -- -- -- (59,000) -- -- (59,000)
Repayment on XM Radio
bank loan -- -- -- -- -- (73) -- (73)
Repayment of WorldSpace loan -- -- -- -- -- (75,000) -- (75,000)
Proceeds from reduction of
interest rate swap -- -- -- -- 6,009 -- -- 6,009
Proceeds from note payable
to related party -- -- -- -- 21,500 -- -- 21,500
Debt issuance costs -- -- -- -- (329) (10,393) -- (10,722)
------- ------ ------- ------ ------ ------- -------- --------
Net cash provided by
(used in) financing activities 104,807 50,063 (89,620) 65,250 147,138 167,510 (131,492) 248,406
Net increase in cash and
cash equivalents 4,790 -- -- 4,790 -- 54,356 -- 59,146
CASH & CASH EQUIVALENTS,
beginning of period 2,285 -- -- 2,285 -- -- -- 2,285
----- ----- ------- ----- ------- -------- -------- -----
CASH & CASH EQUIVALENTS,
end of period $7,075 $ -- $ -- $7,075 $ -- $54,356 $ -- $61,431
====== ======== ====== ====== ====== ======= ======= =======
</TABLE>
<PAGE>
Condensed Consolidating Statements of Cash Flow
Nine Months Ended September 30, 1998
(Unaudited)
(In Thousands)
<TABLE>
<CAPTION>
Consolidated American
Subsidiary Acquisition Acquisition Mobile Consolidated
Guarantors Company Eliminations Company Parent Eliminations Parent
---------- ------- ------------ ------- ------ ------------ ------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C> <C> <C> <C> <C>
Net Loss ($90,615) ($79,410) $67,489 ($102,536) ($109,779) $102,536 ($109,779)
Adjustments to reconcile net
loss to net cash used in
operating activities:
Amortization of guarantee
warrants, debt discount
and issuance costs 2,524 5,548 -- 8,072 3,550 -- 11,622
Depreciation and amortization 40,063 -- (1,053) 39,010 (526) -- 38,484
Equity in loss in XM Radio -- -- -- -- 9,618 -- 9,618
Changes in assets & liabilities
Inventory 3,938 -- -- 3,938 -- -- 3,938
Prepaid in-orbit insurance (266) -- -- (266) -- -- (266)
Accounts receivable-- trade 2,126 -- -- 2,126 -- -- 2,126
Other current assets (40,982) 41,066 -- 84 197 -- 281
Accounts payable and accrued
expenses (12,977) 390 -- (12,587) 29 -- (12,558)
Accrued interest on
Senior Notes -- 20,519 -- 20,519 -- -- 20,519
Deferred trade payables (5,330) -- -- (5,330) -- -- (5,330)
Deferred Items-- net 6 -- -- 6 -- -- 6
------ ------- ------ ------- ------- ----- -------
Net cash used in operations (101,513) (11,887) 66,436 (46,964) (96,911) 102,536 (41,339)
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property & equipment (7,376) -- -- (7,376) -- -- (7,376)
Cash paid for acquisition of ARDIS -- (51,440) -- (51,440) -- -- (51,440)
Purchase of long-term,
restricted investments -- (115,159) -- (115,159) (28,153) -- (143,312)
-------- --------- ------- --------- -------- ------- ---------
Net cash used in
investing activities (7,376) (166,599) -- (173,975) (28,153) -- (202,128)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of
Common Stock -- -- -- -- 412 -- 412
Funding from parent 222,852 (178,532) (66,436) (22,116) 124,652 (102,536) --
Principal payments under
capital leases (2,541) -- -- (2,541) -- -- (2,541)
Proceeds from bank financing 2,000 37,000 -- 39,000 -- -- 39,000
Repayment of bank financing (100,000) -- -- (100,000) -- -- (100,000)
Payments on long-term debt (4,933) -- -- (4,933) -- -- (4,933)
Debt issuance costs -- (14,982) -- (14,982) -- -- (14,982)
Proceeds from Notes and
stock purchase warrants -- 335,000 -- 335,000 -- -- 335,000
------- ------- -------- ------- ------ ------ -------
Net cash provided by
financing activities 117,378 178,486 (66,436) 229,428 125,064 (102,536) 251,956
Net increase in cash and cash
equivalents 8,489 -- -- 8,489 -- -- 8,489
CASH & CASH EQUIVALENTS,
beginning of period 2,106 -- -- 2,106 -- -- 2,106
----- ------ ------ ----- ------- ------ -----
CASH & CASH EQUIVALENTS, end of
period $10,595 $ -- $ -- $10,595 $ -- $ -- $10,595
======= ======== ======== ======= ======== ======== =======
</TABLE>
<PAGE>
9. Subsequent Events
XM Radio Initial Public Offering
On October 8, 1999, XM Radio completed its initial public offering of 10.2
million shares of Class A Common Stock. The initial public offering price was
$12 per share. The Company purchased 200,000 shares of XM Radio Class A Common
Stock from the underwriters at the IPO price of $12 per share. Upon completion
of the offering, all of the Company's convertible notes of XM Radio
automatically converted into approximately 11 million shares of XM Radio Class B
common stock. Class B shares have three-for-one voting rights. Additionally, the
$250 million Series A convertible notes of XM Radio converted into approximately
10.8 million shares of Series A convertible preferred stock and approximately
16.2 million shares of Class A common stock at a conversion price of $9.52 per
share.
After conversion of the above notes and the purchase of the 200,000 shares,
the Company's voting interest in XM Radio was reduced to approximately 62.3%,
while its equity interest was reduced to approximately 30.5% (in each case,
excluding shares of XM Radio Class B stock owned by the Company but pledged to
Baron Asset Fund in connection with the Baron XM Radio Convertible Note). The
Company will continue to consolidate XM Radio's financial results with those of
the Company until the Company's Class B stock is converted into Class A stock of
XM Radio in accordance with certain contractual provisions, and the FCC approves
the change of control of XM Radio from American Mobile to a diffuse group of
stockholders.
In accordance with Staff Accounting Bulletin 51 (SAB 51), the Company will
record an increase to its investment in XM Radio in the fourth quarter of 1999.
SAB 51 addresses the accounting for sales of stock by a subsidiary. Because XM
Radio is a development stage Company, SAB 51 requires that the difference in the
carrying amount of the parent's investment in the subsidiary and the net book
value of the subsidiary after the stock issuance be reflected in the financial
statements of the parent as a capital transaction.
<PAGE>
PART I-FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
This Quarterly Report on Form 10-Q includes "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934. Such statements are identified by the
use of forward-looking words or phrases, including, but not limited to,
"believe," "intend" "will be positioned," "will," "may," "project," "expect,"
"expected," "estimate," "anticipate" and "anticipated." These forward-looking
statements are based on the Company's current expectations. All statements other
than statements of historical facts included in this Quarterly Report, including
those regarding the Company's and XM Radio's financial position, business
strategy, projected costs and financing needs, and plans and objectives of
management for future operations, are forward-looking statements. Although the
Company believes that the expectations reflected in such forward-looking
statements are reasonable, there can be no assurance that such expectations will
prove to have been correct. Because forward-looking statements involve risks and
uncertainties, the Company's and XM Radio's actual results could differ
materially. These forward-looking statements represent the Company's judgment as
of the date hereof and readers are cautioned not to place undue reliance on
these forward-looking statements. Important factors that could cause actual
results to differ materially from the Company's expectations ("Cautionary
Statements") are disclosed under "Overview and Factors Affecting the Company's
Results," and elsewhere in this Quarterly Report, including, without limitation,
in conjunction with the forward-looking statements included in this Quarterly
Report. All subsequent written and oral forward-looking statements attributable
to the Company or persons acting on behalf of the Company are expressly
qualified in their entirety by the Cautionary Statements. Readers also should
carefully review the risk factors described in other reports and documents the
Company files from time to time with the Securities and Exchange Commission,
including its Form 10-K Annual Report filed on March 30, 1999 and Form 10-Q
Quarterly Reports to be filed by the Company subsequent to this Form 10-Q
Quarterly Report and any Current Reports on Form 8-K and registration statements
filed by the Company. In addition, readers should carefully review the Form S-1
Registration Statement (file No. 333-83619) of XM Satellite Radio Holdings Inc.
describing the risk factors relating to its business, as well as XM Radio's
other reports filed from time to time with the SEC.
General
The following discussion and analysis provides information which management
believes is relevant to an assessment and understanding of the financial
condition and consolidated results of operations of the Company. The discussion
should be read in conjunction with the condensed consolidated financial
statements and notes thereto.
American Mobile was formed in 1988 to develop, construct, and operate a
mobile satellite services system. With the launch of its satellite in 1995, the
Company began to offer a full range of mobile voice and data communications
services via satellite to customers in North America. In March 1998, the Company
acquired ARDIS Company ("ARDIS") from Motorola, Inc. for $100 million. With the
acquisition of ARDIS, the Company acquired the nation's largest, most fully
<PAGE>
deployed terrestrial wireless data network, and now offers a broad range of
wireless communications services using an integrated network consisting of the
ARDIS terrestrial network (the "ARDIS Network") and a satellite in
geosynchronous orbit (the "Satellite Network," and, together with the ARDIS
Network, the "Network").
On July 7, 1999 the Company acquired WorldSpace's debt and equity interests
in XM Radio, other than a $75 million loan from WorldSpace to XM Radio, in
exchange for approximately 8.6 million shares of the Company's common stock. The
operating results of XM Radio have been included in the consolidated condensed
financial statements for the period July 7, 1999 through September 30, 1999. The
consolidated condensed financial statements for the prior year do not reflect
the operating results of XM Radio. For all periods prior to the XM Acquisition,
the Company's investment in XM Radio was accounted for pursuant to the equity
method of accounting. As a result of the XM Acquisition, the Company was
required, in accordance with generally accepted accounting principles, to
restate its financial statements for the year ended December 31, 1998, and the
quarter ended March 31, 1999, to record its share of XM Radio losses previously
suspended under the equity method of accounting. This resulted in the Company
recording additional losses of approximately $12.6 million for the year ended
December 31, 1998, and $3.5 million for the quarter ended March 31, 1999.
On October 8, 1999, XM Radio consummated its initial public offering. As a
result, the Company's voting interest in XM Radio is approximately 62.3%, while
its equity interest was diluted to approximately 30.5%.
The Company and its consolidated subsidiaries are parties to the following
financings and refinancings: (1) $335 million of Senior Notes due 2008 (the
"Senior Notes"); (2) the $200 million Revolving Credit Facility and Term Loan
Facility, of which a portion has been permanently reduced (collectively, the
"New Bank Financings"); and (3) a $10 million vendor financing facility with
Motorola.
In light of the significance of the acquisition of ARDIS in 1998 and the XM
Acquisition in 1999, management believes the period to period comparison of the
Company's financial results are not necessarily meaningful and should not be
relied upon as an indication of future operating performance.
Overview and Factors Affecting the Company's Results
The Company has incurred significant operating losses and negative cash
flows in each year since it commenced operations, due primarily to start-up
costs, the costs of developing and building its Network and the cost of
developing, selling and providing its products and services. The Company has,
and will continue to have, substantial indebtedness.
The Company's future operating results could be adversely affected by a
number of uncertainties and factors, including:
o the launch of new products or the entry into new market segments,
which may require the Company to continue to incur significant
operating losses,
<PAGE>
o the Company's ability to gain market acceptance of new products and
services, including its new eLink(sm) wireless email service,
o the Company's ability to respond and react to changes in its business
and the industry as a result of having substantial indebtedness,
o the Company's ability to fund its anticipated capital expenditures,
operating losses and debt service requirements and its ability to
secure additional financing as may be necessary,
o the Company's ability to modify its organization, strategy and product
mix to maximize the market opportunities in light of changes therein,
o the ability of the Company to manage growth effectively,
o competition from existing companies that provide services using
existing communications technologies and the possibility of
competition from companies using new technology in the future,
o the ability of the Company to maintain, on commercially reasonable
terms or at all, certain technologies licensed from third parties, the
loss of one or more of the Company's key customers,
o the timely roll-out of certain key customer initiatives and products,
o the timely availability of an adequate supply of subscriber equipment
at competitive price points,
o regulation by the FCC,
o technical anomalies that may occur within the Network, which could
impact, among other things, customer performance and satisfaction, or
the operation of the Satellite Network and the cost, scope or
availability of in-orbit insurance, and
o the ability of the Company to fully realize the value of its tangible
assets.
Additionally, XM Radio is a development stage company with no revenues, and its
business is subject to a number of significant risks and uncertainties including
the following:
o the ability to obtain additional financing necessary to complete the
build out of its system and maintain operations until such time as it
can reach cash flow positive,
o satellite launch failure, destruction or damage during launch,
o the ability of XM Radio to successfully integrate complex technologies
into a technologically feasible configuration,
o the timely availability of XM Radios at competitive prices, and
o the ability of XM Radio to gain market acceptance of its service.
The foregoing risks may effect the Company's investment in XM Radio. The value
of the Company's investment in XM Radio represents a significant portion of the
total assets of the Company and such value fluctuates with the market price of
XM Radio's stock.
<PAGE>
Results of Operations
Quarter ended and nine month period ended September 30, 1999 and 1998
Service revenues, which includes both the Company's voice and data
services, approximated $17.3 million and $50.1 million for the three months and
nine months ended September 30, 1999, respectively, compared to $17.7 million
and $40.7 million during the same periods in 1998.
<TABLE>
<CAPTION>
Summary of Revenue Three Months Ended
September 30,
(in millions) 1999 1998 Change % Change
---- ---- ------ --------
<S> <C> <C> <C> <C>
Voice Service $3.5 $3.9 ($0.4) (10)%
Data Service 12.6 12.8 (0.2) (2)
Capacity Resellers & Other 1.2 1.0 0.2 20
Equipment Sales 5.7 4.1 1.6 39
</TABLE>
<TABLE>
<CAPTION>
Summary of Revenue Nine Months Ended
September 30,
(in millions) 1999 1998 Change % Change
------------- ---- ---- ------ --------
<S> <C> <C> <C> <C>
Voice Service $9.7 $10.6 ($0.9) (8)%
Data Service 36.9 27.3 9.6 35
Capacity Resellers & Other 3.5 2.8 0.7 25
Equipment Sales 16.0 13.5 2.5 19
</TABLE>
The decrease in service revenue from voice services in both periods was
primarily a result of reduced per-minute rates following the sale of the assets
of the Company's maritime division, in October 1998, to a reseller, partially
offset by a 37% increase in voice customers in the first nine months of 1999
over the comparable period in 1998. While the Company's total service revenue
increased $9.4 million from the first nine months of 1998 to the first nine
months of 1999, this increase was due principally to nine months of revenue from
ARDIS in 1999, totaling $29.1 million, versus six months of revenue from ARDIS
in 1998, totaling $20.3 million. Overall average revenue per user ("ARPU")
declined year over year, and is expected to continue to do so, due to changes in
products and the subscriber mix. Service revenue from capacity resellers, who
handle both voice and data services, increased primarily as a result of
increased contract commitments from current customers.
Revenue from the sale of subscriber equipment increased as a result of an
increase in the volume of products sold, offset by a lower average equipment
price per unit as compared to 1998.
<TABLE>
<CAPTION>
Summary of Expenses
Three Months
Ended September 30,
(in millions) 1999 1998 Change % Change
---- ---- ------ --------
<S> <C> <C> <C> <C>
Cost of Service & Operations $17.3 $15.5 $1.8 12%
Cost of Equipment Sales 6.0 4.8 1.2 25
Sales & Advertising 5.5 5.4 0.1 2
General & Administrative 13.1 4.5 8.6 191
Depreciation & Amortization 14.9 13.9 1.0 7
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Summary of Expenses
Nine Months
Ended September 30,
(in millions) 1999 1998 Change % Change
---- ---- ------ --------
<S> <C> <C> <C> <C>
Cost of Service & Operations $51.7 $39.5 $12.2 31%
Cost of Equipment Sales 17.2 14.1 3.1 22
Sales & Advertising 16.0 13.8 2.2 16
General & Administrative 22.6 13.9 8.7 63
Depreciation & Amortization 42.3 38.5 3.8 10
</TABLE>
As of January 1999, as a result of the completion of the integration of the
ARDIS acquisition and the achievement of certain related cost synergies, the
Company ceased to report separate company information for ARDIS. Consequently,
ARDIS costs are no longer distinguished from those of the remaining business,
and, therefore the discussion of the three and nine months ended September 30,
1999 reflects the costs of the consolidated entity.
Cost of service and operations for the three and nine months ended
September 30, 1999, which includes costs to support subscribers and to operate
the network, was $17.3 million and $51.7 million, respectively, compared to
$15.5 and $39.5 million during the same periods in 1998. As a percentage of
total revenues, cost of service and operations was 75% and 71% for the third
quarter of 1999 and 1998, and 78% and 73% for the nine month period ended
September 30, 1999 and 1998, respectively. The increase in cost of service and
operations was primarily attributable to (i) additional headcount, primarily as
a result of the ARDIS acquisition, (ii) increased communication charges
associated with increased service usage and costs to support the ARDIS
terrestrial network, (iii) system and base station maintenance to support the
ARDIS terrestrial network, (iv) site rental costs associated with the
terrestrial network, and (v) incremental Year 2000 costs. As a percentage of
revenue, cost of service and operations has increased as a result of the
variable costs incurred within the ARDIS terrestrial network, such as site rent
and telecommunications costs. The quarter over quarter increase was primarily a
result of approximately $1 million in Year 2000 costs, which are not anticipated
to continue beyond the first quarter of 2000.
<PAGE>
The cost of equipment sold increased $1.2 million or 25% from $4.8 million
for the third quarter of 1999, and $3.1 million or 22% from $14.1 million for
the nine month period ended September 30, 1999. This increase was primarily
attributable to the increase in the volume of sales of the various data products
and warranty costs thereon.
Sales and advertising expenses were $5.5 million and $16.0 million for the
three and nine months ended September 30, 1999, respectively, compared to $5.4
million and $13.8 million during the same periods in 1998. Sales and advertising
expenses as a percentage of revenue were 24% in the third quarter and first nine
months of 1999, respectively, as compared to 25% during the same periods in
1998. The 16% increase in sales and advertising expenses from the first nine
months of 1998 to the first nine months of 1999 was primarily attributable to
(i) increased headcount costs resulting from the ARDIS acquisition and (ii)
costs associated with the launch of a new service offering ("eLink(sm)")
including additional advertising and headcount for sales and support staff. It
is anticipated that sales and advertising expenses will continue to increase
slightly as the Company introduces new products and services.
General and administrative expenses were $13.1 million and $22.6 million,
of which $8.5 million is attributable to XM Radio, for the three and nine months
ended September 30, 1999, respectively, compared to $4.5 million and $13.9
million during the same periods in 1998. Excluding XM Radio, general and
administrative expenses were $4.6 million for the third quarter and $14.1
million for the nine months ended September 30,1999. General and administrative
expenses as a percentage of revenue, excluding XM Radio, were 20% and 21% in the
third quarter and first nine months of 1999, respectively, as compared to 21%
and 26% during the same periods in 1998. The prior year was unusually high due
to one-time costs incurred in the second quarter of 1998 associated with the
ARDIS integration. The slight increase year over year is due to an increase in
personal property taxes due to an increase in the number of base stations. In
addition, headcount increased from the prior year resulting in an increase in
employee related expenses such as bonuses, payroll taxes, and 401(K) match
expense.
Depreciation and amortization expenses were $14.9 million and $42.3
million, of which $0.6 million is attributable to XM Radio, for the three and
nine months ended September 30, 1999, respectively, compared to $13.9 million
and $38.5 million during the same periods in 1998. Excluding XM Radio,
depreciation and amortization expenses were $14.3 million and $41.7 million for
the three and nine months ending September 30, 1999. Depreciation and
amortization expenses as a percentage of revenue, excluding XM Radio, were 62%
and 63% in the third quarter and first nine months of 1999, respectively, as
compared to 64% and 71% during the same periods in 1998. The $3.2 million
increase year over year is due to an increase in capital expenditures from the
prior year for eLink(sm) software development and base station purchases and
installations, offset by a reduction in depreciation and amortization for
several fully depreciated assets. In addition, the ARDIS assets acquired and the
amortization of intangibles acquired in the ARDIS acquisition also contributed
to the increase in depreciation and amortization expense.
Interest and other income was $1.0 million and $4.6 million for the third
quarter and first nine months of 1999, respectively, compared to $1.6 million
and $3.3 million during the same periods in 1998. Excluding XM Radio, interest
and other income was $3.7 million and $7.4 million for the three and nine months
<PAGE>
ending September 30, 1999. The increase was primarily a result of $2 million of
interest income earned on the Company's $82 million convertible note receivable
from XM Radio received in the XM Acquisition on July 7, 1999. The Company
incurred $51 million of interest expense in the first nine months of 1999, of
which $2 million was incurred by XM Radio, compared to $37.8 million in the same
period of 1998, reflecting (i) nine months of interest expense on the Senior
Notes at 12.25% versus six months in the prior year, offset by lower debt
balances on the Company's bank loans (comprising the Term Loan Facility and the
Revolving Credit Facility) and (ii) the amortization of debt discount, prepaid
interest and debt offering costs, excluding XM Radio, in the amount of $12.7
million in the first nine months of 1999, compared to $11.6 million in the first
nine months of 1998. It is anticipated that interest costs will continue to be
significant as a result of the Senior Notes and as a result of the borrowings
under the New Bank Financings. The anticipated additional interest expense will
be offset by a lower amount of amortization of debt discount, prepaid interest
and debt offering costs as a result of the write-off, on a pro-rata basis, of
these costs in the third quarter of 1999 in connection with the repayment of a
portion of the Term Loan Facility and Revolving Credit Facility. See "Liquidity
and Capital Resources".
Net capital expenditures for the first nine months of 1999 and 1998 for
property and equipment were $9.9 million and $7.4 million, respectively.
Expenditures consisted primarily of assets necessary to continue the build out
of the Company's Network. In addition, XM Radio capital expenditures for its
system under construction were $75.6 million for the period July 7, 1999 through
September 30, 1999.
As of September 30, 1999, subscribers on the Company's network exceeded
131,000.
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 achieve positive cash flow and profitable operations. The Company
expects to continue to make significant capital outlays to fund interest
expense, capital expenditures and working capital prior to the time that it
begins to generate positive cash flow from operations. These outlays are
expected to continue for the foreseeable future thereafter.
XM Radio is operated, managed, and funded separately from the Company.
While the Company does not have any obligation or commitments to provide
additional funding to XM Radio, and does not expect to provide such funding, it
may choose to provide additional financing in the future. XM Radio will require
significant additional funding in the future. XM Radio is currently exploring
several financing arrangements, which may include selling debt or equity
securities or obtaining loans from commercial banks or other financial
institutions. The failure of XM Radio to obtain required financing could have a
material adverse effect on the value of the Company's investment in XM Radio.
<PAGE>
On March 31, 1998, Acquisition Company issued $335 million of units
consisting of 12 1/4% Senior Notes due 2008 (the "Senior Notes"), and one
warrant to purchase 3.75749 shares of Common Stock of the Company for each
$1,000 principal amount of Notes (the "Warrants"), and also restructured its
existing bank financing (the "New Bank Financing"). The New Bank Financing of
$200 million consists of a $100 million unsecured five-year reducing Revolving
Credit Facility maturing March 31, 2003 and a $100 million five-year Term Loan
Facility with up to three additional one-year extensions subject to lender
approval, a portion of which has been permanently reduced, as discussed below.
As of September 30, 1999, the Company had $69.0 million available for borrowing
under the Revolving Credit Facility. Additionally, Motorola has agreed to
provide the Company with up to $10 million of vendor financing (the "Vendor
Financing Commitment"), which is available to finance up to 75% of the purchase
price of additional base stations needed to meet build out requirements under
certain customer contracts. As of September 30, 1999, $4.2 million was
outstanding under this facility. In connection with the New Bank Financing, each
of Hughes Electronics Corporation, Singapore Telecommunications Ltd. and Baron
Capital Partners, L.P. (collectively, the "Bank Facility Guarantors") extended
separate guarantees of the obligations of each of Acquisition Company and the
Company to the Banks, which on a several basis aggregated to $200 million. In
their agreement with each of Acquisition Company and the Company (the "Guarantee
Issuance Agreement"), the Bank Facility Guarantors agreed to make their
guarantees available for the New Bank Financing. In exchange for the additional
risks undertaken by the Bank Facility Guarantors in connection with the New Bank
Financing, the Company agreed to compensate the Bank Facility Guarantors,
principally in the form of 1 million additional warrants and re-pricing of 5.5
million warrants previously issued (together, the "Guarantee Warrants"). The
Guarantee Warrants were issued with an exercise price of $12.51 and were valued
at approximately $17.7 million. On March 29, 1999, the Bank Facility Guarantors
agreed to eliminate certain covenants contained in the Guarantee Issuance
Agreement relating to earnings before interest, depreciation, amortization and
taxes ("EBITDA") and service revenue. In exchange for this elimination of
covenants, the Company agreed to re-price their Guarantee Warrants, effective
April 1, 1999, from $12.51 to $7.50. The value of the repricing was
approximately $1.5 million. As of September 30, 1999, the Company had
outstanding borrowings of $41 million of the Term Loan Facility at 6.375%, and
$31 million under the Revolving Credit Facility at rates ranging from 6.375% to
6.4375%.
Further, in connection with the Guarantee Issuance Agreement, the Company
has agreed to reimburse the Bank Facility Guarantors in the event that the
Guarantors are required to make payment under the New Bank Financing guarantees,
and, in connection with this reimbursement commitment has provided the Bank
Facility Guarantors a junior security interest with respect to the assets of the
Company, principally its stockholdings in XM Radio and the Acquisition Company.
In connection with the New Bank Financing, the Company entered into an
interest rate swap agreement, with an implied annual rate of 6.51%. The swap
agreement reduces the impact of interest rate increases on the Term Loan
Facility. The Company paid a fee of approximately $17.9 million for the swap
<PAGE>
agreement. Under the swap agreement, the Company will receive an amount equal to
LIBOR plus 50 basis points, paid directly to the banks on a quarterly basis, on
a notional amount of $100 million (see discussion below regarding the reduction
of this amount) until the termination date of March 31, 2001. The Company has
reflected as an asset the unamortized fee paid for the swap agreement in the
accompanying financial statements. The Company is exposed to a credit loss in
the event of non performance by the counter party under the swap agreement. The
Company does not believe there is a significant risk of non performance as the
counter party to the swap agreement is a major financial institution.
On August 3, 1999, the Company raised $116 million, net of underwriting
discounts and expenses, through the issuance of 7.0 million shares of its common
stock in a public offering. Of the net proceeds, $59 million was used to pay
down a portion of the Term Loan Facility, and is not available for re-borrowing.
The remainder of the net proceeds were used to pay down a portion of the
Revolving Credit Facility, which will be available for re-borrowing as needed
for general working capital purposes. As a result of the partial pay down of the
Term Facility, the Company recorded an extraordinary loss on extinguishment of
debt of approximately $12.1 million, which reflects the write-off, on a pro-rata
basis, of warrants held by certain shareholder guarantors of the New Bank
Financing (the "Guarantee Warrants") and deferred financing fees associated with
the placement of the New Bank Financing. In addition, the Company reduced the
notional amount of its swap agreement from $100 million to $41 million and
realized net proceeds of approximately $6 million due to early termination of a
portion of the swap agreement.
As a result of the automatic application of certain adjustment provisions
following the issuance of the 7.0 million shares in the public offering, the
exercise price of the Guarantee Warrants was reduced to $7.3571 per share and
the Guarantee Warrants became exercisable for an additional 126,246 shares.
Additionally, the exercise price of the warrants associated with the Senior
Notes was reduced to $12.28 per share and the aggregate number of shares
issuable upon the exercise of such warrants was increased by 24,294 shares. The
additional Guarantee Warrants and repricing were valued at $2.4 million, and the
additional Senior Notes warrants and repricing were valued at $440,000. This has
been recorded as an additional debt discount in the third quarter.
On July 7, 1999, XM Radio issued $250 million of Series A subordinated
convertible notes to several new strategic and financial investors including
General Motors Corporation, Clear Channel Investments, DIRECTV, Telcom Ventures,
Columbia Capital and Madison Dearborn Partners. The notes bear interest at a
rate equal to six- month LIBOR plus 5% per annum, and mature on December 31,
2004, unless extended in certain circumstances if XM Radio issues high yield
debt securities. The principal amount and all accrued interest is payable in a
single installment on the maturity date or on the date of conversion. The notes
and all accrued interest thereon are convertible into Class A Common Stock or
Series A convertible preferred stock of XM Radio at a conversion price of $9.52
per share at the election of the note holders or upon the occurrence of certain
events, including an initial public offering of a prescribed size of XM Radio
shares. Subsequent to September 30, 1999, XM Radio completed its initial public
offering of 10.2 million shares of Class A Common Stock, which triggered the
<PAGE>
conversion of these notes into approximately 10.8 million shares of Series A
convertible preferred stock and approximately 16.2 million shares of Class A
common stock.
Cash used in operating activities was $77.9 million for the first nine
months of 1999, of which $34.6 million was attributable to XM Radio, compared to
$41.3 million for the comparable period in 1998. Excluding XM Radio, cash used
in operating activities was $43.3 million. The increase in cash used in
operating activities was primarily attributable to (i) a decrease in net working
capital resulting primarily from the timing of cash receipts on accounts
receivable, an increase in inventory and prepaid in-orbit insurance, offset by
(ii) approximately $5.8 million of increased operating losses before
depreciation, primarily as a result of additional net expenses incurred as a
result of the ARDIS acquisition and Year 2000 compliance programs. Cash used in
investing activities was $111.3 million, of which $75.8 was attributable to XM
Radio, for the first nine months of 1999 compared to $202.1 million for the same
period in 1998. Excluding XM Radio, cash used in investing activities was $35.5
million. The decrease is the result of the acquisition of ARDIS in March 1998,
and the funding of certain escrows required in connection with the ARDIS
Acquisition and issuance of Senior Notes, offset by the issuance in January 1999
of the XM Radio Note Receivable and year to date capital expenditures. Cash
provided by financing activities was $248.4 million, of which $164.5 million was
attributable to XM Radio, in the first nine months of 1999 as compared to $252.0
million during the same period in 1998. Excluding XM Radio, cash provided by
financing activities was $83.9 million. This decrease reflects (i) the issuance
of the Senior Notes in March 1998, offset by the repayment of other long-term
debt in the first nine months of 1998, (ii) the proceeds from the issuance of
the Baron XM Radio Convertible Note in the first quarter of 1999, (iii) the
proceeds from the reduction of the interest rate swap and (iv) the repayment of
the Term Loan Facility. Proceeds from the sale of Common Stock were $122.0
million and $412,000 for the first nine months of 1999 and 1998, respectively.
This $122 million increase was primarily due to the net proceeds of $116 million
from the stock offering in August 1999 and the exercise of employee stock
options. Excluding XM Radio, payments on long-term debt and capital leases were
$117.3 million and $117.5 million for the first nine months of 1999 and 1998,
respectively. In addition, the Company, excluding XM Radio, incurred $329,000 of
debt issuance costs in the first nine months of 1999, as compared to $15.0
million in the first nine months of 1998, which resulted from the placement of
the Senior Notes and amendments to the New Bank Financing. As of September 30,
1999, the Company had $61.4 million of cash and cash equivalents, working
capital of $51.9 million, and $41.0 million of current investments restricted
for the payment of interest. Excluding XM Radio, the Company had $7.1 million of
cash and cash equivalents, working capital of $23.0 million, and $41 million of
current investments restricted for the payment of interest. None of the cash and
working capital held by XM Radio is available for use by the Company.
The Company has arranged the financing of certain trade payables, and as of
September 30, 1999, $6.1 million of deferred trade payables were outstanding at
rates ranging from 6.10% to 12.0% and are generally payable by the end of 2000.
<PAGE>
XM Radio estimates that it will require in total approximately $1.1 billion
from its inception through the commencement of commercial operations, which is
targeted for the second quarter of 2001, to develop and implement the XM Radio
system as well as to provide working capital needs. Including the funds raised
in its initial public offering, XM Radio has raised $445 million, net of
expenses and repayment of debt, to date through the issuance of debt and equity.
The funds have been used to acquire its FCC license, make payments under its
satellite contract and various other contractual commitments with vendors and
strategic partners, as well as for working capital and operating expenses. Total
capital expenditures from XM Radio's inception through September 30, 1999 were
$228.4 million.
The Company's current operating assumptions and projections, which reflect
management's best estimate of subscriber and revenue growth and operating
expenses, indicate that anticipated capital expenditures, operating losses,
working capital and debt service requirements through 1999 and beyond, can be
met by cash flows from operations, the net proceeds from the issuance of common
stock in August 1999, the net proceeds from the sale of the Senior Notes and
Warrants, together with the borrowings under the New Bank Financing and the
Vendor Financing Commitment; however, the Company's ability to meet its
projections is subject to numerous uncertainties and there can be no assurance
that the Company's current projections regarding the timing of its ability to
achieve positive operating cash flow will be accurate, and if the Company's cash
requirements are more than projected, the Company may require additional
financing in amounts which may be material. The type, timing and terms of
financing selected by the Company will be dependent upon the Company's cash
needs, the availability of other financing sources and the prevailing conditions
in the financial markets. There can be no assurance that any such sources will
be available to the Company at any given time or available on favorable terms.
Baron XM Radio Convertible Note
On January 15, 1999, the Company issued to Baron Asset Fund ("Baron") a
$21.5 million note convertible into shares of XM Radio common stock (the "Baron
XM Radio Convertible Note"). The Company subsequently loaned approximately $21.4
million to XM Radio in exchange for XM Radio common stock and a note convertible
into XM Radio shares (the "XM Radio Note Receivable"). The Baron XM Radio
Convertible Note ranks subordinate to all other debt securities of the Company
and is fully collateralized by shares of XM Radio. The XM Radio Note Receivable
is a non-recourse note and is convertible into shares of XM Radio common stock.
The XM Radio Note Receivable earns interest at LIBOR plus 5% and is due on
December 31, 2004, unless extended, in certain circumstances if XM Radio issues
high yield debt securities. Subsequent to September 30, 1999, XM Radio completed
its initial public offering of 10.2 million shares of Class A Common Stock,
which triggered the conversion of the XM Radio Note Receivable into 1.5 million
shares of XM Radio Class B common stock. The Baron XM Radio Convertible Note
accrues interest at the rate of 6% annually, with all payments deferred until
maturity, December 31, 2004, or extinguished upon conversion. The Company has
the option to satisfy the Baron XM Radio Convertible Note by tendering the
shares into which it would have been convertible in lieu of any cash payments.
<PAGE>
The Company's September 30, 1999 consolidated condensed balance sheet
reflects management's estimate of the fair value of the Baron XM Radio
Convertible Note. Changes in the fair value of the Baron XM Radio Convertible
Note are reflected in the accompanying statement of operations as an unrealized
gain or loss on note payable to related party ($2.8 million loss and $7.2
million gain for the three and nine-months ended September 30, 1999,
respectively). In the future, the Company expects to continue to record in its
financial statements the Baron XM Radio Convertible Note at its estimated fair
value. Prior to the XM Acquisition, the Company also recorded the XM Radio Note
Receivable at management's best estimate of its fair value, and as a result,
recorded an unrealized loss on the XM Radio Note Receivable of $9.9 million for
the six months ended June 30, 1999. As a result of the XM Acquisition, the XM
Radio Note Receivable is eliminated in consolidation.
In accordance with Staff Accounting Bulletin 51 (SAB 51), the Company will
record an increase to its investment in XM Radio in the fourth quarter of 1999.
SAB 51 addresses the accounting for sales of stock by a subsidiary. Because XM
Radio is a development stage company, SAB 51 requires that the difference in the
carrying amount of the parent's investment in the subsidiary and the net book
value of the subsidiary after the stock issuance be reflected in the financial
statements of the parent as a capital transaction.
Commitments
At September 30, 1999, the Company had remaining contractual commitments to
purchase both mobile data terminal inventory and mobile telephone inventory in
the maximum amount of $4.0 million during the remainder of 1999. Additionally,
the Company had remaining contractual commitments for the development and
production of certain next generation data terminals of approximately $32.1
million, subject to final pricing negotiations, over a three-year period, with
delivery starting in the fourth quarter of 1999. The Company has the right to
terminate the research and development and inventory commitment by paying
cancellation fees of between $1.0 million and $2.3 million, depending on when
the termination option is exercised during the term of the contract. The Company
also has the right to terminate the inventory commitment by incurring a
cancellation penalty representing a percentage of the unfulfilled portion of the
contract. The Company has also contracted for the purchase of $25.9 million of
next generation wireless data terminals which began delivery in the third
quarter of 1999. The contract contains a 50% cancellation penalty.
XM Radio is also subject to certain commitments and contingencies. XM Radio
has a distribution agreement with General Motors that will require significant
expenditures in the future. Additionally, under its satellite contract, XM Radio
will incur approximately $541.3 million, of which $147.9 million has been paid
at September 30,1999. XM Radio also has a contract for the design and
development of its terrestrial repeater network with payments under this
contract expected to be approximately $115 million. Additional information with
respect to these contractual commitments is provided in XM Radio's filings and
periodic reports with the SEC.
<PAGE>
In January 1999, a competitor of XM Radio filed an action against XM Radio
for patent infringement. In February 1999, XM Radio filed an answer to the
action. XM Radio does not believe that it has infringed, and it believes that it
will not infringe any of the competitor's patents and intends to vigorously
defend against the suit; however, the outcome is uncertain at this time.
All wholly owned subsidiaries of the Company are subject to financing
agreements that limit the amount of cash dividends and loans that can be
advanced to the Company. At September 30, 1999, all of these subsidiaries' net
assets were restricted under these agreements. These restrictions will have an
impact on the Company's ability to pay dividends.
Regulation
The ownership and operations of the Company's communication systems are
subject to significant regulation by the FCC, which acts under authority granted
by the Communications Act of 1934, as amended (the "Communications Act"), and
related federal laws. A number of the Company's licenses are subject to renewal
by the FCC and, with respect to the Company's satellite operations, are subject
to international frequency coordination. In addition, current FCC regulations
generally limit the ownership and control of American Mobile by non-U.S.
citizens or entities to 25%. There can be no assurances that the rules and
regulations of the FCC will continue to support the Company's operations as
presently conducted and contemplated to be conducted in the future, or that all
existing licenses will be renewed and requisite frequencies coordinated.
Year 2000 Readiness
The Company's Year 2000 Readiness Program uses the phased approach that is
common in its industry. "Year 2000 Ready," or "Year 2000 Readiness," means that
customers will experience no material difference in performance and
functionality of the Company's networks prior to, during or after the year 2000.
All phases have been completed for the satellite voice and terrestrial data
networks. Regarding its satellite data networks, American Mobile has completed
all phases of work for hub equipment and is in the process of upgrading or
assisting customers in upgrading their equipment. The Company has also completed
validation/test, implementation and rollout of its internal systems (including
voice customer billing software, CMIS). In implementing its Year 2000 Readiness
Program, the Company has received oral and written representations and readiness
statements from vendors and suppliers, including, but not limited to, the
manufacturer of the Company's satellite and its provider of telemetry, tracking
and control services for the satellite. The Company has relied on such
representations in assessing its Year 2000 Readiness. The complex of hardware
and software that the Company maintains consists of commercial off-the-shelf
(COTS) software, as well as custom software developed specifically for American
<PAGE>
Mobile's networks. In certain cases, American Mobile's Year 2000 Readiness
Program involves upgrading COTS software that is unsupported by the vendor or
whose Year 2000 Readiness could not be determined. Upgrading such COTS software,
as planned, provides greater certainty regarding the Year 2000 Readiness of such
products and ensures that vendor support will be available.
The total cost of American Mobile's Year 2000 Readiness Program was
approximately $2.4 million in 1998. Expenditures for the Year 2000 Readiness
Program in 1999 were estimated to be up to $6.1 million, $5.0 million has been
incurred as of September 30, 1999. Some of these costs, including the purchase
of software upgrades and consulting services, are expensed as incurred while
other costs, such as hardware purchases, are being treated as capital
expenditures. The lower-than expected costs are mainly due to lower than
expected internal and external effort required to upgrade the Communications
Ground Segment, including its Northern Telecom switch.
The estimated cost schedule and readiness status for American Mobile's Year
2000 Readiness Program are management's best estimates. However, there is no
guarantee that the Company will achieve these results and actual results could
differ materially from those anticipated. Some of American Mobile's critical
business systems depend significantly on software programs and third party
services that are not within the Company's control. Failure to solve Year 2000
errors within American Mobile's critical business systems could result in
possible service outages, miscalculations or disruption of operations that could
have a material impact on the Company's business. Because of the Company's heavy
dependence on software, some Year 2000 problems may not be found or the
remediation efforts may introduce new bugs that are not identified before they
impact operations. This applies to both COTS software and custom software.
If American Mobile's customers fail to become Year 2000 ready on time with
their own hardware and software systems, their applications may not function
even if American Mobile's systems are Year 2000 Ready. This will result in
reduced traffic and revenues. Also, suppliers of goods and services may suffer
Year 2000-related failures from which the Company cannot adequately protect its
business.
American Mobile has contingency and recovery plans in place to minimize
service interruptions that can mitigate, although not eliminate, interruptions
caused by problems resulting from Year 2000 issues. For example, the Company has
backup power supplies and generators in place for certain portions of its
networks in the event of electrical power outages. In addition, for some
services American Mobile has contracted with more than one service provider.
These plans, systems and services are being incorporated into the Company's Year
2000 contingency planning. To the extent that it is commercially reasonable to
do so, American Mobile is including other redundant or alternative sources of
services in its Year 2000 contingency planning efforts.
<PAGE>
Accounting Standards
In June 1998, FASB issued Statement No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which requires the recognition of all
derivatives as either assets or liabilities measured at fair value. In June
1999, FASB issued Statement No. 137, which defers the effective date of
Statement No. 133 until fiscal quarters beginning after June 15, 2000. The
Company does not believe that the adoption of this statement will have a
material impact on its financial position and results.
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
(a) At a special meeting of the stockholders of American Mobile held on
September 7, 1999, the matters described under (c) below were voted upon.
(b) Not Applicable.
(c) (1) Stockholders approved the issuance of 2,134,801 shares of common
stock, par value $.01 per share ("Common Stock"), to XM Ventures, in
connection with the Exchange Agreement entered into by American Mobile
with WorldSpace, Inc., XM Satellite Radio Holdings Inc. and XM
Ventures. The vote on this proposal was 20,663,620 for, 1,030,200
against, and 18,683 abstaining.
(2) Stockholders approved an amendment to American Mobile's
Restated Certificate of Incorporation to increase the number of
shares of Common Stock authorized for issuance from 75,000,000 to
150,000,000 shares. The vote on this proposal was 29,994,178 for,
1,577,379 against, and 19,191 abstaining.
(d) Not Applicable.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
3.1 - Restated Certificate of Incorporation of American Mobile Satellite
Corporation (as restated effective September 7, 1999) (incorporated by
reference to Exhibit 4.1 to the Company's registration statement on
Form S-8 (File No. 333-88807)).
<PAGE>
3.2 - Amended and Restated Bylaws of American Mobile Satellite (as amended
and restated effective September 23, 1999) (incorporated by reference
to Exhibit 4.2 to the Company's registration statement on Form S-8
(File No. 333-88807)).
11.1 - Computations of Earnings Per Common Share (filed herewith)
27.0 - Financial Data Schedule (filed herewith)
(b) Current Reports on Form 8-K
On October 6, 1999, the Company filed a Current Report on Form 8-K, in
response to Item 5-Other Events, reporting that the Company's
subsidiary, XM Satellite Radio Holdings Inc.
had commenced an initial public offering.
<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 thereunto duly authorized.
AMERICAN MOBILE SATELLITE CORPORATION
(Registrant)
Date: November 15, 1999 /s/Walter V. Purnell, Jr.
--------------------------------------
Walter V. Purnell, Jr.
President and Chief Executive Officer
/s/W. Bartlett Snell
--------------------------------------
W. Bartlett Snell
Senior Vice President and
Chief Financial Officer
(principal financial and accounting officer)
<PAGE>
EXHIBIT INDEX
Number Description
3.1 - Restated Certificate of Incorporation of American Mobile
Satellite Corporation (as restated effective September 7, 1999)
(incorporated by reference to Exhibit 4.1 to the Company's
registration statement on Form S-8 (File No. 333-88807)).
3.2 - Amended and Restated Bylaws of American Mobile Satellite (as
amended and restated effective September 23, 1999) (incorporated
by reference to Exhibit 4.2 to the Company's registration
statement on Form S-8 (File No. 333-88807)).
11.1 - Computations of Earnings Per Common Share (filed herewith)
27.0 - Financial Data Schedule (filed herewith)
<PAGE>
EXHIBIT 11.1
AMERICAN MOBILE SATELLITE CORPORATION
---------------------------------------
COMPUTATIONS OF EARNINGS PER COMMON SHARE
---------------------------------------
(in thousands, except per share amounts)
---------------------------------------
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
---- ---- ---- ----
BASIC EARNINGS PER SHARE CALCULATION
<S> <C> <C> <C> <C>
Loss before extraordinary item ($53,893) ($39,384) ($139,413) ($109,779)
Extraordinary item (12,132) -- (12,132) --
-------- --------- -------- ----------
Net Loss ($66,025) ($39,384) ($151,545) ($109,779)
========= ========= ========== ==========
Loss per common share before
extraordinary item ($1.18) ($1.24) ($3.79) ($3.71)
Extraordinary item per common share (0.27) -- (0.33) --
------ -------- ------ ----------
Net Loss per common share ($1.45) ($1.24) ($4.12) ($3.71)
======= ======= ======= =======
Weighted-average common shares
outstanding 45,421 31,773 36,740 29,604
====== ====== ====== ======
DILUTED EARNINGS PER SHARE CALCULATION
Loss before extraordinary item ($53,893) ($39,384) ($139,413) ($109,779)
Extraordinary item (12,132) -- (12,132) --
-------- --------- -------- ----------
Net Loss ($66,025) ($39,384) ($151,545) ($109,779)
========= ========= ========== ==========
Loss per common share before
extraordinary item ($1.05) ($1.24) ($3.29) ($3.70)
Extraordinary item per common share (0.24) -- (0.29) --
------ -------- ------ ---------
Net Loss per common share ($1.29) ($1.24) ($3.58) ($3.70)
======= ======= ======= =======
Weighted-average common shares
outstanding (1) 51,157 31,836 42,349 29,670
====== ======= ====== ======
(1) Calculated as follows:
Historical weighted average number of
shares outstanding 45,421 31,773 36,740 29,604
Assumed exercise of stock options 1,449 -- 1,450 2
Assumed exercise of stock
purchase warrants 4,287 63 4,159 64
----- -- ----- --
51,157 31,836 42,349 29,670
====== ====== ====== ======
</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 nine
months ended September 30, 1999, and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<EXCHANGE-RATE> 1
<CASH> 61,431
<SECURITIES> 0
<RECEIVABLES> 18,062
<ALLOWANCES> 0
<INVENTORY> 19,597
<CURRENT-ASSETS> 162,359
<PP&E> 220,478
<DEPRECIATION> 0
<TOTAL-ASSETS> 829,967
<CURRENT-LIABILITIES> 69,453
<BONDS> 678,269
0
0
<COMMON> 485
<OTHER-SE> (78,347)
<TOTAL-LIABILITY-AND-EQUITY> 829,967
<SALES> 15,997
<TOTAL-REVENUES> 66,073
<CGS> 17,167
<TOTAL-COSTS> 90,287
<OTHER-EXPENSES> 42,315
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 50,957
<INCOME-PRETAX> (139,413)
<INCOME-TAX> (139,413)
<INCOME-CONTINUING> (139,413)
<DISCONTINUED> 0
<EXTRAORDINARY> (12,132)
<CHANGES> 0
<NET-INCOME> (151,595)
<EPS-BASIC> (4.12)
<EPS-DILUTED> (4.12)
</TABLE>
