SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
(AMENDMENT No. 1)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2004
Commission file number 0-23044
MOTIENT CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 93-0976127
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
300 Knightsbridge Parkway
Lincolnshire, IL 60069
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (847) 478-4200
Securities registered pursuant to Section 12(b)
of the Act: None Securities registered
pursuant to Section 12(g) of the Act:
Common stock, $0.01 par value per share
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such report(s), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No[_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendments to
this Form 10-K. Yes [_] No [X]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes [X] No [_]
The aggregate market value of shares of common stock held by non-affiliates at
June 30, 2004 was approximately $200,051,042.
Indicate by check mark whether registrant has filed all documents and reports
required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act
of 1934 subsequent to the distribution of securities under a plan confirmed by a
court. Yes [_] No [X]
Number of shares of common stock outstanding at April 27, 2005: 65,210,760
DOCUMENTS INCORPORATED BY REFERENCE
None
1
EXPLANATORY NOTE
We are filing this Amendment No. 1 to our Annual Report on Form 10-K for the
year ended December 31, 2004 to amend and restate Item 9A, Controls and
Procedures, to include Motient Corporation's management report on internal
control over financial reporting and the related attestation report of Friedman
LLP, an independent registered public accounting firm, which had been omitted
from our original Annual Report on Form 10-K as permitted by the Order Under
Section 36 of the Securities Exchange Act of 1934 Granting an Exemption from
Specified Provisions of Exchange Act Rules 13a-1 and 15d-1 issued by the
Securities and Exchange Commission on November 30, 2004. We are also filing this
amendment to add one risk factor to the section Risk Factors in Item 1. Unless
the context otherwise requires, this Amendment speaks as of the original filing
date of our Annual Report on Form 10-K and has not been updated to reflect
events occurring subsequent to the original filing date.
2
Item 1. Business - Risk Factors
The following Risk Factor is added:
Failure to achieve and maintain effective internal control over financial
reporting in accordance with rules of the Securities and Exchange Commission
promulgated under Section 404 of the Sarbanes-Oxley Act could harm our business
and operating results and/or result in a loss of investor confidence in our
financial reports, which could in turn have a material adverse effect on our
business and stock price.
Under rules of the Securities and Exchange Commission promulgated under Section
404 of the Sarbanes-Oxley Act of 2002, beginning with our Annual Report on Form
10-K for the fiscal year ended December 31, 2004, we were required to furnish a
report by our management on our internal control over financial reporting. In
the course of our assessment of the effectiveness of our internal control over
financial reporting as of December 31, 2004, which assessment was conducted
during the fourth quarter of 2004 and the first quarter of 2005 in connection
with the preparation of 2004 audited financial statements and this report, we
identified two material weaknesses in our internal control over financial
reporting. These material weaknesses in our internal control over financial
reporting, as described in Item 9A, Controls and Procedures, as well as any
other weaknesses or deficiencies that may exist or hereafter arise or be
identified, could harm our business and operating results, and could result in
adverse publicity and a loss in investor confidence in the accuracy and
completeness of our financial reports, which in turn could have a material
adverse effect on our stock price, and, if such weaknesses are not properly
remediated, could adversely affect our ability to report our financial results
on a timely and accurate basis.
Although we believe that we have taken steps to remediate these material
weaknesses, as described in Item 9A, Controls and Procedures, we cannot assure
you that this remediation will be successful or that additional deficiencies or
weaknesses in our controls and procedures will not be identified. In addition,
we cannot assure you that our independent registered public accounting firm will
agree with our assessment that our material weaknesses have been remediated.
Moreover, while we have added accounting personnel, we continue to operate at a
relatively small staffing level. Our control procedures have been designed with
this staffing level in mind; however, they are highly dependent on each
individual's performance of controls in the required manner. The loss of
accounting personnel, particularly our chief accounting officer, would adversely
impact the effectiveness of our control environment and our internal controls,
including our internal controls over financial reporting.
Item 9A. Controls and Procedures.
The following is amended and restated:
Disclosure Controls and Procedures
We have performed an evaluation under the supervision and with the participation
of our management, including our principal executive officer and principal
financial officer, of the effectiveness of our disclosure controls and
procedures, as defined in Rule 13a-15(e) under the Securities Exchange Act of
1934 (the "Exchange Act"). As of the end of the period covered by this report
(December 31, 2004), our disclosure controls and procedures were not effective
because of the material weaknesses in internal control over financial reporting
described below.
Management's Report on Internal Control over Financial Reporting
Pursuant to Item 308(a) of Regulation S-K and subsequent SEC Releases and
guidance, we were not required to furnish an annual management report on our
internal control of our financial reporting concurrently with the filing of our
Annual Report on Form 10-K, but were permitted to file such report by amendment
on or prior to April 30, 2005. In order to issue our report, management
documented both the design of our internal controls and the testing processes
that support management's evaluation and conclusion. Our management has
completed the necessary processes and procedures for issuing its report on
internal controls based on criteria established in Internal Control--Integrated
3
Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO).
Our management is responsible for establishing and maintaining effective
internal control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting. The Company's
internal control over financial reporting is a process designed under the
supervision of the Company's principal executive officer and principal financial
officer, and effected by the Company's board of directors, management and other
personnel, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles in the
United States of America. Our internal control over financial reporting includes
those policies and procedures that (1) pertain to the maintenance of records
that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial
statements in accordance with U.S. generally accepted accounting principles, and
that receipts and expenditures of the company are being made only in accordance
with authorizations of management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the company's assets that could have a
material effect on the financial statements.
Internal control over financial reporting includes the controls themselves,
monitoring and internal auditing practices and actions taken to correct
deficiencies as identified.
Because of its inherent limitations, internal control over financial reporting
may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
As of December 31, 2004, management, with the participation of our principal
executive officer and principal financial officer, assessed the effectiveness of
our internal control over financial reporting based on the framework established
in Internal Control - Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). Management's assessment
included an evaluation of the design of our internal control over financial
reporting and testing of the operational effectiveness of our internal control
over financial reporting. Management reviewed the results of its assessment with
the Audit Committee of our Board of Directors, and based on this assessment,
management has determined that as of December 31, 2004, there were two material
weaknesses in our internal control over financial reporting. In light of these
material weaknesses, management has concluded that, as of December 31, 2004,
Motient Corporation and Subsidiaries did not maintain effective internal control
over financial reporting. As defined by the Public Company Accounting Oversight
Board ("PCAOB") Auditing Standard No. 2, a material weakness is a significant
control deficiency or a combination of significant control deficiencies, that
results in there being more than a remote likelihood that a material
misstatement of the annual or interim financial statements will not be prevented
or detected. Friedman LLP, our independent registered public accounting firm,
which audited our consolidated financial statements included in our Annual
Report on Form 10-K, has issued its attestation report on our management's
assessment of our internal control over financial reporting, which appears
below.
This conclusion does not adversely affect the information contained in our
financial statements included in this Annual Report. Our auditors expressed an
unqualified opinion on our financial statements as of December 31, 2004.
Material Weaknesses
- -------------------
The following two material weaknesses have been identified and included in
management's assessment.
1. Management identified a material weakness relating to the lack of
information security and access to initiate, authorize, and record
transactions in all functional areas relating to the financial
reporting software application.
4
2. Management identified the following significant deficiencies that
when aggregated give rise to a material weakness. Management
identified certain control procedures that were not sufficiently
documented relating to a) information technology back-up and
recovery, b) operating systems access, c) firewall protections, as
well as, d) control policies and procedures in certain transaction
cycles.
Management also identified various segregation of duties deficiencies
in a) information security and access to non-financial reporting
software applications, b) program change management in the customer
management and billing systems and c) over the initiation,
authorization, review and transaction recording for certain
transaction cycles and non-routine transaction processing.
Additionally, management identified a lack of sufficient oversight
and review of the processes involved in the financial close and
reporting process, in particular as it relates to several complex and
sophisticated transactions.
These deficiencies in the design and implementation of the Company's internal
control over financial reporting did not result in an actual misstatement to the
financial statements. However, due to (a) the significance of the potential
material misstatement that could have resulted due to the deficient controls and
(b) the absence of other mitigating controls, there is more than a remote
likelihood that a material misstatement of the interim and annual financial
statements would not have been prevented or detected.
Actions Taken to Correct Material Weaknesses
- --------------------------------------------
We have taken the following actions to remediate the above identified material
weaknesses.
With respect to our first material weakness (the lack of information security
and access to initiate, authorize, and record transactions in all functional
areas relating to the financial reporting software application), we have
prevented access to the software applications that certain management level
personnel previously had, which permitted them to change or record transactions
in our financial reporting software application. We plan to conduct further
review and evaluation of the access to our financial reporting software
applications by all personnel, and to reassign the access rights used to control
the financial reporting process.
With respect to our second material weakness, which was an aggregation of
significant deficiencies that, individually, did not rise to the level of a
material weakness, but in aggregate did, we have taken the following steps:
o We have begun drafting, and are in the process of implementing,
remedial control procedures to address: (i) information technology
back-up and recovery, (ii) operating systems access, (iii) firewall
protections, and (iv) control policies and procedures in certain
transaction cycles.
o We are in the process of implementing additional monitoring
activities, as well as evaluating job responsibilities, in order to
improve internal controls related to (i) our information security and
access to non-financial reporting software applications, (ii) our
program change management in customer management and billing systems,
and (iii) the initiation, authorization, review and transaction
recording for certain transaction cycles and non-routine transaction
processing.
o We have enhanced our corporate accounting function by creating and
filling the new position of Assistant Controller. We believe that the
control deficiencies involving (i) segregation of duties, (ii) lack of
sufficient oversight and review of the processes involved in the
financial close and reporting process, in particular as it relates to
complex and sophisticated transactions, and (iii) lack of control
policy documentation, will be remedied with the addition of this
additional resource.
The Company believes that the corrective actions described above, taken as a
whole, will remediate the internal control deficiencies identified in this
report, but the Company and the Audit Committee will continue to monitor the
effectiveness of these actions and will make any other changes or take such
other actions as management determines to be appropriate.
Changes in Internal Control Over Financial Reporting
5
There has been no change in our internal control over financial reporting that
occurred during our last fiscal quarter that has materially affected, or is
reasonably likely to materially affect, our internal control over financial
reporting. The changes outlined above began in 2005.
Report of Independent Registered Public Accounting Firm on Internal Control Over
Financial Reporting
To the Board of Directors and
Stockholders of Motient Corporation
We have audited management's assessment, included in the accompanying
"Management's Report on Internal Control", that Motient Corporation and
Subsidiaries (the "Company") did not maintain effective internal control over
financial reporting as of December 31, 2004, because of the effect of the
material weaknesses identified in management's assessment based on criteria
established in Internal Control--Integrated Framework issued by the Committee of
Sponsoring Organization of the Treadway Commission (COSO). The Company's
management is responsible for maintaining effective internal control over
financial reporting and for its assessment of the effectiveness of internal
control over financial reporting. Our responsibility is to express an opinion on
management's assessment and an opinion on the effectiveness of the company's
internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over
financial reporting, evaluating management's assessment, testing and evaluating
the design and operating effectiveness of internal control, and performing such
other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.
A company's internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company's internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company's
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting
may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
A material weakness is a control deficiency, or combination of control
deficiencies, that results in more than a remote likelihood that a material
misstatement of the annual or interim financial statements will not be prevented
or detected. The following two material weaknesses have been identified and
included in management's assessment.
1. Management identified a material weakness relating to the lack of
information security and access to initiate, authorize, and record
transactions in all functional areas relating to the financial
reporting software application.
2. Management identified the following significant deficiencies that
when aggregated give rise to a material weakness. Management
identified certain control procedures that were not sufficiently
documented relating to a) information technology back-up and
recovery, b) operating systems access, c) firewall protections, as
well as, d) control policies and procedures in certain transaction
cycles.
6
Management also identified various segregation of duties deficiencies
in a) information security and access to non-financial reporting
software applications, b) program change management in the customer
management and billing systems and c) over the initiation,
authorization, review and transaction recording for certain
transaction cycles and non-routine transaction processing.
Additionally, management identified a lack of sufficient oversight
and review of the processes involved in the financial close and
reporting process, in particular as it relates to several complex and
sophisticated transactions.
These deficiencies in the design and implementation of the Company's internal
control over financial reporting did not result in an actual misstatement to the
financial statements. However, due to (a) the significance of the potential
material misstatement that could have resulted due to the deficient controls and
(b) the absence of other mitigating controls, there is more than a remote
likelihood that a material misstatement of the interim and annual financial
statements would not have been prevented or detected.
These material weaknesses were considered in determining the nature, timing, and
extent of audit tests applied in our audit of the 2004 financial statements, and
this report does not affect our report dated March 30, 2004 on those financial
statements.
In our opinion, management's assessment that the Company did not maintain
effective internal control over financial reporting as of December 31, 2004, is
fairly stated, in all material respects, based on criteria established in
Internal Control--Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). Also, in our opinion, because
of the effect of the material weaknesses described above on the achievement of
the objectives of the control criteria, the Company has not maintained effective
internal control over financial reporting as of December 31, 2004, based on
criteria established in Internal Control--Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO).
We do not express an opinion or any other form of assurance on management's
statements relating to new controls being implemented and tested.
We have also audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the consolidated balance sheets of
Motient Corporation and Subsidiaries as of December 31, 2004 and 2003 (Successor
Company), and the related consolidated statements of operations, changes in
stockholders' equity (deficit) and cash flows for the years ended December 31,
2004 and 2003 (Successor Company), the eight months ended December 31, 2002
(Successor Company), and the four months ended April 30, 2002 (Predecessor
Company) and our report dated March 30, 2005 expressed an unqualified opinion
thereon.
/s/ Friedman LLP
East Hanover, New Jersey
April 29, 2005
7
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
MOTIENT CORPORATION
By /s/ Christopher W. Downie
---------------------------
Christopher W. Downie
Executive Vice President
Chief Operating Officer and Treasurer
Date: April 29, 2005
Power of Attorney
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below hereby severally constitutes and appoints, Christopher W. Downie and Myrna
J. Newman, and each or any of them, his or her true and lawful attorney-in-fact
and agent, each with the power of substitution and resubstitution, for him or
her in any and all capacities, to sign any and all amendments to this Annual
Report on Form 10-K/A and to file the same, with exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
hereby ratifying and confirming all that each said attorney-in-fact and agent,
or his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
/s/ Christopher W. Downie Executive Vice President, Chief Operating April 29, 2005
- ------------------------------------ Officer and Treasurer (principal executive
Christopher W. Downie officer)
/s/ Myrna J. Newman Controller and Chief Accounting Officer April 29, 2005
- ------------------------------------ (principal financial officer)
Myrna J. Newman
Chairman of the Board April 29, 2005
- ------------------------------------
Steven G. Singer
/s/ Jonelle St. John Director April 29, 2005
- ------------------------------------
Jonelle St. John
/s/ Gerald S. Kittner Director April 29, 2005
- ------------------------------------
Gerald S. Kittner
/s/ James D. Dondero Director April 29, 2005
- ------------------------------------
James D. Dondero
/s/ Raymond L. Steele Director April 29, 2005
- ------------------------------------
Raymond J. Steele
/s/ Barry A. Williamson Director April 29, 2005
- ------------------------------------
Barry A. Williamson
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EXHIBIT INDEX
23 - Consent of Friedman LLP
24 - Power of attorney (included on signature page)
31.1 - Certification of the principal executive officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
31.2 - Certification of the principal financial officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
32 - Certification of the principal financial officer and principal
executive officer pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
9