SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2001
Commission File No. 0-23044
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MOTIENT CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 93-0976127
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
10802 Parkridge Boulevard
Reston, Virginia 20191-5416
(703) 758-6000
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such report(s)), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No[ ]
Number of shares of Common Stock outstanding at August 10, 2001: 49,898,184
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Motient Corporation and Subsidiaries
Consolidated Statements of Operations
(in thousands, except per share data)
(Unaudited)
Three Months Ended Six Months
June 30, Ended June 30,
--------- --------------
2001 2000 2001 2000
---- ---- ---- ----
REVENUES
Services and related revenue $19,515 $18,221 $37,522 $35,373
Sales of equipment 4,142 7,468 9,542 12,486
------- ------- -------- --------
Total Revenues 23,657 25,689 47,064 47,859
COSTS AND EXPENSES
Cost of service and operations 19,600 18,774 37,764 36,792
Cost of equipment sold 10,636 7,949 16,570 13,205
Sales and advertising 4,943 7,620 14,592 13,846
General and administrative 4,867 18,664 11,194 40,577
Depreciation and amortization 8,835 9,195 17,385 18,288
------ -------- -------- --------
Operating Loss (25,224) (36,513) (50,441) (74,849)
Interest and other income, net 271 9,951 413 15,153
Interest expense (14,824) (16,029) (30,250) (31,010)
Loss on Rare Medium Note call option (13,800) -- (13,800) --
Gain on note payable to related party -- -- -- 36,779
Minority interest -- 3,341 -- 10,683
Equity in loss of XM Radio (10,855) -- (23,327) --
-------- --------- --------- --------
Loss Before Extraordinary Item, XM Radio Preferred
Stock Dividend and Beneficial Conversion (64,432) (39,250) (117,405) (43,244)
Extraordinary Loss on Extinguishment of Debt (892) (417) (1,925) (417)
----- --------- --------- ---------
Net Loss (65,324) (39,667) (119,330) (43,661)
XM Radio Preferred Stock Dividend
and Beneficial Conversion -- (745) -- (1,251)
--------- --------- ---------- ---------
Net Loss Attributable to Common Shareholders $(65,324) $(40,412) $(119,330) $(44,912)
========= ========= ========== =========
Basic and Diluted Loss Per Share of Common Stock:
Loss Before Extraordinary Item $(1.29) $(0.81) $(2.36) $(0.90)
Extraordinary Loss on Extinguishment of Debt
-------- --------- --------
(0.02) (0.01) (0.04) (0.01)
------ ------ ------ ------
Net Loss Attributable to Common Shareholders $(1.31) $(0.82) $(2.40) $(0.91)
======= ====== ======= ======
Weighted-Average Common Shares Outstanding 49,792 49,502 49,741 49,298
The accompanying notes are an integral part of these consolidated financial
statements.
Motient Corporation and Subsidiaries
Consolidated Balance Sheets
(in thousands, except share and per share data)
June 30, 2001 December 31, 2000
------------- -----------------
ASSETS (Unaudited)
- ------ -----------
CURRENT ASSETS:
Cash and cash equivalents (including $0 and $224,903 related to XM Radio) $5,317 $227,423
Accounts receivable-trade, net of allowance for doubtful accounts 16,290 14,421
Inventory 18,130 16,990
Restricted short-term investments (including $0 and $95,277 related to XM Radio) --- 115,986
Due from Mobile Satellite Ventures 483 502
Deferred equipment costs 19,604 16,173
Other current assets 14,718 31,095
--------- ---------
Total current assets 74,542 422,590
PROPERTY AND EQUIPMENT, net 106,610 175,706
XM RADIO SYSTEM UNDER CONSTRUCTION -- 800,482
GOODWILL AND OTHER INTANGIBLES, net 51,715 62,468
EQUITY INVESTMENT in XM RADIO 218,832 --
RESTRICTED INVESTMENTS (including $0 and $65,889 related to XM Radio) 11,454 77,106
DEFERRED CHARGES AND OTHER ASSETS, net of accumulated amortization 22,529 33,362
--------- ---------
Total assets $485,682 $1,571,714
========= ==========
LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $43,721 $105,749
Obligations under capital leases due within one year 3,651 4,590
Rare Medium Note Payable, at market, net of discount 25,125 --
Rare Medium Note call option 15,077 --
Current portion of Vendor Financing 4,111 4,246
Current portion of deferred trade payables -- 2,212
Deferred equipment revenue 19,630 16,173
Deferred revenue and other current liabilities 15,006 18,117
--------- ---------
Total current liabilities 126,321 151,087
LONG-TERM LIABILITIES:
Obligations under Senior Notes, net of discount 328,923 328,474
Senior Secured Notes of XM Radio, net of discount -- 261,298
Obligations under Bank Financing 102,625 111,250
Capital lease obligations 7,060 9,230
Vendor Financing commitment 2,250 4,246
Other long-term liabilities 32,752 44,932
--------- ---------
Total long-term liabilities 473,610 759,430
Total liabilities 599,931 910,517
--------- ---------
MINORITY INTEREST -- 648,313
STOCKHOLDERS' (DEFICIT) EQUITY:
Preferred Stock; par value $0.01; authorized 200,000 shares; -- --
Common Stock; voting, par value $0.01; authorized 150,000,000 shares 498 495
Additional paid-in capital 971,532 982,621
Deferred compensation (84) (134)
Common Stock Purchase Warrants 81,773 80,292
Unamortized Guarantee Warrants (9,752) (11,504)
Cumulative loss (1,158,216) (1,038,886)
----------- -----------
STOCKHOLDERS' (DEFICIT) EQUITY (114,249) 12,884
---------- ---------
Total liabilities, minority interest, and stockholders' (deficit) equity $485,682 $1,571,714
========= ==========
The accompanying notes are an integral part of these consolidated financial
statements.
Motient Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)
Six Months Ended June 30,
2001 2000
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(119,330) $ (43,661)
Adjustments to reconcile net loss to net cash used in
operating activities:
Amortization of Guarantee Warrants and debt related costs 5,921 5,741
Depreciation and amortization 17,385 18,288
Equity in loss of XM Radio 23,327 --
Loss on Rare Medium Note call option 13,800 --
Gain on note payable to related party -- (36,779)
Loss on sale of XM Radio shares 407 --
Extraordinary loss on extinguishment of debt 1,925 417
Non-cash stock compensation 325 2,258
Minority Interest -- (10,683)
Changes in assets and liabilities, net of acquisitions and dispositions:
Inventory (1,141) (3,376)
Accounts receivable-- trade (1,868) (4,169)
Other current assets 4,664 (19,330)
Accounts payable and accrued expenses 4,310 1,925
Accrued interest Senior Note -- 15
Deferred trade payables (1,448) (3,330)
Deferred revenue and other deferred items-- net (3,873) 16,989
----------- ----------
Net cash used in operating activities (55,596) (75,695)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of restricted investments (32) (4,172)
Payment of Senior Note interest from escrow 20,503 20,503
Proceeds from the sale of XM Radio stock 33,539 --
Purchase/maturity of restricted investments by XM Radio, net -- (125,863)
Purchase/maturity of short term investments by XM Radio, net -- 69,471
System under construction -- (191,319)
Other XM Radio investing activities -- (54,250)
Asset Sale Agreement to Mobile Satellite Ventures -- 10,836
Additions to property and equipment (6,202) (28,458)
---------- ----------
Net cash provided by (used in) investing activities 47,808 (303,252)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of equity securities 259 5,308
Proceeds from Rare Medium Note 25,000 --
Proceeds from issuance of conversion option to the investors of Mobile -- 18,564
Satellite Ventures
Proceeds from issuance of equity securities-XM Radio -- 229,225
Proceeds from Senior Secured Notes and Stock Purchase Warrants issued -- 322,898
by XM Radio
Principal payments under capital leases (3,350) (2,933)
Principal payments under Vendor Financing (2,132) (1,233)
Repayment of Bank Financing (14,625) (20,000)
Proceeds from Bank Financing 6,000 56,000
Debt issuance costs (567) (8,376)
----------- ----------
Net cash provided by financing activities 10,585 599,453
Net increase in cash and cash equivalents 2,797 220,506
CASH AND CASH EQUIVALENTS, beginning of period 2,520 51,474
---------- ----------
CASH AND CASH EQUIVALENTS, end of period $ 5,317 $ 271,980
========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (continued)
MOTIENT CORPORATION AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
June 30, 2001
(Unaudited)
1. ORGANIZATION AND BUSINESS
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. Motient provides its eLinksm 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. Motient also offers 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.
Motient is devoting its efforts to expanding its Core Wireless Business. This
effort involves substantial risk. 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.
XM Radio
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; however, 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 2000 have been included in
the Company's consolidated financial statements.
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 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, effective January 1, 2001,
accounts for its investment in XM Radio pursuant to the equity method. The
carrying value of the Company's investment in XM Radio pursuant to the equity
method of accounting was $218.8 million (or $14.83 per share) as of June 30,
2001. As of August 10, 2001, the market price of XM Radio common stock was
$13.58 per share, $1.25 per share less than the Company's carrying value.
Pursuant to the equity method of accounting, the Company has assessed whether an
other than temporary decline in value of the Company's investment in XM Radio
has occurred and whether a loss should be recognized. Considering market and
other appropriate factors, the Company does not believe that an other than
temporary decline in the value of its investment in XM Radio has occurred;
however, these factors could change and cause the Company to recognize a loss in
the future.
Sale of Transportation Business
In November 2000, Motient sold assets relating to its retail transportation
business to Aether Systems, Inc. ("Aether"). 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 which will be paid to Motient upon collection of certain accounts
receivable sold to Aether. 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. The
contingent escrowed and earn-out payments have not been recorded by the Company
as of June 30, 2001. These amounts will be recorded as additional sales proceeds
when and if received.
Satellite Ventures
In June 2000 the Company formed a new joint venture subsidiary, Mobile Satellite
Ventures LLC ("Satellite Ventures"), in which it owns 80% of the membership
interests. The remaining 20% interest in Satellite Ventures is owned by certain
investors (the "June Investment Agreement").
In January 2001, Motient entered into an agreement, subject to certain
conditions, to amend in several respects the terms of the 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.
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, which is not scheduled to occur until FCC
approval is received, Motient will sell its remaining satellite business 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.
The Investors have certain rights to elect to convert up to $55 million of 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.
Rare Medium Group, Inc. Merger
On May 14, 2001, the Company signed a definitive merger agreement with Rare
Medium through which the Company will acquire 100% of the ownership of Rare
Medium, using a combination of newly issued convertible preferred stock of the
Company, and 9 million shares of XM Radio Class A common stock held by the
Company.
The combined company will provide wireless email, internet and corporate
intranet services, as well as software consulting, web based development,
wireless software, and network integration services. The merged companies will
operate as Motient Corporation and will be headquartered in Reston, Virginia.
As of June 30, 2001, Rare Medium had approximately $98 million in cash, before
funding the second tranche of the Rare Medium bridge loan to Motient. Any cash
that remains at Rare Medium at the time of closing would be used as follows: (i)
to repay and permanently reduce the Term Facility and Revolver by $28.25
million, (ii) approximately $13 to $16 million to affiliates of Apollo
Management L.P. (Rare Medium's preferred shareholder) as additional merger
consideration, and (iii) to fund the combined business, including a $20.5
million interest payment due in October 2001 on the Company's senior notes.
Further, the Guarantors have required as a condition to the transaction that the
Company sell one million XM Radio shares to be used as a 100% reduction in the
Bank Facility by September 30, 2001. Hughes has the right to defer the sale of
these shares beyond September 30th.
The consummation of the merger is subject to receipt of all necessary regulatory
approvals and consents, including Rare and Motient shareholder approvals.
Additionally, there are a number of lawsuits filed by holders of Rare Medium
common stock seeking to enjoin the merger and unspecified monetary damages. The
outcome of these lawsuits may not be determined prior to the closing of the
merger.
2. SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The unaudited consolidated condensed financial statements included herein have
been prepared pursuant to the rules and regulations of the SEC. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted. While the Company believes that the disclosures made are
adequate to not make the information misleading, these consolidated condensed
financial statements should be read in conjunction with the consolidated
financial statements and related notes included in the Company's filings and the
filings of XM Radio with the SEC.
The consolidated balance sheet as of June 30, 2001, the consolidated statements
of operations for the three and six months ended June 30, 2001 and 2000, and
cash flows for the six months ended June 30, 2001 and 2000, have been prepared
by the Company and are unaudited. In the opinion of management, all adjustments
(consisting of normal recurring adjustments) necessary to present fairly the
financial position, results of operations and cash flows at June 30, 2001, and
for all periods presented have been made.
Certain amounts in prior periods have been reclassified to conform to current
period presentation.
Consolidation
The consolidated financial statements include the accounts of Motient and its
wholly owned subsidiaries. All significant inter-company transactions and
accounts have been eliminated.
As noted above, effective January 1, 2001, the Company's investment in XM Radio
is recorded pursuant to the equity method. For the first six months of 2001, XM
Radio recorded no revenue, incurred $84.2 million of operating expenses and had
a net loss attributable to common stockholders of $87.0 million.
Additionally, 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 that may be made in the normal
course of business; therefore, in accordance with Emerging Issues Task Force
Issue No 96-16, the Company's investment in Satellite Ventures is recorded
pursuant to the equity method.
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 six months ended June 30, 2001 and 2000.
Segment Disclosures
In accordance with SFAS No. 131, "Disclosures about Segments of an Enterprise
and Related Information," as of January 1, 2001, the Company has one operating
segment: its Core Wireless Business. During 2000, as a result of the Company's
consolidation of the results of XM Radio, the Company reported an additional
segment for 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.
The following summarizes the Company's Core Wireless Business revenue by major
market segments:
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
Summary of Revenue 2001 2000 2001 2000
---- ---- ---- ----
(in millions)
Wireless internet $2.4 $0.5 $4.4 $0.8
Field services 5.1 6.7 11.0 13.7
Transportation 4.1 5.8 8.2 10.7
Telemetry 0.7 1.1 1.4 2.2
Maritime and other 7.3 4.1 12.6 8.0
Equipment 4.1 7.5 9.5 12.5
------------- ------------ ------------- ------------
Total $ 23.7 $25.7 $ 47.1 $47.9
============= ============ ============= ============
Loss Per Share
Basic and diluted loss per common share 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. Net loss attributable to
common shareholders for the quarter and six months ended June 30, 2001 and 2000
includes the deduction from net loss of the Company's share of XM Radio's 8.25%
Series B convertible redeemable preferred stock dividend. The dividend was paid
on August 1, 2001.
Derivatives
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, with changes in value
reflected as current period income (loss). The effective date of SFAS No. 133,
as amended by SFAS 138, is for fiscal years beginning after September 15, 2000.
On April 4, 2001, the Company sold a note to Rare Medium for $25 million. The
note is collateralized by up to 3 million of the Company's XM Radio shares, and
Rare Medium has the option to exchange the note for a number of XM Radio shares
equivalent to the principal of the note plus any accrued interest thereon (see
Note 4). The Company has determined the embedded call option in the note, which
permits Rare Medium to convert the borrowing into shares of XM Radio, to be a
derivative which must be accounted for in accordance with SFAS No.133 and
accordingly has recorded a loss in the amount of $13.8 million in the second
quarter of 2001 related to the Rare Medium Note call option. The call option
embedded in the second tranche of the Rare Medium bridge loan issued in July
2001 will also be accounted for as a derivative and valuations made as
appropriate.
New Accounting Pronouncements
In July 2001, the Financial Accounting Standards Board (FASB) issued SFAS No.
141 "Business Combinations" and SFAS No. 142 "Goodwill and Other Intangible
Assets." SFAS No. 141 requires business combinations initiated after June 30,
2001 to be accounted for using the purchase method of accounting, and broadens
the criteria for recording intangible assets separate from goodwill. Recorded
goodwill and intangibles will be evaluated against this new criteria and may
result in certain intangibles being subsumed into goodwill, or alternatively,
amounts initially recorded as goodwill may be separately identified and
recognized apart from goodwill. SFAS No. 142 requires the use of a
nonamortization approach to account for purchased goodwill and certain
intangibles. Under a nonamortization approach, goodwill and certain intangibles
will not be amortized into results of operations, but instead would be reviewed
for impairment and written down and charged to results of operations only in the
periods in which the recorded value of goodwill and certain intangibles is more
than its fair value. The provisions of each statement which apply to goodwill
and intangible assets acquired prior to June 30, 2001 will be adopted by the
Company on January 1, 2002 and to goodwill and intangible assets acquired in the
Rare Medium merger, if consummated, in the period the merger is consummated. The
Company is in the process of evaluating the financial statement impact of
adoption of SFAS Nos. 141 and 142.
Concentrations of Credit Risk
For the six months ended June 30, 2001, seven customers accounted for
approximately 35% of the Company's service revenue, with one customer accounting
for more than 10%.
Other
For the first six months of 2001, the Company paid approximately $762,000 to
related parties for service-related obligations, and received payments for
operating services in the amount of $564,000. Net due from related parties as of
June 30, 2001, was approximately $461,000. Additionally, in the first six months
of 2001, the Company recorded revenue from related parties in the amount of $3.6
million related to the Satellite Ventures' satellite capacity agreement. There
were no payments from related parties in the six-month period ended June 30,
2001.
The Company paid approximately $6.7 million in the six-month periods ended June
30, 2000, to related parties for capital assets, service-related obligations,
and payments under pre-existing financing agreements. There were no payments
from related parties in the six-month period ended June 30, 2000.
The significant decrease in related party transactions is because Motorola, a
provider of services and equipment to the terrestrial business, is no longer
deemed to be a related party.
During the 3 months ended June 30, 2001, the Company recorded inventory
write-downs totaling $4.5 million to cost of equipment sold to reduce inventory
amounts to their net realizable value.
3. STOCKHOLDERS' (DEFICIT) EQUITY
Significant activity in stockholders' equity from December 31, 2000 to June 30,
2001 consists of the following:
Additional Common Stock Unamortized
Common Paid-in Deferred Purchase Guarantee
Stock Capital Compensation Warrants Warrants
----- ------- ------------ -------- --------
Balance December 31, 2000 $495 $982,621 ($134) $80,292 ($11,504)
Warrant exercises -- 845 -- (845) --
Repricing and issuance of Guarantee warrants
associated with the waiver of certain
repayment requirements -- -- -- 2,326 (2,326)
Reduction in deferred compensation
on restricted stock -- 575 (575) -- --
Non-cash compensation associated with the
vesting of restricted stock and certain -- (300) 625 -- --
other stock options
Amortization of Guarantee warrants -- -- -- -- 2,671
Reduction of Guarantee warrants related to
extinguishment of debt -- -- -- -- 1,407
Loss in connection with XM Radio equity
transactions -- (13,079) -- -- --
Issuance of shares under 401(k) Savings
Plan, Stock Purchase Plan, and award of 3 870 -- -- --
---- -------- ------ ------- ------
bonus stock
Ending Balance June 30, 2001 $498 $971,532 ($84) $81,773 ($9,752)
==== ======== ===== ======= ========
On March 6, 2001, XM Radio completed a follow-on offering of 7.5 million
Class A common stock, which yielded net proceeds of $72.0 million. As a
result of this offering, the Company recorded a $13.7 million loss in
accordance with Staff Accounting Bulletin No. 51 ("SAB 51"), which
addresses the accounting for sales of stock by a subsidiary. During the
second quarter of 2001, XM Radio issued common shares as dividend payments
on their preferred stock. As a result, the Company recorded a $643,000 gain
in accordance with SAB 51. These transactions have been recorded in the
financial statements as a component of Additional Paid-In Capital.
4. LIQUIDITY AND FINANCING
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
incur operating losses and negative cash flows for at least several more
quarters, and does not expect to achieve EBITDA (Earnings Before Interest,
Taxes, Depreciation and Amortization) break even until at least the second or
third quarter of 2002. 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 cash in excess of
its operating expenses. The Company also expects to require significant
additional funds even after it begins to generate cash in excess of its
operating expenses. While the Company has identified a number of potential
sources of liquidity to fund its operations, there are risks associated with
some of these sources of liquidity, as discussed below. In addition, the
Company's financial performance could deteriorate, and there is no assurance
that the Company will be able to meet its financial projections. If the
Company's cash requirements are more than it currently expects, the Company will
require additional financing in amounts which may be material.
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.
Additionally, with the overall decline in the telecommunications sector of the
capital markets, the Company has not been able to access the public markets as
anticipated. These factors, along with the Company's negative operating cash
flows have placed significant pressures on the Company's financial condition and
liquidity position.
In order to work towards adequately funding its projected shortfall, the Company
has executed the following transactions and initiatives in 2001:
o 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 (as defined below). In exchange for
the Guarantors (as defined below) agreeing to waive certain debt repayment
obligations for the second sale of shares, the Company and the Guarantors
have agreed that, if the Rare Medium transaction does not close, the first
$16.5 million of proceeds received from the earlier of (i) the closing of
the Satellite Ventures transaction and (ii) any other reduction event to
occur in the year 2002 will be used to pay down the bank financing.
o On April 4, 2001, Motient received $25 million from Rare Medium Group, Inc.
("Rare Medium"), and issued Rare Medium a note payable for such amount at
12.5% annual interest with a maturity date of October 1, 2001. The note is
collateralized by up to 3 million of the Company's XM Radio shares, and
Rare Medium has the option to exchange the note for a number of XM Radio
shares equivalent to the principal of the note plus any accrued interest
thereon, divided by $10.41. Of the $25 million received by the Company, the
Company used $6.125 million to repay and permanently reduce its Term
Facility, and $18.375 million was used to fund general operations.
o In April 2001 the Company undertook certain capital and expense reductions,
principally in the areas of employee hiring, advertising and capital
spending. The Company believes that these reductions may result in up to
approximately $15 million of savings in 2001, while not reducing its
ability to sell its products or lower its service levels.
o On May 14, 2001, the Company signed a definitive merger agreement with Rare
Medium. Upon closing of the transaction, the bridge loans with Rare Medium
will be cancelled and any shares of XM Radio stock used to secure such
loans will be released by Rare Medium and returned to the guarantor
collateral pool.
o On July 16, 2001, the Company issued the second $25 million note as
contemplated under the Rare Medium bridge loan and merger agreements. Of
the $25 million received by the Company, the Company used $6.125 million to
repay and permanently reduce its Term Facility, and $18.375 million is
available for funding general operations. This note is collateralized by 2
million of the Company's XM Radio shares.
As of July 31, 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 Medium or the Company's banks and guarantors to
secure the Company's obligations under its bank financings and the notes
with Rare Medium. 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.
The Company is also a party to the following debt facilities:
Bank Financing
The Company is a party to two bank facilities (the "Bank Financing"): (i) the
Revolving Credit Facility, a $77.25 million unsecured five-year reducing
revolving credit facility maturing September 30, 2003, and (ii) the Term Loan
Facility, a $25.375 million (subsequently reduced to $19.25 million as a result
of the second tranche of the Rare Medium loan, discussed above) five-year, term
loan facility, due March 31, 2003, with up to three additional one-year
extensions subject to the lenders' approval. The Bank Financing is severally
guaranteed by Hughes Electronics Corporation, Singapore Telecommunications Ltd.
and Baron Capital Partners, L.P. (collectively, the "Guarantors"). As of July
31, 2001, the Company had outstanding borrowings of $19.25 million under the
Term Loan Facility at 5.1%, and $77.25 million under the Revolving Credit
Facility at 4.9% to 5.3%. As noted above, proceeds, if any, from the Aether $10
million escrow and the Aether earn-out will also be used to repay and
permanently reduce the Revolving Credit Facility, and, if the Rare Medium merger
is not consummated, approximately $30.75 million from the closing of the
Satellite Ventures transaction, will be used to repay and permanently reduce the
Revolving Credit Facility. If, at any time, either of, but not both, the
Revolving Credit Facility or the Term Loan Facility are fully repaid, any excess
required repayments will be used to repay and permanently reduce any remaining
Bank Financing.
The Guarantees
In connection with the Bank Financing, the Guarantors extended separate
guarantees of the obligations of Motient Holdings Inc. and the Company to the
banks, which on a several basis as of July 31, 2001, aggregate to $96.5 million.
In April 2001, the Guarantors agreed to release certain of the shares of XM
Radio stock securing the Company's obligations to the banks and Guarantors to be
used as collateral for the Rare Medium Loan. In exchange for this agreement, the
exercise price of the Guarantee Warrants, issued as part of the original bank
financing agreement, were repriced from $6.25 per share to $1.31 per share, and
Singapore Telecom, which at that time held no Guarantee Warrants, was issued
300,000 new warrants. The total value of this repricing and issuance was
approximately $2.3 million and was recorded in the second quarter of 2001 as an
increase to the unamortized guarantee warrants.
$335 Million Unit Offering
On March 30, 1998, Motient Holdings Inc. 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, subsequently adjusted to
3.83 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,
subsequently adjusted to $12.28 per share. The Warrants were valued at $8.5
million and are reflected in the balance sheet as a debt discount. In connection
with the Senior Notes, Motient Holdings Inc. purchased approximately $112.3
million of restricted investments that were 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. The final payment from
these restricted investments was made on April 2, 2001, and the Company will be
required to make semi-annual payments in the amount of $20.5 million out of
general operating funds beginning October 1, 2001.
Other 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. As of June 30, 2001, $6.4 million was
outstanding under this facility at 10.8% and $2.2 million was available for
borrowing. The Company had also arranged the financing of certain trade
payables; however, as of June 30, 2001, all amounts had been repaid.
The Company is also party to a $9.9 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%.
Summary of Liquidity and Financing Sources for Core Wireless Business
The Company has serious short-term liquidity issues, which, in part, are
addressed by the Rare Medium merger. The Company has sufficient funds currently
to continue operations until early October 2001, and assuming the Rare Medium
merger closes by then, as to which there can be no assurance, the Company
expects that the combined entity will have sufficient funds to permit the
Company to make its October 2001 $20.5 million senior note interest payment.
Thereafter, based on our current projections for the results of operations of
the Company's business, as to which there can be no assurances, and depending on
the amount of free cash, if any, remaining in Rare Medium at the time the merger
closes, the Company will require approximately $80 million of additional cash to
fund operating losses, capital expenditures and to make interest payments on
indebtedness, before it begins to generate cash in excess of its operating
expenses, which is anticipated to occur in the second or third quarter of 2002.
Because the merger has not closed yet, the Company has not made projections
regarding Rare Medium's funding requirements, and this estimate does not include
any cash that might be required to fund Rare Medium's operations if Rare
Medium's business is not generating cash in excess of its operating expenses, or
that might be required in connection with certain contingent liabilities and
litigation of Rare Medium. In recent periods, Rare Medium has not generated cash
in excess of its operating expenses. In addition, because various of the
Company's potential capital raising transactions require mandatory bank debt
repayments, the Company will need to raise gross proceeds in excess of the
estimated required amounts set forth above.
Even after the Company begins to generate cash in excess of its operating
expenses, it will need to obtain additional funds from other sources to meet its
ongoing interest payment obligations, capital expenditures, and other
non-operating cash expenses, which are expected to equal approximately $65
million to $75 million annually. This funding requirement will be reduced by any
excess cash generated by its operations.
The Company anticipates that all of the foregoing funding requirements can be
met by a combination of various sources, including (1) cash on hand, (2)
borrowings available under the Company's vendor financing facility, (3) proceeds
realized through the sale of inventory relating to eLink and BlackBerry TM, (4)
sales of the Company's 5.7 million XM Radio shares that are not being delivered
to the preferred shareholders of Rare Medium in connection with the Rare Medium
merger, (5) cash held by Rare Medium after the closing of the merger, (6) the
$10 million of escrowed funds from the Aether transaction, which Motient has
recently requested be released, (7) up to $22.5 million that may be received in
2002 under the earn out arrangement with Aether, (8) $60 million, of which $45
million is cash, to be paid by Satellite Ventures upon the closing of its
transaction with TMI, which closing depends on the receipt of regulatory
approval which is not expected until the first half of 2002 at the earliest, (9)
proceeds that may be realized from the sale of portions of Rare Medium's venture
portfolio, and (10) additional debt and equity financings in 2002. There can be
no assurance that the foregoing sources of liquidity will provide sufficient
funds in the amounts or at the time that funding is required. In addition, in
the near term if the Company's ability to realize such liquidity from any such
source is delayed or the proceeds from any such source are insufficient to meet
its expenditure requirements as they arise, the Company will seek additional
equity or debt financing, although it is unlikely under current conditions that
such additional financing will be available to the Company on reasonable terms,
if at all.
If the Rare Medium merger is not consummated, while the Company will not have
access to the cash held by Rare Medium or its venture portfolio, it will have
significantly more XM Radio shares than it would have if the merger were
consummated. If the merger is not consummated, the Company will continue to own
14.7 million XM Radio shares, but would expect to apply approximately 3.5
million to 4.5 million of such shares (based on current trading prices of XM
Radio shares) to repayment of the $50 million Rare Medium loan. While the
Company does not currently have sufficient cash to make the $20.5 million
interest payment on its senior notes due in October 2001 and to meet its other
expenses in the fourth quarter of 2001, if the Rare Medium merger is not
consummated, the Company would seek to effect a transaction involving the
disposition of a portion of its XM Radio shares to fund these obligations. There
are significant risks associated with the XM Radio shares, including volatility
in trading price, possible adverse price pressure due to the overhang associated
with the Company's perceived desire to sell shares to fund its business, and
transaction risk associated with the Company's ability to sell a large block of
the shares at one time. Any transaction involving the XM shares would require
the consent of the Company's bank lenders and guarantors, and would likely be
accompanied by a requirement that a substantial portion of the proceeds be used
to repay the bank debt.
The Company expects to continue to review its overall capital structure in light
of market conditions, with a view toward exploring possible transactions that
might have the effect of improving its capital structure and reducing its
overall indebtedness and, consequently, its interest expense obligations. While
the Company has no immediate plans to undertake any transaction, transactions it
might explore include retiring or otherwise reducing its indebtedness,
repurchasing or exchanging its indebtedness, or otherwise modifying its
indebtedness in order to reduce the level of recurring interest expense. The
Company has also examined and had preliminary discussions regarding, and expect
to continue to explore, possible transactions to enhance the short and long-term
value of its assets, including but not limited to, its shares of XM Radio and
its investment in Satellite Ventures. The Company cannot provide any assurance
that it would be able to effect any such transaction or that the completion of
any such transaction would have the desired effect.
If the results of the Company's operations (or, in the event the Rare Medium
merger closes, the results of Rare Medium's operations) are less favorable than
are currently anticipated, the Company's cash requirements will be more than
projected, and 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 its cash needs, the availability of 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 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. Additionally, with the
overall decline in the telecommunications sector of the capital markets, the
Company has not been able to access the public markets as anticipated. These
factors, along with its negative operating cash flows, have placed significant
pressures on the Company's financial condition and liquidity position.
5. COMMITMENTS AND CONTINGENCIES
At June 30, 2001, the Company had remaining contractual commitments to purchase
eLink and other subscriber equipment inventory in the amount of $2.6 million
during 2001. Additionally, the Company has entered into product development
agreements for the purchase of engineering services and for licenses to be used
in future applications of its eLink product. Should the engineering effort prove
successful, the Company has committed to purchase additional subscriber
inventory. These commitments, including the inventory commitment, total
approximately $3.0 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 June 30, 2001, this cancellation
penalty would have been approximately $1.8 million.
The aggregate fixed and determinable portion of all commitments for inventory
purchases and other fixed contracts, related to the core wireless business, is
$8.3 million, $7.3 million of which is due in 2001.
6. LEGAL AND REGULATORY MATTERS
Legal Matters
The Company is aware of sixteen purported class action lawsuits filed by holders
of Rare Medium common stock in the Court of Chancery of the State of Delaware
challenging the merger. On June 22, 2001, these lawsuits were consolidated by
the Delaware Court into a single purported class action, In re Rare Medium
Group, Inc. Shareholders Litigation, C.A. No. 18879 NC. On August 7, 2001, the
Delaware class action plaintiffs filed a Consolidated Amended Class Action
Complaint. The Company is also aware of a purported class action lawsuit filed
by holders of Rare Medium common stock in the New York Supreme Court, Brickell
Partners v. Rare Medium Group, Inc., et al., N.Y.S. Index No. 01602694.
Both lawsuits name Rare Medium, members of Rare Medium's board of directors, the
holders of Rare Medium preferred stock and certain of their affiliated entities,
and Motient as defendants. The complaints allege that the defendants breached
duties allegedly owed to the holders of Rare Medium common stock in connection
with the merger agreement. Specifically, the complaints allege, among other
things, that: (1) the holders of Rare Medium preferred stock engaged in
self-dealing in the proposed merger; (2) the Rare Medium board of directors
allegedly breached its fiduciary duties by agreeing to distribute the merger
consideration differently among holders of Rare Medium's common and preferred
shares; and (3) Motient and Rare Medium failed to adequately disclose all
material information in their Joint Proxy Statement. The complaints in both
lawsuits also allege that the Company and the holders of Rare Medium preferred
stock aided and abetted the supposed breaches of fiduciary duties.
The lawsuits seek to stop the merger and/or to obtain an award of monetary
damages. Specifically, the plaintiffs seek, among other things: (1) a
declaration that the complaints are properly maintainable as a class action; (2)
injunctive or rescissory relief; (3) unspecified monetary damages; (4)
attorneys' fees, costs, and expenses; (5) other and further relief the Court
deems proper.
The Company plans to contest these lawsuits vigorously, and has filed a motion
to dismiss the Delaware lawsuit. Rare Medium and members of Rare Medium's board
of directors have also filed a motion to dismiss the Delaware lawsuit. Both of
these motions were filed before the Consolidated Amended Class Action Complaint
was served, and the Company plans to file an amended motion to dismiss the
Consolidated Amended Class Action Complaint.
Motient has not yet been served with process in the New York lawsuit. Rare
Medium and the holders of Rare Medium preferred stock have been served with
process and have filed motions to dismiss or stay the New York lawsuit. The
return date for these motions to be heard by the New York court is currently
September 10, 2001.
The Company may incur significant legal and other costs regardless of the
outcome of these lawsuits. Should one or both of these lawsuits be successful,
however, they could prevent the proposed merger from going forward, thereby
denying the Company the benefits of the proposed merger. If the merger is
consummated, the Court may still determine that the plaintiffs are entitled to
damages, fees, or other relief. In that event, the Company may be found liable
for some or all of any damages or attorneys' fees awarded to plaintiffs.
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.
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. This application has been opposed by a number of parties,
some of which argue that (i) the combination of the Company's satellite business
with that of TMI will decrease competition; (ii) the Company's proposed use of
terrestrial base stations will cause unacceptable interference to other L-band
satellites; and (iii) the FCC should reallocate spectrum in the L-band to
terrestrial use. There is no assurance that the FCC will grant our application.
7. SUBSEQUENT EVENTS
As described above (see Note 4), on July 16, 2001, the Company drew the second
$25 million tranche under the Rare Medium bridge loan. The $50 million bridge
loan is secured by 5 million of the Company's shares of XM Radio common stock.
On July 26, 2001, the Company's board of directors approved a 1 for 10 reverse
stock split. The consummation of this reverse split is contingent upon
shareholder approval. If approved by shareholders, it is expected to be
effective in late September or early October 2001.
8. FINANCIAL STATEMENTS OF SUBSIDIARIES
In connection with the Company's acquisition of Motient Communications Inc. on
March 31, 1998 (the "Motient Communications Acquisition"), and related financing
discussed above, the Company formed a new wholly-owned subsidiary, Motient
Holdings Inc. ("Motient Holdings"). The Company contributed all of its
inter-company notes receivables and transferred its rights, title and interests
in Motient Services Inc. and certain other subsidiaries that were subsequently
dissolved (together with Motient Communications, the "Subsidiary Guarantors") to
Motient Holdings, and Motient Holdings was the acquirer of Motient
Communications 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 June 30, 2001 and December 31,
2000, the condensed consolidating statements of operations for the three
and six months ended June 30, 2001 and 2000, and the condensed
consolidating statement of cash flows for the three and six months ended
June 30, 2001 and 2000.
o Elimination entries necessary to combine the entities comprising Motient.
Condensed Consolidating Balance Sheet
As of June 30, 2001
(Unaudited)
(in thousands)
Consolidated Consolidated
Subsidiary Motient Motient Motient Motient
Guarantors Holdings Eliminations Holdings Parent Eliminations Parent
---------- -------- ------------ -------- ------ ------------ ------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 5,317 $ -- $ -- $ 5,317 $ -- $ -- $ 5,317
Accounts receivable -- net 16,290 -- -- 16,290 -- -- 16,290
Inventory 18,130 -- -- 18,130 -- -- 18,130
Deferred equipment costs 19,604 -- -- 19,604 -- -- 19,604
Other current assets 13,489 -- -- 13,489 1,712 -- 15,201
------ ------- -- ------ ------- -------- ------
Total current assets 72,830 -- -- 72,830 1,712 -- 74,542
PROPERTY AND EQUIPMENT -- NET 116,400 -- (9,790) 106,610 -- -- 106,610
GOODWILL AND INTANGIBLES -- NET 51,715 -- -- 51,715 -- -- 51,715
EQUITY INVESTMENT in XM RADIO -- -- -- -- 218,832 -- 218,832
DEFERRED CHARGES AND OTHER ASSETS -- NET 11,942 16,900 -- 28,842 1,028 (7,341) 22,529
RESTRICTED INVESTMENTS -- 596 -- 596 10,858 -- 11,454
-------- --- -- ------- -------- -------- ------
Total assets $252,887 $17,496 $(9,790) $260,593 $232,430 $(7,341) $485,682
LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $31,917 $10,915 $ -- $42,832 $ 889 $ -- $ 43,721
Obligations under capital leases due 3,651 -- -- 3,651 -- -- 3,651
within one year
Current portion long-term debt 4,111 -- -- 4,111 25,125 -- 29,236
Rare Medium Note all option -- -- -- -- 15,077 -- 15,077
Deferred equipment revenue 19,630 -- -- 19,630 -- -- 19,630
Other current liabilities 15,006 -- -- 15,006 -- -- 15,006
------ ------- ------- ------ ------ ------ ------
Total current liabilities 74,315 10,915 -- 85,230 41,091 -- 126,321
DUE TO PARENT/AFFILIATE 862,485 (126,720) (735,765) -- 294,213 (294,213) --
LONG-TERM LIABILITIES
Note payable to /from Issuer/Parent -- 14,000 -- 14,000 (14,000) -- --
Obligations under Bank Financing -- 77,250 -- 77,250 25,375 -- 102,625
Senior Notes, net of discount -- 328,923 -- 328,923 -- -- 328,923
Other long-term debt 2,250 -- -- 2,250 -- -- 2,250
Capital lease obligations 7,060 -- -- 7,060 -- -- 7,060
Other long-term 32,752 -- -- 32,752 -- -- 32,752
------ -------- -------- ------ -- -- ------
Total long-term liabilities 42,062 420,173 -- 462,235 11,375 -- 473,610
Total liabilities 978,862 304,368 (735,765) 547,465 346,679 (294,213) 599,931
------- ------- -------- ------- ------- --------- -------
STOCKHOLDERS' (DEFICIT) EQUITY (725,975) (286,872) 725,975 (286,872) (114,249) 286,872 (114,249)
--------- --------- ------- --------- --------- ------- ---------
Total Liabilities and
Stockholders' (Deficit) Equity $252,887 $17,496 $(9,790) $260,593 $232,430 $ (7,341) $485,682
======== ======= ======== ======== ======== ========= ========
Condensed Consolidating Balance Sheet
As of December 31, 2000
(unaudited)
(in thousands)
Consol-
idated Consolidated
Subsidiary Motient Elimi- Motient Motient XM Motient
Guarantors Holdings nations 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 (260,952) -- 260,952 502
Deferred equipment costs 16,173 -- -- 16,173 -- -- -- 16,173
Other current assets 21,423 -- -- 21,423 857 8,815 -- 31,095
-------- ------- ------- ------- --------- -------- ---------- ---------
Total current assets 72,029 151,565 (130,856) 92,738 (260,095) 328,995 260,952 422,590
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 11,957 18,177 -- 30,134 1,605 9,265 (7,642) 33,362
--------- -------- --------- ------- ------- ---------- ----------- -----------
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 equipment revenue 16,173 -- -- 16,173 -- -- -- 16,173
Deferred revenue and other 17,676 -- -- 17,676 -- 441 -- 18,117
liabilities -------- -------- --------- ------- ------- ------- ---------- ----------
Total current liabilities 70,969 11,029 -- 81,998 1,323 67,766 -- 151,087
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 38,160 -- -- 38,160 -- 6,772 -- 44,932
-------- ------- --------- ------- -------- -------- ---------- ---------
liabilities
Total long-term liabilities 50,269 413,724 -- 463,993 26,000 269,437 -- 759,430
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
======== ======== ========= ========= ======== ========== ========== ===========
Condensed Consolidating Statement of Operations
Three Months ended June 30, 2001
(Unaudited)
(in thousands)
Consolidated Consolidated
Subsidiary Motient Motient Motient Motient
Guarantors Holdings Eliminations Holdings Parent Eliminations Parent
---------- -------- ------------ -------- ------ ------------ ------
REVENUES
Services and related revenues $19,515 $-- $-- $19,515 $300 $(300) $19,515
Sales of equipment 4,142 -- -- 4,142 -- -- 4,142
----- -- -- ----- -- -- -----
Total Revenues 23,657 -- -- 23,657 300 (300) 23,657
COSTS AND EXPENSES
Cost of service and operations 19,600 -- -- 19,600 -- -- 19,600
Cost of equipment sold 10,636 -- -- 10,636 -- -- 10,636
Sales and advertising 4,943 -- -- 4,943 -- -- 4,943
General and administrative 4,367 319 -- 4,686 481 (300) 4,867
Depreciation and amortization 9,362 -- -- 9,362 (527) -- 8,835
----- -- -- ----- -------- -- -----
Operating Loss (25,251) (319) -- (25,570) 346 -- (25,224)
Interest and Other Income 145 3,794 (4,341) (402) 436 237 271
Equity in Loss of Subsidiaries -- (28,728) 28,728 -- (49,555) 38,700 (10,855)
Loss on Rare Medium note call option -- -- -- -- (13,800) -- (13,800)
Interest Expense (3,622) (13,447) 4,341 (12,728) (1,859) (237) (14,824)
------- -------- ----- -------- ------- ----- --------
Net Loss Before Extraordinary Item (28,728) (38,700) 28,728 (38,700) (64,432) 38,700 (64,432)
Extraordinary Loss on Extinguishment of -- -- -- -- (892) -- (892)
-------- --------- -------- --------- ----- -------- -----
Debt
Net Loss Attributable Common Shareholders ($28,728) ($38,700) $28,728 ($38,700) ($65,324) $38,700 ($65,324)
========= ========= ======= ========= ========= ======= =========
Condensed Consolidating Statement of Operations
Three Months ended June 30, 2000
(Unaudited)
(in thousands)
Consol-
idated Consolidated
Subsidiary Motient Elimi- Motient Motient XM Motient
Guarantors Holdings nations Holdings Parent Radio Eliminations Parent
---------- -------- ------- -------- ------ ----- ------------ ------
REVENUES
Services $18,221 $-- $-- $18,221 $300 $-- $(300) $18,221
Sales of equipment 7,468 -- -- 7,468 -- -- -- 7,468
----- -- -- ----- -- -- -- -----
Total Revenues 25,689 -- -- 25,689 300 -- (300) 25,689
COSTS AND EXPENSES
Cost of service and operations 18,774 -- -- 18,774 -- -- -- 18,774
Cost of equipment sold 7,949 -- -- 7,949 -- -- -- 7,949
Sales and advertising 7,505 -- -- 7,505 115 -- -- 7,620
General and administrative 4,829 343 -- 5,172 366 13,426 (300) 18,664
Depreciation and amortization 8,921 -- -- 8,921 -- 511 (237) 9,195
----- -- -- ----- -------- --- ----- -----
Operating Loss (22,289) (343) -- (22,632) (181) (13,937) 237 (36,513)
Interest and Other Income 105 4,559 (3,844) 820 541 8,849 (259) 9,951
Minority Interest in Loss of -- -- -- -- -- -- 3,341 3,341
Subsidiaries
Equity in Loss of Subsidiaries -- (26,571) 26,571 -- (41,935) -- 41,935 --
Interest Expense (4,387) (14,075) 3,844 (14,618) (1,670) -- 259 (16,029)
------- -------- ----- -------- ------- -- --- --------
Net Loss Before Extraordinary Item
and Preferred Dividend (26,571) (36,430) 26,571 (36,430) (43,245) (5,088) 45,513 (39,250)
Extraordinary Loss on
Extinguishment of Debt -- (417) -- (417) -- -- -- (417)
Preferred Stock Dividend Declared -- -- -- -- (745) (2,171) 2,171 (745)
Net Loss Attributable Common
Shareholders ($26,571) ($36,847) $26,571 ($36,847) ($43,990) ($7,259) $47,684 ($40,412)
========= ========= ======= ========= ========= ======== ======= =========
Condensed Consolidating Statement of Operations
Six Months ended June 30, 2001
(Unaudited)
(in thousands)
Consolidated Consolidated
Subsidiary Motient Motient Motient Motient
Guarantors Holdings Eliminations Holdings Parent Eliminations Parent
---------- -------- ------------ -------- ------ ------------ ------
REVENUES
Services and related revenues $37,522 $-- $-- $37,522 $600 $(600) $37,522
Sales of equipment 9,542 -- -- 9,542 -- -- 9,542
----- -- -- ----- -- -- -----
Total Revenues 47,064 -- -- 47,064 600 (600) 47,064
COSTS AND EXPENSES
Cost of service and operations 37,764 -- -- 37,764 -- -- 37,764
Cost of equipment sold 16,570 -- -- 16,570 -- -- 16,570
Sales and advertising 14,592 -- -- 14,592 -- -- 14,592
General and administrative 10,396 640 -- 11,036 758 (600) 11,194
Depreciation and amortization 18,438 -- -- 18,438 (1,053) -- 17,385
------ -- -- ------ -------- ------- ------
Operating Loss (50,696) (640) -- (51,336) 895 -- (50,441)
Interest and Other Income 346 7,816 (7,381) 781 427 (795) 413
Equity in Loss of Subsidiaries -- (59,041) 59,041 -- (102,020) 78,693 (23,327)
Loss on Rare Medium note call option -- -- -- -- (13,800) -- (13,800)
Interest Expense (8,691) (26,828) 7,381 (28,138) (2,907) 795 (30,250)
------- -------- ----- -------- ------- --- --------
Net Loss Before Extraordinary Item (59,041) (78,693) 59,041 (78,693) (117,405) 78,693 (117,405)
Extraordinary Loss on Extinguishment of -- -- -- -- (1,925) -- (1,925)
--------- --------- --------- --------- ------- --------- -------
Debt
Net Loss Attributable Common Shareholders ($59,041) ($78,693) $59,041 ($78,693) ($119,300) $78,693 ($119,330)
========= ========= ======= ========= ========== ======= ==========
Condensed Consolidating Statement of Operations
Six Months ended June 30, 2000
(Unaudited)
(in thousands)
Consol-
idated Consolidated
Subsidiary Motient Elimi- Motient Motient XM Motient
Guarantors Holdings nations Holdings Parent Radio Eliminations Parent
---------- -------- ------- -------- ------ ----- ------------ ------
REVENUES
Services $35,373 $-- $-- $35,373 $600 $ -- $(600) $35,373
Sales of equipment 12,486 -- -- 12,486 -- -- -- 12,486
------ -- -- ------ -- -- -- ------
Total Revenues 47,859 -- -- 47,859 600 -- (600) 47,859
COSTS AND EXPENSES
Cost of service and operations 36,792 -- -- 36,792 -- -- -- 36,792
Cost of equipment sold 13,205 -- -- 13,205 -- -- -- 13,205
Sales and advertising 13,730 -- -- 13,730 116 -- -- 13,846
General and administrative 10,047 678 -- 10,725 640 29,812 (600) 40,577
Depreciation and amortization 17,749 -- -- 17,749 -- 1,014 (475) 18,288
------ -- -- ------ -- ----- ----- ------
Operating Loss (43,664) (678) -- (44,342) (156) (30,826) 475 (74,849)
Interest and Other Income 195 9,635 (7,687) 2,143 519 13,001 (510) 15,153
Gain on Conversion of Convertible Note
Payable to Related Party -- -- -- -- 32,854 -- -- 32,854
Unrealized Gain on Convertible Note
Payable to Related Party -- -- -- -- 3,925 -- -- 3,925
Equity in Loss of Subsidiaries -- (52,255) 52,255 -- (81,695) -- 81,695 --
Minority Interest in Loss of -- -- -- -- -- -- 10,683 10,683
Subsidiaries
Interest Expense (8,786) (27,494) 7,687 (28,593) (2,925) (2) 510 (31,010)
------- -------- ----- -------- ------- --- --- --------
Net Loss before Extraordinary Item and
Preferred Dividend (52,255) (70,792) 52,255 (70,792) (47,478) (17,827) 92,853 (43,244)
Extraordinary Loss on Extinguishment of
Debt -- (417) -- (417) -- -- -- (417)
Preferred Stock Dividends Declared by
XM Radio -- -- -- -- (1,251) (3,643) 3,643 (1,251)
Net Loss Attributable to Common
Shareholders ($52,255) ($71,209) $52,255 ($71,209) ($48,729) ($21,470) $96,496 ($44,912)
========= ========= ======= ========= ========= ========= ======= =========
Condensed Consolidating Statement of Cash flow
Six Months Ended June 30, 2001
(Unaudited)
(in thousands)
Consolidated Consolidated
Subsidiary Motient Motient Motient Motient
Guarantors Holdings Eliminations Holdings Parent Eliminations Parent
---------- -------- ------------ -------- ------ ------------ ------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ($ 59,041) ($ 78,693) $ 59,041 ($ 78,693) ($ 119,330) $ 78,693 ($119,330)
Adjustments to reconcile net loss
to net cash (used in) provided by
operating activities:
Amortization of Guarantee Warrants
and debt discount and issuance costs -- 3,378 -- 3,378 2,543 -- 5,921
Depreciation and amortization 18,438 -- -- 18,438 (1,053) -- 17,385
Non cash stock compensation 325 -- -- 325 -- -- 325
Loss on Rare Medium note call option -- -- -- -- 13,800 -- 13,800
Extraordinary loss on extinguishment
of debt -- -- -- -- 1,925 -- 1,925
Equity in loss of XM Radio -- -- -- -- 23,327 -- 23,327
Loss on sale of XM Radio stock -- -- -- -- 407 -- 407
Changes in assets & liabilities
Inventory (1,141) -- -- (1,141) -- -- (1,141)
Trade accounts receivable (1,868) -- -- (1,868) -- -- (1,868)
Other current assets 5,519 -- -- 5,519 (855) -- 4,664
Accounts payable and accrued
expenses 4,859 (114) -- 4,745 (435) -- 4,310
Deferred trade payables (1,448) -- -- (1,448) -- -- (1,448)
Deferred Items--net (2,299) -- -- (2,299) (1,574) -- (3,873)
------- -- -- ------- ------- -- -------
Net cash (used in) provided by
operating activities (36,656) (75,429) 59,041 (53,044) (81,245) 78,693 (55,596)
CASH FLOWS FROM INVESTING ACTIVITIES:
Payment of Senior Note interest
from escrow -- 20,503 -- 20,503 -- -- 20,503
Additions to property & equipment (6,202) -- -- (6,202) -- -- (6,202)
Proceeds from the sale of XM
Radio stock -- -- -- -- 33,539 -- 33,539
Purchase of long-term, restricted 2 191 -- 193 (225) -- (32)
investments - ------- -- --- ------ ------ ----
Net cash provided by (used in) (6,200) 20,694 -- 14,494 33,314 -- 47,808
investing activities
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from stock issuances -- -- -- -- 259 -- 259
Funding from parent/subsidiary 51,135 48,735 (59,041) 40,829 37,864 (78,693) --
Proceeds from Rare Medium Note -- -- -- -- 25,000 -- 25,000
Principal payments under
capital leases (3,350) -- -- (3,350) -- -- (3,350)
Principal payments under
vendor lease (2,132) -- -- (2,132) -- -- (2,132)
Debt issuance costs -- -- -- -- (567) -- (567)
Proceeds from bank financing -- 6,000 -- 6,000 -- -- 6,000
Repayment of bank financing -- -- -- -- (14,625) -- (14,625)
------- ------- -- ------- -------- -- --------
Net cash provided by (used in)
financing activities 45,653 54,735 (59,041) 41,347 47,931 (78,693) 10,585
Net increase in cash and
cash equivalants 2,797 -- -- 2,797 -- -- 2,797
CASH & CASH EQUIVALENTS,
beginning of period 2,520 -- -- 2,520 -- -- 2,520
----- -- -- ----- -----
CASH & CASH EQUIVALENTS,
end of period $ 5,317 $ -- $-- $ 5,317 $ -- $ -- $ 5,317
======= ==== == ======= ==== ==== =======
Condensed Consolidating Statement of Cash flow
Six Months Ended June 30, 2000
(Unaudited)
(in thousands)
Consol-
idated Consolidated
Subsidiary Motient Elimi- Motient Motient XM Motient
Guarantors Holdings nations Holdings Parent Radio Eliminations Parent
---------- -------- ------- -------- ------ ----- ------------ ------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ($52,255) ($ 71,209) $52,255 ($71,209) ($47,478) ($17,827) $ 92,853 ($ 43,661)
Adjustments to reconcile net
loss to net cash (used in) provided
by operating activities:
Amortization of Guarantee Warrants
and debt discount and issuance costs -- 4,520 -- 4,520 1,221 -- -- 5,741
Depreciation and amortization 17,749 -- -- 17,749 -- 1,014 (475) 18,288
Non cash stock compensation of
XM Radio -- -- -- -- -- 2,258 -- 2,258
Extraordinary loss on extinguishment
of debt -- 417 -- 417 -- -- -- 417
Minority Interest -- -- -- -- -- -- (10,683) (10,683)
Gain on conversion on convertible note
payable to related party -- -- -- -- (32,854) -- -- (32,854)
Unrealized gain on marketable securities -- -- -- -- (3,925) -- -- (3,925)
Changes in assets & liabilities
Inventory (3,376) -- -- (3,376) -- -- -- (3,376)
Prepaid in-orbit insurance 2,444 -- -- 2,444 -- -- -- 2,444
Trade accounts receivable (4,169) -- -- (4,169) -- -- -- (4,169)
Other current assets (22,138) -- -- (22,138) 677 (313) -- (21,774)
Accounts payable and accrued expenses (6,655) 283 -- (6,372) (278) 8,575 -- 1,925
Accrued interest on Senior Note -- 15 -- 15 -- -- -- 15
Deferred trade payables (3,330) -- -- (3,330) -- -- -- (3,330)
Deferred Items--net 16,594 -- -- 16,594 395 -- -- 16,989
------ -- -- ------ --- -- -- ------
Net cash (used in) provided by operating
activities (55,136) (65,974) 52,255 (68,855) (82,242) (6,293) 81,695 (75,695)
CASH FLOWS FROM INVESTING ACTIVITIES:
Payment of Senior Note interest
from escrow -- 20,503 -- 20,503 -- -- -- 20,503
Additions to property & equipment (9,644) -- -- (9,644) -- (18,814) -- (28,458)
Asset Sale agreement to Motient
Satellite 10,836 -- -- 10,836 -- -- -- 10,836
Ventures
System under construction -- -- -- -- -- (191,319) -- (191,319)
Net Purchase/Maturity of short-term
investments -- -- -- -- -- 69,471 -- 69,471
Other investing activities by XM Radio -- -- -- -- -- (54,250) -- (54,250)
Purchase of long-term, restricted
investments (2,180) (1,948) -- (4,128) (44) (125,863) -- (130,035)
------- ------- -- ------- ---- --------- -- ---------
Net cash (used in) provided by
investing activities (988) 18,555 -- 17,567 (44) (320,775) -- (303,252)
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of Common and Preferred Stock -- -- -- -- 5,308 229,225 -- 234,533
Proceeds from issuance of conversion
option to the investors of
Satellite Ventures -- -- -- -- 18,564 -- -- 18,564
Funding from parent/subsidiary 64,122 11,419 (52,255) 23,286 58,409 -- (81,695) --
Principal payments under
capital leases (2,933) -- -- (2,933) -- -- -- (2,933)
Principal payments under vendor lease (1,233) -- -- (1,233) -- -- -- (1,233)
Proceeds from Senior Secured Notes and
Stock Purchase Warrants -- -- -- -- -- 322,898 -- 322,898
Proceeds from bank financing -- 36,000 -- 36,000 -- -- 36,000
Debt issuance costs -- -- -- -- 5 (8,381) -- (8,376)
-- -- -- -- - ------- -- -------
Net cash provided by (used in)
financing activities 59,956 47,419 (52,255) 55,120 82,286 543,742 (81,695) 599,453
Net increase in cash and
cash equivalents 3,832 -- -- 3,832 -- 216,674 -- 220,506
CASH & CASH EQUIVALENTS,
beginning of period 776 -- -- 776 -- 50,698 -- 51,474
--- -- -- --- ------ ------
CASH & CASH EQUIVALENTS, end of
period $ 4,608 $ -- $ -- $ 4,608 $ -- $267,372 $ -- $271,980
======= ==== ==== ======= ==== ======== ==== =========
PART I- FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Management's Discussion and Analysis of Financial Condition and Results of
Operations
This Quarterly Report on Form 10-Q 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 quarterly report, including in conjunction with
the forward-looking statements included in this quarterly 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-4/A (File No. 333-63826), our most recent
annual report on Form 10-K, and our quarterly reports on Form 10-Q to be filed
after this quarterly 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. On a consolidated basis, we refer to these entities as
Motient.
We also have a less-than 100% interest in Mobile Satellite Ventures LLC
(Satellite Ventures), and XM Satellite Radio Holdings Inc. (XM Radio), which are
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 eLinksm 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. We also offer a 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.
We expect that our rollout of eLink and BlackBerry TM by Motient 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 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
the assets comprising our retail transportation business 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" 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 calendar year 2000 have been included
in our consolidated financial statements. In January 2001, pursuant to Federal
Communication Commission ("FCC") approval authorizing Motient to relinquish
control of 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, as of
January 1, 2001, we have accounted for our investment in XM Radio pursuant to
the equity method. As of June 30, 2001, we had an equity interest of
approximately 25.2% (14.8% on a fully diluted basis) in XM Radio.
Satellite Ventures
On June 29, 2000, we formed a new joint venture subsidiary, 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,
which is not scheduled to occur until FCC approval is received, 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.
Rare Medium Merger
On May 14, 2001, we signed a definitive merger agreement with Rare Medium
through which we will acquire 100% of the ownership of Rare Medium, using a
combination of newly issued convertible preferred stock and 9 million shares of
XM Radio Class A common stock that we hold (see "Liquidity and Capital
Resources", below). The combined company will provide wireless email, internet
and corporate intranet services, as well as software consulting, web based
development, wireless software, and network integration services. The merged
companies will operate as Motient Corporation and will be headquartered in
Reston, Virginia.
Overview
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 for 2000, 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.
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. We expect to continue to incur operating losses and negative cash
flows for at least several more quarters, and do not expect to achieve EBITDA
break even until at least the second or third quarter of 2002. 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 cash in excess of our operating expenses. We expect to require
significant additional funds even after we begin to generate cash in excess of
operating expenses. While we have identified a number of potential sources of
liquidity to fund our operations, there are risks associated with some of these
sources of liquidity, as discussed below in "Liquidity and Capital Resources."
In addition, our financial performance could deteriorate, and there is no
assurance that we will be able to meet our financial projections. If our cash
requirements are more than we currently expect, we will require additional
financing in amounts which may be material. For a more detailed discussion of
our funding requirements and outlook, see "Liquidity and Capital Resources -
Summary of Liquidity and Financing Sources for Core Wireless Business."
Our future operating results could be adversely affected by a number of
uncertainties and factors, including:
o our ability to secure additional financing necessary to fund anticipated
capital expenditures, operating losses and debt service requirements,
o limitations on our ability to sell XM Radio shares for liquidity purposes,
o our ability to consummate the Rare Medium merger and to realize the cash
anticipated to be received in that transaction,
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 realize 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, BlackBerryTM by Motient, and
eLink Fortified with Yahoo!
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 our ability to keep up with new technological developments and incorporate
them into our existing products and services and our ability to maintain
our proprietary information and intellectual property rights,
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 out limited disaster recovery system which could hinder or prevent us from
continuing to provide some services to some or all of our customers in the
event of a natural disaster or other occurrence that rendered the system
unavailable,
o our ability to maintain our listing on the Nasdaq National Market and the
impact that would have on an investor's ability to sell shares,
o the risk that we might be deemed to be an investment company under the
Investment Company Act of 1940, which could prohibit us from doing business
as we have in the past and might subject us to civil and criminal penalties
for noncompliance,
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.
We have a significant investment in XM Radio which may be affected by certain
risks which, in turn, may 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.
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 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 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 the 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.
Three and Six Months Ended June 30, 2001 and 2000
Revenue and Subscriber Statistics
Service revenue, which includes our data, voice, capacity reseller services as
well as royalty income, approximated $37.5 million for the six months ended June
30, 2001, which constituted a $2.1 million, or a 6% increase over the first six
months of 2000. The increase in service and related revenues was attributable to
(i) a 47% increase in subscribers, (ii) revenue from Satellite Ventures, and
(iii) royalty revenue. These factors were partially offset by a significant
reduction in average revenue per unit ("ARPU") in most market segments.
Three Months Ended June 30,
Summary of Revenue 2001 2000 Change % Change
---- ---- ------ --------
(in millions)
Wireless internet $2.4 $0.5 $1.9 380
Field services 5.1 6.7 (1.6) (24)
Transportation 4.1 5.8 (1.7) (29)
Telemetry 0.7 1.1 (0.4) (36)
Maritime and other 7.3 4.1 3.2 78
Equipment 4.1 7.5 (3.4) (45)
------------- ------------ -------------
Total $ 23.7 $25.7 ($2.0) (8)%
============= ============ =============
Six Months Ended June 30,
Summary of Revenue 2001 2000 Change % Change
---- ---- ------ --------
(in millions)
Wireless internet $4.4 $0.8 $3.6 450
Field services 11.0 13.7 (2.7) (20)
Transportation 8.2 10.7 (2.5) (23)
Telemetry 1.4 2.2 (0.8) (36)
Maritime and other 12.6 8.0 4.6 58
Equipment 9.5 12.5 (3.0) (24)
------------- ------------ -------------
Total $ 47.1 $47.9 ($0.8) (2)%
============= ============ =============
Our service revenue increased as a result of approximately 80,000 additional
subscribers at June 30, 2001, as compared to June 30, 2000, broken down as
follows:
As of June 30,
2001 2000 Change % Change
---- ---- ------ --------
Wireless internet 87,227 15,090 72,137 478
Field services 40,839 43,349 (2,510) (6)
Transportation 75,185 71,161 4,024 6
Telemetry 21,045 14,881 6,164 41
Maritime and other 25,980 25,562 418 2
------ ------ ---
Total 250,276 170,043 80,233 47
======= ======= ====== ==========
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.
Average Revenue Per Unit
As of June 30,
2001 2000
---- ----
Wireless internet $10 $17
Field services 39 50
Transportation 18 29
Telemetry 12 25
Maritime and other 94 57
Total $27 $38
Summary of Six Month over Six Month Revenue
o The growth in wireless internet revenue reflects the overall growth in the
number of units, offset by ARPU reductions as a result of a shift towards
more reseller pricing contracts as well as late quarter loading in the
first and second quarters of 2001. Our eLink product was introduced in late
1999 and did not begin to achieve a material growth rate until the middle
of 2000 as certain reseller initiatives were launched.
o The decrease in revenue and ARPU from field services reflects contract
renewal rate reductions that occurred in the first quarter of 2001.
Additionally, as part of this contract renewal, the customer upgraded to
one of our new devices, which greatly reduced their requirement for spare
units, for which we had previously received revenue. Additionally, we
experienced churn of approximately 1,250 registrations to one company as a
result of their downsizing.
o The decrease in revenue from our transportation product was primarily the
result of the sale of our transportation assets to Aether late in the
fourth quarter of 2000 and the resulting decrease in ARPU as we shifted
from retail rates to our direct customers, to wholesale rates through
Aether. This decrease was partially offset by the increase in the number of
units under our United Parcel Service contract.
o The decrease in telemetry revenue reflects the change from a take or pay
agreement to a usage based agreement with one customer.
o The growth in maritime and other revenue was primarily the result of (i)
$1.8 million of revenue earned from our contract to provide Satellite
Ventures with satellite capacity as they pursue their research and
development program and (ii) a $1.75 million royalty payment from the
one-time licensing of our network software. This increase was partially
offset by ARPU decreases in the maritime market as a result of more
efficient use of their satellite phones by the maritime market, which
resulted in reduced minutes of use. Excluding the revenue from Satellite
Ventures and the royalty payment, ARPU for Maritime and other was $49 as of
June 30, 2001.
o The decrease in equipment revenue is a result of (i) the loss of $6.3
million of equipment sales associated with the sale of our transportation
business, (ii) a $688,000 decrease in voice equipment sales and (iii) the
net deferral of $3.9 million of equipment revenue in accordance with our
revenue recognition policies. These reductions in equipment revenue were
offset by an increase of approximately $7.9 million in equipment sales for
our eLink product lines.
Expenses
Three Months Ended June 30,
Summary of Expense 2001 2000 Change % Change
- ------------------ ---- ---- ------ --------
(in millions)
Cost of Service & Operations $19.6 $18.8 $0.8 4%
Cost of Equipment Sales 10.6 7.9 2.7 34
Sales & Advertising 4.9 7.6 (2.7) (36)
General & Administration-core wireless 4.9 5.2 (0.3) (6)
General & Administration-XM Radio -- 13.5 (13.5) (100)
Depreciation & Amortization-core wireless 8.8 8.9 (0.1) (1)
Depreciation & Amortization-XM Radio -- 0.3 (0.3) (100)
-- --------- ---------
Total $48.8 $62.2 $(13.4) (22%)
=========== ========= ========= =======
Six Months Ended June 30,
Summary of Expense 2001 2000 Change % Change
- ------------------ ---- ---- ------ --------
(in millions)
Cost of Service & Operations $37.8 $36.8 $1.0 3%
Cost of Equipment Sales 16.5 13.2 3.3 25
Sales & Advertising 14.6 13.8 0.8 6
General & Administration-core wireless 11.2 10.8 0.4 4
General & Administration-XM Radio -- 29.8 (29.8) (100)
Depreciation & Amortization-core wireless 17.4 17.8 (0.4) (2)
Depreciation & Amortization-XM Radio -- 0.5 (0.5) (100)
-- ----------- -----------
Total $97.5 $122.7 $(25.2) (21%)
=========== =========== =========== =========
The results for the six months ended June 30, 2000, included expenses incurred
by XM Radio, as we were required to consolidate their results. As noted above,
as of January 1, 2001, we were no longer required to consolidate the results of
XM Radio.
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 $1.0 million increase in communication charges
associated with a 13% increase in base stations year over year, (ii) a $660,000,
increase in base station maintenance costs associated with a 24% increase in the
average cost per base station primarily as a result of new rates under the
maintenance contract, (iii) a $1.0 million increase for site rental costs
associated with the 13% increase in base stations year over year and increased
lease rates, and (iv) approximately $700,000 in licensing and commission
payments to third parties with whom we've partnered to provide certain eLink and
Blackberry by Motient services. The increases were offset by approximately $2.3
million of costs associated with our transportation assets, which were sold in
late 2000.
The increase in cost of equipment sold for the six months ended June 30, 2001,
as compared to the same period in 2000, was a result of a $4.5 million inventory
valuation charge in the second quarter of 2001 associated with our
early-generation eLink inventory. This charge was taken as a result of
evaluating our current sales trends, as well as pricing announcements made by
certain of our competitors. This was offset by a shift from the higher-cost
products associated with our transportation business, as compared to the
lower-cost eLink product line.
Sales and advertising expenses as a percentage of total revenue were
approximately 31% for the first six months of 2001, compared to 29% for the same
period in 2000. The increase in sales and advertising expenses period over
period was primarily attributable to a $3.0 million market awareness advertising
campaign in the first quarter of 2001 to heighten our presence in the
marketplace and to support our roll out of our eLink fortified with Yahoo!(TM)
product, offset by approximately $4.0 million of costs related to the those
individuals associated with sales efforts for our transportation business.
General and administrative expenses for the core wireless business as a
percentage of total revenue were approximately 24% for the first six months of
2001, compared to 23% for the comparable period of 2000. The increase in 2001
costs over 2000 costs in our core wireless business general and administrative
expenses was primarily attributable to a $1.3 million charge associated with the
vesting of certain restricted stock grants in the first quarter of 2001, offset
by approximately $300,000 of savings associated with having fewer employees
throughout the first six months of 2001, primarily as a result of the sale of
the transportation assets in late 2000, as well as a mark-to-market credit of
approximately $480,000 associated with the vesting of stock options held by
former Motient employees.
Depreciation and amortization for the core wireless business was approximately
37% of total revenue for the first six months of both 2001 and 2000. The slight
decrease in depreciation and amortization expense in the first six months of
2001 was primarily attributable to the sale of our transportation assets in the
fourth quarter of 2000 and their associated depreciation.
Interest and other income was $413,000 for the six months ended June 30, 2001,
as compared to $15.2 million (of which $13.0 million was earned by XM Radio) for
the six months ended June 30, 2000. Excluding interest earned by XM Radio, the
$1.8 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 a lower escrow balance. The final payment was made out of the escrow
in April 2001.
We incurred $30.3 million of interest expense in the first six months of 2001,
compared to $31.0 million during the first six months of 2000. The $0.7 million
decrease for the six months was a result of (i) a decrease in amortization of
warrants and prepaid interest and debt offering costs due to the debt discount
costs that were written off in 2000 and 2001 when we extinguished a portion of
debt under the bank facilities and (ii) lower average outstanding debt balances
as a result of repayments made to the bank financing in the second half of 2000
and second quarter of 2001. These decreases were partially offset by increased
vendor debt and capital lease obligations, as well as a $638,000 amortization of
the debt discount associated with the Rare Medium Note call option. We expect
interest expense to continue to decrease as we continue to pay down debt under
the bank facilities, either through the cash received in the Rare Medium merger,
or from the proceeds from Satellite Ventures and Aether, or the sales of XM
Radio stock.
Net capital expenditures for the six months ended June 30, 2001 for property and
equipment were $6.2 million compared to $9.6 million (excluding $18.8 million
incurred by XM Radio) for the comparable period in 2000. Expenditures consisted
primarily of assets necessary to continue the build out of our terrestrial
network.
Effect of Rare Medium Merger
Currently, it is expected that Rare Medium will be managed as a stand-alone
business; however, Motient and Rare Medium are continuing to review their plans
and opportunities for cost savings. At this time, Motient does not expect
significant short-term operational savings from the merger.
Rare Medium has not yet achieved positive operating cash flow, and if they are
unable to achieve that prior to the merger, their funding requirement would have
a negative impact on our results of operations and liquidity. For the first six
months of 2001, Rare Medium recorded an operating loss of $50.6 million and net
cash used in operations of $27.3 million. Additionally, Motient's net loss may
also be impacted by additional amortization charges if an independent appraisal,
to be performed after the closing of the merger, determines that Rare Medium has
significant intangible assets. Assuming a preliminary amortization period of
five years of identified intangible assets, each $2.0 million increase in
identifiable assets would increase Motient's amortization expense and net loss
by $400,000 per year.
As a result of the Rare Medium merger and the associated pay down of the bank
facility, it is expected that our interest expense would be reduced by
approximately $1.0 million per year, based on our current interest rates.
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
We have serious short-term liquidity issues, which, in part, are addressed by
the Rare Medium merger. We have sufficient funds currently to continue
operations until early October 2001, and assuming the Rare Medium merger closes
by then, as to which there can be no assurance, we expect that the combined
entity will have sufficient funds to permit us to make our October 2001 $20.5
million senior note interest payment. Thereafter, based on our current
projections for the results of operations of our business, as to which there can
be no assurances, and depending on the amount of free cash, if any, remaining in
Rare Medium at the time the merger closes, we will require approximately $80
million of additional cash to fund operating losses, capital expenditures and to
make interest payments on indebtedness, before we begin to generate cash in
excess of our operating expenses, which we anticipate to occur in the second or
third quarter of 2002. Because the merger has not closed yet, we have not made
projections regarding Rare Medium's funding requirements, and this estimate does
not include any cash that might be required to fund Rare Medium's operations if
Rare Medium's business is not generating cash in excess of its operating
expenses, or that might be required in connection with certain contingent
liabilities and litigation of Rare Medium. In recent periods, Rare Medium has
not generated cash in excess of its operating expenses. In addition, because
various of our potential capital raising transactions require mandatory bank
debt repayments, we will need to raise gross proceeds in excess of the estimated
required amounts set forth above.
Even after we begin to generate cash in excess of our operating expenses, we
will need to obtain additional funds from other sources to meet our ongoing
interest payment obligations, capital expenditures, and other non-operating cash
expenses, which are expected to equal approximately $65 million to $75 million
annually. This funding requirement will be reduced by any excess cash generated
by our operations.
We anticipate that all of the foregoing funding requirements can be met by a
combination of various sources, including (1) cash on hand, (2) borrowings
available under our vendor financing facility, (3) proceeds realized through the
sale of inventory relating to eLink and BlackBerry TM, (4) sales of our 5.7
million XM Radio shares that are not being delivered to the preferred
shareholders of Rare Medium in connection with the Rare Medium merger, (5) cash
held by Rare Medium after the closing of the merger, (6) the $10 million of
escrowed funds from the Aether transaction, which Motient has recently requested
be released, (7) up to $22.5 million that may be received in 2002 under the earn
out arrangement with Aether, (8) $60 million, of which $45 million is cash, to
be paid by Satellite Ventures upon the closing of its transaction with TMI,
which closing depends on the receipt of regulatory approval which is not
expected until the first half of 2002 at the earliest, (9) proceeds that may be
realized from the sale of portions of Rare Medium's venture portfolio, and (10)
additional debt and equity financings in 2002. There can be no assurance that
the foregoing sources of liquidity will provide sufficient funds in the amounts
or at the time that funding is required. In addition, in the near term if our
ability to realize such liquidity from any such source is delayed or the
proceeds from any such source are insufficient to meet our expenditure
requirements as they arise, we will seek additional equity or debt financing,
although it is unlikely under current conditions that such additional financing
will be available to us on reasonable terms, if at all.
If the Rare Medium merger is not consummated, while we will not have access to
the cash held by Rare Medium or its venture portfolio, we will have
significantly more XM Radio shares than we would have if the merger were
consummated. If the merger is not consummated, we will continue to own 14.7
million XM Radio shares, but we would expect to apply approximately 3.5 million
to 4.5 million of such shares (based on current trading prices of XM Radio
shares) to repayment of the $50 million Rare Medium loan. While we do not
currently have sufficient cash to make the $20.5 million interest payment on our
senior notes due in October 2001 and to meet our other expenses in the fourth
quarter of 2001, if the Rare Medium merger is not consummated we would seek to
effect a transaction involving the disposition of a portion of our XM Radio
shares to fund these obligations. There are significant risks associated with
the XM Radio shares, including volatility in trading price, possible adverse
price pressure due to the overhang associated with our perceived desire to sell
shares to fund our business, and transaction risk associated with our ability to
sell a large block of the shares at one time. Any transaction involving the XM
shares would require the consent of our bank lenders and guarantors, and would
likely be accompanied by a requirement that a substantial portion of the
proceeds be used to repay our bank debt.
We expect to continue to review our overall capital structure in light of market
conditions, with a view toward exploring possible transactions that might have
the effect of improving our capital structure and reducing our overall
indebtedness and, consequently, our interest expense obligations. While we have
no immediate plans to undertake any transaction, transactions we might explore
include retiring or otherwise reducing our indebtedness, repurchasing or
exchanging our indebtedness, or otherwise modifying our indebtedness in order to
reduce the level of recurring interest expense. We also have examined and had
preliminary discussions regarding, and expect to continue to explore, possible
transactions to enhance the short and long-term value of our assets, including
but not limited to, our shares of XM Radio and our investment in Satellite
Ventures. We cannot provide any assurance that we would be able to effect any
such transaction or that the completion of any such transaction would have the
desired effect.
If the results of our operations (or, in the event the Rare Medium merger
closes, the results of Rare Medium's operations) are less favorable than we
currently anticipate, our cash requirements will be more than projected, and we
will require additional financing in amounts which may be material. The type,
timing and terms of financing that we select will be dependent upon our cash
needs, the availability of 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.
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. Additionally, with the overall decline in the
telecommunications sector of the capital markets, we have not been able to
access the public markets as anticipated. These factors, along with our negative
operating cash flows, have placed significant pressures on our financial
condition and liquidity position. 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.
In order to work towards adequately funding our projected shortfall, we have
executed the following transactions and initiatives in 2001:
o 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 of our bank facility agreeing to
waive certain debt repayment obligations for the second sale of shares, we
and the guarantors have agreed that if the Rare Medium transaction does not
close, the first $16.5 million of proceeds received from the earlier of (i)
the closing of the Satellite Ventures transaction and (ii) any other
reduction event to occur in the year 2002 will be used to pay down the bank
financing.
o On April 4, 2001, we received $25 million from Rare Medium Group, Inc.
("Rare Medium"), and issued Rare Medium a note payable at 12.5% annual
interest with a maturity date, subject to certain mutually-agreed upon
extensions, of October 1, 2001. The note is collateralized by 3 million of
our XM Radio shares, and Rare has the option to exchange the note for a
number of XM Radio shares equivalent to the principal of the note plus any
accrued interest thereon, divided by $10.41. Of the $25 million that we
received, we used $6.125 million to repay and permanently reduce our bank
financing, and $18.375 million was used to fund operations.
o In April 2001 we undertook certain capital and expense reductions,
principally in the areas of employee hiring, advertising and capital
spending. We believe that these reductions may result in up to
approximately $15 million of savings in 2001, while not reducing our
ability to sell our products or lower our service levels.
o On May 14, 2001, we signed a definitive merger agreement with Rare Medium.
Upon closing of the transaction, the bridge loans with Rare Medium would be
cancelled and any shares of XM Radio stock used to secure such loans would
be released by Rare Medium and returned to the guarantor collateral pool.
The combined company will provide wireless email, internet and corporate
intranet services, as well as software consulting, web based development,
wireless software, and network integration services. The merged companies
will operate as Motient Corporation and will be headquartered in Reston,
Virginia.
As of June 30, 2001, Rare Medium had approximately $98 million in cash,
before the funding of the second $25 million note in July 2001. A portion
of any cash that remains at Rare Medium at the time of closing would be
used as follows: (i) to repay and permanently reduce the Term Facility and
Revolver by $28.25 million, (ii) approximately $13 to $16 million to
affiliates of Apollo Management L.P. (Rare Medium's preferred shareholder)
as additional merger consideration, and (iii) to fund the combined
business. Further, the guarantors have required as a condition to the
transaction that we sell 1million XM Radio shares to be used as a 100%
reduction in the bank financing facility by September 30, 2001. Hughes has
the right to defer the sale of these shares beyond September 30th.
The consummation of the merger is subject to receipt of all necessary
regulatory approvals and consents, including bank approvals and Rare Medium
and Motient shareholder approvals.
o On July 16, 2001, we issued the second $25 million note as contemplated
under the Rare Medium bridge loan and merger agreements. Of the $25 million
that we received, we used $6.125 million to repay and permanently reduce
our bank financing, and $18.375 million is available for funding general
operations. This note is also collateralized by 2 million of our XM Radio
shares.
As of July 31, 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 Medium or our banks and guarantors to secure our
obligations under our bank financings and the note with Rare Medium. 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 its 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 $218.8 million (or $14.83 per share) as of June
30, 2001. As of August 10, 2001, the market price of XM Radio common stock
was $13.58 per share, $1.25 per share less than our carrying value. Taking
into consideration market and other appropriate factors, we do not believe
that other than a temporary decline in the value of our investment in XM
Radio has occurred and, accordingly, we have not recognized a loss;
however, we cannot guarantee that a loss will not be recognized in the
future.
Our other current financing arrangements are summarized below:
o A $96.5 million bank financing facility, consisting of (i) a $77.25 million
unsecured five-year reducing revolving credit facility, none of which was
available for borrowing as of June 30, 2001, and (ii) a $19.25 million
five-year term loan facility, maturing on March 31, 2003, 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 at LIBOR plus 1.0%. 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 June 30,
2001, we had outstanding borrowings of $26.375 million under the term loan
facility at approximately 5.1%, and $77.25 million under the revolving
credit facility at rates ranging from 4.9% to 5.3%. On July 16, 2001, as a
result of the Rare Medium Loan, we reduced our term loan facility by an
additional $6.125 million, and had a balance outstanding on the term loan
of $19.25 million as of July 31, 2001. Additionally, in connection with the
bank financing, we entered into an interest rate swap agreement which
reduced the impact of interest rate increases on the term loan facility.
Under the swap agreement, which expired in March 2001, we received 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.
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.
Additionally, if the Rare Medium merger is not consummated, the first
$30.75 million of funds from the closing of the Satellite Venture's
transaction, 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 July 31, 2001, there was $2.2 million available
for borrowing under this facility.
o $9.9 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. 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. Beginning October 1, 2001, we will be
required to make semi-annual payments in the amount of $20.5 million out of
general operating funds.
o We had also arranged the financing of certain trade payables; however, as
of June 30, 2001, no deferred trade payables were outstanding.
Sale of Retail Transportation Business to Aether Systems
In November 2000, we sold the assets comprising our retail transportation
business to Aether Systems, Inc. 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 which was held
back and 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 June 30, 2001, we had remaining contractual commitments to purchase eLink and
other subscriber equipment inventory in the amount of $2.6 million.
Additionally, we have entered into product development agreements for the
purchase of engineering services and for licenses to be used in future
applications of our eLink product. Should the engineering effort prove
successful, we have committed to purchase additional subscriber inventory. These
commitments, including the inventory commitment, total approximately $3.0
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 our behalf, plus fifty-percent of any remaining
inventory commitment. As of June 30, 2001, this cancellation penalty would have
been approximately $1.8 million.
The aggregate fixed and determinable portion of all commitments for inventory
purchases and other fixed contracts, related to the core wireless business, is
$8.3 million, of which $7.3 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.
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.
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, if the Rare Medium merger is not consummated,
approximately $30.75 million 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.
Summary of Cash Flow for the six months ended June 30, 2001 and June 30, 2000
Six Months Ended
June 30, 2001 Six Months Ended June 30, 2000 (1)
-------------- ----------------------------------
Core
Business Core Business XM Radio Consolidated
-------- ------------- -------- ------------
Cash Used In Operating Activities ($55,596) ($69,402) ($6,293) ($75,695)
Cash Provided by (Used in) Investing 47,808 17,523 (320,775) (303,252)
Cash Used in Financing Activities:
Equity issuances 259 23,872 229,225 253,097
Debt payments on capital leases, vendor financing (5,482) (4,166) -- (4,166)
Net funding from (repayment of) notes 16,375 36,000 322,898 358,898
Other (567) 5 (8,381) (8,376)
------- ----- --------- -------
Total Provided by Financing Activities 10,585 55,711 543,742 599,453
------ ------ ------- -------
Total Change in Cash $2,797 $3,832 $216,674 $220,506
====== ====== ======== ========
Cash and Cash Equivalents $5,317 $4,608 $267,372 $271,980
Working Capital (51,972) 74,917 305,053 379,970
Restricted Investments included in working capital -- 41,038 93,415 134,453
(1) As noted above, the six month period ended June 30, 2000, includes the
results of XM Radio. As of January 1, 2001, results of XM Radio were
recorded on an equity basis.
The $13.8 million decrease in cash used in operating activities for the core
business was a result of increased expenses, as described above, offset by the
timing of certain working capital changes, primarily within accounts payable. We
expect that losses going forward will be reduced as a result of the cost saving
measures that we have put into place; however, we will see an offsetting
increase in the cash used in operating activities as we make payments for
equipment inventory prior to the inventory being sold to end users.
The $30.3 million increase in cash provided by investing activities of the core
business was primarily attributable to the sale of 2 million shares of our XM
Radio stock for net proceeds of approximately $33.5 million, partially offset by
the purchase, in the first six months of 2000, of certain restricted investments
associated with our Senior Secured Notes escrow.
The $45.1 million decrease in cash provided by financing activities in the core
business was a result of (i) the reduction in proceeds from the exercise of
stock option and warrants in the amount of $5.2 million in the first six months
of 2000, as compared to $259,000 in the first six months of 2001, (ii) proceeds
of $18.6 million received in the Satellite Ventures transaction that were
allocated to the investors' option to convert to Motient common stock and (ii) a
difference of $19.6 million in debt financings, including the $25 million Rare
Medium loan, from the first six months of 2000 as compared to the first six
months of 2001.
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 June 30, 2001, all of the subsidiaries' net assets were restricted
under these agreements. These restrictions will have an impact on our ability to
pay dividends.
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. 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, which may further adversely impact Motient's ability to
coordinate spectrum access.
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. This
application has been opposed by a number of parties, some of which argue that
(i) the combination of our satellite business with that of TMI will decrease
competition; (ii) our proposed use of terrestrial base stations will cause
unacceptable interference to other L-band satellites; and (iii) the FCC should
reallocate spectrum in the L-band to terrestrial use. There is no assurance that
the FCC will grant our application.
Derivatives
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, with changes in fair
value reflected as current period income (loss). The effective date of SFAS No.
133, as amended by SFAS No. 138, is for fiscal years beginning after September
15, 2000.
On April 4, 2001, we sold a note to Rare Medium for $25 million. The note is
collateralized by up to 3 million of our XM Radio shares, and Rare Medium 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. We have determined
the embedded call option in the note, which permits Rare Medium to convert the
borrowing into shares of XM Radio, to be a derivative which must be accounted
for in accordance with SFAS No.133 and accordingly, have recorded a market
adjustment charge in the amount of $13.8 million in the second quarter of 2001.
The second tranche of the Rare Medium bridge loan will also be accounted for as
a derivative and valuations made as appropriate.
Accounting Standards
In July 2001, the Financial Accounting Standards Board (FASB) issued SFAS No.
141 "Business Combinations" and SFAS No. 142 "Goodwill and Other Intangible
Assets." SFAS No. 141 requires business combinations initiated after June 30,
2001 to be accounted for using the purchase method of accounting, and broadens
the criteria for recording intangible assets separate from goodwill. Recorded
goodwill and intangibles will be evaluated against this new criteria and may
result in certain intangibles being subsumed into goodwill, or alternatively,
amounts initially recorded as goodwill may be separately identified and
recognized apart from goodwill. SFAS No. 142 requires the use of a
nonamortization approach to account for purchased goodwill and certain
intangibles. Under a nonamortization approach, goodwill and certain intangibles
will not be amortized into results of operations, but instead would be reviewed
for impairment and written down and charged to results of operations only in the
periods in which the recorded value of goodwill and certain intangibles is more
than its fair value. We will adopt the provisions of each statement which apply
to goodwill and intangible assets acquired prior to June 30, 2001, on January 1,
2002 and to goodwill and intangible assets acquired in the Rare Medium merger,
if consummated, in the period the merger is consummated. We are in the process
of evaluating the financial statement impact of adoption of SFAS Nos. 141 and
142.
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 credit
facilities. We manage interest rate risk through the use of a combination of
fixed and variable rate debt. Currently, we do not use derivative financial
instruments to manage our interest rate risk. 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 Term Loan and Revolving Credit Facility, 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. Our Senior Notes bear interest at a fixed rate of
12 1/4%. We run the risk that market rates will decline and the required
payments will exceed those based on current market rates.
Motient is exposed to the impact of equity price market risk related to the call
option embedded in the $25 million note issued to Rare Medium in April 2001. As
of June 30, 2001, the fair value of the embedded call option was $15.8 million.
The $25 million note issued to Rare Medium accrues interest at 12% per annum and
matures in October 2001 and can be exchanged prior to maturity for the number of
shares of XM Radio common stock determined by dividing the principal and accrued
interest of such note by $10.41.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company is aware of sixteen purported class action lawsuits filed by holders
of Rare Medium common stock in the Court of Chancery of the State of Delaware
challenging the merger. On June 22, 2001, these lawsuits were consolidated by
the Delaware Court into a single purported class action, In re Rare Medium
Group, Inc. Shareholders Litigation, C.A. No. 18879 NC. On August 7, 2001, the
Delaware class action plaintiffs filed a Consolidated Amended Class Action
Complaint. The Company is also aware of a purported class action lawsuit filed
by holders of Rare Medium common stock in the New York Supreme Court, Brickell
Partners v. Rare Medium Group, Inc., et al., N.Y.S. Index No. 01602694.
Both lawsuits name Rare Medium, members of Rare Medium's board of directors, the
holders of Rare Medium preferred stock and certain of their affiliated entities,
and Motient as defendants. The complaints allege that the defendants breached
duties allegedly owed to the holders of Rare Medium common stock in connection
with the merger agreement. Specifically, the complaints allege, among other
things, that: (1) the holders of Rare Medium preferred stock engaged in
self-dealing in the proposed merger; (2) the Rare Medium board of directors
allegedly breached its fiduciary duties by agreeing to distribute the merger
consideration differently among holders of Rare Medium's common and preferred
shares; and (3) Motient and Rare Medium failed to adequately disclose all
material information in their Joint Proxy Statement. The complaints in both
lawsuits also allege that the Company and the holders of Rare Medium preferred
stock aided and abetted the supposed breaches of fiduciary duties.
The lawsuits seek to stop the merger and/or to obtain an award of monetary
damages. Specifically, the plaintiffs seek, among other things: (1) a
declaration that the complaints are properly maintainable as a class action; (2)
injunctive or rescissory relief; (3) unspecified monetary damages; (4)
attorneys' fees, costs, and expenses; (5) other and further relief the Court
deems proper.
The Company plans to contest these lawsuits vigorously, and has filed a motion
to dismiss the Delaware lawsuit. Rare Medium and members of Rare Medium's board
of directors have also filed a motion to dismiss the Delaware lawsuit. Both of
these motions were filed before the Consolidated Amended Class Action Complaint
was served, and the Company plans to file an amended motion to dismiss the
Consolidated Amended Class Action Complaint. No hearing date has been set for
the motions.
Motient has not yet been served with process in the New York lawsuit. Rare
Medium and the holders of Rare Medium preferred stock have been served with
process and have filed motions to dismiss or stay the New York lawsuit. The
return date for these motions to be heard by the New York court is currently
September 10, 2001.
Item 4. Submission of Matters to a Vote of Security Holders
(a) At the annual meeting of the stockholders of Motient held on May 22,
2001, the matters described under (b) and (c) below were voted upon.
(b) The following nominees, constituting all of the Company's directors,
were elected to the Company's board of directors:
Individual
Votes For Votes Withheld
--------- --------------
Billy J. Parrott 39,242,340 17,939
Gary M. Parsons 38,499,708 760,571
Walter V. Purnell, Jr. 38,669,132 591,147
Andrew A. Quartner 39,365,840 5,439
Jack A. Shaw 39,250,944 9,335
Jonelle St. John 39,254,840 5,439
TOTAL 39,260,279 75,015
(c) The vote on the ratification of Arthur Andersen LLP as independent
accountants for the Company for 2001 was 39,218,287 for, 106,618
against, 10,389 abstaining.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
9.2 - Company Stockholder Voting Agreement by and between Motient and
Apollo Investment Fund IV, L.P., dated May 14, 2001 (incorporated
by reference to Exhibit 2 to the Schedule 13D filed by Motient on
May 24, 2001).
9.3 - Company Stockholder Voting Agreement by and between Motient and
Apollo Overseas Partners IV, L.P., dated May 14, 2001
(incorporated by reference to Exhibit 2 to the Schedule 13D filed
by Motient on May 24, 2001).
9.4 - Company Stockholder voting Agreement by and between Motient and
AIF IV/RRRR L.L.C., dated May 14, 2001 (incorporated by reference
to Exhibit 2 to the Schedule 13D filed by Motient on May 24,
2001).
9.5 - Acquiror Stockholder Voting Agreement by and between Rare Medium
Group, Inc. and Hughes Electronics Corporation dated May 14, 2001
(incorporated by reference to Exhibit 3 to the Schedule 13D filed
by Rare Medium on May 23, 2001).
9.6 - Acquiror Stockholder Voting Agreement by and between Rare Medium
Group, Inc. and Motorola Inc. dated May 14, 2001 (incorporated by
reference to Exhibit 4 to the Schedule 13D filed by Rare Medium
on May 23, 2001).
9.7 - Acquiror Stockholder Voting Agreement by and between Rare Medium
Group, Inc. and Baron Capital Partner L.P., dated May 14, 2001
(incorporated by reference to Exhibit 2 to the Schedule 13D filed
by Rare Medium on May 23, 2001).
10.34j - Amendment No. 3 of Revolving Credit Agreement, Waiver of
Revolving Credit Agreement and Term Credit Agreement and
Termination and Release of Shareholder Guarantors dated as of May
14, 2001 (incorporated by reference to Exhibit 10.120 to
Motient's registration statement on Form S-4 (File No.
333-63826)).
10.35i - Amendment No. 3 of Revolving Credit Agreement, Waiver of
Revolving Credit Agreement and Term Credit Agreement and
Termination and Release of Shareholder Guarantors dated as of May
14, 2001 (incorporated by reference to Exhibit 10.120 to
Motient's registration statement on Form S-4 (File No.
333-63826)).
10.51 - Agreement and Plan of Merger by and among Motient, MR Acquisition
Corp., and Rare Medium Group, Inc. dated as of May 14, 2001
(incorporated by reference to Motient's current report on Form
8-K/A (File No. 0-23044) filed with the SEC on May 15, 2001).
10.51a - Letter Agreement by and among Motient, MR Acquisition Corp. and
Rare Medium Group, Inc. dated as of May 16, 2001 (incorporated by
reference to Motient's current report on Form 8-K (File No.
0-23044) filed with the SEC on May 18, 2001).
10.52 - Amended and Restated Registration Rights Agreement by and among
Motient, Apollo Investment Fund IV, L.P., Apollo Overseas
Partners IV, L.P., and AIF IV/RRRR L.L.C., dated June 11, 2001
(incorporated by reference to Exhibit 10.1 to Motient's
registration statement on Form S-4 (File No. 333-63826)).
10.53 - Agreement, dated May 14, 2001, by and among Motient, Rare Medium
Group, Inc. and Glenn S. Meyers (incorporated by reference to
Exhibit 10.113 to Motient's registration statement on Form S-4
(File No. 333-63826)).
10.54 - Note Purchase Agreement dated as of April 2, 2001 between Motient
and rare Medium Group, Inc. (incorporated by reference to exhibit
10.112 to Motient's registration statement on Form S-4 (File No.
333-63826)).
(b) Current Reports on Form 8-K
On May 14, 2001, the Company filed a Current Report on Form 8-K,
in response to Item 5-Other Events, reporting that the Company
had entered into a definitive merger agreement with Rare Medium
Group, Inc.
On May 15, 2001, the Company filed on amendment on Form 8-K/A to
its previously filed report on Form 8-K, to file the Agreement
and Plan of Merger with Rare Medium Group, Inc.
On May 17, 2001, the Company filed a Current Report on Form 8-K,
in response to Item 5-Other Events, reporting that the Company
had entered into an agreement amending in certain respects the
Agreement and Plan of Merger dated May 14, 2001.
On May 25, 2001, the Company filed a Current Report on Form 8-K,
in response to Item 5-Other Events, reporting that the Company
was aware of a number of purported class action lawsuits that
have been filed in Delaware Chancery Court challenging the
proposed merger between Motient and Rare Medium Group, Inc. All
of the complaints name Rare Medium Group, along with members of
its board of directors, as defendants.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MOTIENT CORPORATION
(Registrant)
August 14, 2001 /s/W. Bartlett Snell
--------------------
W. Bartlett Snell
Senior Vice President
and Chief Financial Officer
(principal financial and accounting officer
and duly authorized officer to sign on
behalf of the registrant)
EXHIBIT INDEX
Number Description
9.2 - Company Stockholder Voting Agreement by and between Motient and
Apollo Investment Fund IV, L.P., dated May 14, 2001 (incorporated
by reference to Exhibit 2 to the Schedule 13D filed by Motient on
May 24, 2001).
9.3 - Company Stockholder Voting Agreement by and between Motient and
Apollo Overseas Partners IV, L.P., dated May 14, 2001
(incorporated by reference to Exhibit 2 to the Schedule 13D filed
by Motient on May 24, 2001).
9.4 - Company Stockholder voting Agreement by and between Motient and
AIF IV/RRRR L.L.C., dated May 14, 2001 (incorporated by reference
to Exhibit 2 to the Schedule 13D filed by Motient on May 24,
2001).
9.5 - Acquiror Stockholder Voting Agreement by and between Rare Medium
Group, Inc. and Hughes Electronics Corporation dated May 14, 2001
(incorporated by reference to Exhibit 3 to the Schedule 13D filed
by Rare Medium on May 23, 2001).
9.6 - Acquiror Stockholder Voting Agreement by and between Rare Medium
Group, Inc. and Motorola Inc. dated May 14, 2001 (incorporated by
reference to Exhibit 4 to the Schedule 13D filed by Rare Medium
on May 23, 2001).
9.7 - Acquiror Stockholder Voting Agreement by and between Rare Medium
Group, Inc. and Baron Capital Partner L.P., dated May 14, 2001
(incorporated by reference to Exhibit 2 to the Schedule 13D filed
by Rare Medium on May 23, 2001).
10.34j - Amendment No. 3 of Revolving Credit Agreement, Waiver of
Revolving Credit Agreement and Term Credit Agreement and
Termination and Release of Shareholder Guarantors dated as of May
14, 2001 (incorporated by reference to Exhibit 10.120 to
Motient's registration statement on Form S-4 (File No.
333-63826)).
10.35i - Amendment No. 3 of Revolving Credit Agreement, Waiver of
Revolving Credit Agreement and Term Credit Agreement and
Termination and Release of Shareholder Guarantors dated as of May
14, 2001 (incorporated by reference to Exhibit 10.120 to
Motient's registration statement on Form S-4 (File No.
333-63826)).
10.51 - Agreement and Plan of Merger by and among Motient, MR Acquisition
Corp., and Rare Medium Group, Inc. dated as of May 14, 2001
(incorporated by reference to Motient's current report on Form
8-K/A (File No. 0-23044) filed with the SEC on May 15, 2001).
10.51a - Letter Agreement by and among Motient, MR Acquisition Corp. and
Rare Medium Group, Inc. dated as of May 16, 2001 (incorporated by
reference to Motient's current report on Form 8-K (File No.
0-23044) filed with the SEC on May 18, 2001).
10.52 - Amended and Restated Registration Rights Agreement by and among
Motient, Apollo Investment Fund IV, L.P., Apollo Overseas
Partners IV, L.P., and AIF IV/RRRR L.L.C., dated June 11, 2001
(incorporated by reference to Exhibit 10.1 to Motient's
registration statement on Form S-4 (File No. 333-63826)).
10.53 - Agreement, dated May 14, 2001, by and among Motient, Rare Medium
Group, Inc. and Glenn S. Meyers (incorporated by reference to
Exhibit 10.113 to Motient's registration statement on Form S-4
(File No. 333-63826)).
10.54 - Note Purchase Agreement dated as of April 2, 2001 between Motient
and rare Medium Group, Inc. (incorporated by reference to exhibit
10.112 to Motient's registration statement on Form S-4 (File No.
333-63826)).