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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2000
Commission file number 0-23044
MOTIENT CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 93-0976127 (State or other
jurisdiction of (I.R.S. Employer incorporation or
organization) Identification No.)
10802 Parkridge Boulevard
Reston, VA 20191-5416
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (703) 758-6000
Securities registered pursuant to Section 12(b) of the
Act: None Securities registered pursuant to Section
12(g) of the Act:
Common Stock, $0.01 per value per share
(Title of class)
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
The aggregate market value of shares of Common Stock held by non-affiliates at
March 26, 2001 was approximately $85,766,610.
Number of shares of Common Stock outstanding at March 26, 2001: 49,575,413
DOCUMENTS INCORPORATED BY REFERENCE
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendments to
this Form 10-K. __
MOTIENT CORPORATION
2000 Annual Report on Form 10-K
PART I
This Annual Report on Form 10-K contains and incorporates forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All
statements regarding our expected financial position and operating results, our
business strategy and our financing plans are forward-looking statements. These
statements can sometimes be identified by our use of forward-looking words such
as "may," "will," "anticipate," "estimate," "expect," "project," or "intend."
These forward-looking statements reflect our plans, expectations and beliefs
and, accordingly, are subject to certain risks and uncertainties. We cannot
guarantee that any of such forward-looking statements will be realized.
Factors that may cause actual results to differ materially from those
contemplated by such forward-looking statements ("Cautionary Statements")
include, among others, those described under the caption "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Overview," and elsewhere in this annual report, including in conjunction with
the forward-looking statements included in this annual report. All of our
subsequent written and oral forward-looking statements (or statements that may
be attributed to us) are expressly qualified by the Cautionary Statements. You
should carefully review the risk factors described in our other filings with the
Securities and Exchange Commission (the "SEC") from time to time, including our
registration statement on Form S-3 (File No. 333-42104), and our quarterly
reports on Form 10-Q to be filed after this annual report, as well as our other
reports and filings with the SEC. In addition, you are urged to review carefully
the prospectus (including supplements) included within the registration
statement (File No. 333-47570) of XM Satellite Radio Holdings Inc. ("XM Radio"),
and XM Radio's current report on Form 8-K dated February 21, 2001 (File No.
0-27441), each filed with the SEC, which describe certain risk factors relating
to XM Radio's business, as well as XM Radio's other reports filed from time to
time with the SEC.
Our forward-looking statements are based on information available to us today,
and we will not update these statements. Our actual results may differ
significantly from the results discussed.
Item 1. Business.
Overview
We are a nationwide provider of two-way, wireless mobile data services and
mobile Internet services. Our customers use our network and applications for
email messaging and dispatch and voice communications services, enabling
businesses, mobile workers and consumers to transfer electronic information and
messages and access corporate databases and the Internet. Our network is
designed to offer a broad array of wireless data services such as:
o two-way mobile Internet services, including our eLink(sm) wireless email
service and BlackBerry(TM) by Motient wireless email, that provide users
integrated wireless access to a broad range of corporate and Internet email
and Net-based information;
o telemetry systems that connect remote equipment, such as wireless
point-of-sale terminals, with a central monitoring facility;
o mobile data and call dispatch fleet management systems used by large field
service organizations; and
o point-to-multi-point voice communications systems used by natural resource
companies, utilities, government agencies and other entities with mobile
fleets and field workers.
We have been providing terrestrial wireless services to customers for several
years, using a network which possesses four key design attributes: (1) two-way
communication, (2) deep in-building penetration, (3) user mobility, and (4)
broad nationwide coverage. We offer our customers the nation's largest, most
fully-deployed terrestrial wireless two-way data network, comprising over 2,000
base stations that provide service to 430 of the nation's largest cities and
towns, including virtually all metropolitan areas. In 2000, we significantly
improved terrestrial network performance and coverage, adding approximately 200
new base stations. Our satellite in geosynchronous orbit overlays our
terrestrial network, thereby extending the service area coverage of our network
for certain of our transportation service offerings throughout all 50 states and
the Caribbean. The satellite also provides nationwide voice and dispatch
services. As of December 31, 2000, there were approximately 206,000 end users on
our networks, of which 188,000 were using data services and 18,000 were using
voice services.
We believe that our network's rapid message response time, extensive nationwide
coverage and deep in-building penetration are key competitive advantages. Our
business-to-business customers enjoy the advantages of wireless integrated
network applications and mobile Internet services for mission critical
applications, built on a fully redundant network architecture. We are the only
mobile data network to offer guaranteed message delivery to our customers.
Our Investment in XM Radio
In addition to our core wireless business, we have a significant investment in
XM Satellite Radio Holdings Inc. ("XM Radio"), a development stage company. XM
Radio is seeking to become a nationwide provider of digital quality audio
entertainment and information programming transmitted directly by satellites to
vehicle, home and portable radios. XM Radio owns one of two FCC licenses to
provide a satellite digital audio radio service for the United States. XM Radio
is developing its service, which it will call "XM Radio," to provide a wide
variety of music, news, talk, sports and other programming offering up to 100
distinctive channels. XM Radio completed its initial public offering in October
1999.
Recent Developments
Sale of Transportation Business to Aether Systems, Inc.
On November 29, 2000, we sold our retail transportation business to Aether
Systems, Inc. Aether purchased the assets comprising our wireless communications
business for the transportation market, including our satellite-only and
MobileMAX2(TM) multi-mode mobile messaging business. Aether purchased our
existing inventory in the business, and was granted a perpetual license to use
and modify any intellectual property owned by or licensed to us in connection
with the business. The purchase price for these assets and license was $45
million, plus the book value of the inventory. Of the $45 million, $10 million
was deposited in an escrow account and is not payable to us unless certain
criteria with respect to MobileMAX2 are satisfied. In addition, we have the
opportunity to receive up to an additional $22.5 million as an "earn-out"
payment, subject to the satisfaction of certain operating results for the
acquired business during 2001.
To enable Aether to continue to operate the retail transportation business, we
and Aether signed two long-term network airtime agreements, under which Aether
will purchase airtime on our satellite and terrestrial networks. These
agreements have a total value of $20 million. As part of these agreements,
Aether also became an authorized reseller of Motient's eLink (sm) wireless email
service, as well as BlackBerry(TM) by Motient.
Mobile Satellite Ventures LLC
On January 12, 2001, we entered into a definitive agreement, subject to certain
conditions, to amend in several respects the terms of our June 2000 transaction
involving Mobile Satellite Ventures LLC ("Satellite Ventures"). First, the
investors who currently own 20% of Satellite Ventures, Columbia Capital,
Spectrum Equity Investors LP, and Telcom Ventures, L.L.C. (the "Investors"),
agreed, subject to certain conditions, to invest additional money in Satellite
Ventures and increase their stake in Satellite Ventures, as well as having an
option to invest additional money to increase their stake in the future. The
agreement calls for the Investors to pay $50 million (in addition to the $50
million paid by the Investors in June), to become (in the aggregate) the owners
of 40% of the outstanding interests of Satellite Ventures. The Investors will
also have an option (the "Second Option"), exercisable through June 29, 2002 for
an additional $40 million, to increase their ownership in Satellite Ventures to
50.66% (with each individual Investor's stake being less than 20%).
Second, upon closing of the transaction, TMI Communications & Company Limited
Partnership ("TMI"), the Canadian satellite services provider, will contribute
its satellite communications business assets to Satellite Ventures, along with
our satellite business assets as described below. To satisfy Canadian regulatory
requirements, certain of the Canadian assets will be held through a Canadian
license company. In connection with its contribution of assets to Satellite
Ventures, TMI will become the owner of approximately 27% of the outstanding
equity of Satellite Ventures.
Upon closing of these transactions, we will sell our remaining satellite assets
to Satellite Ventures, and will own approximately 33% of the outstanding
interests and be the largest single shareholder of Satellite Ventures.
The consummation of the transactions is subject to receipt of all necessary
regulatory governmental approvals and consents, including, for example,
approvals under the Hart-Scott-Rodino Antitrust Improvements Act, and FCC
approvals with respect to both the transfer of our FCC licenses and Satellite
Ventures' plans for a new generation integrated satellite-terrestrial system,
approvals by Canadian regulatory authorities with respect to the transfer of
TMI's communications licenses to the new venture, and other customary conditions
relating to due diligence review, third party consents, and similar matters. In
certain circumstances, beginning in January 2002, if certain closing conditions
have not been obtained, we and TMI have certain rights to require the closing to
proceed at such time, and if less than all of the Investors wish to close at
such time, we and TMI may, under certain circumstances, purchase the interests
in Satellite Ventures that would have otherwise been acquired by any such
non-participating Investors.
For further details regarding the Satellite Ventures transaction, please refer
to our Current Report on Form 8-K filed with the SEC on January 16, 2001.
Our Strategy
Our objective is to penetrate aggressively the large and growing markets for
mobile Internet data communications services, and wireless telemetry
applications. To meet this objective we intend to:
Leverage Distribution Resources of Strategic Partners. To penetrate our target
markets, we have signed a number of strategic alliances with industry leaders.
We intend to leverage the marketing and distribution resources and large
existing customer bases of these partners to address significantly more
potential customers than we would be able to address on our own. We have a
roster of industry-leading resellers for our eLink wireless email service,
including SkyTel, Metrocall, Aether Systems, and GoAmerica, and we recently
expanded our existing relationship with Research in Motion Limited ("RIM") to
permit RIM to resell its BlackBerry(TM) brand email service on our terrestrial
wireless network. In the telemetry market, we have partnered with a number of
device manufacturers, resellers, and software vendors to develop a variety of
customer-driven telemetry applications, including HVAC system monitoring, energy
monitoring, office and vending machine automation, and wireless point-of-sale
applications. We will continue to seek strategic distribution channels that will
enable us to more fully penetrate our existing markets and access potential new
markets on an incremental basis. In addition, in vertical markets we intend to
exploit cross-selling opportunities using some of our existing large corporate
customers.
Develop New Wireless Applications. We intend to exploit the market potential of
our wireless network by working with value-added partners and major e-business
solutions providers to develop additional innovative wireless applications and
content-based services, including future enhancements to our eLink wireless
email service. As market acceptance and demand for wireless email grows, we
believe users will demand a wide variety of content-based services and features
currently accessible on the Internet. We currently offer content-based services
for use with our eLink service provided by GoAmerica, OracleMobile, Novarra, and
Neomar. We are continuing to broaden and expand those services, as well as
pursuing other similar agreements. In addition, we have formed an important
strategic alliance with IBM, under which we will jointly develop and market
wireless enterprise-wide email and other e-business solutions to corporate
customers, as well as large email hosting Internet Service Providers, Mail
Service Providers, and Applications Service Providers.
Work With Vendors to Develop Less Expensive and More Functional User Devices. We
will continue to work with vendors to develop new generations of user devices
and applications that combine improved functionality and convenience at a lower
price. We recently announced the introduction of the new RIM 857 wireless
handheld device for use on our network. We also recently announced an agreement
with Wavenet International Ltd. to develop a wireless accessory that will bring
our network services to other existing popular PDA platforms, such as the
popular palm-held devices. In conjunction with this effort, we will make certain
changes to our switching infrastructure which may allow us to offer a wider
variety of handheld devices and additional applications. We will continue to
incorporate inexpensive, off the shelf software or free software in our
services. We believe that lower price points will accelerate the acceptance and
adoption of our services in our traditional markets, and will also enable us to
better penetrate our targeted new wireless markets. By working with suppliers
and other business partners and by making strategic software and hardware
investments, we have significantly lowered the total cost of ownership of our
products. At the same time, we have improved the functionality of our devices
and made them smaller and more convenient.
Capitalize on, and Enhance, Our Network's Technical Advantages. We have been
providing terrestrial wireless services to customers for several years, using
the nation's largest, most fully deployed terrestrial wireless two-way data
network. Unlike many competitors who are in the process of building limited
city-wide or regional terrestrial networks, or planning to launch satellites, we
have deployed a national network that is well tested and reliable, and our
future network expansion requirements are expected to arise primarily from
increased customer demand. We believe that our terrestrial network provides key
competitive advantages currently unmatched by any competitor: broad nationwide
geographic coverage, guaranteed two-way message delivery, superior
responsiveness, and deep in-building penetration with superior performance
characteristics when compared with cellular-based architectures or
satellite-only alternatives. We also believe that our two-way messaging and
wireless email products are superior to currently available "two-way paging"
services, due to the full, two-way messaging capabilities that our network
enables. We will continue to enhance our terrestrial network's capacity and
coverage by acquiring additional frequency, building more base stations, both in
existing and new geographic markets, and selectively upgrading the technological
capabilities of existing base stations.
Our Wireless Service Offerings
We offer wireless services in two broad categories: terrestrial data services,
including eLink wireless email, and satellite voice and dispatch services. In
addition, through Aether Systems, we also serve the transportation market with
multi-mode and satellite-only wireless data services. We describe each of these
categories below.
Terrestrial Data Services
General. Terrestrial data services are the core of our wireless business. These
services include our eLink wireless email service and BlackBerry(TM) by Motient
email. We target our data applications to both vertical and horizontal markets.
Applications include wireless email, Internet and Intranet access, fax, paging,
peer-to-peer communications, asset tracking, dispatch, point-of-sale, and other
telemetry applications. There are over 30 types of subscriber devices available
from more than 15 manufacturers for use on our terrestrial network. These
devices include RIM handheld devices, ruggedized laptops, handheld digital
assistants, and wireless modems for PC's. We have developed proprietary
software, and we have engaged a variety of other software firms to develop other
"middleware," to minimize our customers' development efforts in connecting their
applications to our network. Also, a number of off-the-shelf software packages
enable popular email software applications on our network.
In the field service market, long-standing customers such as IBM, Sears, Pitney
Bowes, and NCR use our customized terrestrial data applications to enable their
mobile field service technicians to stay connected. These customers value the
broad, nationwide coverage and deep in-building penetration of our terrestrial
data network.
Our largest single terrestrial data application is in the package delivery
market, where UPS has registered for service approximately 43,000 of its third
generation package tracking devices on our network, under a multi-year agreement
with us that calls for UPS to deploy approximately 50,000 devices on our network
by the end of 2001. UPS has recently informed us that it expects to expand the
use of this application on our network over the next several years, and UPS
anticipates that it may eventually deploy up to 70,000 units (in total).
eLink Wireless Email. Our eLink wireless email service provides mobile users
with integrated wireless access to a broad range of corporate and Internet email
and personal information management (PIM) applications. The eLink service uses
wireless handheld devices manufactured by RIM, including the RIM 850 and RIM 857
wireless handhelds. These devices feature a full QWERTY keyboard and a
thumbwheel which functions as a mouse.
We currently offer two versions of eLink, "Agent(sm)," and "Messenger(sm)."
Agent and Messenger may also be combined, offering users the functionality of
both applications on a single handheld device.
Users of our eLink Agent service can send and receive email messages, using
their existing corporate or Internet email address, over our terrestrial
network, as long as the user's email system is compliant with the industry
protocol known as Post Office Protocol 3, or POP 3. We also added an IMAP 4
solution for eLink in 2000, providing greater flexibility to customers by adding
a more robust Internet email application protocol. Outgoing mail sent from the
device appears to have come from the user's desktop PC. eLink synchronizes with
a user's desktop PC so that full calendar, task list, and contact information
can be instantly swapped to and from the device. To address the security needs
of corporate customers, eLink Agent is also offered in a self-contained format
so that the corporate customer can install the network gateway software behind
its firewall on servers located on the customer's site.
Our eLink Messenger service assigns a unique email address (separate from the
user's corporate or Internet email address), allowing users to send and receive
wireless email messages independent of other email systems. In addition, the
Messenger service allows users to send faxes from their device, and the device
also functions as a pager. Messenger also enables the user to synchronize their
device with calendar, task list, and contact information from the user's desktop
PC.
We are actively working on a number of innovative enhancements to our eLink
service that will enhance both security and functionality. Also, in 2000 we
expanded our network's coverage for eLink users by offering roaming services in
Canada through an agreement with the Canadian network operator Bell Mobility.
BlackBerry(TM) by Motient. BlackBerry(TM) by Motient is a wireless solution
specifically designed for corporate environments using Microsoft(r) Exchange.
BlackBerry has substantially the same functionality as our eLink service,
including wireless email, as well as a variety of similar PIM functions and
applications. BlackBerry tightly integrates with Microsoft Exchange email
accounts. During 2001, in concert with our partner Research in Motion, we also
expect to offer a version of BlackBerry that integrates with the Lotus Notes
email platform. The availability of an integrated Lotus Notes email extension
significantly expands the available market for this offering.
The BlackBerry desktop software installs and runs on the user's desktop PC. It
is an integrated suite of applications that provides organizer synchronization,
folder management tools, email filtering capabilities, information backup
utilities, and an application loader.
BlackBerry is designed to provide a high level of security. Encryption occurs
between the handheld and corporate email system to ensure message integrity.
BlackBerry incorporates Triple DES encryption technology to meet stringent
corporate security guidelines for remote email access.
We are authorized to resell BlackBerry(TM) by Motient pursuant to an agreement
with RIM. RIM also resells BlackBerry(TM) by Motient on our network through a
variety of VARs and resellers, and RIM has committed to place 50,000 BlackBerry
units on our network over the next 12 months. We also offer roaming services in
Canada to our BlackBerry(TM) by Motient customers through an agreement with the
Canadian network operator Bell Mobility.
eLink Fortified with Yahoo! eLink Fortified with Yahoo! is a new service that
combines our eLink wireless email service with Yahoo! content and services.
Using the RIM 850 wireless handheld device, this service provides users with
mobile, wireless access to a variety of Yahoo! services. This service is
currently available to the consumer market through a number of retail channels,
including several online channels, and we are working with Yahoo! to expand our
distribution channels for this service.
Telemetry. We have partnered with a variety of resellers, device manufacturers,
and software vendors in the telemetry market. These partners integrate
customer-specific devices and systems with our network to provide a wireless
means of transmitting data from a fixed or mobile site to a central monitoring
facility. Applications include HVAC system monitoring, wireless point-of-sale
systems, energy monitoring, vending and office machine automation, and
security/alarm monitoring.
Pricing of Terrestrial Data Services. Terrestrial data service customers are
charged a monthly access fee. In addition to this access fee, users pay for
usage depending on the number of kilobytes of data transmitted. Our pricing
plans offer a wide variety of volume packaging and discounts, consistent with
customer demand and market conditions. The average monthly bill for our data
customers (other than eLink) range from below $10 for high unit quantity, low
traffic volume, off-peak telemetry users, to over $50 for high-volume, peak
users in the field service market. Our average monthly revenue per data user
(other than eLink) in the fourth quarter of 2000 was approximately $30.00.
Satellite Voice and Dispatch Services
Our satellite telephone service supports two-way circuit-switched voice,
facsimile and data service. We offer a wide range of satellite phone
configurations developed to address the particular communications needs of our
customers. We market telephone service to businesses that have nationwide
coverage requirements, including those operating in geographic areas that lack
significant terrestrial coverage, such as natural resource companies, utilities
and telecommunications companies that require backup and restoral support,
public safety organizations, and maritime users seeking expanded or less costly
coverage for both commercial and recreational vessels. Our significant satellite
telephone customers include the Red Cross, FEMA, Stratos Global, Western Atlas
Logging, and Haliburton.
Our satellite dispatch service provides point-to-multi-point voice
communications among users in a customer-defined group using a push-to-talk
device. This service facilitates team-based contingency-driven operations of
groups operating over wide and/or remote areas. Our targeted customer groups
include oil and gas pipeline companies, utilities and telecommunications
companies with outside maintenance fleets, state and local public safety
organizations, and public service organizations who need to seamlessly link
resources on a nationwide basis. Our significant satellite dispatch customers
include AT&T and MCI WorldCom.
Satellite telephone users are charged both fixed access and variable usage fees.
Our satellite dispatch customers are charged a fixed access fee for virtually
unlimited usage. Monthly bills for satellite voice customers range from over
$100 for high volume users to a low of $35 for certain public safety and
emergency restoral applications. Our average monthly revenue per voice user in
the fourth quarter of 2000 was approximately $46.00.
Multi-Mode and Satellite-Only Wireless Data Services for the Transportation
Market
As discussed above in "Recent Developments," in November 2000 we sold our retail
transportation business to Aether Systems, Inc. Through Aether Systems, we
continue to serve the transportation market with multi-mode and satellite-only
wireless data services. Our multi-mode service uses our terrestrial and
satellite network to provide "least-cost-routing" for customers' two-way data
communications. The multi-mode service does this by actively seeking connections
to the lower cost terrestrial network before automatically switching to our
satellite network. By using both networks, the multi-mode service offers
complete nationwide coverage. Our satellite-only messaging service is an
alternative to the multi-mode service, for customers in the long-haul and
less-than-load trucking segments.
Our Customers
As of December 31, 2000, there were approximately 206,000 user devices in
service on our network and an established customer base of large corporations in
the following market segments:
Percentage of
Market Segments Total Units
--------------- -----------
Transportation and package delivery...... 35%
Field service............................ 22
Telemetry and point of sale.............. 9
eLink and other email .................. 22
Maritime and other....................... 12
Total 100%
----
As of December 31, 2000, our customer base included the following product
segments:
Percentage of
Product Segments Total Units
---------------- -----------
Data:
Terrestrial only:
eLink and other email.................. 22%
Other.................................. 53
Multi-mode and Satellite-only.......... 12
Private network customers.............. 4
Voice:
Telephony and Dispatch................. .. 9
Private network customers............... 0
Total 100%
----
Marketing and Distribution
We market our wireless services through strategic distribution partners,
resellers, our direct sales force, and dealers.
Strategic Partners. To penetrate new wireless data markets with significant
growth potential, we have signed a variety of strategic alliances with key
industry leaders. We intend to leverage the marketing and distribution resources
and large existing customer bases of these partners to address significantly
more potential customers than we would be able to address on our own. We have a
roster of industry-leading resellers for our eLink wireless email service,
including SkyTel, Metrocall, Aether Systems and GoAmerica, and we recently
expanded our existing relationship with Research in Motion Limited ("RIM") to
permit RIM to resell its BlackBerry(TM) brand email service on our terrestrial
wireless network. We have formed similar distribution alliances with Internet
service providers and with outsourced email providers Navipath and United
Messaging. We have also formed an important strategic partnership with IBM,
under which we will jointly develop and market wireless enterprise-wide email
and other e-business solutions to corporate customers. In the telemetry market,
we have partnered with a number of device manufacturers, resellers, and software
vendors to develop a variety of customer-driven telemetry applications,
including for HVAC system monitoring, utility reading, office and vending
machine automation, and wireless point-of-sale applications. Key partners in the
wireless point-of-sale and vending segments include US Wireless Data, eVendNet,
and C-Star. We are continuing to seek additional strategic distribution channels
that will enable us to more fully penetrate our existing markets and access
potential new markets on an incremental basis.
Resellers. In addition to strategic distribution partners, we also use resellers
to distribute our services and to resell capacity on our network. Typically, we
use resellers in specialized markets. In the maritime voice market, Stratos
Global Corporation is our exclusive reseller, and in the over-the-road
transportation market, Aether Systems is our exclusive reseller. In the
telemetry market, we sell capacity on our network to resellers such as ABB,
Ameritech, Security Link and Detection Systems, who integrate their customers'
equipment and systems with our network to provide a customized application. We
also use several specialized government resellers, one of which has included
certain of our products and services on its General Services Administration
schedule. We also sell bulk satellite capacity to private network customers who
use this capacity to support their own proprietary networks and products.
Direct Sales Force. We have a direct sales force that is experienced in selling
our various wireless services. Historically, our direct sales force has focused
on the requirements of business customers who need customized applications. With
the launch of our eLink wireless email service, we have also built up a
significant sales force concentrated on promoting our eLink (sm) offering to
vertical markets. Our corporate accounts group is focused on promoting our eLink
wireless email service to wirelessly enable enterprise-wide email systems for
Fortune 500 accounts. Sales to corporate account targets generally require a
sustained marketing effort lasting several months. Prior to making a buying
decision, a majority of the accounts exercise a due diligence process where
competitive alternatives are evaluated. Our employees often assist in developing
justification studies, application design support, hardware testing, planning
and training. In the wireless email area, our internal sales force has been key
to our ability to convey crucial customer feedback to our product management
team, enabling us to identify and develop new product and service features.
Dealers. We use dealers to market and sell our satellite voice and dispatch
services. These dealers typically have strong business relationships with
regional public safety entities, as well as with smaller field service fleets.
We believe that opportunities exist to capitalize on the strengths of this
channel by introducing a low-cost terrestrial data device with minimum
integration requirements. Typically these dealers serve as agents for sales and
service and do not provide billing and collection services. These dealers are
generally compensated with a standard activation fee, plus a modest percentage
of the service revenue for which they are responsible.
Our Network
Our wireless network consists of (1) the largest two-way terrestrial data
network in the United States, providing service to 430 of the nation's largest
cities and towns, including virtually all metropolitan areas, and (2) a
satellite in geosynchronous orbit with coverage of the continental United
States, Alaska, Hawaii, Puerto Rico, the U.S. Virgin Islands and U.S. coastal
waters and airspace. The network provides a wide range of mobile data and voice
services. In 2000, we expanded our network coverage for our eLink and
BlackBerry(TM) by Motient customers to include Canada, through a roaming
agreement with the Canadian network operator, Bell Mobility.
Users of our network access it through subscriber units that may be portable,
mobile or stationary devices. Generally, subscriber units enable either data or
voice communications and are designed to operate over either the terrestrial
data-only network or the satellite network, which provides both voice and data
communications.
Subscriber units receive and transmit wireless data or voice messages from
either terrestrial base stations or our satellite. Terrestrial messages are
routed to their destination via data switches that we own, which connect to the
public data network. Satellite messages are routed to their destination via
satellite data and voice switches, located at our headquarters, which connect to
the public data and switched voice networks. A data switch located in
Lincolnshire, Illinois links the terrestrial and satellite networks for the
delivery of our multi-mode data service offered to transportation customers
through Aether Systems, our reseller in that market.
Our terrestrial network delivers superior in-building penetration, completion
rates and response times compared to other wireless data networks through the
use of a patented single frequency reuse technology developed by Motorola.
Single frequency reuse technology enables multiple base stations in a given area
to use the same frequency. As a result, a message sent by a subscriber can be
received by a number of base stations. This technology contrasts with more
commonly used multiple frequency reuse systems, which provide for only one
transmission path for a given message at a particular frequency. In comparison
with multiple frequency reuse systems, our technology provides superior
in-building penetration and response times and enables us to incrementally
deploy additional capacity as required, instead of in larger increments as
required by most wireless networks.
Our satellite has an expected end of service date of 2006 subject to potential
malfunctions and other factors. We have an agreement with TMI, which owns and
operates a technologically identical satellite, for back up restoral capacity if
our satellite fails or we need additional capacity. In return, we have agreed to
provide TMI with similar back-up service on our satellite.
Equipment and Supplier Relationships
We have contracts with a variety of vendors to supply equipment configurations
designed to meet the requirements of specific end-user applications. We continue
to pursue enhancements to these devices that will result in additional desirable
features and reduced cost of ownership. Although many of the components of our
products are available from a number of different suppliers, we rely on a
relatively small number of key suppliers. The devices used with our services
generally are subject to various product certification requirements and
regulatory approvals before they are delivered for use by our customers.
Our eLink wireless email services use handheld devices manufactured by RIM,
including the RIM 850 and RIM 857 wireless handhelds. These devices include a
full QWERTY keyboard and feature a unique thumb wheel that functions similarly
to a PC mouse. RIM also manufactures modems designed to be integrated into
handheld field service terminals, telemetry devices, utility monitoring and
security systems and certain other computing systems. Our supply arrangements
with RIM are not exclusive, and RIM manufactures similar hardware products for
other companies, including Cingular Wireless (formerly BellSouth Wireless Data),
a principal competitor in the two-way wireless email market segment.
In addition to the messaging devices manufactured by RIM, there are currently
over 30 other types of subscriber units available from approximately 15
manufacturers that can operate on our terrestrial network. Examples of portable
subscriber units include ruggedized laptop computers, small external modems,
handheld or palmtop "assistants," and pen based "tablets."
We are also working with other device manufacturers and software developers to
bring our network services to other existing popular PDA and wireless email
platforms, such as palm-held and handheld devices.
Mobile satellite voice telephones are offered in a number of different
configurations that deliver a variety of features and options to meet specific
market needs. The primary suppliers of our voice terminal equipment have been
Audio Intelligence Devices, Inc. ("AID"), the successor to Westinghouse Wireless
Solutions, Inc., and Mitsubishi Electronics America. We have no arrangements
with AID or Mitsubishi for the delivery of any new voice terminal equipment,
and, when our remaining voice inventory is depleted, our customers who need
voice equipment will need to buy such equipment from AID, Mitsubishi or another
manufacturer whose equipment works on our satellite network, through such
vendors' designated distribution channels. Other vendors are exploring putting
new voice terminal equipment on our network and we are committed to working with
such vendors to facilitate their development efforts with a view toward
certifying new equipment on our network. We continue working with AID and
Mitsubishi to provide support and service to our voice customers.
Compaq Computer provides the terrestrial network switching computers under a
multi-year lease that extends through 2003, while AT&T provides network services
including a nationwide wireline data network, and leased sites which house
regional switching equipment for our terrestrial network.
We also have a relationship with AT&T as our vendor for switched inbound and
outbound public switched telephone network services. The satellite system
terminates calls from its telephone product via both the AT&T and Sprint
networks.
We have an agreement with Motorola under which Motorola provides certain
continued support for the terrestrial network infrastructure, and ongoing
maintenance and service of the terrestrial network base stations. An unrelated
third party also provides certain lease administration services for a portion of
the terrestrial network base station site leases.
The platform for our voice products, the communications ground segment, depends
upon products from multiple vendors, most of which are generally commercially
available. Northern Telecom manufactures and supports the core voice switch.
Digital Equipment Corporation supplies the computing platform that runs the
communications ground segment.
We own certain patents, technical data and other intellectual property that has
been developed in connection with our communications network. We jointly own
certain intellectual property with TMI, and we license intellectual property
from other vendors for operation of our network. We believe our ownership of and
rights to intellectual property for our system is sufficient for our business
purposes.
The terrestrial network, and certain of its competitive strengths such as deep
in-building penetration, is based upon single frequency reuse technology.
Motorola holds the patent for the single frequency reuse technology. We have
entered into support agreements with Motorola to provide for certain support of
the operations of the terrestrial network. However, there can be no assurance
that Motorola will not enter into arrangements with our competitors, or that if
it does, such arrangements would not harm our business.
Competition
The wireless communications industry is highly competitive and is characterized
by constant technological innovation. We compete by providing unparalleled
geographic coverage, deep in-building penetration, and guaranteed reliability.
These features distinguish us from the competition. Our wireless solutions are
used by businesses that need critical customer and operational information in a
mobile environment.
We offer multiple business lines and compete with a variety of service
providers, from small startups to Fortune 500 companies. Our competitors include
service providers in several markets - dedicated mobile data, PCS/cellular,
narrowband PCS/enhanced paging, emerging technology platforms, and mobile
satellite services.
Dedicated Mobile Data. Companies using packet data on dedicated mobile networks
provide wireless data services in direct competition with a number of our data
products. In a packet data environment messages are transmitted in short bursts.
Competitors using this technology include Cingular Wireless (formerly BellSouth
Wireless Data) and Metricom. Cingular Wireless operates a terrestrial-only
network that provides data services to customers in field service,
transportation and utility industries, and two-way messaging service to the
horizontal market. We believe that our network provides broader coverage and
superior in-building penetration than the Cingular network. In addition, we
continue to upgrade our network in major metropolitan areas to offer broader
geographic coverage and faster speeds. Metricom's Ricochet service provides
wireless access to the Internet, private intranets, local area networks, and
email. The Metricom modem's bulk and limited hands-off capability between
transmitter sites limits the mobility of the user. Metricom's service is
currently available in parts of 14 metropolitan areas. Coverage within a
metropolitan area is often limited to the dense urban portions of a given market
as well as airports. The company recently announced postponement of additional
deployments outside of its most significant existing markets.
RIM offers BlackBerry(TM), a wireless email service, that runs on the Motient
and Cingular networks. BlackBerry(TM) offers wireless email and Personal
Information Management (PIM) functionality. Until now, BlackBerry(TM) has only
served users in a Microsoft Exchange environment; however, RIM recently
announced a Lotus Notes version that will soon be available. Because RIM offers
BlackBerry on the Motient and Cingular networks, RIM is both a reseller and a
competitor. With eLink, BlackBerry(TM) by Motient, and eLink service Fortified
with Yahoo!, as well as our arrangements with other resellers and content
providers, we believe that we offer the most complete array of wireless internet
and wireless email services currently available.
PCS/Cellular. PCS and cellular services presently serve the majority of mobile
communications users in the United States, with more than 95 million subscribers
at the end of 2000. There are a large number of cellular and PCS systems
providing voice service throughout most of the United States, with no single
competitor providing the seamless, national footprint that is available through
our network. As the average voice revenue per subscriber declines, wireless
voice carriers are beginning to focus on delivering wireless data services in an
effort to differentiate their voice products and to retain customers. The first
of these services is the Sprint PCS Wireless Web. Sprint allows circuit switched
wireless web access to several content services using the phone's numeric
keypad. Other voice carriers are also beginning to offer wireless data services
through mobile phones, but we believe the limitations of today's PCS and
cellular features and networks will limit competition in our target markets.
Users must have a digital phone and service, and must type messages using the
awkward numeric keypad. They do not have access to data services while roaming
onto analog networks, which detracts from the user experience. Pricing today is
based on per-minute charges that can accrue quickly as users are required to log
on to the Sprint web browser and use Yahoo! to send or receive email, or access
content services.
Cellular digital packet data (CDPD), the cellular industry's only packet data
service, is available in fewer geographic markets than our service, and covers
approximately 55% of the U.S. population. Expansion of the CDPD networks has
slowed considerably as carriers such as AT&T and Verizon Wireless look to other
means to provide data services to their voice customers. Some cellular and PCS
carriers offer short message capabilities, depending on the protocol they use,
and expect to offer larger capacity packet data services in the next few years.
Narrowband PCS/Enhanced Paging. Most traditional paging companies, such as
SkyTel, Arch and Metrocall, are expanding beyond their traditional alpha/numeric
paging into two-way wireless messaging services using narrowband PCS. Typical
applications include wireless email, near-real time delivery of stock quotes and
other time sensitive information, and mobile workforce communications. Although
some paging companies have begun to offer limited two-way messaging services,
initial challenges in coverage, responsiveness and throughput, as well as the
high cost of service, currently limit their adoption by our targeted customers.
These services primarily compete with our eLink wireless email services. We have
signed reseller agreements with SkyTel and Metrocall under which these parties
market our eLink services to their customers. We have similar reseller
agreements with additional national distribution partners.
Emerging technology platforms. A variety of new technologies, devices and
services will result in new types of competition for us in the near future. The
emergence of new protocols such as WAP (Wireless Access Protocol) and Bluetooth
is expected to enable the use of the Internet as a platform to exchange
information among people with different devices running on different networks.
WAP defines a protocol for altering Internet sites to make their content more
readily accessible to mobile user devices, where bandwidth is limited. Mobile
telephone users have adopted this protocol, as WAP provides Internet content
access in a similar manner to our products. Bluetooth is a wireless networking
technology that will enable communications between disparate devices in a home
or office setting. Manufacturers such as Nokia, Ericsson and Qualcomm are
developing mobile phones and devices to work with the WAP and Bluetooth
protocols. Within the next few years, it is expected that new, so-called "2.5G"
and "3G" technologies, new forms of CDMA, TDMA and GSM, will increase the data
capabilities of voice and data services and may have a competitive impact on
portions of our business.
The growth in wireless data opportunities has led traditional hardware
manufacturers and software developers to invest in technologies that will allow
the migration of core products and services to a mobile environment. Companies
like IBM, Oracle, Siebel, Sun and Lucent have made significant investments in
the area of mobility to guarantee their place in both the desktop and
mobile/handheld computing environments.
Although the emergence of new technologies and new players expands our
competitive environment, we believe it provides more of an opportunity than a
threat. For example, in the case of WAP, we have incorporated the protocol into
our Yahoo! offering and our Internet and Intranet browser applications for use
with our eLink service. We have also formed a strategic partnership with IBM to
develop mobile services that will be sold into IBM's enterprise customers and
users of Lotus Notes. Through IBM and other partners, we intend to be able to
offer a full range of services - from simple wireless email to customized
wireless data solutions - to our target customers in the enterprise market.
Mobile Satellite Services. A number of companies are selling or developing
mobile satellite services that compete with our satellite voice and data
services. We do not view these mobile satellite services as competitors to the
terrestrial component of our network because they lack the extensive urban and
in-building coverage we provide.
We face competition in the limited satellite voice and data services market from
several companies that utilize a variety of satellite technologies. TMI received
permission in November 1999 from the FCC to offer mobile messaging services in
the United States using its Canadian-licensed satellite. Its offerings are
similar to many of our satellite voice and data services. As described above in
"Recent Developments," we have agreed to combine our satellite communications
business with TMI's in Satellite Ventures. This transaction is subject to
various conditions, and is not expected to close for at least six to nine
months. During the period prior to closing of this transaction, we expect to
face competition from TMI in the United States in the mobile satellite services
segment. Globalstar launched its satellite communications service in 2000,
providing voice and data services in limited areas of the world, including the
areas covered by our satellite. Globalstar's system consists of a constellation
of forty-eight low earth orbiting satellites that covers more than eighty
percent of the globe. Although Globalstar offers or plans to offer global voice,
fax, and data services, we do not foresee Globalstar providing a nationwide
dispatch service such as ours or a data service in excess of 9600 bps. The
Globalstar system is a more complex and expensive system than the satellite
component of our network, and offers some advantages over our voice services
such as smaller handheld telephones, global coverage, and in certain
circumstances, reduced transmission delay. Globalstar's subscriber growth, as
publicly reported, has been slower than originally projected.
In addition to complex non-geosynchronous systems designed to provide mobile
voice services, there are relatively simple "little" low earth orbit systems
that would provide only low-speed packet data services. These systems, including
ORBCOMM Global, L.P., and LEO One USA, have access to comparatively limited
spectrum and are expected to compete for customers who require specialty
applications such as asset tracking services for untethered trailers.
Employees
At February 28, 2001, we had 482 employees. None of our employees is represented
by a labor union. We consider our relations with our employees to be good.
Our Investment in XM Radio
In addition to our core wireless business, we have a significant investment in
XM Satellite Radio Holdings Inc., a development stage company. XM Radio is
seeking to become a nationwide provider of digital quality audio entertainment
and information programming transmitted directly by satellites to vehicle, home
and portable radios. XM Radio owns one of two FCC licenses to provide a
satellite digital audio radio service for the United States. XM Radio is
developing its service, which it will call "XM Radio," to provide a wide variety
of music, news, talk, sports and other programming offering up to 100
distinctive channels.
XM Radio has a separate management team and a business plan that is distinct
from our core wireless business. To date, XM Radio has received substantially
all of its required funding from independent sources in exchange for debt and
equity interests in XM Radio. We are not required to provide any additional
funding to XM Radio, and we currently expect that XM Radio will continue to
obtain substantially all of its required funding from other sources.
Accordingly, we do not expect that development of the XM Radio business will
have a material effect on our consolidated liquidity, capital resources or cash
flows.
For more details about XM Radio, its business and a discussion of certain risk
factors related to its business plan, readers are urged to review carefully the
prospectus (including supplements) included within XM Radio's registration
statement (File No. 333-47570) and current report on Form 8-K dated February 21,
2001 (File No. 0-27441), as well as XM Radio's other reports filed with the SEC
from time to time.
Regulation
The satellite network and terrestrial two-way wireless data network used in our
core wireless business are regulated to varying degrees at the federal, state,
and local levels. Various legislative and regulatory proposals under
consideration from time to time by Congress and the FCC have in the past
materially affected and may in the future materially affect the
telecommunications industry in general, and our wireless business in particular.
The following is a summary of significant laws, regulations and policies
affecting the operation of our core wireless business. In addition, many aspects
of regulation at the federal, state and local level currently are subject to
judicial review or are the subject of administrative or legislative proposals to
modify, repeal, or adopt new laws and administrative regulations and policies.
Neither the outcome of these proceedings nor their impact on our operations can
be predicted at this time.
General Regulatory Matters Applicable to Our Wireless Business
The ownership and operation of our satellite and terrestrial networks are
subject to the rules and regulations of the FCC, which acts under authority
established 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 that
spectrum. We operate pursuant to various licenses granted by the FCC.
We are a Commercial Mobile Radio Service provider and therefore are regulated as
a common carrier. We must offer service at just and reasonable rates on a
first-come, first-served basis, without any unjust or unreasonable
discrimination, and we are subject to the FCC's complaint processes. The FCC has
forborne from applying numerous common carrier provisions of the Communications
Act to Commercial Mobile Radio Service providers. In particular, we are not
subject to traditional public utility rate-of-return regulation, and we are not
required to file tariffs with the FCC for our domestic services.
As a provider of interstate telecommunications services, we are required to
contribute to the FCC's universal service fund, which supports the provision of
affordable telecommunications to high-cost areas, and the provision of advanced
telecommunications services to schools, libraries, and rural health care
providers. Under the FCC's current rules, we are required to contribute a
percentage of the end-user telecommunications revenues we derive from the retail
sale of interstate telecommunications services. Currently excluded from a
carrier's universal service contribution base are end-user revenues derived from
the sale of information and other non-telecommunications services and wholesale
revenues derived from the sale of telecommunications. A significant portion of
the terrestrial network revenue falls within the excluded categories, thereby
reducing our universal service assessments. Current rules also do not require
that we impute to our contribution base retail revenues derived when we use our
own transmission facilities to provide a service that includes both information
service and telecommunications components. There can be no assurances that the
FCC will retain the exclusions described herein or its current policy regarding
the scope of a carrier's contribution base. We may also be required to
contribute to state universal service programs. The requirement to make these
state universal service payments, the amount of which in some cases may be
subject to change and is not yet determined, may have a material adverse impact
on the conduct of our business.
We are subject to the Communications Assistance for Law Enforcement Act
("CALEA"). Under CALEA, we must ensure that law enforcement agencies can
intercept certain communications transmitted over our networks. We must also
ensure that law enforcement agencies are able to access certain call-identifying
information relating to communications over our networks. The deadline for
complying with the CALEA requirements and any rules subsequently promulgated was
June 30, 2000. We have pending with the FCC a petition for an extension of the
deadline with respect to certain of our equipment, facilities, and services and
we have been working with law enforcement to arrive at an agreement on a further
extension of this deadline and on an extension of the deadline for other Motient
equipment, facilities, and services. Possible sanctions for noncompliance
include substantial fines and possible imprisonment of company officials. It is
possible that we may not be able to comply with all of CALEA's requirements or
do so in a timely manner. Where compliance with any requirement is deemed by the
FCC to be not "reasonably achievable," we may be exempted from such requirement.
In addition, CALEA establishes a federal fund to compensate telecommunications
carriers for all reasonable costs directly associated with modifications
performed by carriers in connection with equipment, facilities, and services
installed or deployed on or before January 1, 1995. For equipment, facilities,
and services deployed after January 1, 1995, the CALEA fund is supposed to
compensate carriers for any reasonable costs associated with modifications
required to make compliance "reasonably achievable." It is possible that all
necessary modifications will not qualify for this compensation and that the
available funds will not be sufficient to reimburse us. The requirement to
comply with CALEA could have a material adverse effect on the conduct of our
business.
As a matter of general regulation by the FCC, we are subject to, among other
things, payment of regulatory fees and restrictions on the level of radio
frequency emissions of our systems' mobile terminals and base stations. Any of
these regulations may have an adverse impact on the conduct of our business.
Our FCC licenses are subject to restrictions in the Communications Act that (1)
certain FCC licenses may not be held by a corporation of which more than 20% of
its capital stock is directly owned of record or voted by non-U.S. citizens or
entities or their representatives and (2) that no such FCC license may be held
by a corporation controlled by another corporation ("indirect ownership") if
more than 25% of the controlling corporation's capital stock is owned of record
or voted by non-U.S. citizens or entities or their representatives, if the FCC
finds that the public interest is served by the refusal or revocation of such
license. However, with the implementation of the Basic Telecommunications
Agreement, negotiated under the auspices of the World Trade Organization ("WTO")
and to which the United States is a party, the FCC will presume that indirect
ownership interests in our FCC licenses in excess of 25% by non-U.S. citizens or
entities will be permissible to the extent that the ownership interests are from
WTO-member countries. The Basic Telecommunications Agreement and this
presumption regarding indirect ownership by non-U.S. citizens or entities do not
apply to XM Radio's satellite radio license. If the 25% foreign ownership limit
is exceeded, the FCC could potentially take a range of actions which could harm
our business.
Our Terrestrial Network
Our terrestrial network consists of base stations licensed in the 800 MHz
Business Radio and Specialized Mobile Radio ("SMR") services. The terrestrial
network is interconnected with the public switched telephone network.
The FCC's licensing regime in effect when the majority of authorizations used in
the terrestrial network were issued provided for individual, site-specific
licenses. The FCC has since modified the licensing process applicable to SMR
licenses in the band. SMR licenses are now issued by auction in wide-area,
multi-channel blocks. The geographic area and number of channels within a block
vary depending on whether the frequencies are in the so-called "Upper 200" SMR
channels, the "General Category," or the "Lower 80." In addition, wide-area
auction winners in the Upper 200 have the right to relocate incumbent licensees
to other "comparable" spectrum. Auction winners in the General Category and
Lower 80 do not have these same relocation rights and must afford protection to
incumbent stations. Incumbent stations may not, however, expand their service
areas.
Wide-area auction winners have substantial flexibility to install any number of
base stations including, in the case of the General Category and Lower 80
channels, base stations that operate on the same channels as incumbent
licensees. We were an incumbent in the Upper 200 and remain an incumbent on
certain General Category channels. We are also a General Category and Lower 80
auction winner. Although the FCC requires General Category and Lower 80
geographic licensees to protect incumbents from interference, there is some
concern that such interference may occur and that practical application of the
interference-protection rules may be uncertain.
We believe that we have licenses for a sufficient number of channels to meet our
current capacity needs on the terrestrial network. We recently received
authorizations for 33 wide-area licenses won in the General Category auction. We
were also the high bidder on two Lower 80 licenses. To the extent that
additional capacity is required, we may participate in other upcoming auctions
or acquire channels from other licensees. As part of its new licensing regime,
the FCC permits wide-area geographic licensees, with prior FCC approval, to
assign a portion of their spectrum ("spectrum disaggregation") or a portion of
their geographic service area ("geographic partitioning"), or a combination of
the two, to another entity. While this authority may increase our flexibility to
acquire additional base stations, the practical utility of these options is
uncertain at this time.
We operate the terrestrial network under a number of waivers involving the FCC's
technical rules, including rules on station identification, for-profit use of
excess capacity, system loading, and multiple station ownership. Several of
these waivers were first obtained individually by IBM and Motorola, which
operated separate wireless data systems until forming the ARDIS joint venture in
1990. The FCC incorporated a number of these waivers into its regulations when
it implemented Congress's statutory provision creating the Commercial Mobile
Radio Service classification, and we no longer require those waivers. As of
March 3, 1999, we completed our planned construction of base stations for which
extended implementation was granted by the FCC in 1996.
Our Satellite Network
We are licensed by the FCC to provide a broad range of mobile voice, data and
dispatch services via satellite to land, air and sea-based customers in a
service area consisting of the continental United States, Alaska, Hawaii, Puerto
Rico, the U.S. Virgin Islands and U.S. coastal waters and airspace. We are also
authorized to provide fixed site voice and data services via satellite to
locations within this service area, so long as such services remain incidental
to our mobile communications services. We are authorized to build, launch and
operate three geosynchronous satellites in accordance with a specified schedule.
We are not in compliance with the schedule for commencement and construction of
our second and third satellites and we have 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 our requests. The FCC has the authority to
revoke the authorizations for the second and third satellites and, in connection
with such a revocation, could exercise its authority to rescind our license. We
believe that the exercise of such authority to rescind the license is unlikely.
The term of the license for each of our three authorized satellites is ten
years, beginning when we certify that the respective satellite is operating in
compliance with the license. The ten-year term of the license for MSAT-2 began
August 21, 1995. Although we anticipate that the authorizations are likely to be
extended in due course to correspond to the useful lives of the satellites and
that new licenses will be granted for replacement satellites, there is no
assurance of such extension or grant.
On January 16, 2001, we amended our pending application with the FCC to launch
and operate a second-generation mobile satellite system in numerous respects to
seek FCC approval for the transactions involving Mobile Satellite Ventures LLC,
including the combination of our satellite communications business with TMI
Communications and Company, Limited Partnership ("TMI"). See "Recent
Developments - Mobile Satellite Ventures LLC." First, we applied to assign our
existing FCC licenses and authorizations and pending applications to a new
company, Mobile Satellite Ventures Subsidiary LLC ("MSV Sub"), that will be a
wholly owned subsidiary of a company jointly owned by us; TMI, the operator of
the Canadian-licensed MSS system; and a group of new investors. Because the
indirect foreign ownership of MSV Sub will exceed 25%, we have also asked the
FCC for a declaratory ruling that indirect foreign ownership in MSV Sub in
excess of 25% is in the public interest. We also proposed to modify our existing
FCC licenses and authorizations and pending applications to allow us and MSV Sub
to operate with MSAT-1 (the satellite licensed to TMI) as well as MSAT-2.
Finally, we sought FCC authority to launch and operate a next-generation mobile
satellite system, which will include the deployment of satellites and
terrestrial base stations operating in the same frequencies as an integrated
network. In addition to our application, TMI has applied to assign its FCC
licenses to MSV Sub. There is no guarantee that the FCC will grant these
applications. In addition, Mobile Satellite Ventures (Canada) Inc., in which
Motient will have a minority interest, has applied to the Canadian government to
operate the replacement satellite for MSAT-1. There is no guarantee that the
Canadian government will approve this application.
MSAT-2 is designed to operate over the 1530-1559/1631.5-1660.5 MHz bands (the
"L-band"). We are currently licensed to operate in the 1544-1559/1645-1660.5 MHz
bands (the "upper L-band"). The FCC has designated us as the licensee for both
MSS and Aeronautical Mobile Satellite (Route) Service ("AMS(R)S"). AMS(R)S
includes satellite communications related to air traffic control, as well as
aeronautical safety-related operational and administrative functions. As a
condition to its authorization, we are required by the FCC to be capable of
providing priority and preemptive access for AMS(R)S traffic in the upper L-band
and to be interoperable with and capable of transferring AMS(R)S traffic to
international and foreign systems providing such service. We currently
anticipate we will be able to meet these requirements without any material
adverse effect on our business. If we are unable to meet these requirements, the
FCC may authorize and give priority spectrum access to one or more additional
satellite systems that meet the specified requirements.
We have applied for authorization to operate in the 1530-1544/1631.5-1645.5 MHz
band (the "lower L-band"). If we are assigned spectrum in the lower L-band, we
will be required by the FCC to provide similar priority and preemptive access in
that spectrum to maritime distress and safety communications. With respect to
our mobile voice terminals, we currently anticipate we will be able to meet this
requirement without any material adverse effect on our business. The Federal
Aviation Administration filed comments, however, in connection with our
application to operate up to 30,000 mobile data terminals that were transitioned
from leased space segment to MSAT-2 in late 1995, stating its concern that the
mobile data terminals cannot be operated in compliance with our obligation to
provide priority and preemptive access in the upper L-band. The FAA has proposed
that we operate the mobile data terminals in the lower L-band. We have received
successive six-month grants of special temporary authority, under a two-year
waiver of the FCC's rules on priority and preemptive access, to operate up to
15,100 mobile data terminals in the lower L-band. This number was increased to
33,100 terminals pursuant to our acquisition of the mobile data equipment and
services previously licensed to Rockwell. The two-year waiver expired on August
1, 1997, but remains in effect while our request for a two-year extension of
that waiver is pending at the FCC. We will need additional authority to increase
the number of mobile data terminals that we are authorized to operate in order
to achieve planned growth in our data services, and on July 27, 1999, we applied
for authority to operate an additional 36,900 mobile terminals in the lower
L-band. We will also need the FCC to grant us or another entity authority to
operate over our space segment to operate mobile data terminals with a different
transmission design than those operated under our current lower L-band
authorization. Transmissions from these terminals require a wider bandwidth than
do transmissions from our existing terminals. We were granted a six-month
special temporary authority to operate up to 10,000 of these mobile data
terminals on February 12, 1999. We have since assigned this STA to VISTAR
Telecommunications, Inc. ("VISTAR"), the manufacturer of these wider-bandwidth
mobile data terminals. VISTAR has applied for a blanket license to operate up to
100,000 of these terminals using our satellite. There can be no assurance that
we or others will continue to receive authority to operate these mobile data
terminals or other mobile terminals in the lower L-band over our space segment.
Our mobile terminal authorizations are subject to compliance with certain
requirements regarding interference protection to the Global Positioning System
("GPS"). With the consent of the FAA, the FCC granted our application subject to
certain conditions, including that the grant may be modified after the
interference issue is studied. The FCC is now proposing to impose more stringent
limits on the out-of-band emissions from certain mobile terminals, including
those used in connection with our system, in order to protect GPS and the
Russian Global Navigation Satellite System. Some of our existing mobile
terminals may not comply with this proposed standard. Under the FCC's proposal,
all mobile terminals commissioned after January 1, 2002 must comply with this
new limit, and any terminals not meeting the new specifications must be retired
or retrofitted by 2005. While we believe that we will be able to comply with the
proposed 2002 deadline for newly commissioned terminals, we have opposed the
2005 deadline for the retirement or retrofitting of existing, non-compliant
terminals. If adopted by the FCC, this policy could have a material adverse
effect on our business.
Our license authorizes MSAT-2 to operate using certain telemetry, transfer and
control frequencies in the Ku-band. We operate MSAT-2 at the 101 degrees W.L.
orbital location. GE American Communications, Inc. also operates a satellite at
the 101 degrees W.L. orbital location. We and GE American have an agreement
covering MSAT-2 that may require us to modify our operations or make certain
payments to GE American if our operations cause interference to those of GE
American. While there can be no assurances, we do not anticipate any
interference in the operations of MSAT-2 and those of GE American.
Our subscriber equipment will operate in L-band frequencies that are limited in
available bandwidth. The feeder-link earth stations and the network
communications controller of the communications ground segment operate in the
more plentiful fixed satellite service Ku-band frequencies. Of the 30 MHz in the
upper L-band frequencies, we are currently licensed to operate in the
1544-1559/1645.5-1660.5 MHz bands. Of the 30 MHz assigned to us by the FCC, one
MHz is limited to AMS(R)S and one-way paging and two MHz are limited to distress
and safety communications. We do not plan to operate on these three MHz of
bandwidth.
In June 1996, the FCC issued a notice of proposed rulemaking proposing to assign
to us the first 28 MHz of internationally coordinated L-band spectrum from
either the upper or lower portion of the MSS L-band. Under the FCC's proposal,
we would have first priority access to use the lower L-band spectrum as
necessary to compensate for spectrum unavailable for coordination in the upper
L-band. In the event the United States is able to coordinate more than 28 MHz of
L-band spectrum, the FCC has proposed allowing other applicants to apply for
assignment of those frequencies. Certain entities have filed with the FCC
petitions to deny our application and comments opposing the assignment of
additional frequencies to us. While there can be no assurances, we believe the
FCC is likely to grant our application.
In the Ku-band frequencies, we are currently licensed to operate MSAT-2 using
200 MHz within the 10.75-10.95 GHz band for downlink transmissions and 200 MHz
within the 13.0-13.15 GHz and 13.2-13.25 GHz bands for uplink transmissions. On
November 29, 2000, Globalstar, L.P. ("Globalstar") filed an application to
operate a satellite at 101 degrees W.L. using 250 MHz within the 10.75 - 10.95
GHz and 11.2 - 11.45 GHz bands for downlink transmissions and 250 MHz within the
12.75 - 13.25 GHz band for uplink transmissions. We have opposed Globalstar's
application because its proposed frequencies could conflict with our current
operations. In addition, on December 14, 2000, we applied for authority to
operate using an additional 250 MHz of spectrum within the 11.2-11.45 GHz band
for downlink transmissions and an additional 250 MHz within the 12.75-13.00 GHz
band for uplink transmissions. We also opposed Globalstar's application because
its proposed frequencies could conflict with our proposed operations pursuant to
this application.
Spectrum availability, particularly in the L-band, is a function not only of how
much spectrum is assigned to us by the FCC, but also the extent to which the
same frequencies are used by other systems in the North American region, and the
manner of such use. All spectrum use must be coordinated with other parties that
are providing or plan to provide mobile satellite-based communications in the
same geographical region using the same spectrum. At this time, the other
parties with which spectrum use must be coordinated include Canada, Mexico, the
Russian Federation and Inmarsat. In addition, a new Japanese system proposes to
operate in a manner that would interfere with our system and other systems in
this region, and this Japanese system's spectrum use will have to be coordinated
with these regional operators.
Use of the spectrum is determined through a series of negotiations between the
United States government and the other user agencies, pursuant to the rules and
regulations of the International Telecommunication Union. For the past several
years, each of the countries and international organizations that have used or
will use L-band frequencies within the North American region have met regularly
to negotiate and coordinate their current and future use of that spectrum. This
international coordination process is not yet complete and there has been no
spectrum sharing arrangement since the end of 1999. In the absence of a
coordination agreement, we must operate our system on a non-interference basis.
We estimate that international coordination will make approximately 20 MHz of
L-band spectrum available to the United States for MSAT-2. Since the
coordination process involves many parties and there is uncertainty about the
total outcome, the actual amount of spectrum available may be less than that
estimated. The operation of the new Japanese system may have the effect of
further reducing our access to spectrum. Some of the spectrum that may be
available to us may include a portion of the 28 MHz lower L-band spectrum
adjacent to the frequencies already assigned to us by the FCC.
The International Telecommunications Union Radio Regulations include a table of
frequency allocations that prescribe the permitted uses of the radio spectrum.
As a result of the International Telecommunications Union satellite plan for
parts of the Ku-band, there also may be restrictions on our ability to deploy
feederlink earth stations in Alaska, Hawaii, Puerto Rico, and the U.S. Virgin
Islands.
During the course of our FCC licensing process and several times since, the FCC
has stated that there is only enough spectrum in the MSS L-band for the FCC to
authorize a single mobile satellite services system to provide service in the
United States. On November 30, 1999, however, the FCC granted two applications
to use TMI's Canadian-licensed system to provide service in the United States to
up to 125,000 mobile terminals. TMI's system operates in the MSS L-band and has
a satellite footprint that covers the United States. We appealed the FCC's grant
of these applications to the United States Court of Appeals for the D.C.
Circuit, but the court upheld the FCC's grant. TMI's entry into the domestic
U.S. marketplace may increase TMI's demand for spectrum in the international
coordination process and otherwise make it more difficult for us to secure
access to 20 MHz of spectrum. Since the initial grant to use TMI's system, the
FCC has granted an additional application to use TMI's system and may grant
others.
The FCC may authorize other foreign-licensed L-band systems to provide service
to domestic U.S. customers. There are a number of applications pending before
the Commission to access Inmarsat Ltd. ("Inmarsat"), licensed by the United
Kingdom, to provide service in the U.S. We have opposed these applications on a
number of grounds, including Inmarsat's failure to comply with the Open-Market
Reorganization for the Betterment of International Telecommunications Act (ORBIT
Act), which sets certain criteria which Inmarsat must meet before entering the
U.S. domestic market. There is no assurance that our opposition to these
applications will be successful. Inmarsat's entry into the domestic U.S.
marketplace may increase Inmarsat's demand for spectrum in the international
coordination process and otherwise make it more difficult for us to secure
access to 20 MHz of spectrum.
We are operating under waivers of certain FCC rules. In 1996, the FCC issued an
order requiring all Commercial Mobile Radio Service providers to offer what are
known as "enhanced 9-1-1 services" including the ability to automatically locate
the position of all transmitting mobile terminals. We would not have been able
to offer this automatic location information without adding substantially to the
cost of our mobile equipment and reconfiguring our communications ground segment
software. The FCC decided not to impose specific new requirements on mobile
satellite services providers, including Motient, at that time. The FCC did state
its expectation that such providers eventually would be required to provide
"appropriate access to emergency services." In December 2000, the FCC initiated
a proceeding seeking comment on whether to eliminate the exception allowed
mobile satellite services providers from the requirement to provide "enhanced
9-1-1 services." A decision to impose this requirement on mobile satellite
services providers could have a material adverse effect on our business.
The FCC enacted "rate integration" regulations pursuant to Section 254(g) of the
Communications Act which requires that providers of interstate interexchange
telecommunications services charge the same rates for these services in every
state, including Puerto Rico and the U.S. Virgin Islands. We have opposed the
imposition of this rate integration requirement on our mobile satellite services
system, so that we may preserve the flexibility to charge more for service in
areas covered by satellite beams that require more satellite power. The FCC has
denied our request for a permanent exemption from its rate integration
requirement, but has not yet ruled on our request for a temporary waiver of a
year or more. The FCC has granted us an interim waiver from its rate integration
requirement until its decision on our temporary waiver request. In July 2000,
the United States Court of Appeals for the District of Columbia Circuit vacated
the FCC's decision that the "rate integration" provision of the Communications
Act applies to CMRS providers. The FCC has not yet acted in response to the
court's ruling.
Item 2. Properties.
We lease approximately 94,000 square feet at our headquarters office space and
network operations center in Reston, Virginia. The lease has a term which runs
through August 3, 2003 (which may be extended at our election for an additional
five years). In addition, we lease a back-up Ku-band radio frequency facility in
Alexandria, Virginia. We also lease approximately 86,000 square feet of space
for office space and an operations center in Lincolnshire, Illinois, the lease
for which expires December 31, 2005 (which may be extended at our election for
an additional five years). We also lease site space for nearly 2,000 base
stations and antennas across the country for the terrestrial network under one-
to five-year lease contracts with renewal provisions. We anticipate that we will
be able to gain access to additional base station sites when necessary on
acceptable terms.
Item 3. Legal Proceedings.
There are no material pending legal proceedings that are required to be
disclosed.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of the Company's Stockholders during the
fourth quarter of fiscal 2000.
PART II
Items 5, 6, 7 and 8.
The information called for by Items 5 through 8 of Part II is presented in a
separate section of this Annual Report on Form 10-K commencing on the page
numbers specified below:
Form 10-K Item Page
Item 5 - Market for the Registrant's Common Equity and Related Matters F-59
Item 6 - Selected Financial Data F-60
Item 7- Management's Discussion and Analysis of Financial Condition
and Results of Operations F- 2
Item 8 - Financial Statements and Supplementary Data F-18
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
PART III
Items 10, 11, 12 and 13.
The information called for by Part III (Items 10, 11, 12 and 13) is incorporated
herein by reference from the material included under the captions "Nominees,"
"Board Committees, Meetings, and Compensation," "Executive Officers,"
"Performance Graph," "Summary Compensation Table," "Option/SAR Grants in Last
Fiscal Year," "Aggregated Option/SAR Exercises in Last Fiscal Year and Year-End
Option/SAR Values," "Audit Committee Report," "Compensation and Stock Option
Committee Report," "Security Ownership of Certain Beneficial Owners and
Management," "Agreements Among Stockholders," "Compensation and Stock Option
Committee Interlocks and Insider Participation" and "Section 16(a) Beneficial
Ownership Reporting Compliance" in the Company's definitive proxy statement (to
be filed) for its Annual Meeting of Stockholders to be held May 22, 2001 (the
"Proxy Statement"). The Proxy Statement is being prepared and will be filed with
the Securities and Exchange Commission pursuant to Regulation 14A, and furnished
to the Company's Stockholders, on or about April 23, 2001.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(1) 1. Financial Statements.
The following consolidated financial statements of the Company and its
subsidiaries are included in a separate section of this Annual Report on Form
10-K commencing on the page numbers specified below:
INDEX........................................................................F-1
Management's Discussion and Analysis of Financial Condition
and Results of Operations..........................................F-2
Report of Arthur Andersen LLP, Independent Public Accountants
to Motient Corporation.....................................................F-18
Report of KPMG LLP, Independent Auditors to XM Satellite
Radio Holdings Inc.........................................................F-19
Consolidated Statements of Operations of Motient ...........................F-20
Consolidated Balance Sheets of Motient .....................................F-21
Consolidated Statements of Stockholders' Equity (Deficit) of Motient .......F-23
Consolidated Statements of Cash Flows of Motient ...........................F-24
Notes to Consolidated Financial Statements of Motient ......................F-25
Quarterly Financial Data of Motient .......................................F-59
Selected Financial Data of Motient .........................................F-60
2. Financial Statement Schedules.
Financial Statement Schedules not included with the one listed below have been
omitted because they are not required or not applicable, or because the required
information is shown in the financial statements or notes thereto.
1. Condensed Financial
Information of Registrant.................................Page S-1
2. Schedule II - Valuation and Qualifying Accounts................Page S-16
3. Exhibits
3.1 - Restated Certificate of Incorporation of the Company (as restated
effective May 23, 2000) (Incorporated by reference to Exhibit 3.1
to the Company's Registration Statement on Form S-3 (File No.
333-42104)
3.2 - Amended and Restated Bylaws of the Company (as amended and
restated effective May 23, 2000)(incorporated by reference to
Exhibit 3.2 to the Company's Registration Statement on Form S-3
(File No. 333-42104))
9.1 - Amended and Restated Stockholders' Agreement dated as of December
1, 1993, between the Company and certain holders of its capital
stock (Incorporated by reference to Exhibit 9.1 to the Company's
Registration Statement on Form S-1 (Reg. No. 33- 70468))
10.1 - Contract for an MSAT Spacecraft, dated December 7, 1990 between
the Company and Hughes Aircraft Company, amended June 15, 1993
(Amendment Nos. 1 through 4) and further amended November 11,
1993 (Amendment No. 5), Motient Services Inc., as assignee of the
Company, and Hughes Aircraft Company (Incorporated by reference
to Exhibit 10.3 to the Company's Registration Statement on Form
S-1 (Reg. No. 33-70468))
10.1a - Amendment No. 6 to the MSAT Spacecraft Contract, dated
October 11, 1994, between Motient Services Inc., as assignee
to the Company, and Hughes Aircraft Company (Incorporated by
reference to Exhibit 10.3a to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1994 (File
No. 0-23044))
10.1b - Mutual Final Release, dated October 11, 1994, between
Motient Services Inc., Hughes Aircraft, Spar Aerospace
Limited and Lockheed Missiles & Space Company, Inc.
(Incorporated by reference to Exhibit 10.3b to the Company's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1994 (File No. 0-23044))
10.1c - Amendment No. 7 to the MSAT Spacecraft Contract, dated
October 11, 1994, between Motient Services Inc., as assignee
to the Company, and Hughes Aircraft Company (Incorporated by
reference to Exhibit 10.3c previously filed with the Report
on Form 10-K for the period ending December 31, 1997 (File
No. 0-23044)))
10.2 - Memorandum of Agreement for Satellite Capacity, dated February
17, 1992, between Motient Services Inc. and Telesat Mobile Inc.,
as amended by Amending Agreement dated October 18, 1993 among the
Company, Motient Services Inc. and TMI Communications and
Company, Limited Partnership, as successor in interest to Telesat
Mobile Inc., and as further amended by letter agreement dated
October 18, 1993 (Incorporated by reference to Exhibit 10.7 to
the Company's Registration Statement on Form S-1 (Reg. No.
33-70468))
10.3 - Agreement for Cooperation in Joint Procurement of MSS Systems,
dated September 19, 1988, between American Mobile Satellite
Consortium Inc. and Telesat Mobile Inc. (Incorporated by
reference to Exhibit 10.32 to the Company's Registration
Statement on Form S-1 (Reg. No. 33-70468))
10.4 - Joint Operating Agreement, dated April 25, 1990, between the
Company and Telesat Mobile Inc. as amended by Amending Agreement
dated October 18, 1993 among the Company, Motient Services Inc.
and TMI Communications and Company, Limited Partnership, as
successor in interest to Telesat Mobile Inc. (Incorporated by
reference to Exhibit 10.33 to the Company's Registration
Statement on Form S-1 (Reg. No. 33-70468))
10.5 - Right of First Offer Agreement dated as of November 30, 1993
among the Company, Hughes Communications Satellite Services,
Inc., Singapore Telecommunications Ltd., Satellite Communications
Investments Corporation, Space Technologies Investments, Inc.,
Satellite Mobile Telephone Company L.P., Transit Communications,
Inc., MTel Space Technologies, L.P. and MTel Space Technologies
Corporation (Incorporated by reference to Exhibit 10.11 to the
Company's Registration Statement on Form S-1 (Reg. No. 33-70468))
10.5a - Amendment No. 1 dated June 28, 1996, to Right of First Offer
Agreement among the Company, Hughes Communications Satellite
Services, Inc., Singapore Telecommunications Ltd., Satellite
Communications Investments Corporation, Space Technologies
Investments, Inc., and Transit Communications, Inc.
(Incorporated by reference to Exhibit XI to the Amended and
Restated Schedule 13D dated July 1, 1996, filed by Hughes
Communications Satellite Services, Inc., Hughes
Communications, Inc., Hughes Aircraft Company, Hughes
Electronics Corporation and General Motors Corporation with
respect to shares of Common Stock, $.01 par value, of the
Company)
10.6* - Motient Corporation Stock Award Plan (as amended and restated
effective May 23, 2000) (Incorporated by reference to Exhibit 4.2
to the Company's Registration Statement on Form S-8 (Reg. No.
333-40566)
10.6a* - Form of Nonstatutory Stock Option Agreement under the Stock
Award Plan (Incorporated by reference to Exhibit 10.6a to
the Company's Annual Report on Form 10-K for the year ended
December 31, 1999)
10.7* - Employee Stock Purchase Plan, as amended May 23, 2000
(Incorporated by reference to Exhibit 4.3 to the Company's
Registration Statement on Form S-8 (Reg. No. 333-40566)
10.8* - Form of Directors and Officers Indemnification Agreement
(Incorporated by reference to Exhibit 10.41 to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31,
1993 (File No. 0-23044))
10.9* - 1994 Stock Option Plan for Non-Employee Directors (Incorporated
by reference to Exhibit 10.53 to the Company's Annual Report on
Form 10-K filed for the period ended December 31, 1996 (File No.
0-23044))
10.10*- Form of Executive Agreements (Incorporated by reference to
Exhibit 10.54 to the Company's Annual Report on Form 10-K filed
for the period ending December 31, 1996 (File No. 0-23044))
10.11*- Form of Restricted Stock Agreement (Incorporated by reference to
Exhibit 10.13b to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1997 (File No. 0-23044))
10.12 - Mobile Terminal Production Agreement, dated October 6, 1992,
between Motient Services Inc. and Westinghouse Electric
Corporation acting through Westinghouse Electronic Systems
Company (Incorporated by reference to Exhibit 10.17 to the
Company's Registration Statement on Form S-1 (Reg. No. 33-70468))
10.12a - Amendment No. 1 to Mobile Terminal Production Agreement,
dated November 21, 1994, between Motient Services Inc. and
Westinghouse Electric Corporation acting through
Westinghouse Electronic Systems Company (Incorporated by
reference to Exhibit 10.17a to the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1994
(File No. 0-23044))
10.12b - Amendment No. 2 to Mobile Terminal Production Agreement,
dated January 23, 1995, between Motient Services Inc. and
Westinghouse Electric Corporation acting through
Westinghouse Electronic Systems Company (Incorporated by
reference to Exhibit 10.17b to the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1994
(File No. 0-23044))
10.12c - Amendment No. 3 to Mobile Terminal Production Agreement,
dated March 21, 1995, between Motient Services Inc. and
Westinghouse Electric Corporation acting through
Westinghouse Electronic Systems Company (Incorporated by
reference to Exhibit 10.17c the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1994 (File
No. 0-23044))
10.13 - Mobile Termination Production Contract, dated November 30, 1992,
between Motient Services Inc. and Mitsubishi Electric Corporation
(Incorporated by reference to Exhibit 10.18 to the Company's
Registration Statement on Form S-1 (Reg. No. 33-70468))
10.14 - Deed of Lease at Reston, Virginia, dated February 4, 1993 and
amended June 21, 1993, between Motient Services Inc. and Trust
Company of the West as Trustee (Incorporated by reference to
Exhibit 10.20 to the Company's Registration Statement on Form S-1
(Reg. No. 33-70468))
10.14a - Amendment No. 4 to Deed of Lease, dated October 7, 1994,
between Motient Services Inc. and Trust Company of the West
as Trustee (Incorporated by reference to Exhibit 10.20a to
the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1994 (File No. 0-23044))
10.15 - Master Lease Agreement, dated June 23, 1993, between Motient
Services Inc. and Digital Equipment Corporation and Amendment to
Master Lease Agreement between Motient Services Inc. and Digital
Equipment Corporation dated August 2, 1993 (Incorporated by
reference to Exhibit 10.25 to the Company's Registration
Statement on Form S-1 (Reg. No. 33-70468))
10.16 - Telemetry, Tracking and Control Satellite Service Agreement,
dated as of August 5, 1993, between Motient Services Inc. and
Hughes Communications Satellite Services, Inc. (Incorporated by
reference to Exhibit 10.27 to the Company's Registration
Statement on Form S-1 (Reg. No. 33-70468))
10.17 - Agreement dated as of December 14, 1992 between Motient Services
Inc. and GTE Spacenet Corporation (Incorporated by reference to
Exhibit 10.35 to the Company's Registration Statement on Form S-1
(Reg. No. 33-70468))
10.17a - Amendment No. 1 dated as of November 7, 1997 to the
Agreement dated as of December 14, 1992, by GTE Spacenet
Corporation and Motient Services Inc. (Incorporated by
reference to Exhibit 10.65 previously filed with the Report
on Form 10-K for the period ending December 31, 1997 (File
No. 0-23044))
10.18 - Master Agreement dated March 30, 1994, between Washington
International Teleport, Inc., and the Company (Incorporated by
reference to Exhibit 10.36a to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1993 (File No.
0-23044))
10.18a - Contract Amendment No. A001, dated July 1, 1994, between
Washington International Teleport, Inc., and the Company
(Incorporated by reference to Exhibit 10.36b to the
Company's Quarterly Report on Form 10-Q filed for the period
ending September 30, 1994 (File No. 0-23044))
10.18b - Contract Amendment No. A002, dated July 1, 1994, between
Washington International Teleport, Inc., and the Company
(Incorporated by reference to Exhibit 10.36c to the
Company's Quarterly Report on Form 10-Q filed for the period
ending September 30, 1994 (File No. 0-23044))
10.19 - Asset Sale Agreement dated as of November 22, 1996, by and among
Rockwell Collins, Inc., the Company and Motient Services Inc.
(Incorporated by reference to Exhibit 10.61 to the Company's
Current Report on Form 8-K dated November 22, 1996, and filed on
December 9, 1996 (File No. 0-23044))
10.20 - Stock Purchase Agreement for the Acquisition of Motorola ARDIS
Acquisition, Inc. and Motorola ARDIS, Inc. by Motient Holdings
Inc., a Wholly-Owned Subsidiary of the Company, dated as of
December 31, 1997 (Incorporated by reference to Exhibit 10.65
previously filed with the Company's Report on Form 10-K for the
period ending December 31, 1997 (File No. 0-23044)).
10.20a - Amendment No. 1 dated March 31, 1998 to the Stock Purchase
Agreement for the Acquisition of Motorola ARDIS Acquisition,
Inc. and Motorola ARDIS, Inc. by Motient Holdings Inc., a
Wholly-Owned Subsidiary of the Company (Incorporated by
reference to Exhibit 4.2 to the Schedule 13D dated March 31,
1998, filed by Motorola, Inc.).
10.21 - Participation Rights Agreement by and among Motorola, Inc., the
Company, and the parties listed on Schedule A, dated as of
December 31, 1997 (Incorporated by reference to Exhibit 10.65
previously filed with the Report on Form 10-K for the period
ending December 31, 1997 (File No. 0-23044)).
10.21a - Registration Rights Agreement by and among Motorola, Inc.
and the Company dated as of March 31, 1998 (Incorporated by
reference to Exhibit 4.4 to the Schedule 13D dated March 31,
1998, filed by Motorola, Inc.)
10.22 - Credit Agreement by and between Motorola Inc. and ARDIS Company
dated June 17, 1998 (Incorporated by reference to Exhibit 10.61
to the Company's Current Report on Form 10-Q dated June 30, 1998
(File No. 0-23044)).
10.22a - Amendment No. 2, dated September 1, 2000, to the Credit
Agreement, dated as of June 17, 1998, by and between
Motorola, Inc. and Motient Communications Company (formerly
known as ARDIS Company) (Incorporated by reference to
Exhibit 10.22a to the Company's Quarterly Report on Form
10-Q for the quarter ended September 30, 2000 (File No.
0-23044)).
10.22b - Assumption, Release, Amendment and Waiver Agreement by and
among Motorola, Inc., Motient Communications Inc. and
Motient Communications Company, dated as of December 29,
2000 (filed herewith).
10.23 - Indenture of Motient Holdings Inc., Series A and Series B, 12
1/4% Senior Notes Due 2008, dated March 31, 1998 (Incorporated by
reference to Registration Statement on Form S-4 filed on May 15,
1998 (File No. 333-52777)).
10.24 - Debt Registration Rights Agreement dated March 31, 1998 by and
among Motient Holdings Inc., Bear, Stearns & Co. Inc., J.P.
Morgan Securities Inc., TD Securities (USA) Inc. and BancAmerica
Robertson Stephens, and guarantors party thereto (Incorporated by
reference to Registration Statement on Form S-4 filed on May 15,
1998 (File No. 333-52777)).
10.25 - Unit Agreement Among Motient Corporation, Motient Holdings Inc.
and State Street Bank and Trust Company as Unit Agent, dated
March 31, 1998 (Incorporated by reference to Registration
Statement on Form S-4 filed on May 15, 1998 (File No.
333-52777)).
10.26 - Warrant Agreement between Motient Corporation as Issuer and State
Street Bank and Trust Company as Warrant Agent dated March 31,
1998 (Incorporated by reference to Registration Statement on Form
S-4 filed on May 15, 1998 (File No. 333-52777)).
10.27 - Warrant Registration Rights Agreement dated March 31, 1998 By and
Among Motient Corporation and Bear, Stearns & Co. Inc., J.P.
Morgan Securities Inc., T.D. Securities (USA) Inc., BancAmerica
Robertson Stephens (Incorporated by reference to Registration
Statement on Form S-4 filed on May 15, 1998 (File No.
333-52777)).
10.28 - Pledge and Security Agreement by and among Motient Holdings Inc.,
State Street Bank and Trust Company, as Trustee and State Street
Bank and Trust Company, as Collateral Agent dated March 31, 1998
(Incorporated by reference to Registration Statement on Form S-4
filed on May 15, 1998 (File No. 333-52777)).
10.29 - Guaranty Issuance Agreement, dated as of March 31, 1998, among
Hughes Electronics Corporation, Singapore Telecommunications
Ltd., and Baron Capital Partners, L.P. and the Company and
Motient Holdings Inc. (Incorporated by reference to Exhibit 1 to
the Schedule 13D dated March 31, 1998, filed by Hughes
Communications Satellite Services, Inc.)
10.29a - Amendment No. 1 to the Guaranty Issuance Agreement, dated as
of January 15, 1999, among Hughes Electronics Corporation,
Singapore Telecommunications Ltd., and Baron Capital
Partners, L.P. and the Company and Motient Holdings Inc.
(Incorporated by reference to Exhibit 10.29a to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1998 (File No. 0-23044))
10.29b - Amendment No. 2 to the Guaranty Issuance Agreement, dated as
of March 29, 1999, among Hughes Electronics Corporation,
Singapore Telecommunications Ltd., and Baron Capital
Partners, L.P. and the Company and Motient Holdings Inc.
(incorporated by reference to Exhibit 10.29b to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1998 (File No. 0-23044))
10.30 - Warrant No. 1 for the Purchase of 3,750,000 Shares (subject to
adjustment) of Common Stock of the Company issued to Hughes
Electronics Corporation, dated June 28, 1996 (Incorporated by
reference to Exhibit XIII to the Amended and Restated Schedule
13D dated July 1, 1996, filed by Hughes Communications Satellite
Services, Inc., Hughes Communications, Inc., Hughes Aircraft
Company, Hughes Electronics Corporation and General Motors
Corporation with respect to shares of Common Stock, $.01 par
value, of the Company).
10.30a - Amendment No. 1 to the Warrant Certificate, dated as of
March 27, 1997, by and among the Company and Hughes
Electronics Corporation, Singapore Telecommunications Ltd.,
and Baron Capital Partners, L.P. (Incorporated by reference
to Exhibit 4 to the Schedule 13D dated March 31, 1997, filed
by Hughes Communications Satellite Services, Inc.)
10.30b - Amendment No. 2 to the Warrant Certificate, dated as of
March 31, 1998, by and among the Company and Hughes
Electronics Corporation, Singapore Telecommunications Ltd.,
and Baron Capital Partners, L.P. (Incorporated by reference
to Exhibit 4 to the Schedule 13D dated March 31, 1998, filed
by Hughes Communications Satellite Services, Inc.)
10.30c - Amendment No. 3 to the Warrant Certificates for the Purchase
of Shares of Common Stock of the Company, dated as of April
1, 1999, by and among the Company and Hughes Electronics
Corporation, Singapore Telecommunications Ltd., and Baron
Capital Partners, L.P. (incorporated by reference to Exhibit
10.29b to the Company's Annual Report on Form 10-K for the
year ended December 31, 1998 (File No. 0-23044))
10.30d - Amendment No. 4 to Warrant Certificates for the purchase of
shares of common stock of Motient Corporation dated as of
June 29, 2000 issued to each of Hughes Electronics
Corporation and Baron Capital Partners, L.P. (Incorporated
by reference to Exhibit 10.30d to the Company's Quarterly
Report on Form 10-Q for the quarter ended June 30, 2000
(File No. 0-23044)).
10.31 - Registration Rights Agreement dated as of June 28, 1996, among
the Company, Hughes Electronics Corporation, Singapore
Telecommunications Ltd., and Baron Capital Partners, L.P.
(Incorporated by reference to Exhibit XIV to the Amended and
Restated Schedule 13D dated July 1, 1996, filed by Hughes
Communications Satellite Services, Inc., Hughes Communications,
Inc., Hughes Aircraft Company, Hughes Electronics Corporation and
General Motors Corporation with respect to shares of Common
Stock, $.01 par value, of the Company). (Incorporated by
reference to Exhibit 10.57 to the Company's Quarterly Report on
Form 10-Q filed for the period ended June 30, 1996 (File No.
0-23044))
10.32 - Warrant for the Purchase of Shares of Common Stock of the
Company, dated as of March 31, 1998 (Incorporated by reference to
Exhibit 2 to the Schedule 13D dated March 31, 1998, filed by
Hughes Communications Satellite Services, Inc.)
10.32a - Amendment No. 1 to Warrant Certificates for the Purchase of
Shares of Common Stock of the Company, dated as of April 1,
1999 by and among Hughes Electronics Corporation, Singapore
Telecommunications Ltd. and Baron Capital Partners, L.P.
(incorporated by reference to Exhibit 10.29b to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1998 (File No. 0-23044))
10.32b - Amendment No. 2 to Warrant Certificates for the purchase of
common stock of Motient Corporation dated as of June 29,
2000 issued to each of Hughes Electronics Corporation and
Baron Capital Partners, L.P. (Incorporated by reference to
Exhibit 10.32b to the Company's Quarterly Report on Form
10-Q for the quarter ended June 30, 2000 (File No.
0-23044)).
10.33 - Amended and Restated Registration Rights Agreement, dated as of
March 31, 1998, among the Company and Hughes Electronics
Corporation, Singapore Telecommunications Ltd., and Baron Capital
Partners, L.P. (Incorporated by reference to Exhibit 3 to the
Schedule 13D dated March 31, 1998, filed by Hughes Communications
Satellite Services, Inc.)
10.33a - Amendment No. 1, dated as of May 10, 1999, to Amended and
Restated Registration Rights Agreement among the Company,
Hughes Electronics, Singapore Telecommunications Ltd., and
Baron Capital Partners, L.P. (incorporated by reference to
Exhibit 10.33a to the Company's Quarterly Report on Form
10-Q for the quarter ended March 31, 1999 (File No.
0-23044))
10.34 - Term Credit Agreement dated as of March 31, 1998 among the
Company, Morgan Guaranty Trust Company of New York, Toronto
Dominion (Texas), Inc. and other banks party thereto
(Incorporated by reference to Exhibit 10.61 to the Company's
Current Report on Form 10-Q dated March 31, 1998 (File No.
0-23044))
10.34a - Amendment No. 1 and Waiver to Term Credit Agreement dated as
of January 15, 1999 among the Company, Morgan Guaranty Trust
Company of New York, Toronto Dominion (Texas), Inc. and
other banks party thereto (incorporated by reference to
Exhibit 10.34a to the Company's Annual Report on Form 10-K
for the year ended December 31, 1998 (File No. 0-23044))
10.34b - Waiver, dated as of May 21, 1999, under the Term Credit
Agreement (incorporated by reference to Exhibit 10.34b to
the Company's Annual Report on Form 10-K for the year ended
December 31, 1999 (File No. 0-23044))
10.34c - Amendment No. 2 and Waiver of Term Credit Agreement and
Amendment No. 1 of Term Loan Security and Pledge Agreement,
dated as of November 15, 1999, by and among the Company,
Morgan Guaranty Trust Company of New York, Toronto Dominion
(Texas), Inc. and the other banks party thereto
(incorporated by reference to Exhibit 10.34c to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1999 (File No. 0-23044))
10.34d - Waiver, dated as of June 27, 2000, under the Term Credit
Agreement among the Company, Morgan Guaranty Trust Company
of New York and Toronto Dominion (Texas), Inc. and the other
banks party thereto (Incorporated by reference to Exhibit
10.34d to the Company's Quarterly Report on Form 10-Q for
the quarter ended June 30, 2000 (File No. 0-23044)).
10.34e - Waiver dated as of October 18, 2000 under the Term Credit
Agreement dated March 31, 1998 among Motient Corporation,
Morgan Guaranty Trust Company of New York and Toronto
Dominion (Texas), Inc. and other banks party thereto (filed
herewith)
10.34f - Waiver dated as of October 20, 2000 under the Term Credit
Agreement dated March 31, 1998 among Motient Corporation,
Morgan Guaranty Trust Company of New York and Toronto
Dominion (Texas), Inc. and other banks party thereto (filed
herewith)
10.34g - Waiver dated as of December 1, 2000 under the Term Credit
Agreement dated March 31, 1998 among Motient Corporation,
Morgan Guaranty Trust Company of New York and Toronto
Dominion (Texas), Inc. and other banks party thereto (filed
herewith)
10.34h - Waiver dated as of February 9, 2001 under the Term Credit
Agreement dated March 31, 1998 among Motient Corporation,
Morgan Guaranty Trust Company of New York and Toronto
Dominion (Texas), Inc. and other banks party thereto (filed
herewith)
10.35 - Revolving Credit Agreement dated as of March 31, 1998 among
Motient Holdings Inc., the Company, Morgan Guaranty Trust Company
of New York and Toronto Dominion (Texas), Inc. and other banks
party thereto (Incorporated by reference to Exhibit 10.61 to the
Company's Current Report on Form 10-Q dated March 31, 1998 (File
No. 0-23044))
10.35a - Amendment No. 1 and Waiver to Revolving Credit Agreement
dated as of January 15, 1999 among Motient Holdings Inc.,
the Company, Morgan Guaranty Trust Company of New York and
Toronto Dominion (Texas), Inc. and other banks party thereto
(incorporated by reference to Exhibit 10.35a to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1998 (File No. 0-23044))
10.35b - Amendment No. 2 and Waiver of Revolving Credit Agreement and
Amendment No. 1 of Subsidiary Guaranties, dated as of
November 15, 1999, by and among Motient Holdings Inc., the
Company, Morgan Guaranty Trust Company of New York, Toronto
Dominion (Texas), Inc. and the other banks party thereto,
and the Subsidiary Guarantors party thereto (incorporated by
reference to Exhibit 10.35b to the Company's Annual Report
on Form 10-K for the year ended December 31, 1999)
10.35c - Waiver, dated as of June 27, 2000, under the Revolving
Credit Agreement among the Company, Motient Holdings Inc.,
Morgan Guaranty Trust Company of New York, and Toronto
Dominion (Texas), Inc. and the other banks party thereto
(Incorporated by reference to Exhibit 10.35c to the
Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 2000 (File No. 0-23044)).
10.35d - Waiver dated as of October 18, 2000 under the Revolving
Credit Agreement dated March 31, 1998 among Motient Holdings
Inc., Motient Corporation, Morgan Guaranty Trust Company of
New York and Toronto Dominion (Texas), Inc. and other banks
party thereto (filed herewith)
10.35e - Waiver dated as of October 20, 2000 under the Revolving
Credit Agreement dated March 31, 1998 among Motient Holdings
Inc., Motient Corporation, Morgan Guaranty Trust Company of
New York and Toronto Dominion (Texas), Inc. and other banks
party thereto (filed herewith)
10.35f - Waiver dated as of December 1, 2000 under the Revolving
Credit Agreement dated March 31, 1998 among Motient Holdings
Inc., Motient Corporation, Morgan Guaranty Trust Company of
New York and Toronto Dominion (Texas), Inc. and other banks
party thereto (filed herewith)
10.35g - Waiver dated as of February 9, 2001 under the Revolving
Credit Agreement dated March 31, 1998 among Motient Holdings
Inc., Motient Corporation, Morgan Guaranty Trust Company of
New York and Toronto Dominion (Texas), Inc. and other banks
party thereto (filed herewith)
10.36*- 1999 Stock Option Plan for Non-Employee Directors (Incorporated
by reference to Exhibit 4.4 to the Company's Registration
Statement on Form S-8 (File No. 333-88807)
10.37 - Exchange Agreement, dated June 7, 1999, by and among the Company,
WorldSpace, Inc., XM Satellite Radio Holdings Inc., and Noah A.
Samara, as trustee of XM Ventures (Incorporated by reference to
Exhibit 2.1 to the Company's Report on Form 8-K dated July 9,
1999 (File No. 0-23044))
10.38 - Registration Rights Agreement, dated July 7, 1999, by and among
XM Satellite Radio Holdings Inc. ("XM Radio"), the Company, Baron
Asset Fund series ("Baron"), Clear Channel Investments, Inc.
("Clear Channel"), Columbia XM Radio Partners, LLC ("Columbia"),
DIRECTV Enterprises, Inc. ("DIRECTV"), General Motors Corporation
("GM"), Madison Dearborn Capital Partners III, L.P. ("Madison
Capital"), Madison Dearborn Special Equity III, L.P. ("Madison
Equity"), Special Advisors Fund I, LLC ("Madison Advisors," and,
collectively with Madison Capital and Madison Equity, "Madison"),
and Telcom-XM Investors, L.L.C. ("Telcom") (Incorporated by
reference to Exhibit 99.2 to the Company's Report on Form 8-K
dated July 9, 1999 (File No. 0-23044))
10.39 - Shareholders Agreement, dated July 7, 1999, by and among XM
Radio, the Company, Baron, Clear Channel, Columbia, DIRECTV, GM,
Madison Equity, Madison Capital, Madison Advisors, and Telcom
(Incorporated by reference to Exhibit 99.1 to the Company's
Report on Form 8-K dated July 9, 1999 (File No. 0-23044))
10.39a - Amended and Restated Shareholders' Agreement, dated as of
August 8, 2000, by and among XM Satellite Radio Holdings
Inc., the Company, Baron Asset Fund, Baron iOpportunity
Fund, Baron Capital Asset Fund, Clear Channel Investments,
Inc., Columbia XM Radio Partners, LLC, Columbia Capital
Equity Partners III (QP), L.P., DIRECTV Enterprises, Inc.,
Columbia XM Satellite Partners III, LLC, General Motors
Corporation, Madison Dearborn Capital Partners III, L.P.,
Special Advisors Fund I, LLC, Madison Dearborn Special
Equity III, L.P., American Honda Motor Co., Inc., and
Telcom-XM Investors, L.L.C. (Incorporated by reference to
Exhibit 10.1 to Amendment No. 1 to XM Radio's Registration
Statement on Form S-1 (File No. 333-39176)).
10.40 - Note Purchase Agreement, dated as of June 7, 1999, by and among
XM Radio and each of Clear Channel, GM, Columbia, DIRECTV,
Madison Capital, Madison Advisors, and Madison Equity, and Telcom
(Incorporated by reference to Exhibit 99.3 to the Company's
Report on Form 8-K dated July 9, 1999 (File No. 0-23044))
10.41 - Investment Agreement dated as of June 22, 2000, by and among the
Company, Motient Satellite Ventures LLC, and certain other
investors (Incorporated by reference to Exhibit 10.41 to the
Company's Quarterly Report on Form 10-Q for the quarter ended
June 30, 2000 (File No. 0-23044)).
10.42 - Asset Sale Agreement between Motient Satellite Ventures LLC and
Motient Services Inc. dated as of June 29, 2000 (Incorporated by
reference to Exhibit 10.42 to the Company's Quarterly Report on
Form 10-Q for the quarter ended June 30, 2000 (File No.
0-23044)).
10.42a - Amendment No. 1, dated as of November 29, 2000, to Asset
Sale Agreement, dated as of June 29, 2000, between Motient
Satellite Ventures LLC and Motient Services Inc. (filed
herewith).
10.42b - Amended and Restated Asset Sale Agreement, dated as of
January 8, 2001, between Mobile Satellite Ventures LLC and
Motient Services Inc. (filed herewith).
10.43 - Research and Development, Marketing and Service Agreement, dated
as of June 29, 2000, by and between Motient Satellite Ventures
LLC and Motient Services Inc. (Incorporated by reference to
Exhibit 10.43 to the Company's Quarterly Report on Form 10-Q for
the quarter ended June 30, 2000 (File No. 0-23044)).
10.43a - Amendment, dated as of January 8, 2001, to Research and
Development, Marketing and Service Agreement (filed
herewith).
10.44 - First Amended and Restated Limited Liability Company Agreement of
Motient Satellite Ventures LLC dated as of June 29, 2000
(Incorporated by reference to Exhibit 10.44 to the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30, 2000
(File No. 0-23044)).
10.44a - Amendment, dated December 19, 2000, to First Amended and
Restated Limited Liability Company Agreement of Mobile
Satellite Ventures LLC (filed herewith).
10.45 - Registration Rights Agreement, dated as of June 29, 2000, by and
among the Company and certain holders of securities convertible
into or exchangeable for Common Stock (Incorporated by reference
to Exhibit 10.45 to the Company's Quarterly Report on Form 10-Q
for the quarter ended June 30, 2000 (File No. 0-23044)).
10.45a - Amendment, dated as of January 8, 2001, to Registration
Rights Agreement dated as of June 29, 2000 (filed herewith).
10.46 - Asset Sale Agreement, dated November 29, 2000, by and among the
Company, Motient Services Inc. and Aether Systems, Inc. (filed
herewith).
10.47 - Escrow Agreement, dated as of November 29, 2000, by and among
Motient Services Inc., Aether Systems, Inc. and Sun Trust Bank
(filed herewith).
10.48 - January 2001 Investment Agreement, dated as of January 8, 2001,
by and among the Company, Mobile Satellite Ventures LLC, TMI
Communications and Company, Limited Partnership, and the other
investors named therein (filed herewith).
10.49 - Restoral Capacity Letter Agreement, dated January 8, 2001,
between Motient Services Inc. and TMI Communications and Company,
Limited Partnership (filed herewith).
10.50 - Document Standstill and Termination Agreement, dated as of
January 8, 2001, by and among the Company, Mobile Satellite
Ventures LLC, Motient Services Inc., and certain investors named
therein (filed herewith).
21.1 - Subsidiaries of the Company (filed herewith)
23.1 - Consent of Arthur Andersen LLP (filed herewith)
23.2 - Consent of KPMG LLP (filed herewith)
------------------------------------
*Management contract or compensatory plan or arrangement required to be
filed as an exhibit to this report pursuant to Item 14(c) of this report.
(2) Reports on Form 8-K:
On November 29, 2000, the Company filed a Current Report on Form 8-K,
describing in response to Item 5-Other Events, the previously-announced
sale of its retail transportation business to Aether Systems, Inc.
On January 12, 2001, the Company filed a Current Report on Form 8-K,
describing in response to Item 5-Other Events, that it had entered into
a definitive agreement, subject to certain conditions, to combine its
satellite communications business with that of TMI Communications and
Company, Limited Partnership.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
MOTIENT CORPORATION
By: /s/Walter V. Purnell, Jr.
-----------------------------------------
Walter V. Purnell, Jr.
President and Chief Executive Officer
Date: April 2, 2001
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
/s/Walter V. Purnell, Jr. President and Chief Executive Officer
- ------------------------- (principal executive officer) April 2, 2001
Walter V. Purnell, Jr.
/s/W. Bartlett Snell Senior Vice President and April 2, 2001
- ------------------------- Chief Financial Officer (principal
W. Bartlett Snell financial and accounting officer)
/s/Gary M. Parsons Chairman of the Board April 2, 2001
- -------------------------
Gary M. Parsons
/s/Billy J. Parrott Director April 2, 2001
- -------------------------
Billy J. Parrott
/s/Andrew A. Quartner Director April 2, 2001
- -------------------------
Andrew A. Quartner
/s/Jack A. Shaw Director April 2, 2001
- -------------------------
Jack A. Shaw
/s/Jonelle St. John Director April 2, 2001
- -------------------------
Jonelle St. John
Management's Discussion and Analysis of Financial Condition
and Results of Operations..................................................F-2
Report of Arthur Andersen LLP, Independent Public Accountants
to Motient Corporation....................................................F-18
Report of KPMG LLP, Independent Auditors to XM Satellite
Radio Holdings Inc........................................................F-19
Consolidated Statements of Operations of Motient ...........................F-20
Consolidated Balance Sheets of Motient......................................F-21
Consolidated Statements of Stockholders' Equity (Deficit) of Motient .......F-23
Consolidated Statements of Cash Flows of Motient ...........................F-24
Notes to Consolidated Financial Statements of Motient ......................F-25
Quarterly Financial Data of Motient ........................................F-59
Selected Financial Data of Motient .........................................F-60
Management's Discussion and Analysis of Financial
Condition and Results of Operations
This Annual Report on Form 10-K contains and incorporates forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All
statements regarding our expected financial position and operating results, our
business strategy and our financing plans are forward-looking statements. These
statements can sometimes be identified by our use of forward-looking words such
as "may," "will," "anticipate," "estimate," "expect," "project," or "intend."
These forward-looking statements reflect our plans, expectations and beliefs
and, accordingly, are subject to certain risks and uncertainties. We cannot
guarantee that any of such forward-looking statements will be realized.
Factors that may cause actual results to differ materially from those
contemplated by such forward-looking statements ("Cautionary Statements")
include, among others, those described under the caption "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Overview," and elsewhere in this annual report, including in conjunction with
the forward-looking statements included in this annual report. All of our
subsequent written and oral forward-looking statements (or statements that may
be attributed to us) are expressly qualified by the Cautionary Statements. You
should carefully review the risk factors described in our other filings with the
Securities and Exchange Commission (the "SEC") from time to time, including our
registration statement on Form S-3 (File No. 333-42104), and our quarterly
reports on Form 10-Q to be filed after this annual report, as well as our other
reports and filings with the SEC. In addition, you are urged to carefully review
the prospectus (including supplements) included within the registration
statement (File No. 333-47570) of XM Satellite Radio Holdings Inc. ("XM Radio"),
and XM Radio's current report on Form 8-K dated February 21, 2001 (File No.
0-27441), each filed with the SEC, which describe certain risk factors relating
to XM Radio's business, as well as XM Radio's other reports filed from time to
time with the SEC.
Our forward-looking statements are based on information available to us today,
and we will not update these statements. Our actual results may differ
significantly from the results discussed.
General
This section provides information which we believe is relevant to an assessment
and understanding of the financial condition and consolidated results of
operations of Motient Corporation (with its subsidiaries, "Motient" or the
"Company"). The discussion should be read in conjunction with the consolidated
financial statements and notes thereto. Motient has four wholly-owned
subsidiaries which, for purposes of this annual report, are referred to as the
core wireless business. As of December 31, 2000, we also owned a controlling
interest in three other subsidiaries, referred to as XM Radio (defined below).
On a consolidated basis, we refer to these entities as Motient.
We also have a less-than 100% interest in Mobile Satellite Ventures LLC, which
is not consolidated with Motient.
Core Wireless Business
We are a nationwide provider of two-way, wireless mobile data services and
mobile Internet services. Our customers use our network and applications for
email messaging and dispatch and voice communications services, enabling
businesses, mobile workers and consumers to transfer electronic information and
messages and access corporate databases and the Internet.
Over the last several years, we have made substantial investments in new
products and services, including our eLink(sm) wireless email service, which we
believe will capitalize on the rapid expansion of Internet email usage and
wireless data, particularly in the business-to-business environment.
Our eLink service is a two-way wireless email device and electronic organizer
that uses our terrestrial network. We provide our eLink brand two-way wireless
email service to customers accessing email through corporate servers, Internet
Service Providers ("ISP"), Mail Service Provider ("MSP") accounts, and paging
network suppliers. Also, in July 2000 we entered into an agreement with Yahoo!
Inc., a leading global Internet communications, commerce and media company, to
use our eLink service to provide Yahoo! users wireless access to Yahoo! content
and services. In November 2000, we launched our eLink Fortified with Yahoo!(tm)
service, as well as our BlackBerry(tm) by Motient solution specifically designed
for large corporate accounts operating in a Microsoft Exchange environment.
BlackBerry(tm) is a popular wireless email solution developed by Research in
Motion ("RIM") and is being provided on the Motient network under license from
RIM.
F-2
We expect that our rollout of eLink, BlackBerry(tm) by Motient and eLink
Fortified with Yahoo!(tm) will require a significant investment of financial
resources. We believe that the market opportunity represented by these wireless
data offerings is substantial, and we have decided to focus the majority of our
available and future resources on expanding our wireless data business. As a
result of these factors, and in light of our previously-announced transactions
involving Mobile Satellite Ventures LLC, we expect that the future level of
investment in our voice business and satellite-related product lines will
decrease as a percentage of our overall investment. While we expect that this
shift in resources will ultimately yield an increase in our customer base, we
expect that it will have the effect of driving down average revenue per unit as
the percentage of voice customers decreases.
Sale of Retail Transportation Business
In an effort to focus our business on providing wireless data services, we sold
our retail transportation assets to Aether Systems, Inc. ("Aether") on November
29, 2000. Aether purchased the assets comprising our wireless communications
business for the transportation market, including the satellite-only and
MobileMAX2(tm) multi-mode mobile messaging business. Aether acquired all of the
assets used or useful in the retail transportation business, and assumed the
related liabilities. Aether also purchased the existing inventory in the
business, and was granted a perpetual license to use and modify any intellectual
property owned by or licensed to us in connection with the retail transportation
business. See "Liquidity and Capital Resources" and "Item 1. Business - Recent
Developments" for further details of this transaction.
XM Radio
As of December 31, 2000, we had an equity interest of approximately 33.1% (or
21.3% on a fully diluted basis) in XM Satellite Radio Holdings Inc. ("XM
Radio"), a public company; and, as of December 31, 2000 we controlled XM Radio
through our Board of Director membership and common stock voting rights. As a
result, all of XM Radio's results for the period from July 7, 1999 (the date we
acquired 100% voting interest of XM Radio) through December 31, 2000 have been
included in our consolidated financial statements.
In January 2001, pursuant to Federal Communications Commission ("FCC") approval
to cease to control XM Radio, the number of directors that we appointed to XM
Radio's Board of Directors was reduced to less than 50% of XM Radio's directors,
and we converted a portion of our super-voting Class B Common Stock of XM Radio
to Class A Common Stock. As a result, we ceased to control XM Radio, and will
account for our investment in XM Radio pursuant to the equity method, effective
January 2001.
The operations and financing of XM Radio are maintained separate and apart from
the operations and financing of Motient. XM Radio completed its initial public
offering in October 1999. Please refer to XM Radio's audited financial
statements, included in its reports and filings with the SEC, for more detail
about its business plan, risks, and financial results.
Mobile Satellite Ventures LLC
On June 29, 2000, we formed a new joint venture subsidiary, Mobile Satellite
Ventures LLC ("Satellite Ventures"), in which we own 80% of the membership
interests. The remaining 20% interests in Satellite Ventures are owned by three
investors controlled by Columbia Capital, Spectrum Equity Investors LP, and
Telcom Ventures L.L.C. (collectively, the "Investors"). Satellite Ventures is
using our existing satellite network to conduct research and development
activities and exploring the technical, strategic, and market potential of new
wireless voice and data communications services.
In January 2001, we entered into an agreement, subject to certain conditions, to
amend in several respects the terms of our June 2000 transaction involving
Satellite Ventures. First, the Investors agreed, subject to certain conditions,
to invest an additional $50 million to become (in the aggregate) the owners of
40% of the outstanding interests of Satellite Ventures. The Investors will also
have an option, exercisable through June 29, 2002, for an additional $40
million, to increase their ownership in Satellite Ventures to 50.66% (with each
individual Investor's stake being less than 20%). Second, upon closing of the
transaction, TMI Communications & Company Limited Partnership ("TMI"), the
Canadian satellite services provider, will contribute its satellite
communications business assets to Satellite Ventures, along with our satellite
business assets. TMI will become the owner of approximately 27% of the
outstanding equity of Satellite Ventures. Upon closing of these transactions, we
will sell our remaining satellite assets to Satellite Ventures, and will own
approximately 33% of the outstanding interests and be the largest single
shareholder of Satellite Ventures.
Our significant acquisitions in recent years, the sale of the retail
transportation assets to Aether Systems in 2000, and the impact of consolidating
the results of XM Radio, make period to period comparison of our financial
results less meaningful, and therefore, you should not rely on them as an
indication of future operating performance.
F-3
Overview
We have incurred significant operating losses and negative cash flows in each
year since we started operations, due primarily to start-up costs, the costs of
developing and building the networks and the cost of developing, selling and
providing our products and services. We are, and will continue to be, highly
leveraged (see "Liquidity and Capital Resources" below).
Our future operating results could be adversely affected by a number of
uncertainties and factors, including:
o our ability to fund anticipated capital expenditures, operating losses
and debt service requirements and our ability to secure additional
financing as necessary, including our dependence on selling XM Radio
shares and certain limitations thereon,
o the timely roll-out of certain key customer initiatives and the launch of
new products or the entry into new market segments, which may require us
to continue to incur significant operating losses,
o our ability to recognize the earn-out and escrow deferred payments under
the Aether transaction,
o our ability to fully recover the value of our inventory in a timely
manner,
o our ability to gain market acceptance of new products and services,
including our new product offerings, eLink, BlackBerry(tm) by Motient
and eLink Fortified with Yahoo!(tm),
o our ability to respond and react to changes in our business and the
industry because we have substantial indebtedness,
o our ability to modify our organization, strategy and product mix to
maximize the market opportunities as the market changes,
o our ability 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 our ability to maintain, on commercially reasonable terms, or at all,
certain technologies licensed from third parties,
o the loss of one or more of our key customers,
o our ability to attract and retain key personnel,
o the timely availability of an adequate supply of subscriber equipment at
competitive price points,
o our dependence on third party distribution relationships to provide
access to potential customers,
o our ability to expand our networks on a timely basis and at a
commercially reasonable cost, or at all, as additional future demand
increases,
o regulation by the FCC, and
o technical anomalies that may occur within the network, including product
development, which could impact, among other things, customer
performance, satisfaction and revenue under contractual arrangements with
certain customers, or the operation of the satellite network and the
cost, scope or availability of in-orbit insurance.
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 failures, destruction or damage during launch, and
premature failure of XM Radio's satellites that may not be fully covered
by insurance, or natural disasters that could damage the service network
or ground facilities for which there are no backups,
o the failure by satellite and launch contractors to deliver functioning
systems in a timely manner, for which XM Radio may not have adequate
remedies,
o the ability of XM Radio to successfully integrate complex technologies
into a technologically feasible configuration, as well as rapid
technological changes that could make XM Radio's service obsolete,
o the timely availability of XM Radio's subscriber equipment at competitive
prices,
o competition from traditional and emerging audio entertainment providers
or the potential for customers to steal their signals, which could
adversely affect revenues,
o the ability of XM Radio to gain market acceptance of its service,
o the ability of XM Radio to achieve profitability given certain
distribution agreement obligations and joint development funding
requirements,
o the ability to maintain, on commercially reasonable terms, or at all,
certain technologies licensed from third parties,
o their ability to respond and react to changes in their business and
the industry because of their substantial debt,
o the ability to attract and retain key employees,
o regulation by the FCC, and
o the potential impact to its stock price as a result of certain preferred
stockholder rights and potential future issuances of common stock.
F-4
We have a significant investment in XM Radio which may be affected by the
foregoing risks and impact the market price of our stock. For an expanded
discussion of XM Radio's risk factors, please refer to XM Radio's most recently
filed prospectus (including supplements thereto), its most recent Annual Report
on Form 10-K, and its other reports filed from time to time with the SEC.
Year Ended December 31, 2000 and December 31, 1999
Revenue and Subscriber Statistics
Service revenue, which includes our data, voice, and capacity reseller services,
approximated $73.5 million for the year ended December 31, 2000, which
constituted a $5.8 million, or 9% increase over 1999. The increase in service
revenues in 2000 was attributable to a 46% increase in subscribers, partially
offset by a reduction in average revenue per unit ("ARPU").
Year Ended December 31,
Summary of Revenue 2000 1999 Change % Change
---- ---- ------ --------
(in millions)
Data Services $52.2 $49.7 $2.5 5
Voice Service 12.2 13.2 (1.0) (8)
Capacity Resellers and Other 9.1 4.8 4.3 90
Equipment Revenue 26.4 23.4 3.0 13
------------- ------------ ------------
Total $ 99.9 $91.1 $8.8 10
============= ============ ============
Our data service revenue increased as a result of approximately 61,900
additional subscribers at December 31, 2000, as compared to December 31, 1999,
broken down as follows:
Revenue Growth
Subscribers
eLink 42,500 $2.6
Transportation 17,000 6.9
Field Service (700) (7.9)
Telemetry 3,100 0.9
------- -----
Total 61,900 $2.5
======= =====
The growth in the transportation segment was primarily related to usage by UPS
and to increased usage by multi-mode customers. The decrease in field service
was a result of (i) contract price reductions from existing large customers and
(ii) the expiration of a large contract.
The decrease in service revenue from voice services was primarily the result of
a decrease in ARPU caused by a shift in customer usage to lower-usage emergency
response services, and a continued drop in ARPU for our maritime customers,
partially offset by our 8% increase in the number of voice subscribers.
Service revenue from capacity resellers, who handle both voice and data
services, and other sources, increased primarily as a result of approximately
$3.6 million in revenue under our Research and Development agreement with
Satellite Ventures, as well as $250,000 of revenue recognized from the licensing
of certain of our technologies.
For the year ended December 31, 2000 we experienced a 28% decrease in ARPU. This
was primarily caused by (i) late year subscriber additions and delayed sales
through the reseller channels for our eLink product that did not add materially
to revenues, (ii) the impact of a one-time voice contract credit, and (iii) a
larger percentage of our customers using our data service, versus our voice
service, which typically have a higher ARPU. These factors were offset by an
increase in ARPU caused by the revenue from the Research and Development
Agreement with Satellite Ventures for which no subscribers were added. When
normalized for the late year loading, one-time adjustment and revenue from the
Research and Development Agreement, our ARPU decreased by 19% as compared with
ARPU as of December 31, 1999. We expect our ARPU to continue to decline,
especially in the transportation market where approximately 40% of our current
transportation subscribers will be generating revenue on wholesale rates through
Aether, versus the retail rates generated directly by us through November 2000.
F-5
The increase in equipment revenue for the year ended December 31, 2000, as
compared to 1999 is a result of an increase of approximately $12.6 million in
equipment sales for our eLink product lines, offset by (i) a $7.7 million
decrease in voice equipment sales and (ii) a $2.0 million decrease in the
revenue from the multi-mode data product. We expect this trend to continue with
additional eLink offerings and the shift away from the voice business.
As is common in our industry, we report subscriber information and ARPU per
month statistics. Although these measures are not recognized under Generally
Accepted Accounting Principles ("GAAP"), we believe that this information helps
to demonstrate important trends in our business.
Subscribers Average Revenue Per Unit
As of December 31, As of December 31,
------------------ ------------------
2000 1999 2000 1999
---- ---- ---- ----
eLink 45,402 2,848 $11 n/a
Field Service 45,465 46,183 40 n/a
Transportation 73,044 56,053 22 n/a
Telemetry 16,052 12,948 27 n/a
Maritime 6,386 5,648 45 n/a
Other 19,526 17,022 80 n/a
------- -------
Total 205,875 140,702 $31 $43
======= =======
Expenses
Year Ended December 31,
Summary of Expense 2000 1999 Change % Change
------------------ ---- ---- ------ --------
(in millions)
Cost of Service & Operations $75.5 $69.3 $6.2 9
Cost of Equipment Sales 32.8 29.5 3.3 11
Sales & Advertising 35.5 23.1 12.4 54
General & Administration-core wireless 21.5 19.4 2.1 11
General & Administration-XM Radio 76.1 20.9 55.2 264
Depreciation & Amortization-core wireless 35.4 54.9 (19.5) (36)
Depreciation & Amortization-XM Radio 3.4 0.9 2.5 278
Satellite Impairment Charge -- 97.4 (97.4) (100)
------ ------ -------
Total $280.2 $315.4 $(35.2) (11)
====== ====== ======= =====
Effective July 7, 1999, as a result of our acquisition of all other ownership
interest in XM Radio and changes in certain participating rights, we
consolidated its results with ours from that point forward. Consequently, the
discussion of the 2000 results reflect the costs of the consolidated entity. The
results for the year ended December 31, 1999 included expenses on a consolidated
basis from July 7, 1999 forward.
Cost of service and operations includes costs to support subscribers and to
operate the network. The increase in cost of service and operations was
primarily attributable to (i) a 22% increase in communication charges associated
with increased service usage and an 11% increase in base stations year over
year, (ii) increased rates under communication contracts to support the
terrestrial network, (iii) a 22% increase in maintenance costs primarily for
maintenance of our base stations, (iv) a 21% increase in headcount as we
continue the build-out and support of our network, (v) a 20% increase for site
rental costs associated with the build out of the terrestrial network, and (vi)
an increase of $1.1 million for research and development efforts primarily
associated with our eLink product, offset by (i) a reduction of approximately
$3.6 million in Year 2000 costs and (ii) a 23% reduction in in-orbit insurance
premiums. We anticipate reductions in our cost of service and operations as a
result of the sale of our transportation assets to Aether; however, these
savings will be partially offset by continued growth of the terrestrial network.
F-6
The $3.3 million increase in cost of equipment sold for the year ended December
31, 2000, as compared to 1999, was a result of our growth in the sales of our
eLink product line, which was introduced in the third quarter of 1999, and a
$3.6 million inventory write-down associated with certain first generation eLink
devices. Additionally, sales of our single-mode, multi-mode and voice products
were down 55% from last year.
Sales and advertising expenses as a percentage of total revenue were
approximately 36% for 2000, compared to 25% for 1999. The increase in sales and
advertising expenses year over year was primarily attributable to (i) increased
costs of providing demonstration equipment in an effort to seed the market for
our new products, (ii) increased trade show activity in 2000 as compared to
1999, (iii) costs incurred in connection with our company name change in April
2000, (iv) an increase in advertising in 2000 to heighten our presence in the
marketplace and to highlight our new product offerings, (v) advertising and
other costs associated with our roll out of our eLink fortified with Yahoo!
product in November 2000 (see below), (vi) eLink subscriber acquisition costs,
and (vii) a 9% increase in headcount to support the new sales and marketing
initiatives. We expect these costs to continue to increase as we increase our
customer acquisitions and brand recognition efforts.
In July 2000, we signed an agreement with Yahoo! to promote our newly-developed
eLink Fortified with Yahoo! wireless product. In addition to our advertising
commitment under this contract, we also issued common stock purchase warrants to
Yahoo!. The Yahoo! warrants were valued at approximately $4.8 million. These
warrants will be amortized to sales and advertising in accordance with the roll
out of the advertising plan, anticipated to run through July 2002.
General and administrative expenses for the core wireless business as a
percentage of total revenue were approximately 22% for 2000, compared to 21% for
1999. The increase in 2000 costs over 1999 costs in our core wireless business
general and administrative expenses was attributable to (i) a 9% increase in
general and administrative headcount from the prior year, (ii) an overall 16%
increase from 1999 in total headcount causing an increase in employee-related
costs, (iii) increases in facility costs as a result of increased space rental,
(iv) an increase in bad debt expense primarily associated with two customers,
and (v) an increase in regulatory costs, associated principally with our appeal
of the FCC's decision to grant applications to competitors to provide mobile
satellite services in the United States. See "Regulation" below.
General and administrative expenses for XM Radio increased as XM Radio prepared
for the launch of service. Increases in costs are associated with research and
development efforts, additional facility charges, and headcount related
expenses. Additionally, in 2000, XM Radio incurred non-cash compensation charges
of approximately $1.2 million for performance-based stock options as a result of
adopting the provisions of Financial Accounting Standards Board ("FASB")
Interpretation No. 44, "Accounting for Certain Transactions Involving Stock
Compensation" ("FIN 44"). XM Radio will continue to recognize quarterly non-cash
compensation charges in accordance with FIN 44 depending on the market value of
XM Radio's Class A common stock at the end each quarter.
Depreciation and amortization for the core wireless business was approximately
35% of total revenue for 2000, compared to 60% for 1999. The decrease in
depreciation and amortization expense in 2000 was primarily attributable to the
$97.4 million asset impairment charge related to our satellite and satellite
related ground segment assets taken in the fourth quarter of 1999. This resulted
in a reduction in depreciation expense of approximately $16.3 million for 2000.
Further reductions in depreciation expense are a result of older assets,
particularly those associated with the mobile messaging business, being fully
depreciated by the end of 1999.
Interest and other income was $31.4 million (of which $27.6 million was earned
by XM Radio) for the year ended December 31, 2000, as compared to $8.5 million
(of which $2.8 million was earned by XM Radio) for the year ended December 31,
1999. Excluding interest earned by XM Radio, the $1.9 million decrease in
interest earned by the core wireless business reflects reduced interest earned
on our escrow established for the Senior Notes as a result of lower escrow
balances, which was essentially offset by interest earned in 1999 on our note
receivable from XM Radio, as XM Radio was accounted for under the equity method
of accounting during the first six months of 1999.
We incurred $62.5 million of interest expense in 2000, all of which related to
our core wireless business, as XM Radio capitalized interest associated with
constructing their satellite system, compared to $66.0 million during 1999, of
which $2.7 million was incurred by XM Radio. The net decrease, excluding XM
Radio, of $0.8 million for the year was a result of (i) a $4.3 million decrease
in amortization of warrants, (ii) prepaid interest and debt offering costs due
to the debt discount costs that were written off in 1999 and 2000 when we
extinguished $82.8 million of debt on the bank facilities, and (iii) lower debt
balances, offset by an approximate 3% increase in interest rates on our bank
facility. We expect that interest costs will continue to be significant as we
continue to draw down on our bank facility.
F-7
In January 1999, we issued a note payable in the amount of $21.5 million to
Baron Asset Fund, a stockholder and a guarantor of our bank facility. The note
was secured and exchangeable for a portion of our shares of XM Radio. Since the
note was indexed to XM Radio stock, which decreased in value from December 1999
to January 2000, we recorded an unrealized gain of $3.9 million before the note
was exchanged. The note payable was exchanged for XM Radio stock in January
2000, and we recorded a non-recurring gain of $32.9 million for the difference
between the carrying value of the debt and XM Radio stock exchanged to settle
the obligation.
Net capital expenditures for the year ended December 31, 2000, excluding XM
Radio, for property and equipment were $22.2 million compared to $13.8 million
in 1999. Expenditures consisted primarily of assets necessary to continue the
build out of our terrestrial network, including approximately $3.6 million for
the purchase of new frequencies. In addition, XM Radio spent $51.4 million in
2000 for leasehold improvements on its new office building, as well as for other
expenditures for office furniture and equipment.
Net capital expenditures for property under construction represent those costs
associated with the build out of the XM Radio network. It is anticipated that
these expenditures will continue to be significant as XM Radio continues to
build out its satellites and ground segments. For the year ended December 31,
2000, XM Radio spent $414.9 million for property under construction.
Years Ended December 31, 1999 and 1998
Service Revenue and Subscriber Statistics
Service revenue, which includes our data, voice, and capacity reseller services,
approximated $67.7 million for 1999, which constituted a $9.7 million, or 17%
increase over 1998. The increase in service revenues year over year was
primarily attributable to a full year of terrestrial data service in 1999,
versus only nine months in 1998. Our 1999 revenue growth was slowed as a result
of delays in our rollout of new product initiatives. In the case of
MobileMAX2(tm), this delay also caused us to have product shortages of our
first-generation equipment, so we had limited equipment available for sale to
generate new customers.
Year Ended
December 31,
Summary of Revenue 1999 1998 Change % Change
------------------ ---- ---- ------ --------
(in millions)
Data Service $ 49.7 $ 40.1 $9.6 24%
Voice Service 13.2 14.0 (0.8) (6)
Capacity Resellers and Other 4.8 3.9 0.9 23
Equipment Revenue 23.4 29.2 (5.8) (20)
------ ------ ----- ----
Total $ 91.1 $ 87.2 $3.9 4%
====== ====== ===== ====
The decrease in service revenue from voice services was primarily a result of a
32% decrease in our average revenue per unit for maritime subscribers following
the sale of our maritime business to a reseller in late 1998. This was offset by
an increase in our total voice subscriber customer base of 42% as well as Year
2000 priority service fees. Our data service revenue increased as a result of
the inclusion of Motient Communications Inc. (formerly known as ARDIS) for the
full twelve months in 1999 as compared to nine months in 1998, which contributed
$9.0 million in additional revenue year over year, and a 15% increase in mobile
data units during 1999. Service revenue from capacity resellers, who handle both
voice and data services, increased primarily as a result of two new customers
and increased contract commitments from current customers.
The decrease in revenue from the sale of equipment reflects the sale of
approximately $8.5 million of maritime voice equipment to one customer in the
fourth quarter of 1998. Excluding this sale, revenue from the sale of equipment
increased in 1999 because of increased voice product sales primarily associated
with companies preparing for the Year 2000, as well as marketing promotions
which increased the sales of both data and voice equipment.
F-8
As is common in our industry, we report subscriber information and average
revenue per unit per month statistics. Although these measures are not
recognized under GAAP, we believe that this information helps to demonstrate
important trends in our business.
Average Revenue
Subscribers per Unit
Year Ended Year Ended
December 31, December 31,
------------ ------------
1999 1998 1999 1998
---- ---- ---- ----
Data 22,202 92,700 $42 $51
Voice 18,500 13,000 80 110
------- -------
Total 40,702 105,700 $47 $60
======= =======
Additionally, our mix of subscribers can be broken down into the following
markets:
As of
December 31,
1999 1998
---- ----
eLink 2 --
Field Service 33% 47%
Transportation 40 27
Telemetry 9 10
Maritime 4 3
Other 12 13
Expenses
Year Ended
December 31,
%
Summary of Expenses 1999 1998 Change Change
--------------------------- ---- ---- ------ ------
(in millions)
Cost of Service & Operations $ 69.3 $ 55.8 $ 13.5 24%
Cost of Equipment Sales 29.5 30.4 (0.9) (3)
Sales & Advertising 23.1 19.2 3.9 20
General & Administrative 19.4 17.3 2.1 12
General & Administrative-XM Radio 20.9 -- 20.9 100
Depreciation & Amortization 54.9 52.7 2.2 4
Depreciation & Amortization - XM Radio 0.9 -- 0.9 100
Satellite Impairment Charge 97.4 -- 97.4 --
------- ------ ------- ------
Total $ 315.4 $ 175.4 $ 140.0 80%
======= ======= ======= ======
Effective July 7, 1999, as a result of our acquisition of all other ownership
interest in XM Radio and changes in certain participating rights, we
consolidated its results with ours from that point forward. Results of XM Radio
prior to July 7, 1999 were accounted for under the equity method of accounting.
Cost of service and operations includes costs to support subscribers and to
operate the network. The increase in cost of service and operations was
primarily attributable to (i) additional headcount, primarily as a result of the
Motient Communications Acquisition, (ii) increased communication charges
associated with increased service usage and costs to support the terrestrial
network, (iii) system and base station maintenance to support the terrestrial
network, (iv) site rental costs associated with the terrestrial network, and (v)
approximately $3.6 million of incremental Year 2000 costs that we do not
anticipate to recur in future years. As a percentage of revenue, cost of service
and operations has increased as a result of the variable costs incurred within
the terrestrial network, such as site rent and telecommunications costs. XM
Radio did not incur any cost of service and operations expenses in 1999.
The cost of equipment sold decreased $0.9 million, or 3%, from $30.4 million in
1998 to $29.5 million in 1999. The decrease from 1998 to 1999 in the cost of
equipment sold was primarily attributable to the impact of the sale of the
maritime business in 1998 offset by (i) increased sales of voice products
supporting Year 2000 preparedness, (ii) increased warranty costs associated with
the increased number of registered first-generation multi-mode data products,
and (iii) an inventory valuation charge of approximately $4.2 million recorded
in the fourth quarter of 1999 related to older voice and satellite-only
transportation inventory.
F-9
The 20% increase in sales and advertising expenses from 1998 to 1999 was
primarily attributable to (i) increased headcount costs resulting from the
inclusion of Motient Communications for the full twelve months of 1999 and (ii)
costs associated with the launch of our new eLink service offering which
included additional advertising and headcount for sales and support staff. XM
Radio did not incur any sales and advertising expenses in 1999.
General and administrative expenses were $40.3 million in 1999, of which $20.9
million were related to XM Radio. Excluding XM Radio expenses, general and
administrative expenses represented 21% and 20% of total revenue in 1999 and
1998, respectively. The $2.1 million increase in general and administrative
expenses was primarily attributable to an increase in headcount from the prior
year causing an increase in bonuses, training costs, payroll taxes, and 401(K)
match expense.
Depreciation and amortization expenses were $55.8 million in 1999, of which $0.9
million was incurred by XM Radio. Excluding XM Radio, depreciation and
amortization was approximately 60% of total revenue in 1999 and 1998. The dollar
increase in depreciation and amortization expense was primarily attributable to
(i) a full year of depreciation for the Motient Communications assets in 1999
versus nine months in 1998 and (ii) depreciation on new assets associated with
the expansion of the terrestrial network. In the fourth quarter of 1999, we
recorded a $97.4 million asset impairment charge related to our satellite and
satellite related ground segment assets. Although the satellite and other assets
remain in sound working order, we determined that we would not be able to
recover the full carrying value of our satellite and ground segment assets
through future undiscounted cash flows, due to the continuing shift of focus of
our resources from voice toward data business, as well as the loss of our
satellite exclusivity in the United States which occurred in the fourth quarter
of 1999. As a result, we recorded an impairment charge for the excess of the
carrying value of these assets over their fair value which we estimated using
the discounted future cash flows related to these assets.
Interest and other income, including that earned by XM Radio, was $8.5 million
for 1999, as compared to $4.4 million for 1998. Excluding $2.8 million of
interest earned by XM Radio on its short-term investments, the increase was
primarily a result of interest earned on XM Radio convertible debt, prior to the
consolidation of XM Radio, offset by lower balances on escrows established with
the proceeds from the $335 million debt offering.
We incurred $66.0 million of interest expense in 1999, of which $2.7 million was
incurred by XM Radio, compared to $53.8 million of interest expense in 1998,
reflecting (i) the amortization of debt discount, prepaid interest and debt
offering costs in the amount of $15.8 million, excluding XM Radio, in 1999,
compared to $16.2 million in 1998, (ii) interest expense, at 12 1/4 %, on the
$335 million notes issued in March 1998, offset by lower debt balances on our
bank facility as a result of the partial repayment in July 1999, as discussed
below.
In January 1999, we issued a note payable to Baron Asset Fund, a stockholder and
a guarantor of our bank facility, in the amount of $21.5 million. The note was
secured and was exchangeable for a portion of our shares of XM Radio. Since the
note was indexed to XM Radio stock, which increased in value during the year, we
recorded an unrealized loss in 1999 in the amount of $27.4 million. The note
payable was exchanged for XM Radio stock in January 2000, and we recorded an
offsetting gain in the first quarter of 2000 for the difference between the
carrying value of the debt and XM Radio stock exchanged to settle the
obligation.
Net capital expenditures, excluding XM Radio, in 1999 for property and equipment
were $13.8 million compared to $12.5 million in 1998. Expenditures consisted
primarily of assets necessary to continue the build out of our terrestrial
network. In addition, from the period July 1, 1999 through December 31, 1999, XM
Radio expended $1.7 million primarily for office furniture and equipment.
Net capital expenditures for property under construction represent those costs
associated with the build out of the XM Radio network. For the period from July
1, 1999 through December 31, 1999, XM Radio expended $141.2 million for property
under construction.
F-10
Liquidity and Capital Resources
Adequate liquidity and capital are critical to our ability to continue as a
going concern and to fund subscriber acquisition programs necessary to achieve
positive cash flow and profitable operations. We expect to continue to make
significant capital outlays to fund interest expense, new product rollouts,
capital expenditures and working capital before we begin to generate positive
cash flow from operations. We expect these outlays to continue for the
foreseeable future.
Summary of Liquidity and Financing Sources for Core Wireless Business
Our current operating assumptions and projections reflect our best estimate of
subscriber and revenue growth and operating expenses. We anticipate that capital
expenditures, operating losses, working capital and debt service requirements
through 2001 can be met by (i) cash on hand, (ii) borrowings available under our
bank financing and vendor financing, (iii) proceeds realized through the sale of
inventory relating to eLink and BlackBerry TM, (iv) reduction of operating
expenditures, (v) additional debt or equity financing transactions, and (vi) our
investment in XM Radio. Additionally, we have the potential to receive
additional funds from the Aether transaction as well as the Satellite Ventures
transaction. Our financial results could deteriorate, and our ability to meet
our projections is subject to numerous uncertainties, and there can be no
assurance that the current projections will be achieved. If our cash
requirements are more than projected, we will require additional financing in
amounts which may be material. The type, timing and terms of financing that the
we select will be dependent upon our cash needs, the availability of other
financing sources and the prevailing conditions in the financial markets. We
cannot guarantee that additional financing sources will be available at any
given time or available on favorable terms.
Our consolidated financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and satisfaction of
liabilities in the normal course of business. The successful implementation of
our business plan requires substantial funds to finance the maintenance and
growth of our operations, network and subscriber base and to expand into new
markets. We have an accumulated deficit and have historically incurred losses
from operations which are expected to continue for additional periods in the
future. There can be no assurance that our operations will become profitable.
These factors, along with our negative operating cash flows have placed
significant pressures on our financial condition and liquidity position, and
create substantial doubt about our ability to continue as a going concern. The
accompanying financial statements do not include any adjustments relating to the
possible effects on the recoverability and classification of assets or amounts
and classification of liabilities that might be necessary should we be unable to
continue as a going concern.
In January and February 2001, we sold, in two separate transactions, 2 million
shares of our XM Radio Class A Common Stock, at an average price of $16.77 per
share, for total proceeds of $33.5 million. Approximately $8.5 million of the
proceeds were used to repay and permanently reduce our bank financing. In
exchange for the guarantors agreeing to waive certain debt repayment obligations
for the second sale of shares, we and the guarantors have agreed that the first
$16.5 million of proceeds received from the earlier of (i) the closing of the
Satellite Ventures transaction and (ii) any other stated reduction event to
occur in the year 2002 will be used to pay down the bank financing.
On April 2, 2001, we entered into an agreement for financing in the amount of
$25 million from Rare Medium Group, Inc. ("Rare") in the form of a note payable
at 12.5% annual interest with a maturity date, subject to certain
mutually-agreed upon extensions, of 180 days from funding, which is expected to
occur by April 6, 2001. Additionally, we have the potential to receive up to an
additional $25 million of funding, on comparable terms, the amount of which will
be based on the market price of XM Radio stock. The notes are collateralized by
up to 5 million of our XM Radio shares, and Rare has the option to exchange the
notes for a number of XM Radio shares equivalent to the principal of the note
plus any accrued interest thereon. Of the first $25 million that we received, we
used $6.1 million to repay and permanently reduce our bank financing and $14.4
million is subject to availability upon the approval of the guarantors.
As of March 29, 2001, we held approximately 14.7 million shares of XM Radio
stock; however, approximately 13.7 million of such shares are pledged to and
held by Rare or our banks and guarantors to secure our obligations under our
bank financings and the notes with Rare. There is no guarantee that the banks
and guarantors would agree to release any portion of their share of this
security to permit us to liquidate our XM Radio shares, or that such approval
would be on terms favorable to us. Further, our ability to sell our shares of XM
Radio stock in the public markets is generally limited to the quarterly volume
restrictions under Rule 144 of the Securities Act.
The carrying value of our investment in XM Radio pursuant to the equity method
of accounting was $288,064 (or $17.19 per share) as of December 31, 2000. As of
March 30, 2001, the market price of XM Radio common stock was $7.00 per share,
$10.19 per share less than our carrying value. Pursuant to the equity method of
accounting, beginning in 2001, we will be required to assess, considering market
and other appropriate factors, whether a permanent impairment of our investment
in XM Radio has occurred and an impairment loss recognized.
Our current financing arrangements are summarized below:
o A $108.8 million bank financing facility, consisting of (i) a $77.3 million
unsecured five-year reducing revolving credit facility, none of which was
available for borrowing as of March 30, 2001, and (ii) a $31.5 million five-year
term loan facility, with up to three additional one-year extensions subject to
the lenders' approval, which is secured by our assets, principally our
stockholdings in XM Radio. The bank financing is severally guaranteed by Hughes
Electronics Corporation, Singapore Telecommunications Ltd., and Baron Capital
Partners, L.P. Both facilities bear interest, generally, at 100 basis points
above London Interbank Offered Rate C LIBOR. Certain proceeds that we may
receive are required to be used to repay and reduce the bank financing, unless
otherwise waived by the lenders and the guarantors. As of March 30, 2001, we had
outstanding borrowings of $31.5 million under the term loan facility at
approximately 6.19%, and $77.3 million under the revolving credit facility at
rates ranging from 6.0% to 8.0%. Additionally, in connection with the bank
financing, we entered into an interest rate swap agreement which reduces the
impact of interest rate increases on the term loan facility. Under the swap
agreement, which expired in March 2001, we 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 $41 million until the termination date of March 31, 2001. The
unamortized fee paid for the swap agreement is reflected as an asset in the
accompanying financial statements. We are exposed to a credit loss in the event
the counter party does not perform under this agreement; however, we do not
believe there is a significant risk of non performance, since the counter-party
to the swap agreement is a major financial institution.
F-11
As noted below, any proceeds we receive from the Aether escrow or earn-out will
be used to repay and permanently reduce the revolving credit facility.
o A vendor financing commitment from Motorola, Inc., a stockholder, to
provide up to $15 million of vendor financing to finance up to 75% of the
purchase price of additional terrestrial network base stations. Loans under
this facility bear interest at a rate equal to LIBOR plus 7.0% and are
guaranteed by Motient and each of its wholly-owned subsidiaries. The terms
of the facility require that amounts borrowed be secured by the equipment
purchased therewith. As of February 28, 2001, there was $2.2 million
available for borrowing under this facility.
o $9.6 million capital lease for network equipment acquired in July 2000. The
lease has a term of three years and an effective interest rate of 14.718%.
o $335 million of senior notes issued in 1998, at the time of the Motient
Communications Acquisition. The notes bear interest at 12.25% annually and
are due in 2008. A portion of the net proceeds of the sale of the notes was
used to finance pledged securities that are intended to provide for the
payment of the first six interest payments on these notes. Interest
payments are due semi-annually, in arrears, and began on October 1, 1998.
The notes were issued by a subsidiary of Motient, and are fully guaranteed
by Motient.
o We have also arranged the financing of certain trade payables, and as of
February 28, 2001, $1.3 million of deferred trade payables were outstanding
at rates ranging from 5.93% to 7.24% and are generally payable by the end
of 2001.
Sale of Retail Transportation Business to Aether Systems
In November 2000, we sold our retail transportation assets to Aether Systems,
Inc. Concurrently, Aether entered into two long-term, prepaid network airtime
agreements with a total value of $20 million, of which $5 million was paid at
closing, pursuant to which Aether will purchase airtime on our satellite and
terrestrial networks. Aether also became an authorized reseller of our eLink and
BlackBerry(tm) by Motient wireless email service offerings. Aether acquired all
of the assets used or useful in the retail transportation business, and assumed
the related liabilities. Aether also purchased the existing inventory in the
business, and was granted a perpetual license to use and modify any intellectual
property owned by or licensed to us in connection with the business.
The purchase price for these assets was $45 million, plus the then-current book
value of the inventory for the business. All of this amount was paid at closing,
except for $10 million which was deposited in an escrow account and will be
released to Motient upon satisfaction of certain criteria with respect to
MobileMAX2(tm), and $3.7 million that was held back will be paid to us upon
collection of certain accounts receivable. In addition, we have the opportunity
to receive up to an additional $22.5 million as an "earn-out" payment, subject
to the satisfaction of certain operating results for the business during 2001.
Of the proceeds received at closing, $20 million was used to immediately repay
and permanently reduce the revolving credit facility. Proceeds, if any, from the
$10 million escrow and the $22.5 million earn-out will be recorded as additional
purchase consideration when received and will also be used to repay and
permanently reduce the revolving credit facility.
Commitments
At December 31, 2000, we had remaining contractual commitments to purchase eLink
and other subscriber equipment inventory in the amount of $21.5 million during
2001.
We also have certain other capital, advertising, and operating expense contract
commitments that total approximately $2.7 million over the next 18 months.
Subsequent to December 31, 2000, we entered into additional product development
agreements for the purchase of engineering services and licenses, to be used in
future applications of our eLink product. Additionally, should the engineering
effort prove successful, we have committed to purchase additional subscriber
inventory. These commitments, including the inventory commitment, total
approximately $3.6 million and will be paid during 2001. Should we decide to
cancel these agreements, we would incur cancellation penalties of any remaining
unpaid license and non-recurring engineering fees, the cost of any
non-refundable components purchased on behalf of Motient, plus fifty-percent of
any remaining inventory commitment. As of March 30, 2001, this cancellation
penalty would have been approximately $2.4 million.
F-12
The aggregate fixed and determinable portion of all commitments for inventory
purchases and other fixed contracts is $27.9 million, of which $27.4 million is
due in 2001.
XM Radio
XM Radio is operated, managed, and funded separately from our core wireless
business. While we do not have any obligation or commitments to provide
additional funding to XM Radio, and do not expect to provide any additional
funding, we may choose to do so in the future. XM Radio will require significant
additional funding in the future. If XM Radio is not successful in obtaining the
additional required financing, our investment in XM Radio could be negatively
impacted.
In the first quarter of 2000, XM Radio raised an additional $228.5 million in
net proceeds through a follow-on offering of 4.4 million shares of its Class A
common stock and 2.0 million shares of Series B convertible redeemable preferred
stock. In March 2000, XM Radio completed a high yield debt offering of 325,000
units, each unit consisting of $1,000 principal amount of 14% Senior Secured
Notes due 2010 and one warrant to purchase 8.024815 shares of Class A common
stock of XM Radio at an exercise price of $49.50 per share. XM Radio realized
net proceeds of $191.5 million, excluding $123.0 million used to acquire
securities which will be used to pay interest payments due under the notes for
the first three years. In August 2000, XM Radio closed a private offering of
235,000 shares for $1,000 per share of its 8.25% Series C convertible redeemable
preferred stock and raised additional net proceeds of approximately $226.8
million. XM Radio recorded a $123.0 million beneficial conversion charge that
reduced earnings available to common stockholders. The issuance of the Series C
preferred stock caused the exercise price of the warrants sold in March 2000 to
be adjusted to $47.94.
In March 2001, XM Radio completed a follow-on offering of 7.5 million shares of
Class A common stock, which yielded net proceeds of $72.0 million, and a
concurrent offering of 7.75% convertible subordinated notes due 2006,
convertible into shares of Class A common stock at a conversion price of $12.23
per share, which yielded net proceeds of $120.7 million. These issuances caused
the conversion price of the Series C preferred stock to be adjusted from $26.50
to $22.93, the exercise price of the warrants sold in March 2000 to be adjusted
to $45.27, and the number of warrant shares to be increased to 8.776003 per
warrant.
XM Radio is also subject to certain commitments and contingencies:
o XM Radio has a distribution agreement with General Motors that will
require significant expenditures in the future.
o Under its satellite contract with Boeing Satellite Systems
International, Inc. ("BBS" - formerly Hughes Space and Communications,
Inc.), XM Radio will incur payment obligations of approximately $541.3
million, which includes amounts that XM Radio expects to pay pursuant
to the exercise of the option to build the ground spare satellite and
certain financing costs and in-orbit incentive payments. On June 27,
2000, XM Radio exercised the option to build the ground spare. As of
December 31, 2000, XM Radio had paid $466.0 million under this
contract with BBS, and $1.6 million had been accrued.
o XM Radio has signed a contract with LCC International, Inc. (a related
party to XM Radio), for the engineering of its terrestrial repeater
network. In January 2001, the scope of the contract was amended and the
estimated contract value was reduced to $107.5 million. As of December
31, 2000, XM Radio has paid $50.2 million, and accrued an additional
$15.1 million, under this contract. XM Radio also entered into tower
construction agreements with various companies which will provide
certain services which LCC International, Inc. was to provide.
o Effective October 1999, XM Radio signed a contract with Hughes
Electronics Corporation for the design, development, and purchase of
terrestrial repeater equipment. The total value of this contract is
$128.0 million, which could be modified based on the number of
terrestrial repeaters that are required for the system. As of December
31, 2000, XM Radio had paid $15.4 million under this contract.
o On February 16, 2000, XM Radio and Sirius Satellite Radio, a competitor
of XM Radio, signed an agreement to develop a unified standard for
satellite radios to facilitate the ability of consumers to purchase one
radio capable of receiving both XM Radio's and Sirius Satellite Radio's
services.
F-13
Satellite Ventures
As noted above, in June 2000 we formed a new joint venture subsidiary, Satellite
Ventures, in which we own 80% of the membership interests. The remaining 20%
interest in Satellite Ventures is owned by the Investors (the "June Investment
Agreement"). The Investors paid $50 million to Satellite Ventures (in the
aggregate), in exchange for their 20% interest. Of the $50 million payment
received by Satellite Ventures, $6.0 million was retained by Satellite Ventures
to fund certain research and development activities, with the remaining $44
million paid to Motient Services Inc. ("Motient Services"), which owns our
satellite and related assets. Of the $44 million paid to Motient Services, $20
million was payment under a Research and Development, Marketing and Service
Agreement, and $24 million was a deposit under the asset sale agreement pursuant
to which Motient Services would sell its satellite and related assets to
Satellite Ventures.
In connection with the Aether transaction, we and the other members of Satellite
Ventures agreed to reduce the purchase price in the asset sale agreement between
Satellite Ventures and Motient Services from $120 million to $80.5 million, plus
half of any earn-out consideration that would have been received by Motient from
Aether. This adjustment was made to account for the fact that we received
consideration in the Aether transaction in exchange for assets which otherwise
would have been available to be acquired by Satellite Ventures.
In January 2001, we entered into an agreement, subject to certain conditions, to
amend in several respects the terms of our June 2000 transaction involving
Satellite Ventures. First, the Investors agreed, subject to certain conditions
including approvals by the FCC, to invest an additional $50 million to become
(in the aggregate) the owners of 40% of the outstanding interests of Satellite
Ventures. The Investors will also have an option, exercisable through June 29,
2002, for an additional $40 million, to increase their ownership in Satellite
Ventures to 50.66% (with each individual Investor's stake being less than 20%).
Second, upon closing of the transaction, TMI Communications & Company Limited
Partnership ("TMI"), the Canadian satellite services provider, will contribute
its satellite communications business assets to Satellite Ventures, along with
our satellite business assets. TMI will become the owner of approximately 27% of
the outstanding equity of Satellite Ventures and will also receive a cash
payment of $7.5 million, as well as a $11.5 million 5-year note.
Upon closing of these transactions, we will sell our remaining satellite assets
to Satellite Ventures, in exchange for a cash payment of $45 million and a
5-year, $15 million note. Upon closing, we will own approximately 33% of the
outstanding interests and be the largest single shareholder of Satellite
Ventures. A portion of Satellite Ventures' cash payment to TMI at closing will
be funded by our loan of $2.5 million, in exchange for a note back in the same
amount.
Under the original transaction, at any time until June 29, 2002, the Investors
had certain rights to elect to convert their interests in Satellite Ventures
into shares of our common stock at a conversion price which will be set at the
time of exercise, between $12 and $20 per share, as specified in the June
Investment Agreement. As part of the January 2001 agreement, this right remains
in place, but is limited to an aggregate of $55 million.
Under the terms of the bank facility waivers received by Motient in connection
with the January 2001 agreement, half of all amounts to be received by Motient
from Satellite Ventures in connection with Motient's sale of its satellite
business assets to Satellite Ventures, including the $45 million in cash and $15
million note receivable, will be used to repay outstanding amounts, and
permanently reduce commitments, under Motient's revolving credit facility.
The consummation of the transactions is subject to receipt of all necessary
regulatory governmental approvals and consents, including, for example,
approvals under the Hart-Scott-Rodino Antitrust Improvements Act, and FCC
approvals with respect to both the transfer of Motient's FCC licenses and
Satellite Ventures' plans for a new generation integrated satellite-terrestrial
system, approvals by Canadian regulatory authorities with respect to the
transfer of TMI's communications licenses to the new venture, and other
customary conditions relating to due diligence review, third party consents, and
similar matters. Beginning in January 2002, if certain closing conditions have
not occurred, we and TMI have certain rights to require the closing to proceed
at such time, and if less than all of the Investors participate at such time, we
and TMI may, under certain circumstances, purchase the interests in Satellite
Ventures that would have otherwise been acquired by any such non-participating
Investors.
F-14
Summary of Cash Flow for 2000 and 1999
Year Ended December 31, 2000
Core
Business XM Radio Consolidated
-------- -------- ------------
Cash Used In Operating Activities ($88,935) ($37,447) ($126,382)
Cash Provided by (Used in) Investing 46,750 (559,401) (512,651)
Cash Provided by Financing Activities:
Equity issuances 24,025 456,529 480,554
Debt payments on capital leases, vendor financing (6,424) -- (6,424)
Net funding from (repayment of) notes 26,250 -- 26,250
High yield financing, including associated warrants -- 322,889 322,889
Other 78 (8,365) (8,287)
------- --------- ----------
Total Provided by Financing Activities 43,929 771,053 814,982
------- -------- ---------
Total Change in Cash $1,744 $174,205 $175,949
======= ======== =========
Cash and Cash Equivalents $2,520 $224,903 $227,423
Working Capital 13,337 261,166 274,503
Restricted Investments included in working capital 20,709 95,277 115,986
Year Ended December 31, 1999 (1)
Core
Business XM Radio Consolidated
-------- -------- ------------
Cash Used In Operating Activities ($94,203) ($12,774) ($106,977)
Cash Provided by (Used in) Investing (2,490) (215,613) (218,103)
Cash Provided by Financing Activities:
Stock/warrant issuances 122,253 114,428 236,681
Debt payments on capital leases, vendor financing (7,272) -- (7,272)
Net funding from (repayment of) notes (25,500) 174,927 149,427
Other 5,703 (10,270) (4,567)
-------- --------- -----------
Total Provided by Financing Activities 95,184 279,085 374,269
-------- -------- ----------
Total Change in Cash ($1,509) $50,698 $49,189
========= ======== ==========
Cash and Cash Equivalents $776 $50,698 $51,474
Working Capital 43,900 94,749 138,649
Restricted Investments included in working capital 41,038 -- 41,038
(1) As noted above, the twelve month period ended December 31, 1999 includes the
results of XM Radio from July 7, 1999. Results prior to that were not
consolidated.
The $4.9 million decrease in cash used in operating activities for the core
business was primarily attributable to (i) increased operating losses as we
incurred additional expenses to operate the network and increase our market
awareness, (ii) increased cash interest expense on our bank facility, and (iii)
the timing of payments on accounts payable, offset by (i) proceeds from
Satellite Ventures for the prepaid Research and Development Agreement, (ii)
proceeds from Aether for the prepaid license and service agreements, and (iii) a
net decrease in inventory purchases.
F-15
Excluding $10.8 million representing the amount of the proceeds received in the
Satellite Ventures transaction allocated to the sale of the satellite assets,
and the $20 million received from the sale of the transportation assets, the
$16.0 million increase in cash used in investing activities of the core business
was primarily attributable to the purchase of the XM Radio Note Receivable in
1999, offset by higher payments in 2000 for property and equipment, including
$3.8 million for the acquisition of new frequencies.
The $50.9 million decrease in cash provided by financing activities in the core
business was a result of (i) $116.6 million reduction in proceeds from stock
issuances and warrant exercises, (ii) the proceeds received from a related party
in 1999 of $21.5 million, and (iii) $6.0 million in proceeds in 1999 from the
partial cancellation of the interest rate swap, offset by (ii) $73.3 million in
net bank financings and (ii) proceeds of $18.6 million representing the portion
of the proceeds received in the Satellite Ventures transaction allocated to the
investors' option to convert to Motient Common Stock. None of the cash and
working capital held by XM Radio is available for our use.
Other
All of our wholly owned subsidiaries are subject to financing agreements that
limit the amount of cash dividends and loans that can be advanced to Motient
Parent. At December 31, 2000, all of the subsidiaries' net assets were
restricted under these agreements. These restrictions will have an impact on our
ability to pay dividends.
Regulation
The ownership and operations of our 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 our licenses are subject to renewal by the FCC and,
with respect to our satellite operations, are subject to international frequency
coordination. In addition, current FCC regulations generally limit the ownership
and control of Motient by non-U.S. citizens or entities to 25%. We cannot assure
that the rules and regulations of the FCC will continue to support our
operations as presently conducted and contemplated to be conducted in the
future, or that all existing licenses will be renewed and requisite frequencies
coordinated.
As described in greater detail in "Item 1. Business -- Regulation", on November
30, 1999, the FCC granted two applications to use TMI's Canadian-licensed system
to provide service in the United States to up to 125,000 mobile terminals. TMI's
system operates in the MSS L-band and has a satellite footprint that covers the
United States. We appealed the FCC's grant of these applications to the United
States Court of Appeals for the D.C. Circuit, but the court upheld the FCC's
grant. TMI's entry into the domestic U.S. marketplace may increase TMI's demand
for spectrum in the international coordination process and otherwise make it
more difficult for us to secure access to 20 MHz of spectrum. Since the initial
grant to use TMI's system, the FCC has granted an additional application to use
TMI's system and may grant others.
On January 16, 2001, we amended our pending application with the FCC to launch
and operate a second-generation mobile satellite system in numerous respects to
seek FCC approval for the transactions involving Satellite Ventures, including
the combination of our satellite communications business with TMI. See "Item 1.
Business - Recent Developments - Mobile Satellite Ventures LLC."
Accounting Standards
In September 1998, the Financial Accounting Standards Board ("FASB") issued
Statement No. 133, "Accounting for Derivative Instruments and Hedging
Activities," ("SFAS No. 133") which requires the recognition of all derivatives
as either assets or liabilities measured at fair value. This statement was
originally effective for the year ended December 31, 2000. In September 1999,
FASB issued Statement No. 137, which deferred the effective date of SFAS No. 133
until fiscal years beginning after September 15, 2000. In June 2000, FASB issued
Statement No. 138, "Accounting for Certain Derivative Instruments and Certain
Hedging Activities," which amends SFAS No. 133. This Statement limits the scope
to certain derivatives and hedging activities. The effective date of SFAS No.
138 is for fiscal years beginning after September 15, 2000. We do not believe
that the adoption of these statements will have a material impact on our
financial position, results of operations and cash flows.
In December 1999, the SEC issued Staff Accounting Bulletin No. 101, "Revenue
Recognition" ("SAB 101"). SAB 101 provides guidance on the recognition,
presentation, and disclosure of revenue in financial statements. The adoption of
SAB 101 did not have a material impact on our financial statements and results
of operations.
F-16
In March 2000, FASB issued Interpretation No. 44, "Accounting for Certain
Transactions Involving Stock Compensation" ("FIN 44"). FIN 44 further defines
the accounting consequence of various modifications to the terms of a previously
fixed stock option or award under Accounting Principles Bulletin ("APB") Opinion
No. 25, "Accounting for Stock Issued to Employees." FIN 44 became effective on
July 1, 2000, but certain conclusions in FIN 44 cover specific events that
occurred after either December 15, 1998 or January 12, 2000. Both we and XM
Radio adopted FIN 44 in 2000. The effects of implementing FIN 44 required XM
Radio to recognize additional non-cash compensation during the year ended
December 31, 2000, of approximately $1.2 million associated with stock options
that had been repriced during the period covered by FIN 44, and we recognized
additional non-cash compensation of approximately $1.0 million associated with
the transfer of employees to Aether. Additional compensation charges may result
depending upon the market value of the common stock at each balance sheet date.
Other Matters
As previously reported, the satellite has, in the past, experienced certain
technological anomalies, and there can be no assurance that the satellite will
not experience subsequent anomalies that could adversely impact our financial
condition, results of operations and cash flows. See "Part I, Item 1. Business
- -- Our Network".
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Quantitative and Qualitative Disclosures about Market Risk
We are exposed to the impact of interest rate changes related to our variable
rate credit facilities. We manage interest rate risk through the use of a
combination of fixed and variable rate debt. We have minimal cash flow exposure
due to general interest rate changes for our fixed rate, long-term debt
obligations. We invest our cash in short-term commercial paper, investment-grade
corporate and government obligations and money market funds.
Under our bank financings, interest is paid generally at 100 basis points above
LIBOR. The exposure to interest rate fluctuations is limited because the
interest rate paid on a monthly basis is variable and based on current market
conditions. We have also entered into an interest rate swap agreement, which
expires in March 2001, which reduces the impact of interest rate increases on
the term loan facility. Under this agreement, we receive an amount equal to
LIBOR plus 50 basis points paid directly to the banks on a quarterly basis until
the swap agreement terminates on September 30, 2001. Our senior notes bear
interest at a fixed rate of 12 1/4%, and XM Radio's senior secured notes bear
interest at a fixed rate of 14%. We run the risk that market rates will decline
and the required payments will exceed those based on current market rates.
F-17
Report of Independent Public Accountants
To Motient Corporation:
We have audited the accompanying consolidated balance sheets of Motient
Corporation (a Delaware Corporation) and Subsidiaries (together the "Company")
as of December 31, 2000 and 1999, and the related consolidated statements of
operations, stockholders' equity (deficit) and cash flows for each of the three
years in the period ended December 31, 2000. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits. We did not audit the
financial statements of XM Satellite Radio Holdings Inc. and Subsidiaries, which
statements reflect total assets and total revenues of 79 percent and 0 percent
in 2000, and 57 percent and 0 percent in 1999, respectively, of the related
consolidated totals. Those statements were audited by other auditors whose
report has been furnished to us, and our opinion, insofar as it relates to the
amounts included for XM Satellite Radio Holdings Inc. and subsidiaries, is based
solely on the report of the other auditors.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform an audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits and the report of other auditors
provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of other auditors, the
financial statements referred to above present fairly, in all material respects,
the financial position of Motient Corporation and Subsidiaries as of December
31, 2000 and 1999, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 2000, in conformity
with accounting principles generally accepted in the United States.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has suffered recurring losses from operations
and has a net tangible capital deficiency that raises substantial doubt about
its ability to continue as a going concern. Management's plans in regard to
these matters are also described in Note 1. The financial statements do not
include any adjustments relating to the recoverability and classification of
asset carrying amounts or the amount and classification of liabilities that
might result should the Company be unable to continue as a going concern.
/s/Arthur Andersen LLP
Vienna, Virginia
April 2, 2001
F-18
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
XM Satellite Radio Holdings Inc. and Subsidiaries:
We have audited the consolidated balance sheets of XM Satellite Radio Holdings
Inc. and subsidiaries (a development stage company) (the "Company") as of
December 31, 1999 and 2000, and the related consolidated statements of
operations, stockholders' equity (deficit), and cash flows for each of the years
in the three-year period ended December 31, 2000, and for the period from
December 15, 1992 (date of inception) to December 31, 2000, which are not
included herein. These consolidated financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of XM Satellite Radio
Holdings Inc. and subsidiaries (a development stage company) as of December 31,
1999 and 2000, and the results of their operations and their cash flows for each
of the years in the three-year period ended December 31, 2000 and for the period
from December 15, 1992 (date of inception) to December 31, 2000, in conformity
with accounting principles generally accepted in the United States of America.
The consolidated financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in note 10 to the
consolidated financial statements, the Company has not commenced operations and
is dependent upon additional debt or equity financing, which raises substantial
doubt about its ability to continue as a going concern. Management's plan in
regard to these matters is also described in note 10. The consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
/s/ KPMG LLP
McLean, VA
February 9, 2001
F-19
Motient Corporation and Subsidiaries
Consolidated Statements of Operations
For the Years Ended December 31, 2000, 1999 and 1998
(in thousands, except per share data)
2000 1999 1998
---- ---- ----
REVENUES
Services $73,479 $ 67,653 $ 57,994
Sales of equipment 26,372 23,418 29,227
-------- --------- ---------
Total Revenues 99,851 91,071 87,221
COSTS AND EXPENSES
Cost of service and operations 75,528 69,258 55,781
Cost of equipment sold 32,843 29,527 30,449
Sales and advertising 35,454 23,125 19,159
General and administrative 97,626 40,336 17,332
Satellite and related assets impairment charge (Note 2) -- 97,419 --
Depreciation and amortization 38,812 55,798 52,707
-------- --------- ---------
Operating Loss (180,412) (224,392) (88,207)
Interest and Other Income 31,379 8,464 4,372
Interest Expense (62,455) (65,928) (53,771)
Gain on sale of transportation assets (Note 13) 5,691 -- --
Loss on Note Receivable from XM Radio (Note 8) -- (9,919) --
Gain (Loss) on Note Payable to Related Party (Note 8) 36,779 (27,399) --
Minority Interest 33,429 7,067 --
Equity in Loss of XM Radio -- (6,692) (12,960)
-------- --------- ---------
Loss Before Extraordinary Item, XM Radio Preferred Dividend (135,589) (318,799) (150,566)
and Beneficial Conversion
Extraordinary Loss on Extinguishment of Debt (3,035) (12,132) --
--------- --------- ---------
Net Loss (138,624) (330,931) (150,566)
XM Radio Preferred Stock Dividend Requirement (5,081) -- --
XM Radio Beneficial Conversion (44,438) -- --
--------- ---------- ----------
Net Loss Attributable to Common Shareholders $(188,143) $(330,931) $(150,566)
========== ========= ==========
Basic and Diluted Loss Per Share of Common Stock:
Loss Before Extraordinary Item $(3.75) $ (8.03) $ (4.94)
Extraordinary Loss on Extinguishment of Debt (0.06) (0.30) --
----------------------- -----------
Net Loss Attributable to Common Shareholders $(3.81) $ (8.33) $ (4.94)
========== ========== ==========
Weighted-Average Common Shares Outstanding 49,425 39,704 30,496
The accompanying notes are an integral part of these consolidated financial
statements.
F-20
Motient Corporation and Subsidiaries
Consolidated Balance Sheets
as of December 31, 2000 and 1999
(in thousands, except share and per share data)
2000 1999
---- ----
ASSETS
CURRENT ASSETS:
Cash and cash equivalents (including $224,903 and $50,698 related to XM Radio) $227,423 $ 51,474
Short-term investments -- 69,472
Accounts receivable-trade, net of allowance for doubtful accounts of $1,317 in
2000 and $1,225 in 1999 14,421 16,594
Inventory 16,990 28,616
Restricted short-term investments (including $95,277 and $0 related to XM Radio) 115,986 41,038
Due from Mobile Satellite Ventures 502 --
Other current assets 31,095 13,100
--------- --------
Total current assets 406,417 220,294
PROPERTY AND EQUIPMENT, net (gross balances include $152,846 and $143,152
purchased from related parties through 2000 and 1999, respectively) 175,706 116,516
XM RADIO SYSTEM UNDER CONSTRUCTION 800,482 357,278
GOODWILL AND OTHER INTANGIBLES, net 62,468 62,211
RESTRICTED INVESTMENTS (including $65,889 and $0 related to XM Radio) 77,106 31,109
DEFERRED CHARGES AND OTHER ASSETS, net of accumulated amortization of $11,088 in 2000
and $18,280 in 1999 49,535 22,540
--------- --------
Total assets $1,571,714 $809,948
========== ========
The accompanying notes are an integral part of these consolidated financial
statements.
F-21
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable and accrued expenses $105,749 $67,885
Obligations under capital leases due within one year 4,590 6,154
Current portion of vendor financing commitment due to related party 4,246 1,977
Current portion of deferred trade payables 2,212 3,983
Deferred revenue and other current liabilities (including $7,300 in
2000 from Mobile Satellite Ventures) 18,117 1,646
-------- -------
Total current liabilities 134,914 81,645
LONG-TERM LIABILITIES:
Obligations under Senior Notes, net of discount 328,474 327,576
Senior Secured Notes of XM Radio, net of discount 261,298 --
Obligations under Bank Financing 111,250 85,000
Capital lease obligations 9,230 247
Net assets acquired in excess of purchase price -- 1,333
Vendor financing commitment due to related party 4,246 2,535
Convertible note payable due to related party, at fair value -- 50,138
Other long-term liabilities 61,105 3,955
------- -------
Total long-term liabilities 775,603 470,784
Total liabilities 910,517 552,429
-------- --------
COMMITMENTS (Note 11)
MINORITY INTEREST 648,313 274,745
STOCKHOLDERS' EQUITY (DEFICIT):
Preferred Stock; par value $0.01; authorized 200,000 shares; no shares
outstanding -- --
Common Stock; voting, par value $0.01; authorized 150,000,000 shares;
49,539,222 shares issued and outstanding in 2000 and 48,539,316 shares
issued and outstanding in 1999 495 485
Additional paid-in capital 982,621 844,181
Deferred compensation (134) (6,536)
Common Stock Purchase Warrants 80,292 63,290
Unamortized Guarantee Warrants (11,504) (18,384)
Cumulative loss (1,038,886) (900,262)
----------- ---------
STOCKHOLDERS' EQUITY (DEFICIT) 12,884 (17,226)
--------- ---------
Total liabilities, minority interest, and stockholders' equity (deficit) $1,571,714 $809,948
========== =========
The accompanying notes are an integral part of these consolidated financial
statements.
F-22
Motient Corporation and Subsidiaries
Consolidated Statements of Stockholders' Equity (Deficit)
for the period from December 31, 1997 through December 31, 2000
(dollars in thousands)
Common
Additional Stock Unamortized
Common Par Paid-In Deferred Purchase Guarantee Cumulative
Stock Shares Value Capital Compensation Warrants Warrants Loss Total
------------ ----- ------- ------------ -------- -------- ---- -----
BALANCE, December 31, 1997 25,159,311 $252 $451,892 $ -- $36,338 $ (23,586) $(418,765) $ 46,131
Common Stock issued under
the 401(k) Savings Plan 105,089 1 847 -- -- -- -- 848
Common Stock issued under
the Stock Purchase Plan 47,011 -- 278 -- -- -- -- 278
Common Stock issued for
Motient Communications 6,520,532 65 49,716 -- -- -- -- 49,781
Acquisition
Common Stock issued for
exercise of stock options
and award of bonus stock 10,681 -- 135 -- -- -- -- 135
Issuance of Stock Purchase
Warrants pursuant to -- -- -- -- 8,490 -- -- 8,490
Notes financing
Issuance of Restricted Stock 356,111 4 1,776 (1,780) -- -- -- --
Amortization of compensation
expense -- -- -- 252 -- -- -- 252
Guarantee Warrants revaluation -- -- -- -- 17,720 (17,720) -- --
Amortization of Guarantee
Warrants -- -- -- -- -- 7,628 -- 7,628
Expiration of Stock Purchase
Warrants -- -- 3,440 -- (3,440) -- -- --
Net Loss -- -- -- -- -- -- (150,566) (150,566)
---------- ---- -------- ------- ------- -------- -------- ----------
BALANCE, December 31, 1998 32,198,735 322 508,084 (1,528) 59,108 (33,678) (569,331) (37,023)
Common Stock issued under the
401(k) Savings Plan 126,052 1 1,114 -- -- -- -- 1,115
Common Stock issued under the
Stock Purchase Plan 90,867 1 385 -- -- -- -- 386
Common Stock issued for
exercise of stock options
and award of bonus stock 484,815 5 5,686 -- -- -- -- 5,691
Common Stock issued for
XM Radio Acquisition 8,614,244 86 129,127 -- -- -- -- 129,213
Common Stock issued in
Public Offering 7,000,000 70 115,919 -- -- -- -- 115,989
Issuance of Restricted Stock 40,000 -- 190 (190) -- -- -- --
Cancellation of Restricted
Stock (30,785) -- (504) 504 -- -- -- --
Additional deferred
compensation on Restricted
Stock -- -- 5,322 (5,322) -- -- -- --
Reduction of Guarantee Warrants
for extinguishment of debt -- -- -- -- -- 9,671 -- 9,671
Amortization of Guarantee
Warrants -- -- -- -- -- 7,372 -- 7,372
Common Stock issued upon
exercise of Warrants 15,388 -- 296 -- (108) -- -- 188
Guarantee Warrants revaluation -- -- (2,101) -- 4,290 (1,749) -- 440
Capital gain in connection
with sale of stock by XM Radio -- -- 80,663 -- -- -- -- 80,663
Net Loss -- -- -- -- -- -- (330,931) (330,931)
---------- --- ------- ------- ------- -------- -------- ----------
BALANCE, December 31, 1999 48,539,316 485 844,181 (6,536) 63,290 (18,384) (900,262) (17,226)
Common Stock issued under
the 401(k) Savings Plan 57,030 1 1,130 -- -- -- -- 1,131
Common Stock issued under the
Stock Purchase Plan 30,687 -- 421 -- -- -- -- 421
Common Stock issued for
exercise of stock options
and award of bonus stock 403,467 4 4,445 -- -- -- -- 4,449
Common Stock issued for
exercise of stock purchase 558,722 6 8,349 -- (7,611) -- -- 744
warrants
Cancellation of Restricted
Stock (50,000) (1) (1,052) 1,053 -- -- -- --
Change in deferred compensation
on non-cash -- -- (4,398) 5,349 -- -- -- 951
compensation
Reduction of Guarantee Warrants
for extinguishment of debt -- -- -- -- -- 2,390 -- 2,390
Amortization of Guarantee
Warrants -- -- -- -- -- 5,842 -- 5,842
Capital gain in connection with
sale of stock by XM Radio -- -- 129,545 -- -- -- -- 129,545
Issuance of Mobile Satellite
Ventures investors' option to
convert into Motient Common Stock -- -- -- -- 18,411 -- -- 18,411
Guarantee Warrants revaluation -- -- -- -- 1,352 (1,352) -- --
Issuance of Common Stock
Purchase Warrants -- -- -- -- 4,850 -- -- 4,850
Net Loss -- -- -- -- -- -- (138,624) (138,624)
---------- ---- -------- ------ -------- --------- --------- -----------
BALANCE, December 31, 2000 49,539,222 $495 $982,621 $(134) $80,292 $(11,504) $(1,038,886) $12,884
========== ==== ======== ======= ======== ========== =========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
F-23
Motient Corporation and Subsidiaries
Consolidated Statements of Cash Flows
For the Years Ended December 31, 2000, 1999 and 1998
(in thousands)
2000 1999 1998
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(138,624) $ (330,931) $ (150,566)
Adjustments to reconcile net loss to net cash used in
operating activities:
Amortization of Guarantee Warrants and debt related costs 11,994 16,301 16,171
Depreciation and amortization 38,812 55,798 52,707
Equity in loss of XM Radio -- 6,692 12,960
Gain on sale of transportation assets (5,691) -- --
(Gain) loss on note payable to related party (36,779) 37,318 --
Extraordinary loss on extinguishment of debt 3,035 12,132 --
Satellite and related assets impairment charge -- 97,419 --
Non cash stock compensation of XM Radio 2,743 4,210 --
Minority Interest (33,429) (7,067) --
Changes in assets and liabilities, net of acquisitions
and dispositions:
Inventory 1,298 (10,023) 21,947
Accounts receivable-- trade 1,388 (3,897) (105)
Other current assets (15,074) 551 8,423
Accounts payable and accrued expenses 13,392 16,715 (14,472)
Accrued interest Senior Note 31 (83) 10,715
Deferred trade payables (2,455) (1,135) (6,567)
Deferred revenue and other deferred items-- net 32,977 (977) (7,396)
--------- --- ----------
Net cash used in operating activities (126,382) (106,977) (56,183)
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash paid for acquisition of Motient Communications -- -- (52,373)
Purchase of XM Radio Note Receivable -- (21,419) --
Proceeds from sale of transportation assets 20,000 -- --
Purchase of restricted investments (2,906) (4,916) (145,761)
Purchase/maturity of restricted investments by XM Radio,
net (106,338) -- --
Sale of restricted investments for the payment of
interest 41,006 41,006 20,633
Investment in XM Radio -- (2,400) --
XM Radio Acquisition costs -- (788) --
Purchase/maturity of short term investments by XM Radio,
net 69,472 (69,472) --
System under construction (414,889) (141,154) --
Proceeds from Mobile Satellite Ventures Asset
Purchase Agreement 10,836 -- --
Other XM Radio investing activities (56,268) (3,422) --
Additions to property and equipment (73,564) (15,538) (12,470)
--------- ---------- ----------
Net cash used in investing activities (512,651) (218,103) (189,971)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of equity securities 24,025 122,253 412
Proceeds from issuance of equity securities-XM Radio 456,529 114,428 --
Proceeds from Senior Secured Notes and Stock Purchases
Warrants issued by XM Radio 322,889 -- --
Proceeds from Notes and Stock Purchase Warrants -- -- 335,000
Principal payments under capital leases (3,467) (5,982) (3,395)
Principal payments under Vendor Financing (2,957) (1,290) (16)
Proceeds from Series A subordinated convertible notes of
XM Radio -- 250,000 --
Repayment of note payable to related party -- -- (10,000)
Repayment of Bank Financing -- -- (100,000)
Repayment of XM Radio bank loan -- (73) --
Repayment of loan by XM Radio -- (75,000) --
Repayment of Term Loan (1,000) (59,000) --
Repayments of Revolver (35,000) (53,000) --
Proceeds from Bank Financing 62,250 65,000 34,000
Proceeds from note payable to related party -- 21,500 10,000
Proceeds from reduction of interest rate swap -- 6,009 --
Payments on long-term debt -- -- (4,933)
Debt issuance costs (8,287) (10,576) (14,735)
--------- ---------- ----------
Net cash provided by financing activities 814,982 374,269 246,333
Net increase in cash and cash equivalents 175,949 49,189 179
CASH AND CASH EQUIVALENTS, beginning of period 51,474 2,285 2,106
--------- ---------- ----------
CASH AND CASH EQUIVALENTS, end of period $ 227,423 $ 51,474 $ 2,285
========= ========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
F-24
MOTIENT CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
as of December 31, 2000, 1999 and 1998
1. ORGANIZATION, BUSINESS AND LIQUIDITY
Motient Corporation (with its subsidiaries, "Motient" or the "Company") is a
leading provider of two-way mobile communications services principally to
business-to-business customers and enterprises. Motient serves a variety of
markets including mobile professionals, telemetry, transportation, field
service, and nationwide voice dispatch, to customers in the United States.
Motient provides its eLink(sm) brand two-way wireless email services to
customers accessing email through corporate servers, Internet Service Providers
("ISP"), Mail Service Provider ("MSP") accounts, and paging network suppliers.
In November 2000, Motient launched its BlackBerry(tm) by Motient wireless email
solution, developed by Research in Motion ("RIM") and licensed to operate on
Motient's network. BlackBerry(tm) by Motient is designed for large corporate
accounts operating in a Microsoft Exchange environment and contains advanced
encryption features. Together, the Company considers these two-way mobile
communications services to be its Core Wireless Business.
Additionally, as of December 31, 2000, Motient had an equity interest of
approximately 33.1% (or 21.3% on a fully diluted basis) in XM Satellite Radio
Holdings Inc. ("XM Radio"), a public company; and, as of December 31, 2000 the
Company controlled XM Radio through Board of Director membership and common
stock voting rights. As a result, all of XM Radio's results for the period from
July 7, 1999 (the date Motient acquired 100% voting interest of XM Radio)
through December 31, 2000 have been included in the Company's consolidated
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 13
- -- Business Acquisitions and Dispositions.
XM Radio was incorporated on December 15, 1992 for the purpose of procuring a
digital audio radio service license. XM Radio's management has devoted its time
primarily to securing financing and constructing its satellite system. XM Radio
launched its first satellite on March 18, 2001. XM Radio has not generated any
revenues to date and the planned principal operations have not yet commenced.
In January 2001, pursuant to Federal Communications Commission ("FCC") approval
authorizing Motient to relinquish control of XM Radio, the number of directors
appointed by the Company to XM Radio's Board of Directors was reduced to less
than 50% of XM Radio's directors, and the Company converted a portion of its
super-voting Class B Common Stock of XM Radio to Class A Common Stock. As a
result, the Company ceased to control XM Radio, and will account for its
investment in XM Radio pursuant to the equity method, effective January 2001.
The carrying value of the Company's investment in XM Radio pursuant to the
equity method of accounting was $288,064 (or $17.19 per share) as of December
31, 2000. As of March 29, 2001, the market price of XM Radio common stock was
$7.00 per share, $10.19 per share less than the Company's carrying value.
Pursuant to the equity method of accounting, beginning in 2001, the Company will
be required to assess, considering market and other appropriate factors, whether
a permanent impairment of the Company's investment in XM Radio has occurred and
whether an impairment loss is recognized.
The operations and financing of XM Radio, a public company, are maintained
separate and apart from the operations and financing of Motient.
See Footnote 17 for the Company's consolidating financial statements.
On June 29, 2000, the Company formed a joint venture subsidiary, Mobile
Satellite Ventures LLC ("Satellite Ventures"), in which the Company owns 80% of
the membership interests. The remaining 20% interest in Satellite Ventures is
owned by a group of three investors which paid an aggregate of $50 million in
exchange for their 20% interest. See Note 13 - Business Acquisitions and
Dispositions. Although the Company has an 80% interest in Satellite Ventures,
the minority investors have certain participative rights which provide for their
participation in certain business decisions effecting Satellite Ventures that
may be made in the normal course of business; therefore, in accordance with
Emerging Issues Task Force No. 96-16, "Investor's Accounting for an Investee
when the Investor has a Majority of the Voting Interest, but the Minority
Shareholder or Holders Have Certain Approval or Veto Rights," the Company's
investment in Satellite Ventures is recorded pursuant to the equity method of
accounting.
On November 29, 2000, the Company sold its retail transportation assets to
Aether Systems, Inc. ("Aether"). Aether purchased all of the assets in the
Company's wireless communications business for the transportation market,
including its satellite-only MobileMAX2(tm) multi-mode mobile messaging
business, and Aether assumed all liabilities related to the transportation
business. In addition, Aether entered into separate long-term prepaid airtime
agreements with the Company. See Note 13 - Business Acquisitions and
Dispositions.
Motient 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.
F-25
Liquidity and Financing Requirements
Adequate liquidity and capital are critical to Motient's ability 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, new product rollouts,
capital expenditures and working capital before it begins to generate positive
cash flow from operations. The Company expects these outlays to continue for the
foreseeable future.
Summary of Liquidity and Financing Sources for Core Wireless Business
The Company's current operating assumptions and projections reflect its best
estimate of subscriber and revenue growth and operating expenses. Motient
anticipates that capital expenditures, operating losses, working capital and
debt service requirements through 2001 can be met by (i) cash on hand, (ii)
borrowings available under its bank financing and vendor financing, (iii)
proceeds realized through the sale of inventory relating to eLink and BlackBerry
TM, (iv) reduction of operating expenditures, (v) additional debt or equity
financing transactions, and (vi) its investment in XM Radio. Additionally, the
Company has the potential to receive additional funds from the Aether
transaction as well as the Satellite Ventures transaction - see Note 13 -
Acquisitions and Dispositions and Note 16 - Subsequent Events. The Company's
financial results could deteriorate, and its ability to meet its projections is
subject to numerous uncertainties. There can be no assurance that the current
projections will be achieved. If Motient's cash requirements are more than
projected, it will require additional financing in amounts which may be
material. The type, timing and terms of financing that the Company selects will
be dependent upon the Company's cash needs, the availability of other financing
sources and the prevailing conditions in the financial markets. The Company
cannot guarantee that additional financing sources will be available at any
given time or available on favorable terms.
The Company's consolidated financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and satisfaction of
liabilities in the normal course of business. The successful implementation of
the Company's business plan requires substantial funds to finance the
maintenance and growth of its operations, network and subscriber base and to
expand into new markets. The Company has an accumulated deficit and has
historically incurred losses from operations which are expected to continue for
additional periods in the future. There can be no assurance that its operations
will become profitable. These factors, along with the Company's negative
operating cash flows have placed significant pressures on the Company's
financial condition and liquidity position, and create substantial doubt about
the Company's ability to continue as a going concern. The accompanying financial
statements do not include any adjustments relating to the possible effects on
the recoverability and classification of assets or amounts and classification of
liabilities that might be necessary should the Company be unable to continue as
a going concern.
In January and February 2001, the Company sold, in two separate transactions, 2
million shares of its XM Radio Class A Common Stock, at an average price of
$16.77 per share, for total proceeds of $33.5 million. Approximately $8.5
million of the proceeds were used to repay and permanently reduce the Term
Facility. In exchange for the Guarantors agreeing to waive certain debt
repayment obligations for the second sale of shares, the Company and the
Guarantors have agreed that the first $16.5 million of proceeds received from
the earlier of (i) the closing of the Satellite Ventures transaction and (ii)
any other stated reduction event to occur in the year 2002 will be used to pay
down the bank financing.
On April 2, 2001, Motient entered into an agreement for financing in the amount
of $25 million from Rare Medium Group, Inc. ("Rare") in the form of a note
payable at 12.5% annual interest with a maturity date, subject to certain
mutually-agreed upon extensions, of 180 days from funding, which is expected to
occur by April 6, 2001. Additionally, the Company has the potential to receive
up to an additional $25 million of funding, on comparable terms, the amount of
which will be based on the market price of XM Radio stock. The notes are
collateralized by up to 5 million of the Company's XM Radio shares, and Rare has
the option to exchange the notes for a number of XM Radio shares equivalent to
the principal of the note plus any accrued interest thereon. Of the first $25
million received by the Company, the Company used $6.1 million to repay and
permanently reduce its Term Facility and $14.4 million is subject to
availability upon the approval of the Guarantors.
As of March 30, 2001, the Company held approximately 14.7 million shares of XM
Radio stock; however, approximately 13.7 million of such shares are pledged to
and held by Rare or the Company's banks and guarantors to secure the Company's
obligations under its bank financings and the notes with Rare. There is no
guarantee that the banks and guarantors would agree to release any portion of
their share of this security to permit the Company to liquidate its XM Radio
shares, or that such approval would be on terms favorable to the Company.
Further, the Company's ability to sell its shares of XM Radio stock in the
public markets is generally limited to the quarterly volume restrictions under
Rule 144 of the Securities Act.
2. SIGNIFICANT ACCOUNTING POLICIES
Accounting Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles ("GAAP") requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates. The Company's most significant estimates relate to the valuation of
inventory, the allowance for doubtful accounts receivable, and the realizability
of long-lived assets.
Consolidation
The consolidated financial statements include the accounts of Motient, its
wholly owned subsidiaries, and XM Radio. All significant inter-company
transactions and accounts have been eliminated.
F-26
Cash Equivalents
The Company considers highly liquid investments with remaining maturities of 3
months or less at the time of acquisition to be cash equivalents.
Short-Term Investments
At December 31, 1999, XM Radio held commercial paper with maturity dates of less
than one year which were recorded at amortized cost, which approximated fair
value.
Restricted Investments
Restricted investments represent those investments made by the Company to fund
customer obligations, milestone payments under certain of XM Radio's
construction contracts, certificates of deposit to collateralize letters of
credit required by facility leases, or required interest payments associated
with the Senior Notes and XM Radio's Senior Secured Notes. The securities
included in restricted investments which are required to be used for interest
payments under the Senior Notes and XM Radio's Senior Secured Notes are
classified as held-to-maturity securities under the provisions of Statement of
Financial Accounting Standards ("SFAS") No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." The Company classifies restricted
investment amounts which will mature within one year as current assets in the
accompanying balance sheet. The Company accounts for these investments at
amortized cost.
Inventories
Inventories, which consist primarily of communication devices, are stated at the
lower of cost or market. Cost is determined using the weighted average cost
method. The Company periodically assesses the market value of its inventory,
based on sales trends and forecasts and technological changes and records a
charge to current period income when such factors indicate that a reduction to
net realizable value is appropriate. Management considers both inventory on hand
and inventory which it has committed to purchase. The Company recorded inventory
write-downs to cost of equipment sold to reduce inventory amounts to their net
realizable value, in the amount of $3.6 million in 2000, $4.2 million in 1999,
and $0 in 1998.
The Company's eLink and Blackberry(tm) by Motient wireless services use handheld
devices manufactured by Research in Motion ("RIM"). RIM also manufactures modems
designed to be integrated into mobile terminals manufactured by other vendors
and used for other wireless communications services sold by the Company. The
Company's supply arrangements with RIM are not exclusive, and RIM manufactures
similar hardware products for other companies. There are a limited number of
manufacturers of similar wireless devices, and a change in suppliers or delays
in deliveries from RIM could result in loss of sales which would adversely
effect operating results.
Other Current Assets
Other current assets consist of the following:
December 31,
2000 1999
---- ----
(in thousands)
Interest rate swap (Note 8) $ 611 $ 2,445
Prepaid advertising 5,162 --
Prepaid expenses 17,711 8,333
Deposits 175 2,123
Non-trade receivables and other 7,436 199
-------- ---
$ 31,095 $ 13,100
======== ========
F-27
Fair Value of Financial Instruments
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments," requires
disclosures of the fair value of certain financial instruments. The carrying
amount for cash and cash equivalents, short-term investments, accounts
receivable, non-trade receivables included in other assets, lease receivables
included in non-current deferred charges and other assets, accounts payable and
accrued expenses, deferred trade payables and XM Radio accrued royalty payments
approximate fair value because of the short maturity of these instruments. The
fair value of the Senior Notes was estimated using quoted market prices. The
fair value of the interest rate swap is the estimated amount that the Company
would receive to terminate the swap agreement based on quoted market prices,
taking into account current interest rates and the current creditworthiness of
the swap counter parties. As a result of the Guarantees associated with the Bank
Financing, it is not practicable to estimate the fair value of this facility.
For debt issues that are not quoted on an exchange, interest rates currently
available to the Company for issuance of debt with similar terms and remaining
maturities are used to estimate fair value.
As of December 31, 2000 As of December 31, 1999
----------------------- -----------------------
Carrying Carrying
Amount Fair Value Amount Fair Value
(in thousands)
Assets:
Restricted investments $193,092 $192,627 $ 72,147 $71,267
Interest rate swap (Note 8) 611 708 3,056 3,448
Liabilities:
Senior Notes 328,474 111,681 327,576 274,700
XM Radio Senior Secured Notes 261,298 179,563 -- --
Vendor financing commitment 8,492 8,492 4,512 4,512
Capital leases 13,820 13,820 6,401 6,401
Concentrations of Credit Risk
Financial instruments which potentially subject the Company to concentrations of
credit risk consist principally of cash, short term investments, restricted
investments, and accounts receivable. The Company periodically invests its cash
balances in temporary or overnight investments. The Company invests its short
term investments and restricted investments in debt securities such as
commercial paper, time deposits, certificates of deposit, bankers acceptances,
and marketable direct obligations of the United States Treasury. The Company's
intent is to hold its investments in debt securities to maturity.
To date, the majority of the Company's business has been transacted with
telecommunications, field services, natural resources and transportation
companies, including maritime and trucking companies located throughout the
United States. The Company grants credit based on an evaluation of the
customer's financial condition, generally without requiring collateral or
deposits. Exposure to losses on trade accounts receivable, for both service and
for equipment sales, is principally dependent on each customer's financial
condition. For the year ended December 31, 2000, four customers accounted for
approximately 31% of the Company's service revenue, with two customers
individually accounting for 10% each. The Company anticipates that its credit
risk with respect to trade accounts receivable in the future will become more
diversified due to the large number of customers expected to comprise the
Company's subscriber base and their expected dispersion across many different
industries and geographies.
Software Development Costs
The Company capitalizes costs related to the development of certain software to
be used with its mobile messaging and position location service (the "Mobile
Data Communications Service") product, all of which were sold as part of the
Aether transaction. The Company commenced amortization of these costs in the
first quarter of 1996. These costs were being amortized over three years prior
to Aether's purchase of these assets. As of December 31, 2000 and 1999, net
capitalized software development costs were $0 and $152,000, respectively. These
amounts are included in property and equipment in the accompanying balance
sheets. Additionally, during 1998, the Company adopted Statement of Position
("SOP") No. 98-1 -- "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use." As of December 31, 2000 and 1999, net capitalized
internal use software costs were $6.4 million and $5.3 million, respectively,
and are included in property and equipment in the accompanying balance sheets
and are amortized over three years.
F-28
Deferred Charges and Other Assets
Deferred charges and other assets primarily consist of the unamortized financing
costs and debt issue costs associated with the existing vendor financing
arrangements, the Senior Notes, the Bank Financing, the long-term portion of
deferred equipment costs, the long-term portion of lease receivables associated
with a 5-year customer lease program offered in 1999, the long-term portion of
prepaid expenses of XM Radio, and the long-term portion of the interest rate
swap purchased in connection with the Bank Financing (see Note 8).
December 31,
2000 1999
(in thousands)
Deferred financing costs, net $19,915 $15,299
Prepaid expenses of XM Radio-long-term portion 1,203 3,422
Deferred equipment costs 27,893 --
Lease receivables-long-term portion -- 2,628
Interest rate swap agreement-long-term portion -- 611
Other long term assets 524 580
-------- --------
$49,535 $22,540
Financing costs are amortized over the term of the related facility using the
straight-line method, which approximates the effective interest method.
Other Long-Term Liabilities
Other long-term liabilities consist of the following:
December 31,
2000 1999
---- ----
(in thousands)
Deferred revenue, Aether (Note 13) $11,750 $--
Asset purchase deposit, Satellite Ventures (Note 13) 10,746 --
Deferred revenue, Satellite Ventures (Note 13) 3,630 --
Deferred equipment revenue 27,893 --
XM Radio royalty payable and other long-term liabilities 7,086 3,955
------- ------
$61,105 $3,955
======= =======
Revenue Recognition
The Company generates revenue through equipment sales, airtime service
agreements, and consulting services. In 2000, the Company adopted Staff
Accounting Bulletin No. 101, "Revenue Recognition" ("SAB 101"), issued by the
SEC. The adoption of SAB 101 did not have a material impact on the Company's
reported financial position or results of operations. SAB 101 provides guidance
on the recognition, presentation and disclosure of revenue in financial
statements. In certain circumstances, SAB 101 requires the Company to defer the
recognition of revenue and costs related to equipment sold as part of a service
agreement. Revenue is recognized as follows:
Equipment and service sales: The Company sells equipment to resellers who market
its terrestrial product and airtime service to the public. The Company also
sells its product directly to end-users. Revenue from the sale of the equipment
and along with activation fees as well as the cost of the equipment are
initially deferred and are generally recognized over a period corresponding to
the Company's estimate of customer life. Equipment costs are deferred only to
the extent of deferred revenue.
Consulting services: The Company occasionally provides consulting services to
its customers. Revenue from such services is generally recognized following the
contract terms as milestones are achieved.
F-29
Research and Development Costs
Research and development costs are expensed as incurred. Such costs include
internal research and development activities and expenses associated with
external product development agreements. The Company's core wireless business
incurred research and development costs of approximately $2.1 million in 2000,
$1.0 million in 1999, and $1.1 million for 1998. The Company's consolidated
results also included research and development costs incurred by XM Radio in the
amount of $7.4 million in 2000 and $2.9 million in 1999.
Advertising Costs
Advertising costs are charged to operations in the year incurred and totaled
$12.6 million, $4.2 million, and $2.9 million for 2000, 1999 and 1998. A portion
of the advertising costs associated with the Company's Yahoo! Internet
promotion, were prepaid in the form of warrants to acquire common stock issued
by the Company, valued at $4.8 million. The prepaid expenses are expensed as the
associated page views are delivered by Yahoo!. As of December 31, 2000 the
Company had recognized approximately $0.7 million of advertising expense
associated with the Yahoo! Internet promotion. As of December 31, 2000, the
balance of these prepaid advertising expenses was $4.1 million.
Capitalized Interest
XM Radio capitalizes a portion of interest cost as a component of the cost of
the FCC licenses and satellite system under construction. XM Radio capitalized
interest in the amount of $39.1 million in 2000 and $15.3 million in 1999.
Stock Based Compensation
The Company accounts for employee stock options using the method of accounting
prescribed by Accounting Principles Board ("APB") Opinion No. 25, "Accounting
for Stock Issued to Employees." Generally, no expense is recognized related to
the Company's stock options because the option's exercise price is set at the
stock's fair market value on the date the option is granted.
Assessment of Asset Impairment
The Company follows the provisions of SFAS No. 121 "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of,"
which requires that long-lived assets and certain identifiable intangibles be
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. Recoverability of
assets to be held and used is measured by a comparison of the carrying amount of
an asset to future net cash flows expected to be generated by the asset. If such
assets are considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets exceeds the
fair value of the assets. Assets to be disposed of are reported at the lower of
the carrying amount or their fair value less costs to sell.
The Company assessed the carrying value of its satellite and related assets as
of December 31, 1999, and determined that an impairment did exist. The Company's
geostationery satellite was originally designed for voice services. Following
the Company's acquisition of Motient Communications in 1998, the Company focused
its business towards a data strategy, relying primarily on its terrestrial
network, and as a result of this shift, data service revenue in 1999 increased
to 73% of service revenue from 69% in 1998. Voice service revenue in 1998
represented 24% of service revenue versus only 20% in 1999. This shift to a data
strategy was also apparent in the Company's new primary product offerings in
1999 -- MobileMAX2(tm), announced in the fourth quarter of 1999 with sales
beginning in 2000, and eLink(sm), which began selling in the fourth quarter of
1999. MobileMAX2(tm) was expected to be the Company's second generation multi-
mode data messaging service and eLink is a two-way wireless email device. In
addition to these factors, TMI Communications Company Limited Partnership
("TMI") and SatCom Systems, Inc. were each granted applications in November 1999
to use TMI's Canadian-licensed satellite system to provide service in the United
States. TMI's system operates in the Mobile Satellite Services ("MSS") L-band
and has footprints covering the United States. These companies' entry in the
United States marketplace represents additional competition to the Company in
the voice business. Given these factors, management evaluated the satellite and
related ground segment assets for impairment. Based on the analysis, the Company
determined that future cash flows were less than the carrying value of the
assets. Accordingly, the Company determined the fair value of the assets and
recorded an impairment charge of $97.4 million to reduce the carrying value of
the satellite and related ground segment assets to the Company's estimate of
fair value at December 31, 1999. The determination of fair value was based on
management's best estimate of the expected discounted future cash flows
attributable to the satellite and related ground segment.
F-30
Loss Per Share
Basic earnings per share excludes dilution and is computed by dividing income
available to common stockholders by the weighted-average number of common shares
outstanding for the period. Diluted earnings per share reflects the potential
dilution that could occur if securities or other contracts to issue common stock
were exercised or converted into common stock or resulted in the issuance of
common stock that then shared in the earnings of the entity. Options and
warrants to purchase shares of common stock were not included in the computation
of loss per share as the effect would be antidilutive. As a result, the basic
and diluted earnings per share amounts are identical. As of December 31, 2000,
there were options and warrants to acquire approximately 4.5 million shares of
common stock that are not included in this calculation because the effect would
be 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 years ended December 31, 2000, 1999, and 1998.
Segment Disclosures
In accordance with SFAS No. 131, "Disclosures about Segments of an Enterprise
and Related Information," the Company has two operating segments: its Core
Wireless Business and XM Radio's satellite-based digital audio radio service.
The Company provides its Core Wireless Business to the continental United
States, Alaska, Hawaii, Puerto Rico, the U.S. Virgin Islands, and certain 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 Business and equipment revenue by major product lines:
Revenue for the Year Ended
December 31,
2000 1999 1998
---- ---- ----
(in millions)
Data Service $52.6 $ 49.7 $ 40.1
Voice Service 12.2 13.2 14.0
Capacity Resellers and Other 8.7 4.8 3.9
Equipment 26.4 23.4 29.2
Reclassification
Certain amounts from prior years' consolidated financial statements have been
reclassified to conform with the 2000 presentation.
New Accounting Pronouncements
In September 1998, FASB issued SFAS 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 was originally effective for the year ended December 31, 2000. In
September 1999, FASB issued SFAS No. 137, which deferred the effective date of
SFAS No. 133 until fiscal years beginning after September 15, 2000. In June
2000, FASB issued SFAS No. 138, "Accounting for Certain Derivative Instruments
and Certain Hedging Activities," which amends SFAS No. 133. This Statement
limits the scope to certain derivatives and hedging activities. The effective
date of SFAS No. 138 is for fiscal years beginning after September 15, 2000. The
Company does not believe that the adoption of these statements will have a
material impact on its financial position, results of operations and cash flows.
During the fourth quarter of 2000, the Company adopted Staff Accounting Bulletin
No. 101, "Revenue Recognition" ("SAB 101"), issued by the SEC. SAB 101 provides
guidance on the recognition, presentation and disclosure of revenue in financial
statements. In certain circumstances, SAB 101 requires the Company to defer the
recognition of revenue and costs related to equipment sold as part of a service
agreement. The adoption of SAB 101 did not have a material impact on the
Company's statement of operations.
F-31
In March 2000, FASB issued Interpretation No. 44, "Accounting for Certain
Transactions Involving Stock Compensation" ("FIN 44") was issued. FIN 44 further
defines the accounting consequence of various modifications to the terms of a
previously fixed stock option or award under APB Opinion No. 25, "Accounting for
Stock Issued to Employees." FIN 44 became effective on July 1, 2000, but certain
conclusions in FIN 44 cover specific events that occurred after either December
15, 1998 or January 12, 2000. The Company adopted FIN 44 in 2000. The effects of
implementing FIN 44 required XM Radio to recognize additional non-cash
compensation during the year ended December 31, 2000, of approximately $1.2
million associated with stock options that had been repriced during the period
covered by FIN 44, and the Core Wireless Business recognized additional non-cash
stock compensation of approximately $1.0 associated with the transfer of
employees to Aether. Additional compensation charges related to certain stock
compensation awards made by the Company may result depending upon the market
value of the common stock at each balance sheet date.
3. STOCKHOLDERS' EQUITY (DEFICIT)
The Company has authorized 200,000 shares of Preferred Stock and 150,000,000
shares of Common Stock. The par value per share is $0.01 for each class of
stock. For each share held, common stockholders are entitled to one vote on
matters submitted to the stockholders. Cumulative voting applies for all
elections of directors of the Company.
The Preferred Stock may be issued in one or more series at the discretion of the
Board of Directors (the "Board"), without stockholder approval. The Board is
authorized to determine the number of shares in each series and all
designations, rights, preferences, and limitations on the shares in each series,
including, but not limited to, determining whether dividends will be cumulative
or non-cumulative.
Certain significant stockholders of the Company have entered into a
Stockholders' Agreement (the "Agreement") which contains provisions relating to
the election of directors, procedures for maintaining compliance with the
Federal Communication Commission's ("FCC") alien ownership restrictions, certain
restrictions on the transfer, sale and exchange of Common Stock, and procedures
for appointing directors to the Executive Committee of the Board, among others.
The Agreement continues in effect until terminated by an affirmative vote of
holders of three-fourths of the Company's Common Stock held by parties to the
Agreement. Other matters relating to the Company's governance of the Company are
set forth in the Certificate of Incorporation and Bylaws.
As of December 31, 2000, the Company had reserved Common Stock for future
issuance as detailed below.
Shares issuable upon exercise of warrants 7,957,475
Amended and Restated Stock Option Plan for Employees 6,033,037
Stock issuable upon exercise of Satellite Ventures'
investors' option (see Note 13) 4,166,667
Stock Option Plan for Non-Employee Directors 82,000
Employee Stock Purchase Plan 321,572
Defined Contribution Plan 65,321
----------
Total 18,626,072
==========
XM Radio
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, Clear Channel Investments, DIRECTV, Telcom Ventures, Columbia
Capital and Madison Dearborn Partners. $75 million of the proceeds were used to
pay an outstanding note payable and the remaining proceeds were used to fund
working capital needs. The Series A subordinated notes and all accrued interest
thereon are convertible into Series A convertible preferred stock (in the case
of the notes held by General Motors), or Class A common stock (in the case the
notes held by the other investors) 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. On
October 8, 1999, XM Radio completed an initial public offering of 10.2 million
shares of Class A common stock. Concurrent with this offering, the Series A
subordinated convertible notes were converted into 10.8 million shares of Series
A convertible preferred stock and 16.2 million shares of Class A common stock.
In the first quarter of 2000, XM Radio raised an additional $228.6 million in
net proceeds through a follow-on offering of 4.4 million shares of its Class A
common stock and 2.0 million shares of Series B convertible redeemable preferred
stock.
F-32
In March 2000, XM Radio completed a high yield debt offering of 325,000 units,
each unit consisting of $1,000 principal amount of 14% Senior Secured Notes due
2010 and one warrant to purchase 8.024815 shares of Class A common stock of XM
Radio at an exercise price of $49.50 per share. XM Radio realized net proceeds
of $191.5 million, excluding $123.0 million used to acquire restricted
investments which will be used to pay interest payments due under the notes for
the first three years.
In August 2000, XM Radio completed a private offering of 235,000 shares for
$1,000 per share of its 8.25% Series C convertible redeemable preferred stock
and raised additional net proceeds of approximately $226.8 million. XM Radio
recorded a $123.0 million beneficial conversion charge that reduced earnings
available to common stockholders. The issuance of the Series C preferred stock
caused the exercise price of the warrants sold in March 2000 to be adjusted to
$47.94 and the number of warrant shares to be increased to 8.285948 per warrant.
As a result of the issuance by XM Radio of its Series C convertible redeemable
preferred stock with a common stock conversion price less than the market value
of the common stock, XM Radio recorded a beneficial conversion charge that
reduced earnings available to common stockholders. The Company has reflected its
proportionate share of the beneficial conversion charge in the accompanying
consolidated statements of operations.
In connection with the above XM Radio transactions, the Company's voting
interest in XM Radio was reduced to 33.1 % (21.3% on a fully diluted basis), and
in accordance with Staff Accounting Bulletin 51 (SAB 51), the Company recorded
an increase to its investment in XM Radio of $129.5 million in 2000 and $80. 7
million in 1999. SAB 51 addresses the accounting for sales of stock by a
subsidiary. Because XM Radio is a development stage company, SAB 51 requires the
difference in the carrying amount of the Company's investment in XM Radio and
the net book value of XM Radio after the stock issuance be reflected in the
financial statements of the Company as a capital transaction in the accompanying
consolidated statements of stockholders' equity (deficit).
4. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
December 31,
2000 1999
---- ----
(in thousands)
Space Segment $127,621 $127,316
Ground Segment 72,524 75,435
Network equipment 83,638 58,511
Construction in progress 20,492 11,493
Office equipment and furniture 48,448 18,605
Leasehold improvements - XM Radio 26,481 --
Mobile data communications service equipment -- 17,191
-------- --------
379,204 308,551
Less accumulated depreciation and amortization 203,498 192,035
-------- --------
Property and equipment, net $175,706 $116,516
======== ========
Property and equipment is recorded at cost and depreciated over its useful life
using the straight line method. Assets recorded as capital leases are amortized
over the shorter of their useful lives or the term of the lease. The estimated
useful lives of office furniture and equipment vary from 2-10 years. The
Company's ground segment is depreciated over 8 years, the network equipment is
depreciated over 7 years, and the mobile data communications service equipment,
which was sold to Aether, was depreciated over 3 1/2 years. The Company has also
capitalized certain costs to develop and implement its computerized billing
system. These costs are included in property and equipment and are depreciated
over 8 years.
The Company is depreciating its satellite, MSAT-2, over its estimated useful
life of 10 years, which was based on several factors, including current
conditions and the estimated remaining fuel of MSAT-2. The original estimated
useful live is periodically reviewed using current Telemetry Tracking and
Control data. To date, no significant change in the original estimated useful
life has resulted. The telecommunications industry is subject to rapid
technological change which may require the Company to revise the estimated
useful lives of MSAT-2 and the ground segment or to adjust their carrying
amounts. As discussed in Note 2, during 1999, the Company wrote down the value
of the space and ground segment assets to their estimated fair value.
The costs of constructing and putting satellites into service are capitalized in
the financial statements and depreciated over the estimated useful life of the
satellite. A failure of the satellite from unsuccessful launches and/or in orbit
anomalies would result in a current write-down of the satellite value. Partial
satellite failures are recognized currently to the extent such losses are deemed
abnormal to the operation of the satellite. A partial failure which is deemed
normal would not result in a loss of satellite capacity beyond what is
considered normal satellite wear and tear. Additionally, all future incentive
arrangements relating to the construction of satellites will be capitalized at
launch.
XM Radio is currently developing its satellite system. The costs of constructing
and putting the satellite into service are being capitalized. At December 31,
2000, the carrying value of the system under construction related to the costs
incurred in obtaining a FCC license and approval as well as system development.
XM Radio will begin amortizing the FCC license upon commercial launch using the
straight line method over its estimated useful life of fifteen years.
Depreciation of the satellite will begin upon in-orbit delivery and the ground
stations will begin upon commercial launch. The satellites and ground stations
will be depreciated over their estimated useful lives.
F-33
XM Radio System Under Construction consists of the following:
December 31,
2000 1999
---- ----
(in thousands)
License $135,139 $127,338
Satellite System 533,154 214,471
Terrestrial System 84,715 11,396
Spacecraft control facilities 13,046 2,000
Broadcast facilities and other 27,970 2,073
System under development 6,458 --
-------- --------
Total $800,482 $357,278
======== ========
The balances at December 31, 2000 and 1999 include capitalized interest of
$65,176 and $26,124, respectively.
5. GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill and other intangible assets consist of the following:
December 31,
2000 1999
---- ----
(in thousands)
FCC Licenses $53,437 $49,880
Goodwill-Motient Communications Acquisition 6,154 6,154
Programming and advertising agreements-XM Radio Acquisition 7,337 7,337
Receiver Agreement-XM Radio Acquisition 4,207 4,207
Less accumulated amortization (8,667) (5,367)
-------- --------
Goodwill and other intangible assets, net $62,468 $62,211
======= =======
Goodwill and other intangible assets are being amortized on a straight-line
basis over 10-20 years except for the programming and advertising agreements
acquired in the XM Radio Acquisition. These agreements will begin amortization
upon commencement of commercial operations of XM Radio and will be amortized
over the life of their respective contract.
6. STOCK OPTIONS AND RESTRICTED STOCK
The Company has two active stock option plans. The Motient Corporation Stock
Award Plan (the "Plan") permits the grant of non-statutory options and
stock-based awards up to a total of 7.3 million shares of Common Stock. Under
the Plan, the exercise price and vesting schedule for options is determined by
the Compensation Committee of the Board, which was established to administer the
Plan. Generally, options vest over a three year period and will have an exercise
price not less than the fair market value of a share on the date the option is
granted or have a term greater than ten years. In May 2000, the Company's
stockholders approved certain amendments to the Plan, including permitting
non-employee directors to be eligible for option grants under the Plan.
F-34
The Company also has a Stock Option Plan for Non-Employee Directors (the
"Director Plan") which provides for the grant of options up to a total of
100,000 shares of Common Stock. Effective March 25, 1999, Directors receive an
initial option to purchase 5,000 shares of Common Stock, with annual option
grants to purchase 2,500 shares of Common Stock. In addition, the Board of
Directors may also grant discretionary options at such times and on such terms
and conditions as it deems appropriate. Options under the Director Plan can be
exercised at a price equal to the fair market value of the stock on the date of
the grant and are fully vested and immediately exercisable on the date of grant.
Each Director Plan option expires on the earlier of (i) ten years from the date
of grant or (ii) seven months after the Director's termination.
In January 1998, the Board of Directors granted restricted stock to certain
members of senior management. These grants include both a three-year vesting
schedule as well as specific corporate performance targets. The performance
requirements will remain in place, and unless further waived by the Board of
Directors, failure to meet a required performance target would prevent the
vesting of the restricted shares. As of December 31, 1998, the Company recorded
costs of approximately $252,000 associated with the vesting of these shares. As
performance targets were not met or waived, there were no such costs recorded in
1999 or in 2000; however, in January 2001, in recognition of employee services
in entering into the second Satellite Ventures transaction (see Note 16), the
Board lifted the remaining restrictions, and the shares will be released upon
vesting. Additional compensation costs will be recorded in 2001 and 2002 upon
vesting of these shares.
Information regarding the Company's stock option plans is summarized below:
Weighted Average
Available Granted and Option Price
for Grant Outstanding Per Share
--------- ----------- ---------
Balance, December 31, 1998 1,383,463 2,729,071 $11.11
Restricted stock granted (40,000) -- --
Restricted stock cancelled 30,785 -- --
Additional shares authorized for grant 50,000 -- --
Options granted (1,040,226) 1,040,226 5.92
Exercised -- (484,815) 11.74
Forfeited 183,284 (183,284) 4.87
---------- ----------
Balance, December 31, 1999 567,306 3,101,198 8.73
Restricted stock cancelled 50,000 -- --
Additional shares authorized for grant 2,800,000 -- --
Options granted (1,570,294) 1,570,294 15.98
Exercised -- (403,467) 11.03
Forfeited 347,420 (347,420) 13.42
---------- -----------
Balance, December 31, 2000 2,194,432 3,920,605 $11.65
========== ==========
Options exercisable at December 31:
Average
Options Exercise Price
------- --------------
2000 1,658,044 $10.40
1999 1,344,511 $11.99
1998 957,617 $13.29
The Company accounts for stock compensation costs in accordance with the
provisions of APB No. 25, "Accounting for Stock Issued to Employees." Had
compensation cost been determined based on the fair value at the grant dates for
awards under the Company's stock plans in accordance with SFAS No. 123,
"Accounting for Stock Based Compensation," the net loss would have been
increased by $7.3 million ($0.15 per share) in 2000, $6.2 million ($0.16 per
share) in 1999, and $8.9 million ($0.29 per share) in 1998. As required by SFAS
No. 123, the fair value of each option grant is estimated on the date of grant
using the Black-Scholes option pricing model with the following assumptions for
2000, 1999, 1998: no historical dividend yield; an expected life of 10 years;
historical volatility of 135% in 2000, 115% in 1999, and 95% in 1998 and a
risk-free rate of return ranging from 4.64% to 5.34%.
F-35
Exercise prices for options outstanding as of December 31, 2000, are as follows:
Options Outstanding Options Exercisable
Number Weighted Number
Outstanding Average Weighted Exercisable Weighted
as of Contractual Average as of Average
Range of December 31, Life Exercise December 31, Exercise
Exercise Prices 2000 Remaining Price 2000 Price
--------------- ---- --------- ----- ---- -----
$4.61-8.84 809,306 8.12 $5.33 287,026 $ 5.62
8.87-8.87 724,701 7.14 8.87 413,892 8.87
9.73-12.50 496,701 6.04 11.97 479,701 11.99
12.81-12.81 221,579 6.06 12.81 221,579 12.81
13.00-15.12 255,179 4.75 13.07 250,179 13.04
15.17-15.17 1,365,139 9.07 15.17 1,000 15.17
17.37-38.06 48,000 8.77 28.64 4,667 19.97
--------- ---------
3,920,605 7.68 11.65 1,658,044 $10.40
========= ====== ======= ========= ======
7. INCOME TAXES
The Company accounts for income taxes under the liability method as required in
SFAS No. 109, "Accounting for Income Taxes." Under the liability method,
deferred income taxes are recognized for the tax consequences of "temporary
differences" by applying enacted statutory tax laws and rates applicable to
future years to differences between the financial statement carrying amounts and
the tax bases of existing assets and liabilities. Under this method, the effect
on deferred taxes of a change in tax rates is recognized in income in the period
that includes the enactment date. Potential tax benefits, related to net
operating losses and temporary differences, have been recorded as an asset, and
a valuation allowance for the same amount has been established. The Company has
paid no income taxes since inception. The following is a summary of the
Company's net deferred tax assets.
December 31,
------------------------
2000 1999
---- ----
(in thousands)
Net Operating Loss Carryforwards $407,803 $342,791
Deferred Taxes Related to Temporary Differences:
Tangible asset bases, lives and depreciation methods (49,483) (43,156)
Other 67,698 62,843
--------- --------
Total deferred tax asset, net 426,018 362,478
Less valuation allowance (426,018) (362,478)
--------- ---------
Net deferred tax asset $ -- $ --
========= ========
Significant timing differences affecting deferred taxes in 2000 reflect the
treatment of costs associated with the Space Segment for financial reporting
purposes compared to tax purposes. As of December 31, 2000, the Company had
estimated net operating loss carryforwards ("NOLs") of $1.01 billion. In July
1999, as a result of the Company's investment in XM Radio which triggered a
change in control as defined by the Internal Revenue Code, utilization of the
Company's NOLs were limited to approximately $43 million per year. The Company's
NOLs expire between 2004 and 2020.
F-36
8. LONG-TERM DEBT
December 31,
2000 1999
---- ----
(in thousands)
Senior Notes, net of discount $328,474 $327,576
Senior Notes, net of discount - XM Radio 261,298 --
Bank Financing-- Term Loan Facility 40,000 41,000
Bank Financing-- Revolving Credit Facility 71,250 44,000
Vendor Financing Commitment 8,492 4,512
Convertible note payable due to related party -- 50,138
Deferred Trade Payables 2,212 3,983
--------- --------
711,726 471,209
Less current maturities 6,458 5,960
--------- --------
Long-term debt $705,268 $465,249
========= ========
$335 Million Unit Offering
On March 31, 1998, Motient Holdings, a wholly-owned subsidiary of Motient,
issued $335 million of Units (the "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") at an exercise price of $12.51 per share. The Warrants were
valued at $8.5 million and were recorded as a debt discount. A portion of the
net proceeds of the sale of the Units were used to finance the Motient
Communications Acquisition in 1998. In connection with the Senior Notes, Motient
Holdings purchased approximately $112.3 million of restricted investments that
are restricted for the payment of the first six interest payments on the Senior
Notes. Interest payments are due semi-annually, in arrears, beginning October 1,
1998. At December 31, 2000, approximately $20.7 million was available in
restricted investments to fund the next interest payment coming due on April 1,
2001. Interest payments beginning in October 2001 related to the Senior Notes
will be payable from the Company's unrestricted cash and cash equivalents. As a
result of the automatic application of certain adjustment provisions following
the issuance of 7.0 million shares of Common Stock in a public offering in 1999,
the exercise price of the warrants associated with the Senior Notes was reduced
to $12.28 per share, the number of shares per warrant was increased to 3.83
shares for each $1,000 principal amount of Senior Notes, and the aggregate
number of shares issuable upon exercise of such warrants was increased by
24,294. The additional Senior Note warrants and re-pricing were valued at
$440,000. This was recorded as additional debt discount in the third quarter of
1999. The Senior Notes are fully guaranteed by Motient Corporation.
$325 Million Unit Offering - XM Radio
On March 15, 2000, XM Radio closed a private placement of 325,000 units, each
unit consisting of $1,000 principal amount of 14% senior secured notes due 2010
of XM Satellite Radio Inc. and one warrant to purchase 8.024815 shares of Class
A common stock at price of $49.50 per share. XM Radio realized net proceeds of
$191.5 million, excluding $123.0 million used to acquire securities which will
be used to pay interest payments due under the notes for the first three years.
The $325 million face value of notes was offset by a discount of $65.7 million
associated with the fair value of the warrants sold. As a result of the issuance
of Series C preferred stock, the exercise price of the warrants was adjusted to
$47.94 per share and the number of warrant shares to be increased to 8.285948
per share.
Bank Financing
In March 1998, the Company entered into a $200 million Bank Financing (the "Bank
Financing") consisting of two facilities: (i) the Revolving Credit Facility, a
$100 million unsecured five-year reducing revolving credit facility maturing
March 31, 2003, and (ii) the Term Loan Facility, a $100 million five-year, term
loan facility with up to three additional one-year extensions subject to the
lenders' approval. In 1999, the Term Loan Facility was reduced to $41 million.
In 2000, the Term Loan Facility was reduced to $40 million, and the Revolving
Credit Facility was reduced to $77.25 million. The Revolving Credit Facility
ranks pari passu with the Senior Notes. The Term Loan Facility is secured by the
assets of the Company, principally its stockholdings in XM Radio and Motient
Holdings, and will be effectively subordinated to the Revolving Credit Facility
and the Senior Notes. The Bank Financing is severally guaranteed by Hughes
Electronics Corporation, Singapore Telecommunications Ltd. and Baron Capital
Partners, L.P. (collectively, the "Bank Facility Guarantors"). As discussed in
Note 16 - Subsequent Events, the outstanding borrowings were reduced as of March
30, 2001 to $31.5 million under the Term Loan Facility at 6.19%. The $77.3
million of borrowings outstanding under the Revolving Credit Facility as of
March 30, 2001, are at rates ranging from 6.0% to 8.0%.
F-37
The Term Loan Facility
The Term Loan Facility bears an interest rate, generally, of 100 basis points
above London Interbank Offered Rate ("LIBOR"). The Term Loan Agreement does not
include any scheduled amortization until maturity, but does contain certain
provisions for prepayment based on certain proceeds received by the Company,
unless otherwise waived by the banks and the Bank Facility Guarantors,
including: (1) 100% of excess cash flow obtained by the Company, as defined; (2)
the first $25.0 million of net proceeds from the lease or sale of MSAT-2
received by the Company, and thereafter 75% of the remaining proceeds received
from such lease or sale (the remaining 25% to be retained by Motient Holdings
for business operations); (3) 100% of the proceeds of any other asset sales by
the Company; (4) 50% of the net proceeds of any equity offerings of the Company
(the remaining 50% to be retained by the Company for business operations); and
(5) 100% of any major casualty proceeds of the Company. To the extent that the
Term Loan Facility is repaid, the abovementioned proceeds that would otherwise
have been used to repay the Term Loan Facility will be used to repay and
permanently reduce the commitment under the Revolving Credit Facility.
The Revolving Credit Facility
The Revolving Credit Facility bears an interest rate, generally, of 100 basis
points above LIBOR and is unsecured, with a negative pledge on the assets of
Motient Holdings and its subsidiaries and ranks pari passu with the Senior
Notes. The Revolving Credit Facility will be reduced $10 million each quarter,
beginning with the quarter ending June 30, 2002, with the balance due on March
31, 2003. Certain proceeds received by Motient Holdings would be required to
repay and reduce the Revolving Credit Facility, unless otherwise waived by the
banks and the Bank Facility Guarantors, including: (1) 100% of excess cash flow
obtained by Motient Holdings, as defined; (2) the first $25.0 million net of
proceeds of the lease or sale of MSAT-2 received by Motient Holdings, and
thereafter 75% of the remaining proceeds received from such lease or sale (the
remaining 25% may be retained by Motient Holdings for business operations); (3)
100% of the proceeds of any other asset sales by Motient Holdings; (4) 50% of
the net proceeds of any offerings of Motient Holdings' equity (the remaining 50%
to be retained by for business operations); and (5) 100% of any major casualty
proceeds. At such time as the Revolving Credit Facility is repaid in full, and
subject to satisfaction of the restrictive payments provisions of the Notes, any
prepayment amounts that would otherwise have been used to prepay the Revolving
Credit Facility will be dividended to Motient Corporation. As of March 30, 2001,
no amounts were available for borrowing under the Revolving Credit Facility.
Debt Extinguishment
In 1999, the Company raised $116 million, net of underwriting discounts and
expenses, through the issuance of 7.0 million shares of 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. In 2000, the Company
paid down and permanently reduced the Term Loan Facility by an additional $1
million with proceeds from stock and warrant exercises, and the Revolving Credit
Facility was permanently reduced by $22.8 million with a portion of the proceeds
of the Satellite Ventures and Aether transactions. As a result of the permanent
reductions of the Term Facility and Revolving Credit Facility, the Company
recorded an extraordinary loss on extinguishment of debt of approximately $3.0
million in 2000 and $12.1 million in 1999, which reflects the write-off, on a
pro-rata basis, of unamortized guarantee warrants held by certain shareholder
guarantors of the Bank Financing (the "Guarantee Warrants") and deferred
financing fees associated with the placement of the Bank Financing. The Company
will record an extraordinary loss on extinguishment of debt in 2001 associated
with the principal repayment, discussed in Note 16.
The Guarantees
In connection with the Bank Financing, the Bank Facility Guarantors, current and
former Motient shareholders, extended separate guarantees of the obligations of
each of Motient Holdings and the Company to the banks, which on a several basis
aggregated to $200 million. In their agreement with each of Motient Holdings and
the Company (the "Guarantee Issuance Agreement"), the Bank Facility Guarantors
agreed to make their guarantees available for the Bank Financing. In exchange
for the additional risks undertaken by the Bank Facility Guarantors in
connection with the 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 in connection with the
original Bank Facility (together, the "Guarantee Warrants"). The Guarantee
Warrants were issued with an exercise price of $12.51 and were valued at
approximately $17.7 million. The amounts initially assigned to the Guarantee
Warrants and subsequent repricings are recorded as Common Stock Purchase
Warrants and Unamortized Guarantee Warrants in the accompanying consolidated
balance sheets. The amount assigned to Unamortized Guarantee Warrants is
amortized to interest expense over the life of the related debt. 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 re-pricing was approximately $1.5
F-38
As a result of the automatic application of certain adjustment provisions
following the issuance of the 7.0 million shares in the August 1999 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
126,250 shares. The additional Guarantee Warrants and re-pricing were valued at
$2.4 million. Additionally, in June 2000, the Bank Facility Guarantors agreed to
partially reduce the debt repayment requirements associated with the Satellite
Ventures transaction. In exchange, the Company further reduced the price of the
Guarantee Warrants to $6.25, which was valued at $1.4 million.
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 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 Motient Holdings.
In connection with the 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 fixed fee of approximately $17.9 million for the swap agreement. In
return, the counter-party is obligated to pay a variable rate equal to LIBOR
plus 50 basis points, paid on a quarterly basis directly to the respective banks
on behalf of the Company, on a notional amount of $100 million until the
termination date of March 31, 2001. In connection with the pay down of a portion
of the Term Loan Facility during 1999, 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. The Company has reflected as an asset, the fee paid for the swap
agreement and is included in other assets in the accompanying consolidated
balance sheets. The interest rate swap fee is being amortized over the life of
the swap as a component of interest expense. 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.
Motorola Vendor Financing
Motorola has entered into an agreement with the Company to provide up to $15
million of vendor financing, to finance up to 75% of the purchase price of
additional network base stations. Loans under this facility bear interest at a
rate equal to LIBOR plus 7.0% and will be guaranteed by the Company and each
subsidiary of Motient Holdings. The terms of the facility require that amounts
borrowed be secured by the equipment purchased therewith. Advances made during a
quarter constitute a loan, which is then amortized on a quarterly basis over
three years. As of December 31, 2000 and 1999, $8.5 million and $4.5 million
respectively, was outstanding under this facility at interest rates ranging from
13.0% to 13.8% and 12.1% to 13.1%, respectively.
Deferred Trade Payables
The Company has arranged the financing of certain trade payables, which are
included in current maturities in the accompanying consolidated balance sheets.
As of December 31, 2000 and 1999, $2.2 million and $4.0 million, respectively,
of deferred trade payables were outstanding at rates ranging from 5.9% to 7.2%
and 6.1% to 12.0%, respectively.
Baron XM Radio Convertible Note
In January 1999 the Company issued to Baron Asset Fund ("Baron"), a stockholder
and guarantor of its bank facility, a $21.5 million note convertible into shares
of common stock of XM Radio (the "Convertible Note Payable to Related Party" or
"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"). On
October 8, 1999 XM Radio completed its initial public offering of 10.2 million
shares of Class A common stock, see Note 13 below, which triggered the
conversion of the XM Radio Note receivable into approximately 1.5 million shares
of XM Radio Class B common stock.
F-39
The Baron XM Radio Convertible note was indexed to XM Radio stock and thus the
$50.1 million recorded in the consolidated balance sheet at December 31, 1999
reflected management's best estimate of the fair value of the Baron XM Radio
Convertible Note. Changes in the fair value of the Baron XM Radio Convertible
Note were reflected in the accompanying statement of operations as an unrealized
gain or loss on note payable to related party. Due to the increase in value of
XM Radio stock, the Company recorded an unrealized loss of $27.4 million for the
year ended December 31, 1999 on the Baron XM Radio Convertible Note. Prior to
the XM Radio 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 $9.9 million for the year ended
December 31, 1999.
On January 13, 2000, Baron notified the Company of its intention to exchange the
Baron XM Radio Convertible Note for 1,314,914 shares of XM Radio Class B Stock.
The exchange of the convertible note resulted in a gain in 2000 of approximately
$36.8 million computed as the difference in the carrying value of the Baron XM
Radio Convertible Note and the Company's cost basis in XM Radio stock exchanged
upon conversion of this note.
Assets Pledged and Secured
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 December 31, 2000, all of the subsidiaries' net assets were
restricted under these agreements. These restrictions will have an impact on
Motient Corporation's ability to pay dividends.
Covenants
The debt agreements and related Guarantee Issuance Agreement entered into by the
Company contain various restrictions, covenants, defaults, and requirements
customarily found in such financing agreements. Among other restrictions, these
provisions include limitations on cash dividends, restrictions on transactions
between Motient and its subsidiaries, restrictions on capital acquisitions,
material adverse change clauses, and maintenance of specified insurance
policies.
9. RELATED PARTIES
In 1990, following a competitive bid process, Motient signed contracts with
Hughes Aircraft, the parent company of Hughes Communications Satellite Services
("Hughes Communications"), a Motient stockholder, to construct MSAT-2 (the
"Satellite Construction Contract"). The contract contains flight performance
incentives payable by the Company to Hughes Aircraft if MSAT-2 performs
according to the contract. As a result of certain previously-disclosed
performance considerations, additional contract issues associated with the
flight performance incentive payments were raised by the Company. At present,
ongoing discussions are underway between the parties regarding such payments.
The additional payments will range from $2.6 million to $5.9 million over the
next 5 years.
The Company has entered into various transactions and agreements with Motorola,
Inc. ("Motorola"), a Motient stockholder, which include the purchase by Motient
of services, network hardware and software maintenance services, facility
rentals, and network gateway fees. Additionally, Motorola has provided the
Vendor Financing Commitment, which will be available to finance up to 75% of the
purchase price of additional network base stations (see Note 8).
F-40
The following table represents a summary of all related party transactions.
Years Ended December 31
2000 1999 1998
---- ---- ----
(in thousands)
Payments made to (from) related parties:
Additions to property and equipment $ 1,662 $2,667 $4,931
Proceeds from debt issuance -- (21,500) (10,000)
Payments on debt obligations 3,629 1,033 10,017
Operating expenses 3,433 4,496 7,568
------- --------- --------
Net payments to (from) related parties $ 8,724 $(13,304) $12,516
======= ========= ========
Due to (from) related parties:
Operating expenses $163 $651 $698
Baron XM Radio convertible note -- 50,138 --
Vendor financing 8,756 4,604 1,638
Satellite capacity/airtime revenue -- (3) (3)
Capital acquisitions 1,095 115 450
------- --- -------
Net amounts due to related parties $10,014 $ 55,505 $2,783
======= ======== =======
10. LEASES
Capital Leases
The Company leases certain office equipment, ground segment equipment and
switching equipment under agreements accounted for as capital leases. Assets
recorded as capital leases in the accompanying balance sheets include the
following:
December 31,
2000 1999
---- ----
(in thousands)
Ground segment equipment $7,263 $7,263
Switch equipment 16,740 8,346
Office equipment 6,434 3,743
Less accumulated amortization (16,116) (8,961)
-------- --------
Total $14,321 $10,391
======== ========
Operating Leases
The Company leases substantially all of its base station sites through
cancelable operating leases. The majority of these leases provide for renewal
options for various periods at their fair rental value at the time of renewal.
In the normal course of business, the operating leases are generally renewed or
replaced by other leases. Additionally, the Company leases certain facilities
and equipment under arrangements accounted for as operating leases. Certain of
these arrangements have renewal terms. Total rent expense, under all operating
leases, approximated, $18.9 million, $12.3 million and $9.1 million in 2000,
1999 and 1998 respectively.
At December 31, 2000, minimum future lease payments under noncancelable
operating and capital leases, including XM Radio, are as follows:
Operating Capital
--------- -------
(in thousands)
2001 $16,830 $6,274
2002 17,152 4,558
2003 16,983 5,765
2004 16,176 --
2005 and thereafter 35,069 --
-------- --------
Total $102,210 16,597
========
Less: Interest (2,777)
--------
Present value of minimum lease payments 13,820
Less: Current maturities (4,590)
--------
Non current capital lease obligation $ 9,230
========
XM Radio's future minimum annual lease payments related to noncancellable
operating leases, included above, range from $11 million to $14.2 million
annually for each of the five years ended December 31, 2005. For years beginning
after January 1, 2006, the aggregate future minimum operating lease payments was
$22.5 million.
11. OPERATING AGREEMENTS AND COMMITMENTS
Joint Operating and Satellite Capacity Agreements
The Company is party to Restoral and Capacity Agreement, dated January 8, 2001,
with a Canadian entity, TMI Communications and Company, Limited Partnership
("TMI"). The parties to these agreements will provide, among other things,
emergency backup and restoral services to each other during any period in which
the other's satellite is not functioning properly. Additionally, each party will
be entitled to lease excess capacity from the other party's satellite under
specified terms and conditions.
F-41
Commitments
At December 31, 2000, the Company had remaining contractual commitments to
purchase eLink and other subscriber equipment inventory in the amount of $21.5
million during 2001.
The Company also had certain other capital, advertising, and operating expense
contract commitments that total approximately $2.7 million over the next 18
months.
Subsequent to December 31, 2000, the Company entered into additional product
development agreements for the purchase of engineering services and for licenses
to be used in future applications of its eLink product. Additionally, should the
engineering effort prove successful, the Company has committed to purchase
additional subscriber inventory. These commitments, including the inventory
commitment, total approximately $3.6 million and will be paid during 2001.
Should the Company decide to cancel these agreements, it would incur
cancellation penalties of any remaining unpaid license and non-recurring
engineering fees, the cost of any non-refundable components purchased on behalf
of Motient, plus fifty-percent of any remaining inventory commitment. As of
March 30 2001, this cancellation penalty would have been approximately $2.4
million.)
The aggregate fixed and determinable portion of all commitments for inventory
purchases and other fixed contracts related to the Core Wireless business is
$27.9 million, of which $27.4 million is due in 2001.
Pursuant to its satellite construction contract with Boeing Satellite Systems,
XM Radio expects to incur total payment obligations of $541.3 million, of which
$467.6 million had been paid or accrued as of December 31, 2000. XM Radio also
had commitments to certain vendors for engineering and construction services
related to its terrestrial network. The total estimated contract value related
to the terrestrial network was $235.5 million, of which $80.7 million had been
paid or accrued as of December 31, 2000. Following commencement of commercial
operations, XM Radio is obligated to make annual fixed payments to certain
vendors in conjunction with long-term distribution agreements which expire 12
years from the commencement of commercial operations. Pursuant to these
distribution agreements, XM Radio has annual, fixed payment obligations of $35
million for the initial four years from commencement of commercial operations.
Additionally, annual fixed payment obligations beyond the initial four years
range from $35 million to $130 million, and aggregate approximately $400
million. XM Radio must also share a portion of subscription revenues pursuant to
the distribution agreements. XM Radio also is party to certain joint development
agreements and sales, marketing and distribution agreements with future minimum
payments that are not fixed or estimable but may be significant.
12. EMPLOYEE BENEFITS
Defined Contribution Plan
The Company sponsors a 401(k) defined contribution plan ("401(k) Savings Plan")
in which all employees of Motient can participate. The 401(k) Savings Plan
provides for (i) a Company match of employee contributions, in the form of
Common Stock, at a rate of $1 for every $1 of an employee's contribution not to
exceed 4% of an employee's eligible compensation, (ii) a discretionary annual
employer non-elective contribution, (iii) the option to have plan benefits
distributed in the form of installment payments, and (iv) the reallocation of
forfeitures, if any, to active participants. The Company's matching expense was
$1.4 million for 2000 and $1.1 million for 1999, excluding costs incurred by XM
Radio under their separate plan.
Employee Stock Purchase Plan
The Company has an Employee Stock Purchase Plan ("Stock Purchase Plan") to allow
eligible employees to purchase shares of the Company's Common Stock at 85% of
the lower of market value on the first and last business day of the six-month
option period. An aggregate of 30,687 shares, 90,867 shares, and 47,011 shares
of Common Stock were issued under the Stock Purchase Plan in 2000, 1999 and
1998, respectively.
13. BUSINESS ACQUISITIONS and DISPOSITIONS
2000 Transactions
Sale of Retail Transportation Business to Aether Systems
In November 2000, the Company sold its retail transportation business to Aether
Systems, Inc. Concurrently, Aether entered into two long-term, prepaid network
airtime agreements with a total value of $20 million, of which $5 million was
paid at closing, pursuant to which Aether will purchase airtime on the Company's
satellite and terrestrial networks. Aether also became an authorized reseller of
the Company's eLink and BlackBerry(tm) by Motient wireless email service
offerings. Aether acquired all of the assets used or useful in the retail
transportation business, and assumed the related liabilities. Aether also
purchased the existing inventory in the business, and was granted a perpetual
license to use and modify any intellectual property owned by or licensed to the
Company in connection with the business.
F-42
The purchase price for these assets was $45 million, plus the then-current book
value of the inventory for the business. All of this amount was paid at closing,
except for $10 million which was deposited in an escrow account and will be
released to Motient upon satisfaction of certain criteria with respect to
MobileMAX2(tm), and $3.7 million that was held back and will be paid to the
Company upon collection of certain accounts receivable. In addition, the Company
has the opportunity to receive up to an additional $22.5 million as an
"earn-out" payment, subject to the satisfaction of certain operating results for
the business during 2001. Of the proceeds received at closing, $20 million was
used to immediately repay and permanently reduce the Revolving Credit Facility.
Proceeds, if any, from the $10 million escrow and the $22.5 million earn-out
will be recorded as additional purchase consideration when received and will
also be used to repay and permanently reduce the Revolving Credit Facility. The
net book value of assets sold to Aether was $14.3 million.
Satellite Ventures
In June 2000 the Company formed a new joint venture subsidiary, Satellite
Ventures, in which it owns 80% of the membership interests. The remaining 20%
interest in Satellite Ventures is owned by the Investors. The Investors paid $50
million to Satellite Ventures (in the aggregate), in exchange for their 20%
interest. Of the $50 million payment received by Satellite Ventures, $6.0
million was retained by Satellite Ventures to fund certain research and
development activities, with the remaining $44 million paid to Motient Services
Inc. ("Motient Services"), which owns Motient's satellite and related assets.
The $44 million received by Motient Services has been allocated to the deferred
revenue related to a Research and Development agreement, Asset Purchase Deposit
and the Investors' right to convert their minority interest in Satellite
Ventures into shares of the Company's common stock, based on each component's
estimated fair value. Based on an independent valuation, the Company assigned
approximately $18.6 million to the Investors' conversion right, which is
recorded as common stock warrants in the accompanying consolidated balance
sheets. The Research and Development Agreement and Asset Purchase Deposit were
assigned relative fair values of approximately $14.6 million and $10.8 million,
respectively, and are reflected in the accompanying consolidated balance sheet
as other long-term liabilities. The funds received pursuant to the Research and
Development Agreement are being recognized as service revenue over two years.
In connection with the Aether transaction, the Company and the other members of
Satellite Ventures agreed to reduce the purchase price in the asset sale
agreement between Satellite Ventures and Motient Services from $120 million to
$80.5 million, plus one-half of any earn-out consideration that would have been
received by Motient from Aether. This adjustment was made to account for the
fact that the Company received consideration in the Aether transaction in
exchange for assets which otherwise would have been available to be acquired by
Satellite Ventures.
1999 Transactions
On July 7, 1999, the Company acquired all outstanding debt and equity interests
in XM Radio from the other investor, other than a $75 million loan from the
other investor in XM Radio, in exchange for approximately 8.6 million shares of
the Company's common stock (the "XM Acquisition"). The total consideration given
for the purchase of XM Radio was $129 million. The Company also incurred
approximately $0.9 million for certain acquisition 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 was
convertible into Class B common shares of XM Radio and was subsequently
converted, see below. 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 the former investor. 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 (IPO) of
10.2 million shares of its 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. As a
result of the IPO, all of the Company's convertible notes of XM Radio were
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 of XM Radio and
approximately 16.2 million shares of Class A Common Stock of XM Radio at a
conversion price of $9.52.
F-43
Prior to July 7, 1999, the Company's proportionate share of XM Radio's losses
were included in the accompanying statement of* operations pursuant to the
equity method of accounting. In connection with the XM Acquisition, 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 assigned to the
assets and liabilities of XM Radio based on their estimated fair values on the
date of the acquisition. Subsequent to the date of acquisition and upon
valuation of certain intangibles and licenses, the fair value of the assets
acquired in excess of the purchase price was $3.2 million was allocated
proportionately to the non-current assets acquired in the acquisition. The
results of XM Radio are included in the consolidated financial statements as of
the effective date of the acquisition, July 7, 1999 through December 31, 1999,
and for all of 2000.
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.
1999 1998
---- ----
(in thousands, except
per share data)
$91,071 $87,221
Loss before extraordinary item (320,467) --
Net Loss (332,599) (154,063)
Loss per share (7.53) (3.94)
1998 Transactions
On March 31, 1998, the Company acquired Motient Communications Inc. (formerly
ARDIS Company) for a purchase price of approximately $50 million in cash and $50
million in the Company's Common Stock (the "Motient Communications
Acquisition"). The purchase method of accounting for business combinations was
used for the recording of this acquisition. The operating results of Motient
Communications were included in the Company's consolidated statements of
operations from the date of acquisition. The purchase price for the net assets
acquired was allocated ($1.6) million to net current assets and net current
liabilities, $50.4 million to property and equipment, $49.4 million to FCC
licenses and $1.3 million to goodwill. Additionally, the Company incurred
acquisition costs of approximately $2.6 million and recorded additional
liabilities of approximately $2.3 million. The combination of the operations of
the Company and Motient Communications provided pro forma revenue of $97.1
million, pro forma net loss of ($164.2) million, and pro forma loss per common
share of ($5.11) for 1998. The pro forma information is provided as if the
acquisition had occurred at the beginning of 1998.
14. LEGAL AND REGULATORY MATTERS
Like other mobile service providers in the telecommunications industry, the
Company is subject to substantial domestic, foreign and international regulation
including the need for regulatory approvals to operate and expand the satellite
network and operate and modify subscriber equipment.
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. Motient 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 has been assigned to the Company by the FCC. This
international coordination process is not yet complete. In the absence of a
coordination agreement, Motient must operate its system on a non-interference
basis. 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.
F-44
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 the network and certain types of subscriber
equipment. Certain of the Company's 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, it cannot be assured that the
requests will be granted, will be granted on a timely basis or will be granted
on conditions that are 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.
On November 30,1999, the FCC granted two applications to use TMI's
Canadian-licensed system to provide service in the United States to up to
125,000 mobile terminals. TMI's system operates in the MSS L-Band and has a
satellite footprint that covers the United States. Motient appealed the FCC's
grant of these applications to the United States Court of Appeals for the D.C.
Circuit. The United States Court of Appeals affirmed the FCC's decision. TMI's
entry into the domestic U.S. marketplace provides additional competition to
Motient and may increase TMI's demand for spectrum in the international
coordination process. The FCC is also currently considering applications to
access the Inmarsat satellite system in the L-band to provide mobile satellite
service in the United States. The grant of any of these applications would
provide additional competition and may further adversely impact Motient's
ability to coordinate spectrum access.
Motient is authorized to build, launch, and operate three geosynchronous
satellites in accordance with a specific schedule. The Company 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 the Company'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 the Company's license. The
Company believes that the exercise of such authority to rescind the license is
unlikely. The term of the license for each of the Company's three authorized
satellites is ten years, beginning when the Company certifies that the
respective satellite is operating in compliance with the Company's license. The
ten-year term of MSAT-2 began August 21, 1995. Although the Company 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.
In the first quarter of 2001, the Company applied to assign its existing FCC
licenses, authorizations and pending applications relating to its satellite
operations to a new company, Mobile Satellite Ventures Subsidiary LLC ("MSV
Sub"), that will be a wholly owned subsidiary of Satellite Ventures. In this
application, the Company also sought FCC authority to launch and operate a
next-generation mobile satellite system, which will include the deployment of
satellites and terrestrial base stations operating in the same frequencies as an
integrated network.
XM Radio is also subject to the rules and regulations of the FCC. The FCC has
established certain system development milestones that must be met in order for
XM Radio to maintain its license to operate its satellite system. XM Radio
believes it is in compliance with the FCC milestones.
One of the bidders for the DARS licenses filed an Application for Review with
the FCC of the Licensing Order which granted XM Radio its FCC license. The
Application for Review alleges that a prior XM Radio shareholder had effectively
taken control of XM Radio without the approval of the FCC. The FCC or the U.S.
Court of Appeals has the authority to overturn the award of the FCC license to
XM Radio. XM Radio believes that it should be able to maintain its FCC license
since the party referenced is no longer a stockholder of XM Radio. XM Radio is
unable to predict the outcome of this Application for Review.
In January 1999, a competitor of XM Radio, Sirius Radio, filed an action against
XM Radio for patent infringement. In February 2000, this suit was resolved in
accordance with the terms of a joint development agreement between XM Radio and
Sirius Radio in which both companies agreed to cross-license their respective
intellectual property. If this agreement is terminated due to XM Radio failing
to perform on a material covenant or obligation, the suit could be filed again.
F-45
15. SUPPLEMENTAL CASH FLOW INFORMATION
Years Ended December 31,
2000 1999 1998
---- ---- ----
(in thousands)
Cash payments for interest $52,568 $43,590 $32,198
Noncash investing and financing activities:
Leased asset and related obligations 11,238 204 648
Issuance of Common Stock for acquisitions -- 129,213 49,781
Issuance of Restricted Stock -- 190 1,780
Cancellation of Restricted Stock (1,053) (504) --
Additional deferred compensation on non-cash compensation 951 5,322 --
Issuance and repricing of Common Stock Purchase Warrants 6,202 4,290 26,210
Capital gain in connection with the sale of stock by XM Radio 129,545 80,663 --
Conversion of the XM Radio Note Receivable -- 13,038 --
Non-cash interest capitalized by XM Radio 16,302 -- --
XM Radio accrued system milestone payments 30,192 15,500 --
Vendor financing for property in service 6,937 4,191 1,628
Use of deposit for XM Radio terrestrial repeater contract 3,422 -- --
Issuance of Common Stock under the Defined Contribution Plan 1,131 1,115 848
In connection with the partial pay downs of the Term Loan Facility and Revolver
Loan Facilities, the Company's extraordinary loss on extinguishment of debt
includes a pro-rata portion of the $2.4 million of deferred financing fees
associated with the placement of the Bank Facility and a pro-rata portion of the
$9.7 million of Guarantee Warrants held by shareholder guarantors of the Bank
Facility.
16. SUBSEQUENT EVENTS
Core Wireless Business
As noted above, in January and February 2001, the Company sold, in two separate
transactions, 2 million shares of its XM Radio Class A Common Stock, at an
average price of $16.77 per share, for total proceeds of $33.5 million.
Approximately $8.5 million of the proceeds were used to repay and permanently
reduce the Term Facility. In exchange for the guarantors agreeing to waive
certain debt repayment obligations for the second sale of shares, the Company
and the Guarantors have agreed that the first $16.5 million of proceeds received
from the earlier of (i) the closing of the Satellite Ventures transaction and
(ii) any other stated reduction event to occur in the year 2002 will be used to
pay down the bank financing.
In January 2001, the Company entered into an agreement, subject to certain
conditions, to amend in several respects the terms of its June 2000 transaction
involving Satellite Ventures. First, the Investors agreed, subject to certain
conditions including approvals by the FCC, to invest an additional $50 million
to become (in the aggregate) the owners of 40% of the outstanding interests of
Satellite Ventures. The Investors will also have an option, exercisable through
June 29, 2002, for an additional $40 million, to increase their ownership in
Satellite Ventures to 50.66% (with each individual Investor's stake being less
than 20%). Second, upon closing of the transaction, TMI will contribute its
satellite communications business assets to Satellite Ventures, along with
Motient's satellite business assets. TMI will become the owner of approximately
27% of the outstanding equity of Satellite Ventures and will also receive a cash
payment of $7.5 million, as well as a $11.5 million 5-year note.
Upon closing of these transactions, the Company will sell its remaining
satellite assets to Satellite Ventures, in exchange for a cash payment of $45
million and a 5-year, $15 million note. Upon Closing, the Company will own
approximately 33% of the outstanding interests and be the largest single
shareholder of Satellite Ventures. A portion of Satellite Ventures' cash payment
to TMI at closing will be funded by the Company's loan of $2.5 million, in
exchange for a note back in the same amount.
F-46
Under the original transaction, at any time until June 29, 2002, the Investors
had certain rights to elect to convert their interests in Satellite Ventures
into shares of Motient's common stock at a conversion price which will be set at
the time of exercise, between $12 and $20 per share, as specified in the June
Investment Agreement. As part of the January agreement, this right remains in
place, but is limited to an aggregate of $55 million.
Under the terms of the bank facility waivers received by Motient in connection
with the January 2001 agreement, half of all amounts to be received by Motient
from Satellite Ventures in connection with Motient's sale of its satellite
business assets to Satellite Ventures, including the $45 million in cash and $15
million note receivable, will be used to repay outstanding amounts, and
permanently reduce commitments, under Motient's revolving credit facility.
The consummation of the transactions is subject to receipt of all necessary
regulatory governmental approvals and consents, including, for example,
approvals under the Hart-Scott-Rodino Antitrust Improvements Act, and FCC
approvals with respect to both the transfer of Motient's FCC licenses and
Satellite Ventures' plans for a new generation integrated satellite-terrestrial
system, approvals by Canadian regulatory authorities with respect to the
transfer of TMI's communications licenses to the new venture, and other
customary conditions relating to due diligence review, third party consents, and
similar matters. Beginning in January 2002, if certain closing conditions have
not occurred, the Company and TMI have certain rights to require the closing to
proceed at such time, and if less than all of the Investors participate at such
time, the Company and TMI may, under certain circumstances, purchase the
interests in Satellite Ventures that would have otherwise been acquired by any
such non-participating Investors.
On April 2, 2001, Motient entered into an agreement for financing in the amount
of $25 million from Rare Medium Group, Inc. ("Rare") in the form of a note
payable at 12.5% annual interest with a maturity date, subject to certain
mutually-agreed upon extensions, of 180 days from funding, which is expected to
occur by April 6, 2001. Additionally, the Company has the potential to receive
up to an additional $25 million of funding, on comparable terms, the amount of
which will be based on the market price of XM Radio stock. The notes are
collateralized by up to 5 million of the Company's XM Radio shares, and Rare has
the option to exchange the notes for a number of XM Radio shares equivalent to
the principal of the note plus any accrued interest thereon. Of the first $25
million received by the Company, the Company used $6.1 million to repay and
permanently reduce its Term Facility and $14.4 million is subject to
availability upon the approval of the Guarantors.
XM Radio
In March 2001, XM Radio completed a follow-on offering of 7.5 million shares of
Class A common stock, which yielded net proceeds of $71.9 million, and a
concurrent offering of 7.75% convertible subordinated notes due 2006,
convertible into shares of Class A common stock at a conversion price of $12.22
per share, which yielded net proceeds of $120.7 million.
17. FINANCIAL STATEMENTS OF SUBSIDIARIES
In connection with the Company's acquisition of Motient Communications on March
31, 1998, and related financing discussed above, the Company formed a new
wholly-owned subsidiary, Motient Holdings. The Company contributed all of its
inter-company notes receivables and transferred its rights, title and interests
in Motient Services Inc. and Motient Communications Inc. (together, the
"Subsidiary Guarantors") to Motient Holdings, and Motient Holdings was the
acquirer of Motient Communications Inc. and the issuer of the Senior Notes.
Motient Corporation ("Motient Parent") is a guarantor of the Senior Notes. The
Senior Notes contain covenants that, among other things, limit the ability of
Motient Holdings 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 Senior Notes are jointly and severally guaranteed on full and unconditional
basis by the Subsidiary Guarantors and Motient Parent. The following unaudited
condensed consolidating information for these entities presents:
o Condensed consolidating balance sheets as of December 31, 2000 and 1999,
the condensed consolidating statements of operations and cash flows for
the years ended December 31, 2000, 1999, and 1998, and the condensed
consolidating statements of stockholders' (deficit) equity for the
period January 1, 1998 through December 31, 2000.
o Elimination entries necessary to combine the entities comprising Motient .
F-47
Condensed Consolidating Balance Sheet
As of December 31, 2000
(unaudited)
(in thousands)
Consolidated Consolidated
Subsidiary Motient Motient Motient XM Motient
Guarantors Holdings Eliminations Holdings Parent Radio Eliminations Parent
---------- -------- ------------ -------- ------- ----- ------------ ------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 2,520 $-- $-- $ 2,520 $ -- $ 224,903 -- $ 227,423
Accounts receivable - trade, net 14,421 -- -- 14,421 -- -- -- 14,421
Inventory 16,990 -- -- 16,990 -- -- -- 16,990
Restricted short-term investments -- 20,709 -- 20,709 -- 95,277 -- 115,986
Investment in/due from subsidiary 502 130,856 (130,856) 502 (253,310) -- 253,310 502
Other current assets 21,423 -- -- 21,423 857 8,815 -- 31,095
-------- ------- --------- -------- ---------- ---------- -------- ---------
Total current assets 55,856 151,565 (130,856) 76,565 (252,453) 328,995 253,310 406,417
PROPERTY AND EQUIPMENT--NET 127,044 -- (10,843) 116,201 -- 59,505 -- 175,706
XM RADIO SYSTEM UNDER CONSTRUCTION -- -- -- -- -- 805,563 (5,081) 800,482
GOODWILL AND INTANGIBLES-- NET 51,842 -- -- 51,842 -- 24,001 (13,375) 62,468
INVESTMENT IN XM RADIO -- -- -- 288,064 -- (288,064) --
RESTRICTED INVESTMENTS 2 582 -- 584 10,633 65,889 -- 77,106
DEFERRED CHARGES AND OTHER ASSETS--NET 28,130 18,177 -- 46,307 (6,037) 9,265 -- 49,535
------- -------- --------- --------- ---------- ---------- --------- ----------
Total assets $262,874 $170,324 $(141,699) $ 291,499 $ 40,207 $1,293,218 $(53,210) $1,571,714
======== ======== ========= ========= ========== =========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable and accrued $ 26,628 $ 11,029 $-- $ 37,657 $ 1,323 $66,769 $ -- $ 105,749
expenses
Obligations under capital leases
due within one year 4,034 -- -- 4,034 -- 556 -- 4,590
Current portion long-term debt 6,458 -- -- 6,458 -- -- -- 6,458
Deferred revenue and other
liabilities 17,676 -- -- 17,676 -- 441 -- 18,117
-------- ------- ------- -------- ------- ------- -------- ---------
Total current liabilities 54,796 11,029 -- 65,825 1,323 67,766 -- 134,914
DUE TO PARENT/AFFILIATE 808,570 -- (808,633) (63) -- 63 -- --
LONG-TERM LIABILITIES:
Note payable to/from Issuer/ Parent -- 14,000 -- 14,000 (14,000) -- -- --
Obligations under Bank Financing -- 71,250 -- 71,250 40,000 -- -- 111,250
Senior Notes, net of discount -- 328,474 -- 328,474 -- 261,298 -- 589,772
Other long-term debt 4,246 -- -- 4,246 -- -- -- 4,246
Capital lease obligations 7,863 -- -- 7,863 -- 1,367 -- 9,230
Deferred revenue and other
liabilities 54,333 -- -- 54,333 -- 6,772 -- 61,105
-------- ------- --------- -------- -------- ------- ---------- ---------
Total long-term liabilities 66,442 413,724 -- 480,166 26,000 269,437 -- 775,603
Total liabilities 929,808 424,753 (808,633) 545,928 27,323 337,266 -- 910,517
MINORITY INTEREST -- -- -- -- -- -- 648,313 648,313
STOCKHOLDERS' EQUITY (DEFICIT) (666,934) (254,429) 666,934 (254,429) 12,884 955,952 (701,523) 12,884
-------- --------- -------- --------- ------- ------- ---------- ---------
Total liabilities, minority
interest and stockholders'
equity (deficit) $262,874 $170,324 $(141,699) $291,499 $40,207 1,293,218 $(53,210) $1,571,714
======== ======== ========== ======== ======= ========== ========== ==========
F-48
Condensed Consolidating Balance Sheet
As of December 31, 1999
(unaudited)
(in thousands)
Consolidated Consolidated
Subsidiary Motient Motient Motient XM Motient
Guarantors Holdings Eliminations Holdings Parent Radio Eliminations Parent
---------- -------- ------------ -------- ------- ----- ------------ ------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 776 $ -- $-- $776 $ -- $ 50,698 $ -- $ 51,474
Short-term investments -- -- -- -- -- 69,472 -- 69,472
Accounts receivable-- net 16,594 -- -- 16,594 -- -- -- 16,594
Inventory 28,616 -- -- 28,616 -- -- -- 28,616
Restricted short-term investments -- 41,038 -- 41,038 -- -- -- 41,038
Other current assets 9,455 -- -- 9,455 2,568 1,077 13,100
-------- -------- --------- --------- ------- -------- ----------- --------
Total current assets 55,441 41,038 -- 96,479 2,568 121,247 -- 220,294
PROPERTY AND EQUIPMENT-- NET 126,914 -- (12,949) 113,965 -- 2,551 -- 116,516
XM RADIO SYSTEM UNDER CONSTRUCTION -- -- -- -- -- 362,358 (5,080) 357,278
GOODWILL AND INTANGIBLES-- NET 51,158 -- -- 51,158 -- 25,380 (14,327) 62,211
INVESTMENT IN XM RADIO -- -- -- -- 190,757 -- (190,757) --
INVESTMENT IN/DUE FROM SUBSIDIARY
-- 176,450 (176,450) -- (148,913) -- 148,913 --
RESTRICTED INVESTMENTS 320 18,360 -- 18,680 12,429 -- -- 31,109
DEFERRED CHARGES AND OTHER ASSETS--NET 2,977 26,507 -- 29,484 (10,597) 3,653 -- 22,540
--------- -------- --------- --------- --------- -------- ----------- -------
Total assets $236,810 $262,355 $(189,399) $309,766 $ 46,244 $515,189 $ (61,251) 809,948
========= ======== ========== ======== ========= ======== =========== =======
LIABILITIES AND STOCKHOLDERS' (DEFICIT)
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 31,073 $ 10,866 $ -- $41,939 $ 1,266 $ 24,680 $ -- 67,885
Obligations under capital leases due
within one year 5,982 -- -- 5,982 -- 172 -- 6,154
Current portion long-term debt 5,960 -- -- 5,960 -- -- -- 5,960
Other current liabilities -- -- -- -- -- 1,646 -- 1,646
-------- ------- --------- ------- --------- -------- ----------- -----
Total current liabilities 43,015 10,866 -- 53,881 1,266 26,498 -- 81,645
DUE TO PARENT/ AFFILIATE 769,564 -- (769,626) (62) (14,934) 62 14,934 --
LONG-TERM LIABILITIES:
Note payable to/from Issuer/ Parent -- 14,000 -- 14,000 (14,000) -- -- --
Obligations under Bank Financing -- 44,000 -- 44,000 41,000 -- -- 85,000
Senior Notes, net of discount -- 327,576 -- 327,576 -- -- -- 327,576
Other long-term debt 2,535 -- -- 2,535 50,138 -- -- 52,673
Capital lease obligations 35 -- -- 35 -- 212 -- 247
Net assets acquired in excess of 1,333 -- -- 1,333 -- -- -- 1,333
purchase price
Other long-term liabilities 555 -- -- 555 -- 3,400 -- 3,955
-------- ------- --------- ------- ------- -------- --------- --------
Total long-term liabilities 4,458 385,576 -- 390,034 77,138 3,612 -- 470,784
Total liabilities 817,037 396,442 (769,626) 443,853 63,470 30,172 14,934 552,429
-------- ------- --------- ------- ------- -------- --------- --------
MINORITY INTEREST -- -- -- -- -- -- 274,745 274,745
STOCKHOLDERS' EQUITY (DEFICIT) (580,227) (134,087) 580,227 (134,087) (17,226) 485,017 (350,930) (17,226)
--------- ------- --------- -------- ------- --------- ---------- ---------
Total liabilities, minority
interest, and stockholders' (deficit) $236,810 $262,355 $(189,399) $309,766 $ 46,244 $515,189 $(61,251) $809,948
======== ========== ======== ========= ======== ========= ========== =========
F-49
Condensed Consolidating Statement of Operations
Year ended December 31, 2000
(unaudited)
(in thousands)
Consolidated Consolidated
Subsidiary Motient Motient Motient XM Motient
Guarantors Holdings Eliminations Holdings Parent Radio Eliminations Parent
---------- -------- ------------ -------- ------- ----- ------------ ------
REVENUES
Services $73,479 $ -- $-- $73,479 $1,200 $ -- $(1,200) $73,479
Sales of equipment 26,372 -- -- 26,372 -- -- -- 26,372
-------- -------- --------- --------- -------- --------- ---------- -------
Total Revenues 99,851 -- -- 99,851 1,200 -- (1,200) 99,851
COSTS AND EXPENSES
Cost of service and operations 75,528 -- -- 75,528 -- -- -- 75,528
Cost of equipment sold 32,843 -- -- 32,843 -- -- -- 32,843
Sales and advertising 35,337 -- -- 35,337 117 -- -- 35,454
General and administrative 20,260 1,348 -- 21,608 1,125 76,110 (1,217) 97,626
Depreciation and amortization 34,295 -- -- 34,295 -- 3,369 1,148 38,812
-------- -------- --------- --------- -------- -------- ---------- ---------
Operating Loss (98,412) (1,348) -- (99,760) (42) (79,479) (1,131) (180,412)
Interest and Other Income 583 18,357 (15,747) 3,193 1,375 27,606 (795) 31,379
Interest Expense (17,984) (55,346) 15,747 (57,583) (5,667) -- 795 (62,455)
Gain on sale of transportation 5,691 -- -- 5,691 -- -- -- 5,691
assets
Gain on Note Payable to Related
Party -- -- -- -- 36,779 -- -- 36,779
Minority Interest in Loss of
Subsidiaries -- -- -- -- -- -- 33,429 33,429
Equity in Loss of Subsidiaries -- (110,122) 110,122 -- (170,934) -- 170,934 --
-------- --------- ------- --------- --------- ------- ---------- ---------
Net Loss before Extraordinary
Item, Preferred Dividend, and
Beneficial Conversion
Charge (110,122) (148,459) 110,122 (148,459) (138,489) (51,873) 203,232 (135,589)
Extraordinary Loss on
Extinguishment of Debt -- (2,900) -- (2,900) (135) -- -- (3,035)
-------- --------- ------- --------- --------- -------- ---------- ---------
Net Loss (110,122) (151,359) 110,122 (151,359) (138,624) (51,873) 203,232 (138,624)
XM Radio Beneficial Conversion
Charge -- -- -- -- -- (134,253) 89,815 (44,438)
XM Radio Preferred Stock Dividend
Requirement -- -- -- -- -- (15,212) 10,131 (5,081)
-------- -------- ------- --------- -------- --------- ---------- ---------
Net Loss Attributable to Common $(110,122) $(151,359) $110,122 $(151,359) $(138,624) $(201,338) $303,178 $(188,143)
Shareholders
========= ========= ======== ========== ========== ========== ========== ==========
F-50
Condensed Consolidating Statement of Operations
Year ended December 31, 1999
(unaudited)
(in thousands)
Consolidated Consolidated
Subsidiary Motient Motient Motient XM Motient
Guarantors Holdings Eliminations Holdings Parent Radio Eliminations Parent
---------- -------- ------------ -------- ------- ----- ------------ ------
REVENUES
Services $67,653 $-- $-- $ 67,653 $ 1,200 $ -- $ (1,200) $ 67,653
Sales of equipment 23,418 -- -- 23,418 -- -- -- 23,418
-------- --------- -- -------- -------- -------- -------- -----------
Total Revenues 91,071 -- -- 91,071 1,200 -- (1,200) 91,071
COSTS AND EXPENSES
Cost of service and operations 69,258 -- -- 69,258 -- -- -- 69,258
Cost of equipment sold 29,527 -- -- 29,527 -- -- -- 29,527
Sales and advertising 23,000 -- -- 23,000 125 -- -- 23,125
General and administrative 18,434 1,391 -- 19,825 850 20,861 (1,200) 40,336
Satellite and related asset
impairment charge 97,419 -- -- 97,419 -- -- -- 97,419
Depreciation and amortization 54,923 -- -- 54,923 -- 1,385 (510) 55,798
-------- --------- -------- --------- -------- -------- --------- -----------
Operating Loss (201,490) (1,391) -- (202,881) 225 (22,246) 510 (224,392)
Interest And Other Income 344 20,145 (15,416) 5,073 4,536 2,837 (3,982) 8,464
Unrealized Loss On Note receivable
From XM Radio -- -- -- -- (9,919) -- -- (9,919)
Unrealized Loss On Note
Payable To Related Party -- -- -- -- (27,399) -- -- (27,399)
Minority Interest -- -- -- -- -- -- 7,067 7,067
Equity In Loss Of Subsidiaries -- (218,444) 218,444 -- (276,113) -- 269,421 (6,692)
Interest Expense (17,298) (51,357) 15,416 (53,239) (10,129) (9,120) 6,560 (65,928)
-------- --------- -------- ---------- -------- -------- --------- -----------
Loss Before Extraordinary Item (218,444) (251,047) 218,444 (251,047) (318,799) (28,529) 279,576 (318,799)
Extraordinary Loss Of Extinguishment
On Debt -- -- -- -- (12,132) -- -- (12,132)
-------- --------- -------- -------- -------- -------- --------- -----------
Net Loss $(218,444) $(251,047) $218,444 $(251,047) $(330,931) $(28,529) $279,576 $(330,931)
========= ========= ======== ========== ========= ======== ========= =========
F-51
Condensed Consolidating Statement of Operations
Year ended December 31, 1998
(unaudited)
(in thousands)
Consolidated Consolidated
Subsidiary Motient Motient Motient Motient
Guarantors Holdings Eliminations Holdings Parent Eliminations Parent
---------- --------------------- -------- ------ ------------ ------
REVENUES
Services $ 57,994 $ -- -- $ 57,994 $ 1,200 $ (1,200) $57,994
Sales of equipment 29,227 -- -- 29,227 -- -- 29,227
--------- -------- ------- -------- -------- --------- ----------
Total Revenues 87,221 -- -- 87,221 1,200 (1,200) 87,221
COSTS AND EXPENSES
Cost of service and operations 55,781 -- -- 55,781 -- -- 55,781
Cost of equipment sold 30,449 -- -- 30,449 -- -- 30,449
Sales and advertising 19,038 -- -- 19,038 121 -- 19,159
General and administrative 17,355 110 -- 17,465 1,066 (1,199) 17,332
Depreciation and amortization 53,233 -- -- 53,233 -- (526) 52,707
--------- -------- ------- -------- --------- --------- ----------
Operating Loss (88,635) (110) -- (88,745) 13 525 (88,207)
INTEREST AND OTHER INCOME 319 14,908 (11,615) 3,612 8,472 (7,712) 4,372
EQUITY IN LOSS OF SUBSIDIARIES -- (116,332) 116,332 -- (150,753) 137,793 (12,960)
INTEREST EXPENSE (28,016) (36,259) 11,615 (52,660) (8,298) 7,187 (53,771)
--------- -------- ------- -------- --------- --------- ----------
NET LOSS $(116,332) $(137,793) $116,332 $(137,793) $(150,566) $137,793 $(150,566)
========= ========= ======== ========= ========= ======== =========
F-52
Condensed Consolidating Statements of Stockholders' Equity (Deficit)
For the Period from December 31, 1997 through December 31, 2000
(unaudited)
(in thousands)
Consolidated Consolidated
Subsidiary Motient Motient Motient XM Motient
Guarantors Holdings Eliminations Holdings Parent Radio Eliminations Parent
---------- -------- ------------ -------- ------- ----- ------------ ------
Balance, December 31, 1997 $ (355,320) $ -- $ -- $(355,320) $ 46,131 $ 8,984 $ 346,336 $ 46,131
Capitalization of Motient Holdings -- 201,580 355,320 556,900 -- -- (556,900) --
Acquisition of Motient Communications 109,869 -- (109,869) -- -- -- -- --
Issuance of common stock -- -- -- -- 51,042 -- -- 51,042
Issuance of common stock purchase -- -- -- -- 8,490 -- -- 8,490
warrant
Amortization of Guarantee Warrants -- -- -- -- 7,628 -- -- 7,628
Amortization of compensation expense -- -- -- -- 252 -- -- 252
Net loss (116,332) (137,793) 116,332 (137,793) (150,566) (16,167) 153,960 (150,566)
---------- ---------- --------- --------- --------- --------- --------- ---------
Balance, December 31, 1998 (361,783) 63,787 361,783 63,787 (37,023) (7,183) (56,604) (37,023)
Issuance of common stock -- -- -- -- 7,380 304 (304) 7,380
Acquisition of XM Radio -- -- -- -- 129,213 -- -- 129,213
Investment in Motient Holdings -- 53,173 -- 53,173 -- -- (53,173) --
Common stock issued in public -- -- -- -- 115,989 -- -- 115,989
offering
Amortization of Guarantee Warrants -- -- -- -- 7,372 -- -- 7,372
Initial Public offering -- -- -- -- -- 114,134 (114,134) --
Conversion of Series A convertible -- -- -- -- -- 246,349 (246,349) --
debt
Conversion of subordinated
convertible -- -- -- -- -- 106,955 (106,955) --
notes payable to Motient
Issuance of shares to key executive -- -- -- -- -- 140 (140) --
Increase in FCC license, goodwill
and intangibles -- -- -- -- -- 51,624 (51,624) --
from Motient acquisition
Charge for beneficial conversion
feature of note issued -- -- -- -- -- 5,520 (5,520) --
to Motient
Non-cash stock compensation 4,070 (4,070) --
Guarantee Warrants revaluation -- -- -- -- 440 -- -- 440
Reduction of Guarantee Warrants for
extinguishment of debt -- -- -- -- 9,671 -- -- 9,671
Capital gain in connection with sale
of stock by XM Radio -- -- -- -- 80,663 -- -- 80,663
Net Loss (218,444) (251,047) 218,444 (251,047) (330,931) (36,896) 287,943 (330,931)
--------- --------- ------- --------- --------- ---------- --------- ---------
Balance, December 31, 1999 (580,227) (134,087) 580,227 (134,087) (17,226) 485,017 (350,930) (17,226)
Issuance of common stock -- -- -- -- 6,745 133,235 (133,235) 6,745
Investment in subsidiary 23,415 31,017 (23,415) 31,017 -- -- (31,017) --
Reduction of Guarantee Warrants for
extinguishment of debt -- -- -- -- 2,390 -- -- 2,390
Amortization of Guarantee Warrants -- -- -- -- 5,842 -- -- 5,842
Capital gain in connection with sale -- -- -- -- 129,545 -- -- 129,545
of stock by XM Radio
Issuance of warrants to purchase
common stock -- -- -- -- 4,850 63,536 (63,536) 4,850
Issuance of Satellite Ventures
investors' option to convert to
Motient common stock -- -- -- -- 18,411 -- -- 18,411
Non-cash stock compensation -- -- -- -- 951 2,743 (2,743) 951
Sale of convertible redeemable -- -- -- -- -- 323,294 (323,294) --
preferred stock
Net Loss (110,122) (151,359) 110,122 (151,359) (138,624) (51,873) 203,232 (138,624)
--------- ----------- --------- --------- --------- --------- --------- ---------
Balance, December 31, 2000 $(666,934) $(254,429) $666,934 $(254,429) $12,884 $955,952 $(701,523) $12,884
========== =========== ========= ========== ========= ========= ========== =========
F-53
Condensed Consolidating Statement of Cash Flow
As of December 31, 2000
(unaudited)
(in thousands)
Consolidated Consolidated
Subsidiary Motient Motient Motient XM Motient
Guarantors Holdings Eliminations Holdings Parent Radio Eliminations Parent
---------- -------- ------------ -------- ------- ----- ------------ ------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(110,122) $(151,359) $110,122 $(151,359) $(138,624) $(51,873) $203,232 $(138,624)
Adjustments to reconcile net loss to
net cash (used in) provided by
operating activities:
Amortization of Guarantee Warrants
and discount and issuance costs -- 7,338 -- 7,338 4,656 -- -- 11,994
Depreciation and amortization 34,295 -- -- 34,295 -- 3,369 1,148 38,812
Gain on sale of transportation assets (5,691) (5,691) -- -- -- (5,691)
Gain on conversion of convertible
note payable to related party -- -- -- -- (36,779) -- -- (36,779)
Extraordinary loss on extinguishment
of debt -- 2,900 -- 2,900 135 -- -- 3,035
Non cash stock compensation of
XM Radio -- -- -- -- -- 2,743 -- 2,743
Minority Interest -- -- -- -- -- -- (33,429) (33,429)
Changes in assets & liabilities, net
of acquisitions and dispositions:
Inventory 1,298 -- -- 1,298 -- -- -- 1,298
Prepaid in-orbit insurance 863 -- -- 863 -- -- -- 863
Trade accounts receivable 1,388 -- -- 1,388 -- -- -- 1,388
Other current assets (9,910) -- -- (9,910) 1,711 (7,738) -- (15,937)
Accounts payable and accrued
expenses (2,878) 163 -- (2,715) 55 16,052 -- 13,392
Accrued interest on Senior Note -- 31 -- 31 -- -- -- 31
Deferred trade payables (2,455) -- -- (2,455) -- -- -- (2,455)
Deferred Items--net 33,876 -- -- 33,876 (899) -- -- 32,977
--------- -------- -------- --------- --------- -------- -------- ----------
Net cash (used in) provided by
operating activities (59,336) (140,927) 110,122 (90,141) (169,745) (37,447) 170,951 (126,382)
CASH FLOWS FROM INVESTING ACTIVITIES:
Payment of Senior Note interest from
escrow -- 41,006 -- 41,006 -- -- -- 41,006
Additions to property & equipment (22,186) -- -- (22,186) -- (51,378) -- (73,564)
Proceeds from sale of transportation
assets 20,000 -- -- 20,000 -- -- -- 20,000
Asset Sale agreement to Satellite
Ventures 10,836 -- -- 10,836 -- -- -- 10,836
System under construction -- -- -- -- -- (414,889) -- (414,889)
Purchase/maturity of short-term
investments, net -- -- -- -- -- 69,472 -- 69,472
Other investing activities by
XM Radio -- -- -- -- -- (56,268) -- (56,268)
Purchase of long-term, restricted
investments 318 (5,020) -- (4,702) 1,796 (106,338) -- (109,244)
--------- --------- ------- --------- --------- --------- --------- ----------
Net cash (used in) provided by
investing activities 8,968 35,986 -- 44,954 1,796 (559,401) -- (512,651)
F-54
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of Common and
Preferred Stock -- -- -- -- 5,614 456,529 -- 462,143
Proceeds from issuance of
conversion option to the
investors of Satellite Ventures -- -- -- -- 18,411 -- -- 18,411
Funding from parent/subsidiary 58,536 77,691 (110,122) 26,105 144,846 -- (170,951) --
Principal payments under capital
leases (3,467) -- -- (3,467) -- -- -- (3,467)
Principal payments under vendor
lease (2,957) -- -- (2,957) -- -- -- (2,957)
Proceeds from Senior Secured Notes
and Stock Purchase Warrants -- -- -- -- -- 322,889 -- 322,889
Proceeds from bank financing, net -- 27,250 -- 27,250 (1,000) -- -- 26,250
Debt issuance costs -- -- -- -- 78 (8,365) -- (8,287)
---------- -------- --------- ---------- --------- -------- -------- ---------
Net cash provided by (used in)
financing activities 52,112 104,941 (110,122) 46,931 167,949 771,053 (170,951) 814,982
Net increase in cash and cash
equivalents 1,744 -- -- 1,744 -- 174,205 -- 175,949
CASH & CASH EQUIVALENTS, beginning
of period 776 -- -- 776 -- 50,698 -- 51,474
--------- -------- --------- ---------- -------- -------- -------- ---------
CASH & CASH EQUIVALENTS, end of
period $2,520 $-- $-- $2,520 $-- $224,903 $-- $227,423
========= ======== ========= ========== ========= ======== ========= =========
F-55
Condensed Consolidating Statement of Cash Flow
As of December 31, 1999
(unaudited)
(in thousands)
Consolidated Consolidated
Subsidiary Motient Motient Motient XM Motient
Guarantors Holdings Eliminations Holdings Parent Radio Eliminations Parent
---------- -------- ------------ -------- ------- ----- ------------ ------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(218,444) $ (251,047) $218,444 $(251,047) $ (330,931) $ (28,529) $279,576 $(330,931)
Adjustments to reconcile net loss
to net cash (used in) provided
by operating activities:
Amortization of Guarantee Warrants
and debt related costs -- 7,261 -- 7,261 8,563 477 -- 16,301
Depreciation and amortization 54,923 -- -- 54,923 -- 1,385 (510) 55,798
Satellite and related assets
impairment charge 97,419 -- -- 97,419 -- -- -- 97,419
Extraordinary loss -- -- -- -- 12,132 -- -- 12,132
Equity in loss in XM Radio -- -- -- -- 6,692 -- -- 6,692
Non cash stock compensation
of XM Radio -- -- -- -- -- 4,210 -- 4,210
Non-cash charge for beneficial
conversion feature of note
issued to parent -- -- -- -- -- 5,520 (5,520) --
Minority Interest -- -- -- -- -- -- (7,067) (7,067)
Net unrealized loss on marketable
securities -- -- -- -- 37,318 -- -- 37,318
Changes in assets & liabilities:
Inventory (10,023) -- -- (10,023) -- -- -- (10,023)
Trade accounts receivable (3,897) -- -- (3,897) -- -- -- (3,897)
Other current assets (5,799) 20 -- (5,779) 3,451 (963) 3,842 551
Accounts payable and accrued
expenses 11,073 151 -- 11,224 1,266 5,126 (901) 16,715
Accrued interest on Senior Note -- (83) -- (83) -- -- -- (83)
Deferred trade payables (1,135) -- -- (1,135) -- -- -- (1,135)
Deferred Items--net 171 -- -- 171 (1,148) -- -- (977)
-------- ---------- -------- --------- --------- --------- -------- ---------
Net cash (used in) provided by
operating activities (75,712) (243,698) 218,444 (100,966) (262,657) (12,774) 269,420 (106,977)
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property & equipment (13,810) -- -- (13,810) -- (1,728) -- (15,538)
Purchase of XM Radio note receivable -- -- -- -- (21,419) -- -- (21,419)
Investment in XM Radio -- -- -- -- (2,400) -- -- (2,400)
XM Radio Acquisition costs -- -- -- -- (951) 163 -- (788)
Payment of escrow interest -- 41,006 -- 41,006 -- -- -- 41,006
System under construction -- -- -- -- -- (141,154) -- (141,154)
Purchase of short-term investments
by XM Radio -- -- -- -- -- (69,472) -- (69,472)
Other investing activities by
XM Radio -- -- -- -- -- (3,422) -- (3,422)
Purchase of long-term, restricted
investments 1,180 (4,427) -- (3,247) (1,669) -- -- (4,916)
-------- ---------- -------- --------- --------- --------- -------- ---------
Net cash used in investing activities (12,630) 36,579 -- 23,949 (26,439) (215,613) -- (218,103)
F-56
CASH FLOWS FROM FINANCING ACTIVITIES:
Common Stock -- -- -- -- 122,253 114,428 -- 236,681
Funding from parent/subsidiary 94,105 195,119 (218,444) 70,780 198,640 -- (269,420) --
Principal payments under capital
leases (5,982) -- -- (5,982) -- -- -- (5,982)
Principal payments under Vendor
Financing (1,290) -- -- (1,290) -- -- -- (1,290)
Proceeds from Series A subordinated
convertible note of XM Radio -- -- -- -- -- 250,000 -- 250,000
Proceeds from bank financing -- 65,000 -- 65,000 -- -- -- 65,000
Proceeds from note payable to
related parts -- -- -- -- 21,500 -- -- 21,500
Repayment of XM Radio Bank loan -- -- -- -- -- (73) -- (73)
Repayment of loan by XM Radio -- -- -- -- -- (75,000) -- (75,000)
Repayment of revolver -- (53,000) -- (53,000) -- -- -- (53,000)
Repayment of term loan -- -- -- -- (59,000) -- -- (59,000)
Proceeds from reduction of interest
rate swap -- -- -- -- 6,009 -- -- 6,009
Debt issuance costs -- -- -- -- (306) (10,270) -- (10,576)
------- --------- --------- -------- -------- -------- --------- --------
Net cash provided by (used in)
financing activities 86,833 207,119 (218,444) 75,508 289,096 279,085 (269,420) 374,269
Net (decrease)increase in cash (1,509) -- -- (1,509) -- 50,698 -- 49,189
and cash equivalents
CASH & CASH EQUIVALENTS, beginning
of period 2,285 -- -- 2,285 -- -- -- 2,285
------- --------- --------- -------- -------- -------- --------- --------
CASH & CASH EQUIVALENTS, end of period $ 776 $ -- $ -- $ 776 $ -- $ 50,698 $ -- $ 51,474
======= ========= ========= ======== ========= ======== ========= ========
F-57
Condensed Consolidating Statement of Cash Flow
As of December 31, 1998
(unaudited)
(in thousands)
Consolidated Consolidated
Subsidiary Acquisition Acquisition Motient Motient
Guarantors Company Eliminations Company Parent Eliminations Parent
---------- ------- ------------ ------- ------ ------------ ------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $(116,332) $(137,793) $ 116,332 $(137,793) $(150,566) $ 137,793 $(150,566)
Adjustments to reconcile net
loss to net cash used in
operating activities:
Amortization of Guarantee Warrants, debt
discount and issuance costs -- 10,845 -- 10,845 5,326 -- 16,171
Depreciation and amortization 53,233 -- -- 53,233 (526) -- 52,707
Equity in loss in XM Radio -- -- -- -- 12,960 -- 12,960
Changes in assets & liabilities inventory 21,947 -- -- 21,947 -- -- 21,947
Prepaid in-orbit insurance 1,183 -- -- 1,183 -- -- 1,183
Accounts receivable--trade (105) -- -- (105) -- -- (105)
Other current assets 7,185 -- -- 7,185 55 -- 7,240
Accounts payable and accrued expenses (14,484) -- -- (14,484) 12 -- (14,472)
Accrued interest on Senior notes -- 10,715 -- 10,715 -- -- 10,715
Deferred trade payables (6,567) -- -- (6,567) -- -- (6,567)
Deferred items--net (7,396) -- -- (7,396) -- -- (7,396)
-------- --------- --------- ---------- ---------- ----------- ---------
Net cash used in operations (61,336) (116,233) 116,332 (61,237) (132,739) 137,793 (56,183)
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property & equipment (12,470) -- -- (12,470) -- -- (12,470)
Cash paid for acquisition of Motient -- (52,373) -- (52,373) -- -- (52,373)
Communications
Purchase of long-term, restricted
investments (1,500) (116,109) -- (117,609) (28,152) -- (145,761)
Payment of escrow interest -- 20,633 -- 20,633 -- -- 20,633
-------- --------- --------- ---------- ---------- ----------- ---------
Net cash used in investing activities (13,970) (147,849) -- (161,819) (28,152) -- (189,971)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of Common Stock -- -- -- -- 412 -- 412
Funding from parent 83,829 118,307 (116,332) 85,804 51,989 (137,793) --
Principal payments under capital Leases (3,395) -- -- (3,395) -- -- (3,395)
Payments under Vendor Financing (16) -- -- (16) -- -- (16)
Repayment of bank financing -- (166,000) -- (166,000) 100,000 -- (66,000)
Payments on long-term debt (4,933) -- -- (4,933) -- -- (4,933)
Debt issuance costs -- (14,735) -- (14,735) -- -- (14,735)
Proceeds from Notes and stock purchase -- 326,510 -- 326,510 8,490 -- 335,000
-------- --------- -------- ---------- ---------- ----------- ---------
warrants
Net cash provided by financing
activities 75,485 264,082 (116,332) 223,235 160,891 (137,793) 246,333
Net increase in cash and cash equivalents 179 -- -- 179 -- -- 179
CASH and CASH EQUIVALENTS, beginning
of period 2,106 -- -- 2,106 -- -- 2,106
-------- --------- --------- -------- ---------- ----------- ---------
CASH and CASH EQUIVALENTS, end of period $ 2,285 $ -- $ -- $ 2,285 $ -- $ -- $ 2,285
======== ========= ========= ======== ========== ========== =======
F-58
QUARTERLY FINANCIAL DATA (unaudited)
(dollars in thousands, except for per share data)
2000-Quarters 1999-Quarters
1st 2nd 3rd 4th 1st 2nd 3rd 4th
--- --- --- --- --- --- --- ---
Revenues $22,170 $ 25,689 $26,657 $25,335 $ 20,230 $ 22,873 $ 22,970 $ 24,998
Operating expenses (1) 60,506 62,202 80,768 76,787 45,688 47,171 56,910 165,694
--------- ------ ------ ------- -------- --------- --------- ---------
Loss from operations (38,336) (36,513) (54,111) (51,452) (25,458) (24,298) (33,940) (140,696)
Interest and other income
(expense) (9,779) (6,078) (6,263) (8,956) (14,191) (14,998) (17,146) (11,129)
Gain on sale of
transportation -- -- -- 5,691 -- -- -- --
assets
Unrealized loss on note
receivable from XM Radio -- -- -- -- -- (9,919) -- --
Unrealized (loss) gain on
note payable to related
party 36,779 -- -- -- -- 10,036 (2,807) (34,628)
Minority Interest 7,342 3,341 13,391 9,355 -- -- -- 7,067
Equity in loss of XM Radio -- -- -- -- (3,494) (3,198) -- --
--------- ------- -------- --------- --------- ----------- ----------- -----------
Loss before extraordinary
item (3,994) (39,250) (46,983) (45,362) (43,143) (42,377) (53,893) (179,386)
Extraordinary loss on
extinguishment of debt -- (417) -- (2,618) -- -- (12,132) --
--------- ------- -------- --------- --------- ----------- ----------- -----------
Net Loss (3,994) (39,667) (46,983) (47,980) (43,143) (42,377) (66,025) (179,386)
XM Radio Preferred Dividend
and Beneficial Conversion
Charge (506) (745) (46,352) (1,916) -- -- -- --
---------- -------- --------- --------- -------- --------- --------- ----------
Net Loss attributable to
common shareholders (4,500) (40,412) (93,335) (49,896) (43,143) (42,377) (66,025) (179,386)
Basic and Diluted Loss Per
Share of common stock
before extraordinary item $(0.09) $(0.81) $ (1.88) $ (0.96) $ (1.34) $(1.31) $(1.18) $ (3.70)
Basic and Diluted Loss Per
Share extraordinary item -- $(0.01) -- $ (0.05) -- -- $(0.27) --
--------- ------- -------- ------- -------- --------- ---------- -------
Basic and Diluted Net loss
per common share (2) $(0.09) $(0.82) $(1.88) $ (1.01) $ (1.34) $(1.31) $(1.45) $ (3.70)
Weighted-average common
shares outstanding during
the period 49,094 49,502 49,532 49,564 32,225 32,416 45,421 48,500
Market price per share (3)
High $41.50 $24.31 $16.06 $14.31 $8.31 $21.94 $23.50 $23.13
Low $14.25 $7.88 $10.25 $3.31 $3.94 $ 7.19 $15.38 $ 8.31
- ----------
(1) Operating expenses include charges of approximately $3.6 million in the
third quarter of 2000 and $4.2 million in the fourth quarter of 1999
related to the realizability of the Company's inventory. In addition,
operating expenses include a $97.4 million charge in the fourth quarter of
1999 relating to the impairment of the Company's investment in the
satellite and related assets. See footnote 2 to the financial statements.
(2) Loss per share calculations for each of the quarters are based on the
weighted average number of shares outstanding for each of the periods, and
the sum of the quarters is not equal to the full year loss per share amount.
(3) The Company's Common Stock is listed under the symbol MTNT on the Nasdaq
National Market System. The quarterly high and low sales price represents
the closing price in the Nasdaq National Market System. The quotations
represent inter-dealer quotations, without retail markups, markdowns or
commissions, and may not necessarily represent actual transactions. As of
March 30, 2001, there were 347 stockholders of record of the Company's
Common Stock.
F-59
Selected Financial Data
Set forth below is the selected financial data for the Company for the five
fiscal years ended December 31, 2000:
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
(dollars in thousands, except for per share data)
Revenues $99,851 $ 91,071 $ 87,221 $ 44,214 $ 27,730
Net loss (138,624) (330,931) (150,566) (119,207) (134,638)
XM Radio beneficial conversion
and conversion charges (49,519) -- -- -- --
Net Loss to Common Shareholders (188,143) (330,931) (150,566) (119,207) (134,638)
Basic and diluted Loss per Common
Share $(3.81) $ (8.33) $ (4.94) $ (4.74) $ (5.38)
Dividends on Common Stock (1) None None None None None
Consolidated Balance Sheet Data:
Cash and Cash Equivalents $227,423 $51,474 $ 2,285 $ 2,106 $ 2,182
System Under Construction 800,482 357,278 -- -- --
Total Assets 1,571,714 809,948 489,794 311,447 350,173
Current Liabilities 131,914 81,645 44,971 59,433 57,669
Long-Term Liabilities 775,603 470,784 481,846 205,883 133,804
Minority Interest 648,313 274,745 -- -- --
Stockholders' Equity (Deficit) 12,884 (17,226) (37,023) 46,131 158,700
- ----------
(1) The Company has paid no dividends on its Common Stock since inception and
does not plan to pay dividends on its Common Stock in the foreseeable
future. In addition, the payment of dividends is subject to restrictions
described in Note 8 to the financial statements and discussed in
Management's Discussion and Analysis.
F-60
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Motient Corporation:
We have audited, in accordance with generally accepted auditing standards, the
consolidated financial statements of Motient Corporation and Subsidiaries (a
Delaware corporation) included in this Form 10-K and have issued our report
thereon dated April 2, 2001. Our audits were made for the purpose of forming an
opinion on the basic financial statements taken as a whole. The schedules listed
in Item 14 are the responsibility of the Company's management and presented for
purposes of complying with the Securities and Exchange Commission's rules and
not part of the basic financial statements. These schedules have been subjected
to the auditing procedures applied in the audits of the basic financial
statements and, in our opinion, fairly state, in all material respects, the
financial data required to be set forth therein in relation to the basic
financial statements taken as a whole.
Our report on the financial statements includes an explanatory paragraph with
respect to the assumption that the Company will continue as a going concern as
discussed in Note 1 to the financial statements.
/s/ Arthur Andersen LLP
Vienna, Virginia,
April 2, 2001
S-1
SCHEDULE I
MOTIENT CORPORATION
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
(Parent Company Only)
Condensed Balance Sheets
---------------------------------------------
(in thousands) December 31,
------------
2000 1999
---- ----
ASSETS
Current portion of prepaid interest rate swap $ 611 $2,445
Other current assets 246 123
Long term portion of prepaid interest rate swap --- 611
Total current assets --- ---
Restricted long-term investments 10,633 12,429
Note receivable from subsidiary 14,000 14,000
Deferred charges and other long-term assets 1,452 2,441
Investment in subsidiaries 27,265 43,129
------ ------
Total assets $54,207 $75,178
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Accounts payable and accrued expenses $1,323 $1,266
Term Loan payable 40,000 41,000
Note payable to related party --- 50,138
------ ------
Total Liabilities 41,323 92,404
Stockholders' Deficit:
Preferred Stock --- ---
Common Stock 495 485
Additional paid-in capital 982,621 844,181
Common stock purchase warrants 80,292 63,290
Deferred compensation (134) (6,536)
Unamortized guarantee warrants (11,504) (18,384)
Accumulated loss (1,038,886) (900,262)
----------- ---------
Total Stockholders' Equity (Deficit) 12,884 (17,226)
Total Liabilities, Minority Interest
and Stockholders' Deficit $54,207 $75,178
======= =======
S-2
SCHEDULE I
MOTIENT CORPORATION
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
(Parent Company Only)
Condensed Statements of Operations
----------------------------------------------
For the Years Ended December 31,
(in thousands) 2000 1999 1998
---- ---- ----
Management fees from wholly-owned subsidiary $1,200 $1,200 $1,200
Operating Expenses
Sales and advertising 117 125 121
General and administrative 1,125 850 1,066
----- --- -----
Total operating expenses 1,242 975 1,187
----- --- -----
Operating Loss (42) 225 13
Interest and other income 1,375 4,536 8,472
Gain on note payable to related party 36,779 (9,919) ---
Unrealized loss on note payable to related party --- (27,399) ---
Interest expense (5,667) (10,129) (8,298)
------- -------- -------
(Loss) income before equity in loss of subsidiaries 32,445 (42,686) 187
Equity in loss of subsidiaries - Note A (170,934) (276,113) (150,753)
--------- --------- ---------
Net Loss before extraordinary item (138,489) (318,799) (150,566)
Extraordinary loss on debt extinguishment (135) (12,132) ---
--------- --------- ---------
Net Loss (138,624) (330,931) (150,566)
XM Radio Preferred Stock Dividend Requirement (5,081) -- --
XM Radio Beneficial Conversion Conversion Charges (44,438) -- --
-------- --------- --------
Net Loss Attributable to Common Shareholders $(188,143) $(330,931) $(150,566)
========== ========= ==========
S-3
SCHEDULE I
MOTIENT CORPORATION
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
(Parent Company Only)
Condensed Statements of Cash Flows
---------------------------------------------
For the Years Ended December 31,
(in thousands) 2000 1999 1998
---- ---- ----
Cash Provided from Operating Activities $1,189 $13,456 $ 18,014
Investing Activities
Purchase of XM Radio note receivable -- (21,419) --
Investment in XM Radio -- (3,351) --
Sale (purchase) of restricted securities 1,796 (1,669) (28,152)
Advances to and investment in subsidiaries (26,461) (77,473) (98,764)
-------- -------- --------
Cash used in investing activities (24,665) (103,912) (126,916)
Financing Activities
Proceeds from the issuance of Warrants -- -- 8,490
Proceeds from reduction of interest rate swap -- 6,009 --
Proceeds from note payable to related party -- 21,500 --
Debt issuance costs 78 (306) --
Proceeds from issuance of conversion option to the
investors of Satellite Ventures 18,411 -- --
Proceeds (repayment of) Term Facility (1,000) (59,000) 100,000
Proceeds from sale of Common Stock 5,987 122,253 412
----- ------- -------
Cash Provided by Financing Activities 23,476 90,456 108,902
------ ------ -------
Increase for the period -- -- --
Beginning of period -- -- --
------ ----- -----
End of period $-- $-- $ --
==== ==== ====
S-4
SCHEDULE I
MOTIENT CORPORATION
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
(Parent Company Only)
Notes to Condensed Financial Statements
Note A - Background and Basis of Presentation
Motient Corporation (with its subsidiaries, "Motient" or the "Company") is a
leading provider of two-way mobile communications services principally to
business-to-business customers and enterprises. Motient serves a variety of
markets including mobile professionals, telemetry, transportation, field
service, and nationwide voice dispatch, to customers in the United States.
Motient provides its eLink(sm) brand two-way wireless email services to
customers accessing email through corporate servers, Internet Service Providers
("ISP"), Mail Service Provider ("MSP") accounts, and paging network suppliers.
In November 2000, Motient launched its BlackBerry (tm) by Motient wireless email
solution, developed by Research in Motion ("RIM") and licensed to operate on
Motient's network. BlackBerry by Motient is designed for large corporate
accounts operating in a Microsoft Exchange environment and contains advanced
encryption features. Together, the Company considers these two-way mobile
communications services to be its Core Wireless Business.
Additionally, as of December 31, 2000, Motient had an equity interest of
approximately 33.1% (or 21.3% on a fully diluted basis) in XM Satellite Radio
Holdings Inc. ("XM Radio"), a public company; and, as of December 31, 2000 the
Company controlled XM Radio through Board of Director membership and common
stock voting rights.
In January 2001, pursuant to FCC approval to cease to control XM Radio, the
number of directors appointed by the Company to XM Radio's Board of Directors
was reduced to less than 50% of the XM Radio directors, and the Company
converted a portion of its super-voting Class B Common Stock of XM Radio to
Class A Common Stock. As a result, the Company ceased to be in control of XM
Radio. The carrying value of the Company's investment in XM Radio pursuant to
the equity method of accounting was $288,064 (or $17.19 per share) as of
December 31, 2000. As of March 29, 2001, the market price of XM Radio common
stock was $7.00 per share, $10.19 per share less than the Company's carrying
value. Pursuant to the equity method of accounting, beginning in 2001, the
Company will be required to assess, considering market and other appropriate
factors, whether a permanent impairment of the Company's investment in XM Radio
has occurred and an impairment loss recognized.
The operations and financing of XM Radio are maintained separate and apart from
the operations and financing of Motient. Please refer to XM Radio's audited
financial statements, included in its reports and filings with the Securities
and Exchange Commission ("SEC"), for more detail about its business plan, risks,
and financial results.
S-5
On June 29, 2000, the Company formed a joint venture subsidiary, Mobile
Satellite Ventures LLC ("Satellite Ventures"), in which the Company owns 80% of
the membership interests. The remaining 20% interest in Satellite Ventures is
owned by a group of three investors which paid an aggregate of $50 million in
exchange for their 20% interest.
On November 29, 2000, Motient Services Inc. ("Motient Services"), a wholly-owned
subsidiary of Motient Holdings (defined below) sold its retail transportation
assets to Aether Systems, Inc. ("Aether"). Aether purchased all of the assets in
Motient Services's wireless communications business for the transportation
market, including its satellite-only MobileMAX2(TM) multi-mode mobile messaging
business, and Aether assumed all liabilities related to the transportation
business. In addition, Aether entered into separate long-term prepaid airtime
agreements with the Motient Services and Motient Communications Inc. ("Motient
Communications," formerly ARDIS Company), as sister company to Motient Services.
In the Parent Company-only financial statements, the Company's investment in
subsidiaries is stated at cost less losses of subsidiaries. The net loss of
subsidiaries is included in these financial statements using the equity method.
Certain amounts have been reclassified from prior years. The Company has entered
into various transactions with its subsidiaries which have not been eliminated
in the December 31, 2000 audited consolidated financial statements and are
summarized as follows:
2000 1999 1998
---- ---- ----
Investment in and amounts due from subsidiaries $7,579 $13,038 $12,834
Management fees 1,200 1,200 1,200
Interest income 795 3,982 7,712
Interest expense allocated to subsidiaries 4,112 4,211 3,804
Note B - Investment in Subsidiaries and Liquidity and Financing Requirements
As stated in Note A, the Company records its investment in subsidiaries on the
equity method. In connection with the Motient Communications Acquisition in
1998, the Company formed a new wholly-owned subsidiary ("Motient Holdings") to
hold the stock of all current wholly-owned operating subsidiaries. Motient
Holdings has two wholly-owned subsidiaries. Additionally, the Company has equity
investments in XM Radio and Satellite Ventures. The recoverability of such
investments is subject to the risks associated with expanding a developing
business. 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 Subsidiaries' financial
condition and future results of operations.
S-6
Summary of Liquidity and Financing Sources for Core Wireless Business
Adequate liquidity and capital are critical to Motient's ability 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, new product rollouts,
capital expenditures and working capital before it begins to generate positive
cash flow from operations. The Company expects these outlays to continue for the
foreseeable future.
The Company's current operating assumptions and projections reflect its best
estimate of subscriber and revenue growth and operating expenses. Motient
anticipates that capital expenditures, operating losses, working capital and
debt service requirements through 2001 can be met by (i) cash on hand, (ii)
borrowings available under its bank financing and vendor financing, (iii)
proceeds realized through the sale of inventory relating to eLink and BlackBerry
TM, (iv) reduction of operating expenditures, (v) additional debt or equity
financing transactions, and (vi) its investment in XM Radio. Additionally, the
Company has the potential to receive additional funds from the Aether
transaction as well as the Satellite Ventures transaction. The Company's
financial results could deteriorate, and its ability to meet its projections is
subject to numerous uncertainties. There can be no assurance that the current
projections will be achieved. If Motient's cash requirements are more than
projected, it will require additional financing in amounts which may be
material. The type, timing and terms of financing that the Company selects will
be dependent upon the Company's cash needs, the availability of other financing
sources and the prevailing conditions in the financial markets. The Company
cannot guarantee that additional financing sources will be available at any
given time or available on favorable terms.
The Company's consolidated financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and satisfaction of
liabilities in the normal course of business. The successful implementation of
the Company's business plan requires substantial funds to finance the
maintenance and growth of its operations, network and subscriber base and to
expand into new markets. The Company has an accumulated deficit and has
historically incurred losses from operations which are expected to continue for
additional periods in the future. There can be no assurance that its operations
will become profitable. These factors, along with the Company's negative
operating cash flows have placed significant pressures on the Company's
financial condition and liquidity position, and create substantial doubt about
the Company's ability to continue as a going concern. The accompanying financial
statements do not include any adjustments relating to the possible effects on
the recoverability and classification of assets or amounts and classification of
liabilities that might be necessary should the Company be unable to continue as
a going concern.
S-7
In January and February 2001, the Company sold, in two separate transactions, 2
million shares of its XM Radio Class A Common Stock, at an average price of
$16.77 per share, for total proceeds of $33.5 million. Approximately $8.5
million of the proceeds were used to repay and permanently reduce the Term
Facility. In exchange for the Guarantors agreeing to waive certain debt
repayment obligations for the second sale of shares, the Company and the
Guarantors have agreed that the first $16.5 million of proceeds received from
the earlier of (i) the closing of the Satellite Ventures transaction and (ii)
any other stated reduction event to occur in the year 2002 will be used to pay
down the bank financing.
On April 2, 2001, Motient entered into an agreement for financing in the amount
of $25 million from Rare Medium Group, Inc. ("Rare") in the form of a note
payable at 12.5% annual interest with a maturity date, subject to certain
mutually-agreed upon extensions, of 180 days from funding, which is expected to
occur by April 6, 2001. Additionally, the Company has the potential to receive
up to an additional $25 million of funding, on comparable terms, the amount of
which will be based on the market price of XM Radio stock. The notes are
collateralized by up to 5 million of the Company's XM Radio shares, and Rare has
the option to exchange the notes for a number of XM Radio shares equivalent to
the principal of the note plus any accrued interest thereon. Of the first $25
million received by the Company, the Company used $6.1 million to repay and
permanently reduce its Term Facility and $14.4 million is subject to
availability upon the approval of the Guarantors.
As of March 30, 2001, the Company held approximately 14.7 million shares of XM
Radio stock; however, approximately 13.7 million of such shares are pledged to
and held by Rare or the Company's banks and guarantors to secure the Company's
obligations under its bank financings and the notes with Rare. There is no
guarantee that the banks and guarantors would agree to release any portion of
their share of this security to permit the Company to liquidate its XM Radio
shares, or that such approval would be on terms favorable to the Company.
Further, the Company's ability to sell its shares of XM Radio stock in the
public markets is generally limited to the quarterly volume restrictions under
Rule 144 of the Securities Act.
As noted above, in June 2000 Motient formed a new joint venture subsidiary,
Satellite Ventures, in which the Company owns 80% of the membership interests.
The remaining 20% interest in Satellite Ventures is owned by the Investors. The
Investors paid $50 million to Satellite Ventures (in the aggregate), in exchange
for their 20% interest. Of the $50 million payment received by Satellite
Ventures, $6.0 million was retained by Satellite Ventures to fund certain
research and development activities, with the remaining $44 million paid to
Motient Services, which owns the Company's satellite and related assets. Of the
$44 million paid to Motient Services, $20 million was payment under a Research
and Development, Marketing and Service Agreement, and $24 million was a deposit
under the asset sale agreement pursuant to which Motient Services would sell its
satellite and related assets to Satellite Ventures.
S-8
Motient is party to a bank financing consisting of (i) a $77.25 million
Revolving Credit Facility issued by Motient Holdings (formerly AMSC Acquisition
Company, Inc.) ("Motient Holdings"), and guaranteed by the Company, maturing
March 31, 2003, and a $31.5 million Term Loan Facility issued by the Company
which matures March 31, 2003 with up to three one-year extensions subject to
lender approval. The bank financing is severally guaranteed by Hughes
Electronics Corporation, Singapore Telecommunications Ltd. and Baron Capital
Partners, L.P. (collectively, the "Bank Facility Guarantors").
In 1999, the Company raised $116 million, net of underwriting discounts and
expenses, through the issuance of 7.0 million shares of 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. In 2000, the Company
paid down and permanently reduced the Term Loan Facility by another $1 million
with proceeds from stock and warrant exercises, and the Revolving Credit
Facility was permanently reduced by $22.8 million with a portion of the proceeds
of the Satellite Ventures and Aether transactions. As a result of the permanent
reductions of the Term Facility, the Company recorded an extraordinary loss on
extinguishment of debt of approximately $135,000 in 2000 and $12.1 million in
1999, which reflects the write-off, on a pro-rata basis, of unamortized
guarantee warrants held by the Bank Facility Guarantors (the "Guarantee
Warrants") and deferred financing fees associated with the placement of the bank
financing. The Company will record an extraordinary loss on extinguishment of
debt in 2001 associated with the $8.5 million Term Loan Facility repayment noted
above.
As of March 30, 2001, the Company had $31.5 million outstanding under the Term
Loan Facility at a rate of 6.19% and Motient Holdings had $77.3 million
outstanding under the revolving credit facility at rates ranging from 6% to 8%.
As of March 30, 2001, no amounts were available for borrowing under the
Revolving Credit Facility.
In connection with the Bank Financing, the Bank Facility Guarantors extended
separate guarantees of the obligations of each of Motient Holdings and the
Company to the banks, which on a several basis aggregated to $200 million. In
their agreement with each of Motient Holdings and the Company (the "Guarantee
Issuance Agreement"), the Bank Facility Guarantors agreed to make their
guarantees available for the Bank Financing. In exchange for the additional
risks undertaken by the Bank Facility Guarantors in connection with the 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 in connection with the original Bank Facility
(together, the "Guarantee Warrants"). The Guarantee Warrants were issued with an
exercise price of $12.51 and were valued at approximately $17.7 million. The
amounts initially assigned to the Guarantee Warrants and subsequent repricings
are recorded as Common Stock Purchase Warrants and Unamortized Guarantee
Warrants in the accompanying consolidated balance sheets. The amount assigned to
Unamortized Guarantee Warrants is amortized to interest expense over the life of
the related debt. 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 re-pricing was approximately $1.5
million.
S-9
As a result of the automatic application of certain adjustment provisions
following the issuance of the 7.0 million shares in the August 1999 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
126,250 shares. The additional Guarantee Warrants and re-pricing were valued at
$2.4 million. Additionally, in June 2000, the Bank Facility Guarantors agreed to
partially reduce the debt repayment requirements associated with the Satellite
Ventures transaction. In exchange, the Company further reduced the price of the
Guarantee Warrants to $6.25, which was valued at $1.4 million.
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 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 Motient Holdings.
In connection with the 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 fixed fee of approximately $17.9 million for the swap agreement. In
return, the counter-party is obligated to pay a variable rate equal to LIBOR
plus 50 basis points, paid on a quarterly basis directly to the respective banks
on behalf of the Company, on a notional amount of $100 million until the
termination date of March 31, 2001. In connection with the pay down of a portion
of the Term Loan Facility during 1999, 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. The Company has reflected as an asset, the fee paid for the swap
agreement and is included in other assets in the accompanying consolidated
balance sheets. The interest rate swap fee is being amortized over the life of
the swap as a component of interest expense. 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 March 31, 1998, Motient Holdings issued $335 million of units consisting of
12.25% Senior Notes due 2008 (the "Senior Notes"), and one warrant to purchase
3.75749 shares of Common Stock. As a result of the August 1999 common stock
offering and the automatic application of certain adjustment provisions, the
exercise price of the warrants associated with the Senior Notes was reduced to
$12.28 per share, the number of shares per warrant was increased to 3.83 shares
for each $1,000 principle amount of Senior Notes, and the aggregate number of
shares issuable upon exercise of such warrants was increased by 24,294. The
additional Senior Note warrants and re-pricing were valued at $440,000 and
recorded as additional debt discount. The Senior Notes are fully guaranteed by
the Company.
S-10
Additionally, Motorola has entered into an agreement with Motient Communications
to provide up to $15 million of vendor financing (the "Financing Commitment"),
to finance up to 75% of the purchase price of additional network base stations.
Loans under this facility bear interest at a rate equal to LIBOR plus 7.0% and
will be guaranteed by the Company and each subsidiary of Motient Holdings. The
terms of the facility require that amounts borrowed be secured by the equipment
purchased therewith. Advances made during a quarter constitute a loan, which is
then amortized on a quarterly basis over three years. As of December 31, 2000
and 1999, $8.5 million and $4.5 million respectively, was outstanding under this
facility at interest rates ranging from 13.0% to 13.8% and 12.1% to 13.1%,
respectively.
In January 1999 the Company issued to Baron Asset Fund ("Baron"), a stockholder
and guarantor of its bank facility, a $21.5 million note convertible into shares
of common stock of XM Radio (the "Convertible Note Payable to Related Party" or
"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"). On
October 8, 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 approximately 1.5 million shares of XM Radio Class B common
stock .
The Baron XM Radio Convertible note was indexed to XM Radio stock and thus the
$50.1 million recorded in the consolidated balance sheet at December 31, 1999
reflected management's best estimate of the fair value of the Baron XM Radio
Convertible Note. Changes in the fair value of the Baron XM Radio Convertible
Note were reflected in the accompanying statement of operations as an unrealized
gain or loss on note payable to related party. Due to the increase in value of
XM Radio stock, the Company recorded an unrealized loss of $27.4 million for the
year ended December 31, 1999 on the Baron XM Radio Convertible Note. Prior to
the XM Radio 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 $9.9 million for the year ended
December 31, 1999.
On January 13, 2000, Baron notified the Company of its intention to exchange the
Baron XM Radio Convertible Note for 1,314,914 shares of XM Radio Class B Stock.
The exchange of the convertible note resulted in a gain in 2000 of approximately
$36.8 million computed as the difference in the carrying value of the Baron XM
Radio Convertible Note and the Company's cost basis in XM Radio stock exchanged
upon conversion of this note.
XM Radio
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 is currently exploring
several financing arrangements, which may include selling debt or equity
securities or obtaining loans from commercial banks or other financial
institutions (See Note D - Subsequent Events). 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.
S-11
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, Clear Channel Investments, DIRECTV, Telcom Ventures, Columbia
Capital and Madison Dearborn Partners. $75 million of the proceeds were used to
pay an outstanding note payable and the remaining proceeds were used to fund
working capital needs. The Series A subordinated notes and all accrued interest
thereon are convertible into Series A convertible preferred stock (in the case
of the notes held by General Motors), or Class A common stock (in the case the
notes held by the other investors) 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. On
October 8, 1999, XM Radio completed an initial public offering of 10.2 million
shares of Class A common stock. Concurrent with this offering, the Series A
subordinated convertible notes were converted into 10.8 million shares of Series
A convertible preferred stock and 16.2 million shares of Class A common stock.
In the first quarter of 2000, XM Radio raised an additional $228.6 million in
net proceeds through a follow-on offering of 4.4 million shares of its Class A
common stock and 2.0 million shares of Series B convertible redeemable preferred
stock.
In March 2000, XM Radio completed a high yield debt offering of 325,000 units,
each unit consisting of $1,000 principal amount of 14% Senior Secured Notes due
2010 and one warrant to purchase 8.024815 shares of Class A common stock of XM
Radio at an exercise price of $49.50 per share. XM Radio realized net proceeds
of $191.5 million, excluding $123.0 million used to acquire restricted
investments which will be used to pay interest payments due under the notes for
the first three years.
In August 2000, XM Radio completed a private offering of 235,000 shares for
$1,000 per share of its 8.25% Series C convertible redeemable preferred stock
and raised additional net proceeds of approximately $226.8 million. XM Radio
recorded a $123.0 million beneficial conversion charge that reduced earnings
available to common stockholders. The issuance of the Series C preferred stock
caused the exercise price of the warrants sold in March 2000 to be adjusted to
$47.94 and the number of warrant shares to be increased to 8.285948 per warrant.
In connection with the above XM Radio transactions, the Company's voting
interest in XM Radio was reduced to 33.1 % (21.3% on a fully diluted basis), and
in accordance with Staff Accounting Bulletin 51 (SAB 51), the Company recorded
an increase to its investment in XM Radio of $129.5 million in 2000 and $80. 7
million in 1999. SAB 51 addresses the accounting for sales of stock by a
subsidiary. Because XM Radio is a development stage company, SAB 51 requires the
difference in the carrying amount of the Company's investment in XM Radio and
the net book value of XM Radio after the stock issuance be reflected in the
financial statements of the Company as a capital transaction in the accompanying
consolidated statements of stockholders' equity (deficit).
S-12
In January 1999 the Company issued to Baron Asset Fund ("Baron"), a stockholder
and guarantor of the Company's bank facility, a $21.5 million note convertible
into shares of common stock of XM Radio (the "Convertible Note Payable to
Related Party" or "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"). On October 8, 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 approximately 1.5 million shares of XM
Radio Class B common stock. The Company opted 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. In January 2000, Baron exchanged this
note into shares of XM Radio.
Note C - Guarantees
The Company has guaranteed various obligations of Motient Holdings. These
guaranteed obligations include amounts borrowed under the Revolving Credit
Facility, Vendor Financing Commitment, and obligations of Motient Holdings and
its subsidiaries under certain vendor financing agreements, office lease
agreements and various capital equipment leases.
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 December 31, 2000, all of the subsidiaries' net assets were
restricted under these agreements. These restrictions will have an impact on the
Company's ability to pay dividends.
Note D - Subsequent Events
Core Wireless Business
As noted above, in January and February 2001, the Company sold, in two separate
transactions, 2 million shares of its XM Radio Class A Common Stock, at an
average price of $16.77 per share, for total proceeds of $33.5 million.
Approximately $8.5 million of the proceeds were used to repay and permanently
reduce the Term Facility. In exchange for the guarantors agreeing to waive
certain debt repayment obligations for the second sale of shares, the Company
and the Guarantors have agreed that the first $16.5 million of proceeds received
from the earlier of (i) the closing of the Satellite Ventures transaction and
(ii) any other stated reduction event to occur in the year 2002 will be used to
pay down the bank financing.
S-13
In January 2001, the Company entered into an agreement, subject to certain
conditions, to amend in several respects the terms of its June 2000 transaction
involving Satellite Ventures. First, the Investors agreed, subject to certain
conditions including approvals by the Federal Communications Commission ("FCC"),
to invest an additional $50 million to become (in the aggregate) the owners of
40% of the outstanding interests of Satellite Ventures. The Investors will also
have an option, exercisable through June 29, 2002, for an additional $40
million, to increase their ownership in Satellite Ventures to 50.66% (with each
individual Investor's stake being less than 20%). Second, upon closing of the
transaction, TMI will contribute its satellite communications business assets to
Satellite Ventures, along with Motient's satellite business assets. TMI will
become the owner of approximately 27% of the outstanding equity of Satellite
Ventures and will also receive a cash payment of $7.5 million, as well as a
$11.5 million 5-year note.
Upon closing of these transactions, Motient Services will sell its remaining
satellite assets to Satellite Ventures, in exchange for a cash payment of $45
million and a 5-year, $15 million note. Upon Closing, the Company will own
approximately 33% of the outstanding interests and be the largest single
shareholder of Satellite Ventures. A portion of Satellite Ventures' cash payment
to TMI at closing will be funded by the Company's loan of $2.5 million, in
exchange for a note back in the same amount.
Under the original transaction, at any time until June 29, 2002, the Investors
had certain rights to elect to convert their interests in Satellite Ventures
into shares of Motient's common stock at a conversion price which will be set at
the time of exercise, between $12 and $20 per share, as specified in the June
Investment Agreement. As part of the January agreement, this right remains in
place, but is limited to an aggregate of $55 million.
Under the terms of the bank facility waivers received by Motient in connection
with the January 2001 agreement, half of all amounts to be received by Motient
Services from Satellite Ventures in connection with Motient Services' sale of
its satellite business assets to Satellite Ventures, including the $45 million
in cash and $15 million note receivable, will be used to repay outstanding
amounts, and permanently reduce commitments, under Motient Holdings' Revolving
Credit Facility.
The consummation of the transactions is subject to receipt of all necessary
regulatory governmental approvals and consents, including, for example,
approvals under the Hart-Scott-Rodino Antitrust Improvements Act, and FCC
approvals with respect to both the transfer of Motient Services' FCC licenses
and Satellite Ventures' plans for a new generation integrated
satellite-terrestrial system, approvals by Canadian regulatory authorities with
respect to the transfer of TMI's communications licenses to the new venture, and
other customary conditions relating to due diligence review, third party
consents, and similar matters. Beginning in January 2002, if certain closing
conditions have not occurred, the Company and TMI have certain rights to require
the closing to proceed at such time, and if less than all of the Investors
participate at such time, the Company and TMI may, under certain circumstances,
purchase the interests in Satellite Ventures that would have otherwise been
acquired by any such non-participating Investors.
S-14
XM Radio
In March 2001, XM Radio completed a follow-on offering of 7.5 million shares of
Class A common stock, which yielded net proceeds of $72.0 million, and a
concurrent offering of 7.75% convertible subordinated notes due 2006,
convertible into shares of Class A common stock at a conversion price of $12.23
per share, which yielded net proceeds of $120.7 million.
S-15
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000
Charged
Balance at to Costs Balance at
Beginning and End of
Description of Year Expenses Deductions Year
- ----------- ------- -------- ---------- ---------
1998
Allowance for doubtful accounts $1,930 $ 694 $(1,689) $935
1999
Allowance for doubtful accounts 935 1,309 (1,019) 1,225
2000
Allowance for doubtful accounts 1,225 1,668 (1,576) 1,317
S-16