SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
Amendment No. 1
to
Form 10-Q
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2005
Commission File No. 0-23044
---------------
MOTIENT CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 93-0976127
(State or other jurisdiction of (I.R.S. Employee Identification Number)
Incorporation or organization)
300 Knightsbridge Parkway
Lincolnshire, IL 60069
847-478-4200
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
---------------
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 whether the 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 [X] No[_]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes [X] No [_]
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
Number of shares of common stock outstanding at October 31, 2005: 62,527,423
EXPLANATORY PARAGRAPH
The purpose of this Amendment No. 1 to the Quarterly Report on Form 10-Q of
Motient Corporation (the "Company"), filed with the Securities and Exchange
Commission on March 30, 2006, is to amend and restate the Company's condensed
consolidated financial statements and related notes as of and for the three and
nine months ended September 30, 2005. This amendment and restatement includes
changes to Part I, Items 1 and 2, and no other information included in the
original Form 10-Q is amended hereby. In addition, pursuant to the rules of the
SEC, Item 6 of Part II of the original filing has been amended to contain
currently dated certifications from our Executive Vice President, Chief
Operating Officer and Treasurer (Principal Executive Officer) and Controller and
Chief Accounting Officer (Principal Financial Officer), as required by Sections
302 and 906 of the Sarbanes-Oxley Act of 2002. The certifications of the
Principal Executive Officer and Principal Financial Officer are attached to this
Form 10 Q/A as exhibits 31.1, 31.2, 32.1 and 32.2. Except for the aforementioned
changes, this Form 10-Q/A does not modify or update any disclosure in the
Company's Form 10-Q, including the nature and character of such disclosure to
reflect events occurring after the initial filing date of the Company's Form
10-Q.
This amendment reflects the restatement of the Company's condensed consolidated
financial statements as of and for the three and nine months ended September 30,
2005 to properly reflect the accounting for its proportionate share of the
non-cash stock compensation expense recorded by Mobile Satellite Ventures LP
("MSV"), including the effects of a restatement of the unaudited interim
financial statements of MSV. Subsequent to the issuance of the Company's
condensed consolidated financial statements as of and for the three and six
months ended June 30, 2005, the Compensation Committee of MSV's Board of
Directors determined that a change in control of MSV, as defined in MSV's Unit
Incentive Plan, had occurred during the three months ended March 31, 2005. This
change in control triggered the immediate vesting of all of MSV's then
outstanding unit options that were subject to accelerated vesting and
recognition of an additional $3.8 million of deferred compensation expense
associated with these options. For the three and nine months ended September 30,
2005, MSV recognized $1.6 million and $8.0 million, respectively of stock
compensation expense. The accompanying condensed consolidated financial
statements have been restated to reflect the Company's proportionate share of
the net loss of MSV.
In addition, this amendment reflects the restatement of the Company's condensed
consolidated financial statements as of and for the three and nine months ended
September 30, 2005 to properly reflect the accounting for its differential
between cost and book value of equity method investments associated with the
Company's February 9, 2005 transactions. On February 9, 2005, the Company
exchanged shares of Motient common stock valued at $371 million for MSV LP units
resulting in an additional interest in MSV of 10.24%. Under the guidance of APB
18, the Company failed to recognize the differential between the book and fair
values of MSV's assets and amortize the excess over the life of the assets. As
restated, for the three months and nine months ended September 30, 2005, the
Company has recognized amortization of $1.7 million and $4.3 million,
respectively related to the excess of the cost of the February 9, 2005
investment over the fair value of the net assets acquired.
This amendment also reflects the restatement of the Company's condensed
consolidated financial statements as of the nine months ended September 30, 2005
to properly reflect the accounting for its issuance of warrants in connection
with the February 9, 2005 transaction. The Company did not record the warrants
at the time of the merger transaction, as it was uncertain as to whether any of
the warrants would vest and therefore no value could be ascribed to the
warrants. As the Company has filed a registration statement on February 14, 2005
for the shares sold to the entities, 70% of the warrants will never vest. The
remainder vested in August 2005. As previously reported, the Company failed to
recognize the vesting of these warrants during the nine months ended September
30, 2005. As restated, for the nine months ended September 30, 2005, the Company
has recognized, using a Black-Scholes model, $8.3 million as the fair value of
the vested warrants. The effect of recording the warrants is to increase the
Company's Investment in MSV, thereby increasing the cost of the February 9, 2005
merger transaction, and to increase the Company's common stock purchase
warrants.
The Company concluded that these restatements were appropriate at a meeting of
its Audit Committee of the board of directors, held on March 28, 2006.
Accordingly, the Company believes that the financial statements it issued prior
to this restatement which relate to the periods being restated hereby, should
not be relied upon. The Audit Committee has discussed the matters disclosed in
this filing with the Company's independent public accountants.
MOTIENT CORPORATION
FORM 10-Q
FOR THE PERIOD ENDED SEPTEMBER 30, 2005
TABLE OF CONTENTS
PAGE
----
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements - (Unaudited)
Consolidated Statements of Operations for the Three and Nine Months Ended
September 30, 2005 and 2004 3
Consolidated Balance Sheets as of September 30, 2005 and December 31, 2004 4
Consolidated Statements of Cash Flows for the Nine Months Ended September
30, 2005 and 2004 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 30
Item 3. Quantitative and Qualitative Disclosures about Market Risk 51
Item 4. Controls and Procedures 51
PART II
OTHER INFORMATION
Item 1. Legal Proceedings 54
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 54
Item 6. Exhibits 54
2
PART I- FINANCIAL INFORMATION
- -----------------------------
Item 1. Financial Statements
Motient Corporation and Subsidiaries
Consolidated Statements of Operations
(in thousands, except per share data)
<table>
Three Months Nine Months
Ended Ended
September Three Months September Nine Months
30, 2005 Ended 30, 2005 Ended
(Restated- September (Restated- September
See Note 7) 30, 2004 See Note 7) 30, 2004
----------- -------- ---------- --------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
REVENUES
Services and related revenue $ 3,032 $ 7,329 $ 10,833 $ 27,446
Sales of equipment 131 1,024 888 3,846
-------- -------- -------- --------
Total revenues $ 3,163 $ 8,353 $ 11,721 $ 31,292
-------- -------- -------- --------
COSTS AND EXPENSES
Cost of services and operations (including stock-based compensation of $(452)
and $70, respectively for the three months ended September 30, 2005 and
September 30, 2004, and $551 and $2,028, respectively for the nine months
ended September 30, 2005 and September 30, 2004,
exclusive of depreciation and amortization below) 3,853 7,768 16,676 29,532
Cost of equipment sold (exclusive of depreciation and amortization below) 104 939 842 3,705
Sales and advertising (including stock-based compensation
of $(12) and $(85), respectively for the three months ended September 30,
2005 and September 30, 2004, and $79 and $804, respectively for the nine
months ended September 30, 2005 and September 30, 2004, exclusive of
depreciation and amortization below) 220 166 749 2,058
General and administrative (including stock-based
compensation of $1,760 and $102, respectively for the three months ended
September 30, 2005 and September 30, 2004 of $11,963 and $1,131,
respectively for the nine months ended September 30, 2005 and September 30,
2004, and including expense from MSV, a related party, of $559 and $0, for
the three months ended September 30, 2005 and September 30, 2004,
respectively and $842 and $0 for the nine months ended September 30, 2005 and
September 30, 2004, respectively, exclusive of depreciation
and amortization below) 7,565 2,026 26,601 6,902
Research and development (including expense to MSV, a
related party, of $1,312 and $0 for the three months ended September 30, 2005
and September 30, 2004, respectively and $1,663 and $0 for the nine months
ended September 30 2005 and September 30, 2004, respectively) 1,325 -- 1,676 --
Restructuring and impairment charges -- -- 5,665 6,264
Depreciation and amortization 4,055 3,686 12,783 12,071
(Gain)/Loss on asset disposal 741 (2) 735 (2)
(Gain) on debt and capital lease retirement -- -- -- (802)
-------- -------- -------- --------
Total costs and expenses 17,863 14,583 65,727 59,728
-------- -------- -------- --------
Operating loss (14,700) (6,230) (54,006) (28,436)
-------- -------- -------- --------
Interest income (expense), net 2,755 (556) 4,870 (3,595)
Write-off of deferred financing fees -- -- -- (8,052)
Other income, net -- 66 80 265
Other income from UPS 1,112 --- 1,112 ---
Other income from Aether -- 650 -- 1,957
Equity in loss of Mobile Satellite Ventures (3,954) (3,779) (18,675) (8,617)
Minority interests in losses of TerreStar 1,348 -- 1,752 --
-------- -------- -------- --------
Net (loss) (13,439) (9,849) (64,867) (46,478)
-------- -------- -------- --------
Less:
Dividends on Series A Cumulative Convertible Preferred Stock (5,916) -- (10,791) --
Accretion of issuance costs associated with Series A
Cumulative Convertible Preferred Stock (763) -- (1,377) --
-------- -------- -------- --------
Net (loss) available to Common Stockholders $(20,118) $ (9,849) $(77,035) $(46,478)
======== ======== ======== ========
Basic and Diluted (Loss) Per Share of Common Stock: $ (0.32) $ (0.29) $ (1.24) $ (1.59)
Weighted-Average Common Shares Outstanding - basic and diluted 62,464 33,418 61,946 29,323
======== ======== ======== ========
</table>
The accompanying notes are an integral part of
these consolidated financial statements.
3
Motient Corporation and Subsidiaries
Consolidated Balance Sheets
(in thousands, except share and per share data)
<table>
September 30, 2005
(Restated -
See Note 7) December 31, 2004
------------------ -----------------
(Unaudited) (Audited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 240,194 $ 16,945
Restricted cash and short-term investments 42,225 ---
Restricted cash for Series A Cumulative Convertible Preferred Stock 21,446 ---
Accounts receivable-trade, net of allowance for doubtful accounts of
$80 at September 30, 2005 and $256 at December 31, 2004 812 1,917
Inventory 2 75
Due from Mobile Satellite Ventures, net --- 5
Deferred equipment costs 117 874
Issuance costs associated with Series A Cumulative
Convertible Preferred Stock 3,145 ---
Assets held for sale 261 261
Other current assets 1,887 1,348
----------- ---------
Total current assets 310,089 21,425
----------- ---------
RESTRICTED INVESTMENTS 76 76
PROPERTY AND EQUIPMENT, net 16,162 17,261
INTANGIBLE ASSETS, net 136,777 67,649
INVESTMENT IN MSV 502,592 141,635
RESTRICTED CASH FOR SERIES A CUMULATIVE CONVERTIBLE
PREFERRED STOCK 21,446 ---
ISSUANCE COSTS ASSOCIATED WITH SERIES A CUMULATIVE
CONVERTIBLE PREFERRED STOCK 12,961 ---
DEFERRED CHARGES AND OTHER ASSETS 23 34
----------- ---------
Total assets $ 1,000,126 $ 248,080
=========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses (including amounts due to MSV,
a related party, of $1,541 and $0 at September 30, 2005 and December
31, 2004, respectively) $ 8,131 $ 6,327
Deferred equipment revenue 140 933
Deferred revenue and other current liabilities 982 5,414
Series A Cumulative Convertible Preferred Stock dividends 10,791 ---
----------- ---------
Total current liabilities 20,044 12,674
----------- ---------
LONG-TERM LIABILITIES
Other long-term liabilities 484 675
----------- ---------
Total long-term liabilities 484 675
----------- ---------
Total liabilities 20,528 13,349
----------- ---------
COMMITMENTS AND CONTINGENCIES --- ---
MINORITY INTEREST 76,287 ---
SERIES A CUMULATIVE CONVERTIBLE PREFERRED STOCK
($0.01 par value; 5,000,000 shares authorized at September 30, 2005 and
December 31, 2004, 408,500 and 0 shares issued and outstanding at
September 30, 2005 and December 31, 2004, respectively) 408,500 ---
STOCKHOLDERS' EQUITY:
Common Stock; voting, par value $0.01; 200,000,000 and 100,000,000
shares authorized and 65,431,404 and 51,544,596 shares issued and
outstanding at September 30, 2005 and at December 31, 2004,
respectively 654 516
Additional paid-in capital 743,878 399,635
Less: 2,906,989 common shares held in treasury stock (56,916) ---
Common stock purchase warrants 78,239 28,589
Accumulated deficit (271,044) (194,009)
----------- ---------
STOCKHOLDERS' EQUITY 494,811 234,731
----------- ---------
Total liabilities and stockholders' equity $ 1,000,126 $ 248,080
=========== =========
</table>
The accompanying notes are an integral part of
these consolidated financial statements.
4
Motient Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(in thousands)
<table>
Nine Months
Ended
September Nine Months
30, 2005 Ended
(Restated - September
See Note 7) 30, 2004
----------- --------
(Unaudited) (Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) $ (64,867) $ (46,478)
Adjustments to reconcile net (loss) to net cash (used in)
operating activities:
Depreciation and amortization 12,783 12,071
Equity in loss of MSV 18,675 8,617
Minority interests in losses of TerreStar (1,752) --
Restructuring and impairment charges, asset and intangible disposals 3,580 2,798
(Gain)/loss on disposal of assets 735 --
(Gain) on debt restructuring -- (802)
Write-off of deferred financing fees -- 8,052
Non cash amortization of deferred financing costs -- 2,026
Non cash stock compensation 12,793 3,990
Changes in assets and liabilities, net of acquisitions and dispositions:
Inventory 73 144
Accounts receivable -- trade 1,105 1,728
Other current assets (522) 6,867
Accounts payable and accrued expenses (including $1,727 and $0 in payments
made to MSV, a related party, for the periods ended September 30, 2005 and
September 30, 2004, respectively.) 202 (3,449)
Accrued interest -- (3,080)
Deferred revenue and other deferred items (4,659) (7,062)
--------- ---------
Net cash (used in) operating activities (21,854) (14,578)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from MSV note -- 2,000
Proceeds from sale of property and equipment 26 2
Proceeds (purchase) of restricted investments (85,117) 1,544
Cash acquired in TerreStar asset purchase 6,165 --
Additions to property and equipment, net (3,244) (1,101)
--------- ---------
Net cash (used in) provided by investing activities (82,170) 2,445
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments under capital leases -- (2,419)
Principal payments under vendor financing -- (2,582)
Repayment from term credit facility -- (6,785)
Proceeds from term credit facility -- 1,500
Proceeds from issuance of stock 679 55,480
Proceeds from issuance of employee stock options 1,241 1,235
Proceeds from issuance of Series A Cumulative
Convertible Preferred Stock 408,500 --
Issuance costs associated with Series A Cumulative
Convertible Preferred Stock (17,483) --
Stock issuance costs and other charges (9) (1,422)
Repayment of notes payable (8,739) (19,750)
Purchase of treasury stock (56,916) --
--------- ---------
Net cash provided by financing activities 327,273 25,257
--------- ---------
Net increase in cash and cash equivalents 223,249 13,124
--------- ---------
CASH AND CASH EQUIVALENTS, beginning of period 16,945 3,618
--------- ---------
CASH AND CASH EQUIVALENTS, end of period $ 240,194 $ 16,742
========= =========
</table>
The accompanying notes are an integral part of
these consolidated financial statements.
5
MOTIENT CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 2005
(Unaudited)
1. ORGANIZATION AND BUSINESS
Overview
Motient owns, operates and develops two-way wireless communications businesses.
It is currently developing a satellite communications service via its 61%
ownership of TerreStar Networks Inc., a development stage company in the process
of building its first satellite. Motient also owns and operates a two-way
wireless data network (the DataTac network) that it uses to provide its
customers with two-way wireless data communication services. Motient also has
the capabilities to integrate the DataTac network and its back-office and
support systems with convenient and cost-effective access to other wireless data
networks, such as the Sprint and Cingular networks. In addition, Motient also
owns 49% of Mobile Satellite Ventures, LP (MSV), but does not have operating
control of its business.
Proposed Consolidation of Ownership of MSV and TerreStar
On September 22, 2005, Motient announced that it had entered into a non-binding
letter of intent with SkyTerra Communications, Inc. and TMI Communications &
Company, among others, relating to a transaction to consolidate the ownership of
MSV and TerreStar within Motient. The parties anticipate that these
transactions, if consummated, will simplify the ownership and governance of both
MSV and TerreStar, better enabling both of them to pursue more effectively their
deployment of separate hybrid satellite and terrestrial based communications
networks providing ubiquitous wireless coverage across all of North America in
the L-band and S-band, respectively.
The letter of intent sets forth the basic terms of the proposed transaction,
which include, among other things, the following:
o In connection with all the transactions contemplated by the letter of
intent, Motient would issue or commit to issue approximately 77
million shares of common stock in exchange for the outstanding MSV
interests not already owned by Motient, and approximately 16 million
shares for the outstanding TerreStar shares not already owned by
Motient.
o All of the outstanding MSV and TerreStar interests not already owned
by Motient, other than those held by TMI, would be transferred to
Motient at closing.
o TMI would receive the right to exchange its interests in MSV and
TerreStar at any time at the same exchange ratios that are being
offered to the other shareholders and would subscribe for shares of a
new class of Motient preferred stock with nominal economic value but
having voting rights in Motient equivalent to those TMI would receive
upon exchange of its MSV and TerreStar interests for Motient common
stock.
6
o SkyTerra would dividend to its securityholders shares of a newly
formed company that would hold all of its assets other than its
interests in MSV and TerreStar, and then SkyTerra, which would then
consist only of its stakes in MSV and TerreStar, would merge in a
tax-free transaction with and into a subsidiary of Motient. As a
result, in addition to the dividend, SkyTerra's stockholders would
receive Motient common stock at an exchange ratio reflecting
equivalent economic value for MSV/TerreStar as received by the other
MSV/TerreStar stockholders. In total, SkyTerra common and preferred
stockholders would receive approximately 26 million shares of Motient
common stock. SkyTerra's preferred stock would be retired in exchange
for Motient common stock with a value equal to its liquidation
preference and SkyTerra's common stockholders would receive the
balance of the Motient shares.
o The parties anticipate that, after the closing of the transaction,
TerreStar would likely be spun-off to the stockholders of Motient
(including those receiving shares in connection with these
transactions). However, this spin-off would be evaluated following the
closing of the other transactions, and would only be executed if it is
judged by Motient's Board of Directors to be in the best interests of
its stockholders at that time. In the event of a spin off of
TerreStar, the exchange ratios applicable to TMI's exchange right
would be modified accordingly.
o The boards of Motient, MSV and TerreStar would be reconstituted with
nine members mutually acceptable to the parties and in compliance with
the independence rules and regulations of NASDAQ. TerreStar would have
a similarly structured board after the completion of the transaction,
separate of Motient and MSV.
o The parties anticipate that Alex Good, CEO of MSV, would become
Motient's new CEO after the transaction. The parties also anticipate
that Robert Brumley, CEO of TerreStar, would continue in that role
after the transaction with TerreStar maintaining its own management
team.
The consummation of the transactions will require successful completion of due
diligence, negotiation and execution of definitive documentation, Motient and
SkyTerra board and stockholder approval, and various regulatory approvals.
Because the letter of intent is non-binding, the parties have no obligation to
negotiate such documentation or otherwise consummate the transactions.
Therefore, the parties can provide no assurances that the transactions will be
consummated on the currently proposed terms or will ever be consummated, or that
the required corporate or regulatory approvals will be obtained.
Motient's Satellite Communications Business - TerreStar Networks Inc.
In February 2002, MSV established TerreStar, as a wholly owned subsidiary of
MSV, to develop business opportunities related to the proposed receipt of
certain licenses to operate a satellite communications system in the 2 GHz band,
also known as the "S-band". On May 11, 2005, Motient Ventures Holding Inc., or
MVH, a wholly owned subsidiary of Motient Corporation, purchased 8,190,008
shares of newly issued common stock of TerreStar from TerreStar for $200 million
pursuant to a Purchase Agreement by and between MVH and TerreStar. On the same
day, TerreStar was spun-off by MSV to its limited partners and, in connection
with that spin-off, Motient acquired ownership of approximately 48% of the
7
issued and outstanding shares of capital stock of TerreStar and the subsequent
$200 million stock purchase increased Motient's ownership to its current 61% of
TerreStar's issued and outstanding common stock.
Pursuant to an Intellectual Property License from MSV, TerreStar received a
perpetual, royalty-free license to utilize MSV's patent portfolio, including
those patents related to "ancillary terrestrial component", or ATC, technology.
ATC is an FCC granted authority subject to which a Mobile Satellite Service, or
MSS, provider can, subject to certain restrictions, integrate a satellite
communications system with a terrestrial network. Motient anticipates that
TerreStar could use ATC to effectively integrate satellite-based two-way
communications services with land-based two-way communications services. Mobile
devices using ATC could be used for a myriad of communications applications,
including potentially voice, data and video services. ATC can enhance satellite
availability, efficiency and economic viability by terrestrially reusing at
least some of the frequencies that are allocated to the satellite systems.
Without ATC, it may be challenging for mobile satellite systems to reliably
serve densely populated areas, because the satellite's signal may be blocked by
high rise structures and may not penetrate into buildings. As a result, the
satellite spectrum may be underutilized or unused in such areas. The use of ATC
retransmission can reduce or eliminate this problem.
ATC could, for instance, eventually allow a user to utilize a mobile phone that
would communicate with a traditional land-based wireless network when in range
of that network, but communicate with a satellite when not in range of such a
land-based network. Ideally, ATC would allow a user to have a communications
device that would provide ubiquitous service across North America. TerreStar's
ability to effectively use ATC depends on its continued ability to license
certain intellectual property from MSV.
During 2002, TerreStar entered into a contract to purchase a satellite system,
including certain ground infrastructure for use with the 2 GHz band. The
satellite represents one component of a communications system that would include
a spare satellite, ground-switching infrastructure, launch costs and insurance.
Total cost of this satellite system could exceed $550 million. In order to
finance future payments, TerreStar will be required to obtain additional debt or
equity financing, or may enter into various joint ventures to share the cost of
development. There can be no assurance that such financing or joint venture
opportunities will be available to TerreStar or available on terms acceptable to
TerreStar.
Motient's Terrestrial Wireless Business - Motient Communications Inc.
Motient is a provider of two-way, wireless mobile data services and wireless
internet services in the top 40 metropolitan statistical areas, or MSA's, in the
United States. Owning and operating a wireless radio data network that provides
wireless mobile data service to customers, Motient primarily generates revenue
from the sale of airtime on its network and from the sale of communications
devices, which are manufactured by other companies. Motient's customers use its
network and wireless applications for wireless email messaging and wireless data
communications services. This enables businesses, mobile workers and consumers
to wirelessly transfer electronic information and messages and to wirelessly
access corporate databases and the Internet. Motient's network is designed to
offer a broad array of wireless data services, such as:
8
o mobile data and mobile management systems used by transportation and
other companies to wirelessly coordinate remote, mobile assets and
personnel;
o two-way mobile Internet services, including Motient's own eLinkSM
wireless email service and the BlackBerry (TM) by Motient wireless
email service, each providing personal consumers and corporate
customers with wireless access to a broad range of email and
information services;
o wireless data systems used by companies involved in data transmission
and processing, used to connect remote equipment, such as wireless
point-of-sale terminals, with a central monitoring facility
In addition to selling wireless data services that use our own network, Motient
is also a reseller of airtime on the Cingular and Sprint wireless networks.
Motient has reseller agreements with these companies that allow it to sell and
promote wireless data applications and solutions to customers using these
networks, which are more modern and have greater capacity than Motient's own
network, while still maintaining a direct relationship with the customer, since
"back office" functions like customer support, application design and
implementation, and billing, among other support services, are handled by
Motient.
These arrangements allow Motient to provide integrated wireless data solutions
to our customers using a variety of networks. In December 2004, Motient launched
a new set of products and services designed to provide these integrated wireless
data solutions to its customers called iMotient Solutions. iMotient allows
Motient's customers to use these multiple networks via a single connection to
Motient's back-office systems, providing a single alternative for application
and software development, device management and billing across multiple
networks, including but not limited to GPRS, 1XRTT and Motient's own DataTac
network. Once connected to iMotient, customers will receive our proprietary
applications and services that reduce airtime usage, improve performance and
reduce costs.
A subscriber's wireless device, which may be mobile or stationary, receives and
transmits wireless data messages to and from terrestrial base stations via radio
frequencies. Terrestrial messages are then routed to their destination via data
switches that Motient owns, which connect to the public data network. Motient's
network is a wireless packet-switched network based on technologies developed
prior to newer networks built around CDMA or GSM technologies, and, unlike those
networks, cannot accommodate wireless telephony.
Mobile Satellite Ventures LP
MSV is a provider of mobile satellite-based communications services. MSV
currently uses two satellites to provide service, which allow customers access
to satellite-based wireless data, voice, fax and dispatch radio services almost
anywhere in North and Central America, northern South America, the Caribbean,
Hawaii and in various coastal waters.
MSV, together with Mobile Satellite Ventures (Canada) Inc., licensed by Industry
Canada, has access to more than 28 MHz of L-band spectrum that is authorized for
use in every market in North America. The L-band spectrum is positioned within
the range of frequencies used by terrestrial wireless providers in North
America.
9
In May 2005, MSV received FCC authorization to launch and operate a next
generation L-Band satellite. This authorization follows the April 2005 Industry
Canada authorization to MSV's Canadian affiliate for an L-band satellite. Use of
the two authorizations together enables MSV to replace its existing satellites
and utilize the full complement of spectrum available to it. MSV is also
developing a next-generation system; a hybrid satellite/terrestrial wireless
network over North America that MSV expects will utilize new satellites working
with MSV's patented ATC technology. MSV expects to be able to deploy terrestrial
two-way wireless network technology in thousands of locations across the United
States, allowing subscribers to integrate satellite-based communications
services with more traditional land-based wireless communications services. MSV
is headquartered in Reston, VA, with an office in Ottawa, ON, Canada.
MSV is structured as a limited partnership, of which Motient is one of the
limited partners. Motient holds a proportionate ownership interest in the
corporate general partner. Motient has certain rights to appoint directors to
the sole general partner of the limited partnership, but does not have any
direct or indirect operating control over MSV.
For the three and nine months ended September 30, 2005, MSV had revenues of $7.9
and $22.6 million, operating expenses of $27.0 and $61.5 million and net losses
of $6.7 and $33.4 million, respectively. To the extent that MSV will need future
cash to support its operations, Motient is under no contractual obligation to
provide it, and the value of our investment in MSV could be negatively impacted
if MSV cannot meet any such funding requirements.
2. SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying consolidated financial statements have been prepared by the
Company and are unaudited. The results of operations for the three and nine
months ended September 30, 2005 are not necessarily indicative of the results to
be expected for any future period or for the full fiscal year. In the opinion of
management, all adjustments (consisting of normal recurring adjustments unless
otherwise indicated) necessary to present fairly the financial position, results
of operations and cash flows at September 30, 2005, and for all periods
presented, have been made. Footnote disclosure has been condensed or omitted as
permitted in interim financial statements.
Consolidation
The consolidated financial statements include the accounts of Motient and its
wholly and majority-owned subsidiaries. All significant inter-company
transactions and accounts have been eliminated.
Cash Equivalents
The Company considers highly liquid investments with original or remaining
maturities at the time of purchase of three months or less to be cash
equivalents.
10
Short-term Investments
The Company considers highly liquid investments with original or remaining
maturities at the time of purchase of between three months and one year to be
short-term investments.
Restricted Investments
The Company considers investments segregated for a specific contractual purpose
such as collateral or payment of a future obligation to be restricted cash.
Restricted cash includes interest payable on Series A Cumulative Convertible
Preferred Stock and is presented separately on the Consolidated Balance Sheet.
Investment in MSV
The Company uses the equity method of accounting for its investment in MSV. The
Company considers whether the fair value of its investment has declined below
its carrying value whenever adverse events or circumstances indicate that the
recorded value may not be recoverable. If the Company considers such decline to
be other than temporary, a write down would be recorded to estimate fair value.
Business Combinations
The Company accounts for Business Combinations under SFAS No. 141, "Business
Combinations". 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 these 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.
Impairment
The Company reviews and accounts for asset impairment under SFAS No. 142,
"Goodwill and Other Intangible Assets" and SFAS No. 144 "Accounting for the
Impairment or Disposal of Long-Lived Assets". SFAS No. 142 requires the use of a
non-amortization approach to account for purchased goodwill and certain
intangibles. Under a non-amortization approach, goodwill and certain intangibles
will not be amortized into results of operations, but instead will 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. SFAS No. 144 requires that one accounting model be used for
long-lived assets to be disposed of by sale, whether previously held and used or
newly acquired, and by broadens the presentation of discontinued operations to
include more disposal transactions. The Company reviews its assets for
impairment at a minimum, on an annual basis, and immediately recognizes an
impairment in interim periods.
Deferred Taxes
The Company accounts for income taxes under the liability method as required in
SFAS No. 109, "Accounting for Income Taxes". Under the liability method,
deferred income taxes are recognized for the tax consequences of "temporary
differences" by applying enacted statutory tax laws and rates applicable to
11
future years to differences between the financial statement carrying amounts and
the tax bases of existing assets and liabilities. Under this method, the effect
on deferred taxes of a change in tax rates is recognized in income in the period
that includes the enactment date. A valuation reserve is established for
deferred tax assets if the realization of such benefits cannot be sufficiently
assured.
Revenue Recognition
The Company generates revenue through equipment sales, airtime service
agreements and consulting services. In 2000, the Company adopted SAB No. 101,
which provides guidance on the recognition, presentation and disclosure of
revenue in financial statements. In certain circumstances, SAB No. 101 requires
the Company to defer the recognition of revenue and costs related to equipment
sold as part of a service agreement.
In December 2003, the Staff of the SEC issued SAB No. 104, "Revenue
Recognition", which supersedes SAB No. 101, "Revenue Recognition in Financial
Statements". SAB No. 104's primary purpose is to rescind accounting guidance
contained in SAB No. 101 related to multiple-element revenue arrangements and to
rescind the SEC's "Revenue Recognition in Financial Statements Frequently Asked
Questions and Answers" ("FAQ") issued with SAB No. 101. Selected portions of the
FAQ have been incorporated into SAB No. 104. The adoption of SAB No. 104 did not
have a material impact on the Company's revenue recognition policies.
Effective July 1, 2003, the Company adopted Emerging Issues Task Force (EITF)
No. 00-21, Accounting for Revenue Arrangements with Multiple Deliverables, which
is being applied on a prospective basis. The consensus addresses how to account
for arrangements that may involve the delivery or performance of multiple
products, services and/or rights to use assets. Revenue arrangements with
multiple deliverables are required to be divided into separate units of
accounting if the deliverables in the arrangement meet certain criteria.
Arrangement consideration must be allocated among the separate units of
accounting based on their relative fair values. The consensus also supersedes
certain guidance set forth in Securities and Exchange Commission (SEC) Staff
Accounting Bulletin Number 101, Revenue Recognition in Financial Statements (SAB
101).
Revenue is recognized as follows:
Service revenue: Revenues from the Company's wireless services are recognized
when the services are performed, evidence of an arrangement exists, the fee is
fixed and determinable and collectability is probable. Service discounts and
incentives are recorded as a reduction of revenue when granted, or ratably over
a contract period. The Company defers and amortizes any revenue and costs
associated with activation of a subscriber over an estimated customer life of
two years.
The Company packages airtime usage that involves a wide variety of volume
packaging, anything from a 35 kilobytes per month plan up to unlimited kilobyte
usage per month, with various gradations in between. Discounts may be applied
when comparing one customer to another, and such service discounts are recorded
as a reduction of revenue when granted.
Service discounts and incentives are recorded as a reduction of revenue when
granted, or ratably over a contract period. The Company does not offer
incentives generally as part of its service offerings, however, if offered they
would be recorded as a reduction of revenue ratably over a contract period.
12
To date, the majority of the Company's business has been transacted with
telecommunications, field services, professional service and transportation
companies located throughout the United States. The Company grants credit based
on an evaluation of the customer's financial condition, generally without
requiring collateral or deposits. The Company establishes a valuation allowance
for doubtful accounts receivable for bad debt and other credit adjustments.
Valuation allowances for revenue credits are established through a charge to
revenue, while valuation allowances for bad debts are established through a
charge to general and administrative expenses. The Company assesses the adequacy
of these reserves quarterly, evaluating factors such as the length of time
individual receivables are past due, historical collection experience, the
economic environment and changes in credit worthiness of the Company's
customers. If circumstances related to specific customers change or economic
conditions worsen such that the Company's past collection experience and
assessments of the economic environment are no longer relevant, the Company's
estimate of the recoverability of its trade receivables could be further
reduced.
Equipment and service sales: The Company sells equipment to resellers who market
its terrestrial product and airtime service to the public. The Company also
sells its product directly to end-users. Revenue from the sale of the equipment,
as well as the cost of the equipment, are initially deferred and are recognized
over a period corresponding to the Company's estimate of customer life of two
years. Equipment costs are deferred only to the extent of deferred revenue.
As of September 30, 2005 and 2004, the Company had capitalized a total of $0.1
million and $1.5 million of deferred equipment revenue, respectively, and had
deferred equipment costs of $0.1 million and $1.5 million, respectively.
Property and Equipment
Property and equipment are depreciated over its useful life using the
straight-line method. Assets recorded as capital leases are amortized over the
shorter of their useful lives or the term of the lease. The estimated useful
lives of office furniture and equipment vary from two to ten years, and the
network equipment is depreciated over seven years. The Company has also
capitalized certain costs to develop and implement its computerized billing
system. These costs are included in property and equipment and are depreciated
over three years. Repairs and maintenance that do not significantly increase the
utility or useful life of an asset are expensed as incurred.
Restructuring and Impairment Charges
In February 2004 and March 2005, the Company reduced its workforce by 54 and 11
employees, respectively. In accordance with SFAS No. 112, "Employers' Accounting
for Post-employment Benefits - an amendment of FASB statements No. 5 and 43",
the Company recorded a liability for the severance, employee benefits and
estimated payroll taxes of $1.1 million and $0.1 million respectively related to
the reductions in workforce.
In June 2004, the Company recorded a restructuring charge of $5.1 million
related to certain network rationalization initiatives, consisting of base
station deconstruct costs of $0.5 million, the loss on the retirement of certain
base station equipment of $2.8 million and termination liabilities of $1.8
13
million for site leases no longer required for removed base stations. Of these
amounts, as of September 30, 2005, the Company had incurred base station
deconstruct costs of $0.5 million, the loss on the retirement of certain base
station equipment of $2.8 million and termination liabilities of $1.4 million
for site leases no longer required for removed base stations. The Company
recorded these charges in accordance with SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities".
In June 2005, the Company recorded a restructuring charge of $5.6 million
related to additional network rationalization initiatives for Motient
Communications, consisting of base station deconstruct costs of $0.1 million,
the loss on the cancellation of frequencies of $3.6 million and termination
liabilities of $1.9 million for site leases no longer required for removed base
stations. Of these amounts, as of September 30, 2005, the Company had incurred
base station deconstruct costs of than $0.1 million, the loss on the
cancellation of frequencies of $3.6 million and termination liabilities of $0.6
million for site leases no longer required for removed base stations. The
Company recorded these charges in accordance with SFAS No. 146, "Accounting for
Costs Associated with Exit or Disposal Activities". In January, 2005 the Company
identified the base station equipment associated with the 2005 rationalization
and adjusted their remaining useful lives for depreciation purposes, resulting
in approximately $1.8 million of accelerated depreciation expense. The Company
recorded these charges in accordance with SFAS No. 144 "Accounting for the
Impairment or Disposal of Long-Lived Assets".
Base Station
Employee FCC License Asset Base Station FCC License Site Lease
Terminations Terminations Write-Offs Deconstruction Terminations Terminations Total
------------ ------------ ---------- -------------- ------------ ------------ -----
- ------------------------------------------------------------------------------------------------------------------------------------
Balance December 31, 2004 $(350) $ --- $ --- $ --- $ 5 $ (942) $(1,287)
- ------------------------------------------------------------------------------------------------------------------------------------
Restructure Charge (85) (3,581) --- (147) --- (1,852) (5,665)
- ------------------------------------------------------------------------------------------------------------------------------------
Increase due to
reclassification of
site lease accrual --- --- --- --- --- (206) (206)
- ------------------------------------------------------------------------------------------------------------------------------------
Deductions - Cash 435 --- --- 147 --- 1,315 1,897
- ------------------------------------------------------------------------------------------------------------------------------------
Deductions - Non-Cash --- 3,581 --- --- (5) --- 3,576
- ------------------------------------------------------------------------------------------------------------------------------------
Balance September 30, 2005 $ --- $ --- $ --- $ --- $ --- $(1,685) $(1,685)
- ------------------------------------------------------------------------------------------------------------------------------------
Research and Development Costs
Research and development costs are expensed as incurred. Such costs include
development efforts on the TerreStar satellite system and expenses associated
with external development agreements. We expect these costs from TerreStar to
increase in the future as development efforts on its satellite system
accelerate.
14
Advertising Costs
Advertising costs (inclusive of airtime commissions) are charged to operations
in the year incurred.
Stock-Based Compensation
The Company accounts for stock options issued to non-employees, under Statement
of Financial Accounting Standards No. 123, "Accounting for Stock Based
Compensation". The Company's issuance of employee stock options is accounted for
using the intrinsic value method under APB Opinion No. 25, Accounting for Stock
issued to Employees ("APB 25").
Statement of Financial Accounting Standards No. 123 "Accounting for Stock --
based Compensation", ("SFAS No. 123") as amended by Statement of Financial
Accounting Standards No. 148 "Accounting for Stock-Based Compensation --
Transition and Disclosure" requires the Company to provide pro forma information
regarding net earnings and earnings per common share as if compensation cost for
the Company's stock options had been determined in accordance with the fair
value based method prescribed in SFAS No. 123.
We have generally granted stock options to our employees at exercise prices
equal to or greater than the fair value of the shares at the date of grant and
accounted for these stock option grants in accordance with APB 25. Under APB 25,
when stock options are issued with an exercise price equal to the market price
of the underlying stock on the date of grant, no compensation expense is
recognized in the statement of operations. In 2004 we amended our stock option
plan to provide for the grants of restricted stock and other forms of equity
compensation in addition to stock options. In December 2004, APB 25 was replaced
by Statement of Financial Accounting Standards No. 123 (Revised) ("Statement
123(R)"), which will be effective for all accounting periods beginning after
December 15, 2005. The Company will adopt Statement 123(R) on January 1, 2006,
and will be required to recognize an expense for the fair value of its
outstanding stock options. Under Statement 123(R), the Company must determine
the transition method to be used at the date of adoption, the appropriate fair
value model to be used for valuing share-based payments and the amortization
method for compensation cost. The transition methods include prospective and
retroactive adoption methods. Under the retroactive method, prior periods may be
restated either as of the beginning of the year of adoption or for all periods
presented. The prospective option requires that compensation expense be recorded
for all unvested stock options and restricted stock at the beginning of the
first quarter of adoption of Statement 123(R), while the retroactive option
would record compensation expense for all unvested stock options and restricted
stock beginning with the first period restated. Both transition methods would
require management to make accounting estimates. The Company has not yet
concluded which method it will utilize, nor has it determined what the impact
will be on its earnings per share.
The following table illustrates the effect on income (loss) attributable to
common stockholders and earnings (loss) per share if the Company had applied the
fair value recognition provisions of SFAS No. 123 to stock-based employee
compensation.
15
<table>
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
September 30, September 30, September 30, September 30,
2005 2004 2005 2004
---- ---- ---- ----
Net loss available to common stockholders, as
reported $(20,118) $ (9,849) $(77,035) $(46,478)
(Deduct)/Add: Stock-based employee compensation
expense included in net loss, net of related tax
effects 1,296 87 12,593 3,963
(Deduct)/Add: Total stock-based employee
compensation (expense) income determined under
fair value based method for all awards, net of
tax related effects (1,536) (1,790) (14,705) (2,218)
-------- -------- -------- --------
Pro forma net loss $(20,358) $(11,552) $(79,147) $(44,733)
Weighted average common shares outstanding 62,464 33,418 61,946 29,323
Loss per share:
Basic and diluted---as reported $ (0.32) $ (0.29) $ (1.24) $ (1.59)
Basic and diluted---pro-forma $ (0.33) $ (0.35) $ (1.28) $ (1.53)
</table>
Under SFAS No. 123 the fair value of each option grant is estimated on the date
of grant using the Black-Scholes option-pricing model with the following
weighted-average assumptions:
<table>
Three Months Ended Three Months Ended Nine Months Ended Nine Months Ended
September 30, 2005 September 30, 2004 September 30, 2005 September 30, 2004
------------------ ------------------ ------------------ ------------------
Expected life (in years) 8 8 8 8
Risk-free interest rate 3.44% 0.88%-1.46% 2.28%-3.44% 0.88%-1.46%
Volatility 840% 146%-258% 456%-840% 146%-258%
Dividend yield 0% 0% 0% 0%
</table>
Segment Disclosures
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information", requires companies to report financial and descriptive information
about their reportable operating segments, including segment profit or loss,
certain specific revenue and expense items and segment assets as well as
information about the revenues derived from the company's products and services
and major customers. This statement requires the use of the management approach
to determine the information to be reported. The management approach is based on
the way management organizes the enterprise to assess performance and make
operating decisions regarding the allocation of resources. It is management's
opinion that beginning in May, 2005 with the TerreStar asset purchase, the
Company has two reportable segments, Motient Communications and TerreStar
Networks Inc. In 2004, the Company had one reportable segment. The accounting
policies of the reportable segments are the same as those described in the
summary of significant accounting policies.
The Company's core customer base can be generally divided into six broad
categories, Wireless Internet, Field Services, Transportation, Telemetry,
iMotient and Other. Wireless Internet primarily consists of customers using the
Company's network and applications to access certain internet functions, like
email. Devices and airtime used by transportation and shipping companies, or by
personnel in the field service industries (such as repair personnel), for
dispatching, routing and other vital communications functions are known as
16
transportation and field service, respectively. Telemetry typically covers
devices and airtime to connect remote equipment, such as wireless point-of-sale
terminals, with a central monitoring facility. iMotient consists of integrated
wireless data solutions revenues through the resale of airtime on the Cingular
and Sprint wireless networks. Other revenues may consist of sales commissions,
consulting fees or other fees. The following summarizes the Company's core
wireless business revenue by these market categories (in millions):
<table>
Three Months Ended Three Months Nine Months Nine Months
September 30, Ended September Ended September Ended September
2005 30, 2004 30, 2005 30, 2004
---- -------- -------- --------
Summary of Revenue
- ------------------
Wireless Internet $1.7 $4.3 $6.4 $15.7
Transportation 0.4 0.9 1.4 2.7
Field services 0.1 1.4 1.0 4.7
Telemetry 0.4 0.6 1.3 1.8
iMotient 0.1 - 0.2 -
All Other 0.3 0.2 0.5 2.6
Service revenue 3.0 7.4 10.8 27.5
Equipment revenue 0.1 1.0 0.9 3.8
Total Revenue $3.1 $8.4 $11.7 $31.3
</table>
The Company does not measure ultimate profit and loss or track its assets by
these market categories. TerreStar does not currently generate any revenues and
we do not anticipate that it will do so until 2008. Additional financial
information concerning the Company's reportable segments is shown in the
following table (in thousands):
<table>
Three Months Ended Nine Months Ended
September 30, 2005 September 30, 2005
Motient TerreStar Total Motient TerreStar Total
------- --------- ----- ------- --------- -----
Operating (loss) $(8,889) $(5,811) $(14,700) $(47,099) $ (6,907) $ (54,006)
Depreciation expense $ 1,518 $ --- $ 1,518 $ 6,921 $ --- $ 6,921
Amortization expense $ 1,227 $ 1,310 $ 2,537 $ 3,819 $ 2,043 $ 5,862
Identifiable assets N/a N/a N/a $724,104 $276,022 $ 1,000,126
Capital expenditures $ 71 $ 3,137 $ 3,208 $ 107 $ 3,137 $ 3,244
</table>
(Loss) Per Share
Basic and diluted (loss) income 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.
As of September 30, 2005 there were 408,500 shares of Series A Cumulative
Convertible Preferred Stock entitled to be converted into a total of 12,255,000
shares of common stock, shares that were not included in this calculation
because of their antidilutive effect for the three and nine months ended
September 30, 2005. 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 for all periods. As a result, the basic and diluted earnings per
share amounts for all periods presented are the same. As of September 30, 2005
and 2004, there were warrants to acquire approximately 6,740,376 and 6,063,450,
17
respectively, shares of Motient common stock. As of September 30, 2005 and 2004,
there were options to purchase 796,743 and 633,719, respectively, shares of
Motient common stock that were not included in this calculation because of their
antidilutive effect for the three and nine months ended September 30, 2005 and
2004. Additionally, there were options to purchase 4,153,151 and 0 shares of
TerreStar common stock at September 30, 2005 and September 30, 2004.
Recent Accounting Pronouncements
In December 2004, the FASB issued SFAS No. 123 (Revised 2004) "Share-Based
Payment" ("SFAS No. 123R") that addresses the accounting for share-based payment
transactions in which a company receives employee services in exchange for (a)
equity instruments of the company or (b) liabilities that are based on the fair
value of the company's equity instruments or that may be settled by the issuance
of such equity instruments. SFAS No. 123R addresses all forms of share-based
payment awards, including shares issued under employee stock purchase plans,
stock options, restricted stock and stock appreciation rights. SFAS No. 123R
eliminates the ability to account for share-based compensation transactions
using APB Opinion No. 25, "Accounting for Stock Issued to Employees", that was
provided in Statement 123 as originally issued. Under SFAS No. 123R companies
are required to record compensation expense for all share based payment award
transactions measured at fair value. This statement is effective for quarters
ending after December 15, 2005. We have not yet determined the impact of
applying the various provisions of SFAS No. 123R.
In November 2004, the FASB issued SFAS No. 151, "Inventory Costs: an amendment
of ARB No. 43, Chapter 4", to clarify the accounting for abnormal amounts of
idle facility expense, freight, handling costs and wasted material. SFAS No. 151
is effective for inventory costs incurred during fiscal years beginning after
June 15, 2005. The Company has adopted SFAS No. 151 and when applied, SFAS 151
did not have an impact on our financial position or results of operations.
In December 2004, the FASB issued SFAS No. 153, Exchanges of Nonmonetary Assets
- -- An Amendment of APB Opinion No. 29, Accounting for Nonmonetary Transactions
(SFAS 153). SFAS 153 eliminates the exception from fair value measurement for
non-monetary exchanges of similar productive assets in paragraph 21(b) of APB
Opinion No. 29, Accounting for Nonmonetary Transactions, and replaces it with an
exception for exchanges that do not have commercial substance. SFAS 153
specifies that a non-monetary exchange has commercial substance if the future
cash flows of the entity are expected to change significantly as a result of the
exchange. SFAS 153 is effective for the fiscal periods beginning after June 15,
2005 and is was adopted by the Company in the third quarter of 2005. The
adoption of SFAS 153 did not have a material effect on our results of operations
as the Company currently does not and does not expect to exchange any
non-monetary assets.
Related Parties
The Company made cash payments of $1,777,000 and $3,255,000 to related parties
for service-related obligations for the three and nine-month periods ended
September 30, 2005, as compared to $196,000 and $967,000 for the three and
nine-month periods ended September 30, 2004. For the three months ended
September 30, 2005, $1,597,000 was paid to MSV for consulting services related
to TerreStar Networks, Inc. and $180,000 was paid to CTA, a consulting and
private advisory firm specializing in the technology and telecommunications
sectors. CTA has been engaged to act as chief restructuring entity of Motient.
18
As consideration for this work, Motient has agreed to pay to CTA a monthly fee
of $60,000. This engagement extends to December 31, 2005 and may be extended or
terminated at the Company's discretion.
In February 2005, the board approved a success-based consulting fee of
$3,709,796, payable 60% to CTA and certain of its affiliates, and 40% to The
Singer Children's Management Trust, a trust established for the benefit of the
children of Gary Singer, a former lender under the 2003 Term Credit Agreement
and the brother of Steven Singer, Motient's chairman of the board. The fee was
paid in cash and stock, and was related to the closing of Motient's acquisition
of certain interests in MSV in February 2005. Such fee is equal to 1% of the
aggregate consideration paid by Motient for such MSV interests.
In September, 2005, Steven Singer, Motient's chairman, in accordance with the
terms of the August 2005 grants of restricted stock, sold 6,989 shares of his
grant to Motient for $23.75 per share.
3. COMMITMENTS AND CONTINGENCIES
As of September 30, 2005, the Company had no contractual inventory commitments.
UPS Deposits and Deferred Revenue
- ---------------------------------
In December 2002, Motient entered into an agreement with UPS pursuant to which
UPS prepaid an aggregate of $5 million in respect of network airtime service to
be provided beginning January 1, 2004. In April 2005, this agreement was
amended, and then in September 2005, the agreement was amended again. Motient
made a payment of $2.0 million to UPS, and in exchange, all but $0.6 million of
the outstanding prepayment of $3.7 million was terminated. The remaining $0.6
million prepayment must be used by UPS prior to March 31, 2006. If not used, UPS
will forfeit this prepayment, and it will not be repaid.
Series A and Series B Cumulative Convertible Preferred Stock
- ------------------------------------------------------------
The Company accounts for Series A and Series B Cumulative Convertible Preferred
Stock under Accounting Series Release 268. "Redeemable Preferred Stocks". On
April 15, 2005, Motient sold 408,500 shares of Series A Cumulative Convertible
Preferred Stock, $0.01 par value in a private placement exempt from the
registration requirements of the Securities Act of 1933. Motient received cash
proceeds, net of $17.5 million in placement agent commissions and other fees
(before escrowing a portion of the proceeds as required under the terms of the
preferred stock, described below) of approximately $391 million. On October 26,
2005, Motient exchanged $318.5 million face amount of its Series A Preferred
Stock for Series B Preferred stock, with substantially identical economic terms.
In connection with the sale of preferred stock and the subsequent exchange
offer, Motient entered into a registration rights agreement with the purchasers.
Under this agreement, Motient is obligated to use its reasonable best efforts to
cause a registration statement relating to the resale by the purchasers of the
Motient shares of common stock issuable upon conversion of the preferred stock
or the warrants issued in connection therewith to become effective as soon as
possible. In addition, Motient granted warrants exercisable for an aggregate of
19
154,109 shares of Motient common stock to the purchasers. The warrants have a
term of five years and an exercise price equal to $26.51 per share. Upon the
consummation of the exchange offer, Motient believes that all of these warrants
will vest by September 8, 2006. As of September 30, 2005, the Company had
assigned a fair value to these warrants of $3.9 million of which $0.2 million
had vested.
For additional information regarding the Series A Preferred, see Item 4, "Legal
and Regulatory Matters."
4. LEGAL AND REGULATORY MATTERS
Legal
On August 16, 2005, Highland Legacy Limited, a stockholder of Motient, filed
suit in the Court of Chancery of the State of Delaware in and for New Castle
County against: Motient; Steven Singer, Gerald Kittner, Barry Williamson,
Raymond Steele and Gerald Goldsmith, directors of Motient; Peter D. Aquino, a
former director of Motient; Christopher Downie, Chief Operating Officer of
Motient; Gary Singer; Tejas Inc.; Tejas Securities, Inc.; Communications
Technology Advisors LLC; Capital & Technology Advisors, Inc.; and Jared
Abbruzzese. Highland Legacy Limited is an affiliate of James Dondero, a director
of Motient. The lawsuit alleges breaches of duties allegedly owed to Motient by
the defendants and seeks the recovery of fees from certain of these parties
relating to prior transactions with Motient. Most of these fees were approved by
Mr. Dondero in his capacity as a director of Motient. The defendants in this
lawsuit filed a motion to dismiss these claims on October 14, 2005. Motient's
independent audit committee, along with independent special counsel, has
conducted an investigation of Mr. Dondero's allegations and has found no basis
to his allegations.
On August 16, 2005, Highland Equity Focus Fund, L.P., Highland Crusader Offshore
Partners, L.P., Highland Capital Management Services, Inc., and Highland Capital
Management, L.P. filed a lawsuit in Dallas County, Texas against Motient
challenging the validity of the Series A Preferred on the basis of the confusion
regarding the voting rights of the Series A Preferred and seeking rescission of
their purchase of the shares of Series A Preferred that they purchased from
Motient in the private placement in April 2005. These entities acquired 90,000
shares of Series A Preferred for a purchase price of $90 million in that private
placement. Although Motient currently has sufficient cash to refund this
purchase price and rescind the purchase of Series A Preferred by these
investors, Motient believes that this claim is without merit and intends to
vigorously defend this lawsuit.
On October 7, 2005, Highland Equity Focus Fund, L.P., Highland Crusader Offshore
Partners, L.P., Highland Capital Management Services, Inc., Highland Capital
Management, L.P on behalf of themselves and all those similarly situated, filed
a class action lawsuit in the Court of Chancery of the State of Delaware against
Motient and each of its directors, other than Mr. Dondero, alleging that Motient
has provided inadequate information to the holders of Series A Preferred
relating to the Exchange Offer for the Series A Preferred, and that the Exchange
Offer is coercive. These parties have also requested that the court enjoin the
Exchange Offer. The Exchange Offer closed on October 26, 2005, and accordingly,
Motient has requested that this suit be dismissed as moot.
20
On October 19, 2005, Motient Corporation filed two lawsuits against James D.
Dondero, one in the United States District Court for the Northern Division of
Texas, and one in the District Court of Dallas County, Texas. The complaint
filed in state court alleges that Mr. Dondero has seriously and repeatedly
breached his fiduciary duties as a director of Motient in order to advance his
own personal interests. The complaint filed in Federal court alleges selective
disclosure of material inside information and other improper actions undertaken
by Mr. Dondero, the net result of which have been to drive down the price of
Motient's stock. It also alleges that Mr. Dondero has solicited, and is still
soliciting, the replacement of Motient's current board and management in
violation of federal law.
Issuance of Series A Preferred
Motient issued the Series A Preferred in a private placement on April 15, 2005.
As originally proposed, the Series A Preferred would have voted along with
Motient's common stock on all matters on an as-converted basis. During
negotiations with respect to the Series A Preferred, investors affiliated with
Jim Dondero, a director of Motient, requested that the voting rights of the
Series A Preferred be limited so that these investors would not be required to
file applications under the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended ("HSR"). Motient agreed to limit the voting rights of the
Series A Preferred to the extent appropriate so that these investors would not
be required to file HSR applications. However, due to a mistake, the voting
rights were incorrectly stated in the Certificate of Designations for the Series
A Preferred as originally filed with the Secretary of State of Delaware. Upon
discovering this mistake, Motient promptly filed a Certificate of Corrections
with the Secretary of State of Delaware to correctly state the voting rights of
the Series A Preferred. Motient's Certificate of Incorporation contains a
provision that prohibits the issuance by Motient of "non-voting stock." As
described below, the investors affiliated with Jim Dondero who requested that
the voting rights of the Series A Preferred be limited have now filed lawsuits
against Motient claiming, among other things, that the Series A Preferred is
void because the limited voting rights set forth in the Certificate of
Incorporation make the Series A Preferred "non-voting stock" and that the
Certificate of Corrections is not effective to remedy this. Motient believes
that the Certificate of Corrections was effective to remedy any problems caused
by the mistake, and that the limited voting rights granted in the Certificate of
Designations were sufficient to make the Series A Preferred not be "non-voting
stock." Subsequent to our sale of Series A Preferred, entities affiliated with
Mr. Dondero filed an HSR application based on their purchases of Motient's
securities in February 2005, two months prior to our issuance of the Series A
Preferred.
Exchange Offer
On October 27, 2005, Motient completed an exchange offer in which it allowed
each holder of Series A Preferred the opportunity to exchange their shares of
Series A Preferred and a release of any claims relating to the issuance of the
Series A Preferred for shares of Series B Preferred, which will have rights,
preferences and privileges substantially identical to the Series A Preferred,
except that upon (a) the accumulation of accrued and unpaid dividends on the
outstanding shares of Series B Preferred for two or more six month periods,
whether or not consecutive; (b) the failure of Motient to properly redeem the
Series B Preferred Stock, or (c) the failure of Motient to comply with any of
the other covenants or agreements set forth in the Certificate of Designations
for the Series B Preferred Stock, and the continuance of such failure for 30
21
consecutive days or more after receipt of notice of such failure from the
holders of at least 25% of the Series B Preferred then outstanding, then the
holders of at least a majority of the then-outstanding shares of Series B
Preferred, with the holders of shares of any parity securities upon which like
voting rights have been conferred and are exercisable, voting as a single class,
will be entitled to elect a majority of the members of Motient's Board of
Directors for successive one-year terms until such defect listed above has been
cured. All of the holders of the Series A Preferred except for those affiliated
with Highland Capital Management exchanged their shares in this offer.
Accordingly, approximately $318.5 million in face amount of Series A Preferred
shares were exchanged for Series B Preferred shares of the same face amount, and
only $90 million in face amount of Series A Preferred shares remain outstanding.
From time to time, Motient is involved in legal proceedings in the ordinary
course of its business operations. Although there can be no assurance as to the
outcome or effect of any legal proceedings to which Motient is a party, Motient
does not believe, based on currently available information, that the ultimate
liabilities, if any, arising from any such legal proceedings not otherwise
disclosed would have a material adverse impact on its business, financial
condition, results of operations or cash flows.
Regulation
Overview
Motient's wireless communications businesses are regulated to varying degrees at
the federal, state and local levels. Various legislative and regulatory
proposals under consideration from time to time by Congress and the FCC have in
the past materially affected and may in the future materially affect the
telecommunications industry in general, and Motient's wireless businesses in
particular. The following is a summary of significant laws, regulations and
policies affecting the operation of Motient's wireless businesses. In addition,
many aspects of regulation at the federal, state and local level currently are
subject to judicial review or are the subject of administrative or legislative
proposals to modify, repeal, or adopt new laws and administrative regulations
and policies. Neither the outcome of these proceedings nor their impact on
Motient's operations can be predicted at this time.
Regulation Of Our DataTac Network
The ownership and operation of Motient's DataTac network is subject to the rules
and regulations of the FCC, which acts under authority established by the
Communications Act of 1934, as amended, and related federal laws. Among other
things, the FCC allocates portions of the radio frequency spectrum to certain
services and grants licenses to and regulates individual entities using that
spectrum. Motient operates pursuant to various licenses granted by the FCC.
Motient's FCC licenses are subject to restrictions in the Communications Act
that (i) some FCC licenses may not be held by a corporation of which more than
20% of its capital stock is directly owned of record or voted by non-U.S.
citizens or entities or their representatives and (ii) no such FCC license may
be held by a corporation controlled by another corporation, referred to as
indirect ownership, if more than 25% of the controlling corporation's capital
22
stock is owned of record or voted by non-U.S. citizens, entities or their
representatives, if the FCC finds that the public interest is served by the
refusal or revocation of such license. However, with the implementation of the
Basic Telecommunications Agreement, negotiated under the auspices of the World
Trade Organization and to which the United States is a party, the FCC will
presume that indirect ownership interests in our FCC licenses in excess of 25%
by non-U.S. citizens or entities will be permissible to the extent that the
ownership interests are from World Trade Organization-member countries. If the
25% foreign ownership limit is exceeded, the FCC could take a range of potential
actions that could harm Motient's business.
The FCC licenses used for the DataTac network are renewable, site-based, 800 MHz
licenses, granted for a term of 10 years. Renewal is granted in the ordinary
course for 800 MHz licenses like those which Motient holds. As a commercial
mobile radio service provider in the 800 MHz terrestrial business, Motient is
regulated as a common carrier. Motient must therefore offer service at just and
reasonable rates on a first-come, first-served basis, without any unjust or
unreasonable discrimination, and Motient is subject to the FCC's complaint
processes. The FCC has decided not to apply or to withhold its right, at this
time, to apply numerous common carrier provisions of the Communications Act to
commercial mobile radio service providers. In particular, Motient is not subject
to traditional public utility rate-of-return regulation, and is not required to
file tariffs with the FCC.
In order to address certain concerns from wireless users in the public safety
community, such as fire and police departments, on July 8, 2004, the FCC
approved adoption of a reconfiguration plan for the 800 MHz spectrum band. Under
the plan, Nextel Communications Inc. will occupy spectrum in the 1.9 GHz band in
exchange for, among other things, (1) relocating and retuning public safety
licensees in the 800 MHz band, and (2) consolidating its own 800 MHz frequencies
in the so-called "upper 800" MHz band. On December 22, 2004, the FCC clarified
that Motient would generally be allowed, subject to certain conditions, to move
its 800 MHz frequencies to the upper-800 MHz band. Motient cannot assure you
that its operations will be not affected by the adoption or implementation of
this order or any subsequent addenda.
As a result of our ongoing network rationalization efforts, some of our 800 MHz
FCC licenses have been lost and others may be lost in the future in markets to
which we are discontinuing service. We believe that the value of our FCC
licenses in these smaller markets is very small compared to the value of our FCC
licenses in the top 40 MSAs. While we are taking steps to avoid this
possibility, and while we believe that any such losses would not be material to
our business, we can provide no assurance that any such losses would not
negatively impact our business.
Regulation Of TerreStar
ATC
In January 2003, the FCC adopted an order governing ancillary terrestrial
component, or ATC, technology, giving mobile satellite operators broad authority
to use their assigned spectrum to operate an ATC. This order was applicable to
both the L-band (MSV), and the S-band (TerreStar). The ATC Order established a
set of preconditions and technical limits for ATC operations, as well as an
application process for ATC approval of the specific system incorporating the
ATCs that the licensee intends to use. A number of parties, principally wireless
carriers, challenged the validity of that order by filing petitions for
reconsideration and/or court appeals. On November 18, 2003, MSV filed an
23
application with the FCC to expand the use of its L-band spectrum and construct
its next-generation hybrid network with ATC. On November 8, 2004 the FCC issued
an order granting MSV the first ATC license ever granted by the FCC. The FCC
also approved several of MSV's waiver requests, allowing MSV to further enhance
its service coverage, but it specifically deferred its ruling on other MSV
waiver requests. The order sets forth various limitations and conditions
necessary to the use of ATC by MSV, but there can be no assurances that such
conditions will be satisfied by MSV, or that such limitations will not be
unnecessarily burdensome to MSV. One of MSV's competitors has asked the FCC to
review the November 8, 2004 decision. We cannot predict the outcome of this
review. On February 25, 2005, the FCC adopted its ATC Reconsideration Order,
which upheld the essential elements of the January 2003 ATC Order and denied
wireless carriers' requests, on reconsideration, to effectively prevent MSS
providers, including those in the 2 GHz band, from offering an ATC service.
Moreover, the sole remaining entity challenging the January 2003 ATC Order in
court ended its appeal in June 2005. One L-band entity has asked the FCC to
review some of the revised ATC rules adopted in the ATC Reconsideration Order.
We cannot predict the outcome of this review.
TerreStar has not applied for ATC authority, and there are several regulatory
and technical conditions that must be satisfied prior to any grant of ATC
authority by the FCC to TerreStar. As a result, Motient can provide no
assurances that ATC authority will be granted if and when TerreStar applies for
such authority.
TerreStar Licenses
TMI holds the approval issued by Industry Canada for a 2 GHz space station
authorization and related spectrum licenses for the provision of Mobile
Satellite Service, or MSS, in the 2 GHz band in Canada, as well as an
authorization from the FCC for the provision of MSS in the 2 GHz band in the
United States. These authorizations are subject to various milestones relating
to the construction, launch, and operational date of the system. TMI is
contractually obligated to transfer the authorizations to an entity designated
by TerreStar that is eligible to hold the authorizations, subject to obtaining
the necessary regulatory approvals.
In December 2002, TMI and TerreStar jointly applied to the FCC for authority to
transfer TMI's MSS authorization to TerreStar. However, certain wireless
carriers urged the FCC to cancel TMI's MSS authorization, and to dismiss the
application to transfer TMI's MSS authorization to TerreStar. In February 2003,
the FCC's International Bureau adopted an order canceling TMI's MSS
authorization due to an alleged failure to enter into a non-contingent satellite
construction contract before the specified first milestone date, and dismissing
the application for TMI to transfer its MSS authorization to TerreStar.
In June 2004, upon review of the International Bureau's decision, the FCC agreed
to waive aspects of the first milestone requirement applicable to TMI's MSS
authorization and, therefore, also reinstated that authorization, along with the
application to transfer TMI's MSS authorization to TerreStar. The FCC also
modified the milestone schedule applicable to TMI's MSS authorization. TMI
recently certified to the FCC its compliance with the second and third
milestones under its MSS authorization. The FCC is currently reviewing that
certification for compliance with the requirements of TMI's MSS authorization.
The application to transfer TMI's MSS authorization to TerreStar is still
pending before the FCC. The remaining milestones relate to satellite launch and
operation, and are in November 2007 and 2008, respectively.
24
Currently, the FCC has provided TMI a reservation of 2 x 4 MHz of spectrum
within the 2GHz MSS band. TMI does not yet have a specific spectrum assignment
within that band, because current FCC rules do not allow it to request a
specific assignment until such time that its satellite reaches its intended
orbit. Spectrum in the 2 GHz MSS band is reserved on a pro rata basis among the
existing licensees. TMI's current spectrum reservation from the FCC and Industry
Canada reflect the cancellation of U.S. authorizations of three of the eight
entities that were authorized to provide 2 GHz MSS in 2001: Mobile
Communications Holding Inc. (MCHI), Constellation Communications Holdings, Inc.
(Constellation), and Globalstar LP. Globalstar LLC, the successor-in-interest to
Globalstar LP, along with another interested entity, Globalstar Satellite LP,
has collectively challenged cancellation of its license on reconsideration to
the FCC. With ICO Global Communications (Holdings) Limited, MCHI and
Constellation have jointly challenged cancellation of their licenses on appeal
to the U.S. Court of Appeals for the D.C. Circuit. On October 28, 2005, that
court affirmed the FCC's decision to cancel the MCHI and Constellation licenses;
it is unclear whether those entities will seek review of that decision by the
U.S. Supreme Court. If any or all of those licenses were reinstated, TMI would
likely have access to less spectrum than it would otherwise. The FCC has not yet
redistributed spectrum surrendered in March 2005 by three of the then remaining
five 2 GHz MSS licensees. In April 2005, TMI and TerreStar filed a letter at the
FCC requesting redistribution of half of the surrendered MSS spectrum to TMI. A
number of terrestrial wireless and MSS entities opposed that request. In July
2005, the FCC issued public notices opening two proceedings to manage
redistribution of the surrendered MSS spectrum. In the first proceeding, IB
Docket No. 05-220, the FCC tentatively concluded that it would distribute
approximately 10.67 MHz of surrendered MSS spectrum on a pro rata basis to TMI
and ICO Satellite Services (ICO); it also sought public comment on that
tentative conclusion. If the FCC were to take such action, TMI would have access
to a total of approximately 2 x 6.67 MHz of MSS spectrum. In the second
proceeding, IB Docket No. 05-221, the FCC requested comment on the following
three possible options for distribution of the other approximately 13.34 MHz of
surrendered 2 GHz MSS spectrum: (1) distribute the spectrum pro rata to TMI and
ICO, (2) open a new MSS processing round to distribute the spectrum to new MSS
licensee(s) , or (3) initiate a rulemaking to reallocate some or all of the
remaining surrendered spectrum to another (i.e., non-MSS) service. Numerous
parties, including MSS competitors Inmarsat and Globalstar, as well as
terrestrial wireless companies, have commented in these proceedings to oppose
distribution of any of the surrendered spectrum to TMI. The FCC has not
announced any decision as to how to distribute the surrendered MSS spectrum at
issue in IB Docket Nos. 05-220 and 05-221. Motient cannot guarantee that TMI
will receive access to more then the 2 x 4 MHz of spectrum currently provided
for in the MSS authorization issued by the FCC.
On July 26, 2005, Industry Canada modified TMI's S-band authorization to provide
for a 2 x 10 MHz reservation. Specifically, this reservation consists of 7 MHz
in each direction, with an additional 3 MHz in each direction available on the
condition that it does not constrain the entry of another MSS operator into the
Canadian market.
In September 2004, the FCC issued an order allowing PCS operation in the
1995-2000 MHz band, which may be adjacent to the 2 GHz frequencies ultimately
assigned to TMI. TerreStar has commented in the proceedings to establish service
rules for the 1995-2000 MHz band. There can be no assurance that the FCC will
not adopt service rules that will create interference to MSS operators in the 2
GHz band, including TerreStar.
25
The 2 GHz MSS band and certain adjacent bands are currently occupied by
broadcast auxiliary service licensees, cable television relay service licensees,
local television transmission service licensees, fixed service licensees, and
certain other licensees. Most if not all of those licensees, and especially
those in the broadcast auxiliary service, will need to relocate their operations
to a new band to accommodate 2 GHz MSS and other new entrants. As a 2 GHz MSS
entrant, TMI and/or TerreStar will have certain obligations to compensate those
incumbent licensees for their relocation costs and for the costs of providing
"comparable facilities" to them. However, the level to which TMI and/or
TerreStar will be required to participate in such reimbursement is uncertain due
to a variety of factors. Among other factors that could affect these
obligations, and, pursuant to a separate FCC order, Nextel Communications Inc.
(Nextel) must relocate incumbent broadcast auxiliary service licensees in the
1990-2025 MHz band by September 6, 2007. To the extent that Nextel complies with
its band clearing obligations, 2 GHz MSS entrants commencing operations after
Nextel has cleared the band would not have to clear the band themselves, but
could still have obligations to reimburse Nextel for certain of its band
clearing costs. Whether a 2GHz MSS entrant will be required to share in certain
of Nextel's relocation costs will likely depend upon whether that entrant
commences operations prior to June 27, 2008. By March 2006, Nextel must notify
the MSS licensees as to whether it will or will not be seeking reimbursement
from them. Even if Nextel bears all costs of relocating incumbent licensees in
the 1990-2025 MHz band, TMI and/or TerreStar will still likely be responsible
for relocating certain incumbent licensees in the 2165-2200 MHz band, although
it may have the right to recoup certain costs from wireless entrants in the
2165-2180 MHz band. We cannot predict what these band clearing costs will be to
Motient and/or TerreStar, if any.
5. TERRESTAR ASSET PURCHASE
On May 11, 2005, Motient Ventures Holding Inc., or MVH, a wholly owned
subsidiary of Motient Corporation, purchased 8,190,008 shares of newly issued
common stock of TerreStar from TerreStar for $200 million pursuant to a Purchase
Agreement by and between MVH and TerreStar. On the same day, TerreStar was
spun-off by MSV to its limited partners and, in connection with that spin-off,
Motient acquired ownership of approximately 48% of the issued and outstanding
shares of capital stock of TerreStar and the subsequent $200 million stock
purchase increased Motient's ownership to its current 61% of TerreStar's issued
and outstanding common stock.
Assets acquired and liabilities assumed in the asset purchase were recorded on
the Company's Consolidated Balance Sheet as of the purchase date based upon
their fair values at such date. The results of operations of the net assets
acquired by the Company have been included in the Company's Statements of
Operations since its date of purchase. Approximately $78 million was allocated
to intangible assets that include the rights to receive licenses in the 2 GHz
band and other intangibles. These intangible assets are being amortized over an
average life of 15 years. The allocation is calculated as follows (in
thousands):
Purchase price $200,000
Minority interest 39.1455%
--------
Subtotal 78,291
--------
Increase in Motient ownership 13.4%
TerreStar net book value before purchase 643
--------
Add: Motient interest in increased book value 86
--------
Remaining value (a) $78,377
========
(a) The remaining value was allocated as follows:
Value allocated to FCC license rights $66,699
========
Value allocated to Intellectual Property $11,678
========
26
There was no excess purchase price over the estimated fair values of the
underlying assets acquired and liabilities assumed. In certain circumstances,
the allocation of the purchase price is based upon preliminary estimates and
assumptions. Accordingly, the allocations are subject to revision when the
Company receives final information and other analyses. Revisions to the fair
values, which may be significant, will be recorded by the Company as further
adjustments to the purchase price allocations.
For additional information regarding TerreStar, see Note 1. Organization and
Business as well as Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Pro Forma Financial Data
The following table sets forth our unaudited pro forma results of operations for
the nine months ended September 30, 2005 and 2004, reflecting our purchase of
the TerreStar Networks Inc. assets. The pro forma results are based on our
historical financial statements and the historical financial statements of the
operations of TerreStar. The unaudited pro forma statements of operations give
effect to the transaction as if the transaction occurred on January 1, 2005 and
2004, respectively. The pro forma financial results are presented for
informational purposes only and are not intended to be indicative of either
future results of our operations or results that might have been achieved had
the transactions actually occurred since the beginning of the fiscal periods.
Motient Corporation and Subsidiaries
Selected Consolidated Pro-forma
Results of Operations
---------------------
Nine Months Ended
-----------------
September 30, 2005 September 30, 2004
------------------ ------------------
Net Revenues $11,721 $31,292
Operating Loss $(58,642) $(33,687)
Operating loss, per share $(0.95) $(1.15)
6. SUBSEQUENT EVENTS
On November 4, 2005, the Executive Committee of the Board of Directors of
Motient Corporation authorized Motient to repurchase up to $50 million of its
outstanding common shares. Motient intends to repurchase shares from time to
time in the open market or otherwise under this program. The number of shares to
be purchased and the timing of the purchases will be based on the level of cash
balances, general business conditions and other factors, including alternative
investment opportunities. The program may be discontinued at any time.
27
7. Restatement
The Company has restated its condensed consolidated financial statements as of
and for the three and nine months ended September 30, 2005 to properly reflect
the accounting for its proportionate share of the non-cash stock compensation
expense recorded by MSV, including the effects of a restatement of the unaudited
interim financial statements of MSV. Subsequent to the issuance of the Company's
condensed consolidated financial statements as of and for the three and six
months ended June 30, 2005, the Compensation Committee of MSV's Board of
Directors determined that a change in control of MSV, as defined in MSV's Unit
Incentive Plan, had occurred during the three months ended March 31, 2005. This
change in control triggered the immediate vesting of all of MSV's then
outstanding unit options that were subject to accelerated vesting and
recognition of an additional $3.8 million of deferred compensation expense
associated with these options. For the three and nine months ended September 30,
2005, MSV recognized $1.6 million and $8.0 million, respectively of stock
compensation expense. The accompanying condensed consolidated financial
statements have been restated to reflect the Company's proportionate share of
the net loss of MSV.
In addition, this amendment reflects the restatement of the Company's condensed
consolidated financial statements as of and for the three and nine months ended
September 30, 2005 to properly reflect the accounting for its differential
between cost and book value of equity method investments associated with the
Company's February 9, 2005 transactions. On February 9, 2005, the Company
exchanged shares of Motient common stock valued at $371 million for MSV LP units
resulting in an additional interest in MSV of 10.24%. Under the guidance of APB
18, the Company failed to recognize the differential between the book and fair
values of MSV's assets and amortize the excess over the life of the assets. As
restated, for the three months and nine months ended September 30, 2005, the
Company has recognized amortization of $1.7 million and $4.3 million,
respectively related to the excess of the cost of the February 9, 2005
investment over the fair value of the net assets acquired.
This amendment also reflects the restatement of the Company's condensed
consolidated financial statements as of the nine months ended September 30, 2005
to properly reflect the accounting for its issuance of warrants in connection
with the February 9, 2005 transaction. The Company did not record the warrants
at the time of the merger transaction, as it was uncertain as to whether any of
the warrants would vest and therefore no value could be ascribed to the
warrants. As the Company has filed a registration statement on February 14, 2005
for the shares sold to the entities, 70% of the warrants will never vest. The
remainder vested in August 2005. As previously reported, the Company failed to
recognize the vesting of these warrants during the nine months ended September
30, 2005. As restated, for the nine months ended September 30, 2005, the Company
has recognized, using a Black-Scholes model, $8.3 million as the fair value of
the vested warrants. The effect of recording the warrants is to increase the
Company's Investment in MSV, thereby increasing the cost of the February 9, 2005
merger transaction, and to increase the Company's common stock purchase
warrants.
28
The following is a summary of the significant effects of the restatements on the
accompanying condensed consolidated balance sheets (in thousands):
September
30, 2005
--------
Investment in Mobile Satellite Ventures, as previously reported $ 501,400
Impact of restatement of the operating results of MSV (2,878)
Impact of restatement of the amortization of cost over book value of MSV intangibles (4,277)
Impact of restatement of issuance of common stock purchase warrants 8,347
---------
Investment in Mobile Satellite Ventures, as restated $ 502,592
=========
Common stock purchase warrants as previously reported $ 69,892
Impact of restatement of issuance of common stock purchase warrants 8,347
---------
Common stock purchase warrants as restated $ 78,239
=========
Accumulated deficit, as previously reported $(263,889)
Impact of restatement of the operating results of MSV (2,878)
Impact of restatement of the amortization of cost over book value of MSV intangibles (4,277)
---------
Accumulated deficit, as restated $(271,044)
=========
The following is a summary of the significant effects of the restatements on the
accompanying condensed consolidated statements of operations (in thousands):
Three Months Ended Nine Months Ended
September 30, 2005 September 30, 2005
As As
Previously As Previously As
Reported Restated Reported Restated
-------- -------- -------- --------
Equity in losses of Mobile Satellite
Ventures $ (2,308) $ (3,954) $(11,520) $(18,675)
Net (loss) $(11,793) $(13,439) $(57,712) $(64,867)
Net (loss) available to Common Stockholders $(18,472) $(20,118) $(69,880) $(77,035)
Net (loss), basic and diluted $ (0.30) $ (0.32) $ (1.13) $ (1.24)
29
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following Management's Discussion and Analysis is intended to help the
reader understand Motient Corporation. It is provided as a supplement to, and
should be read in conjunction with, our financial statements and the
accompanying notes.
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.
Statements regarding factors that may cause actual results to differ materially
from those contemplated by such forward-looking statements include, among
others, those under the caption "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Overview - Overview of Liquidity
and Risk Factors," and elsewhere 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 in their entirety by the cautionary statements
referred to above and contained elsewhere in this quarterly report on Form 10-Q.
You should carefully review the risk factors described in our other filings with
the Securities and Exchange Commission from time to time, including the risk
factors contained in our registration statements on Form S-1, and our reports on
Form 10-K and 10-Q to be filed after this quarterly report, as well as our other
reports and filings 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 in these statements.
Overview
Motient owns, operates and develops two-way wireless communications businesses.
In addition to our own two-way wireless data network (our DataTac network) which
we use to provide our customers with two-way wireless data communication
services, we have the capabilities to provide our customers with convenient
access to other wireless data networks, such as the Sprint and Cingular
networks. We also are in the process of developing a satellite communications
service via our 61% ownership of TerreStar Networks Inc., a development stage
company in the process of building its first satellite. We acquired our
ownership in TerreStar in May 2005. TerreStar was formerly a subsidiary of
another satellite communications company, Mobile Satellite Ventures, LP, or MSV,
as it is commonly known. We own 49% of MSV, but do not have operating control of
its business and do not consolidate its financial statements into Motient.
30
Acquisition of MSV and TerreStar
On September 22, 2005, we announced that we had entered into a non-binding
letter of intent to consolidate the ownership of MSV and TerreStar within
Motient. We anticipate that this transaction will, if consummated, simplify the
ownership and governance of both MSV and TerreStar, better enabling both of them
to pursue more effectively their deployment of separate hybrid satellite and
terrestrial based communications networks providing ubiquitous wireless coverage
across all of North America in the L-band and S-band, respectively. The letter
of intent sets forth the basic terms of the proposed transaction, which include,
among other things, (i) our issuance of approximately 93 million shares of our
common stock in exchange for the MSV interests and TerreStar shares not already
owned by us, (ii) a possible spin-off of TerreStar after the closing (the
spin-off would be executed if it is judged by Motient's Board of Directors to be
in the best interests of its stockholders following the closing), and (iii) the
reconstitution of the boards of Motient, MSV and TerreStar with nine members
mutually acceptable to the parties and in compliance with the independence rules
and regulations of NASDAQ. The interests of MSV and TerreStar held by one of the
owners, TMI Communications and Company, will not be transferred at the time of
the closing. Instead, TMI would receive the right to exchange its interests in
MSV and TerreStar at any time at the same exchange ratios that are being offered
to the other shareholders and would subscribe for shares of a new class of
Motient preferred stock with nominal economic value but having voting rights in
Motient equivalent to those TMI would receive upon exchange of its MSV and
TerreStar interests for Motient common stock. The consummation of the
transaction will require successful completion of due diligence, negotiation and
execution of definitive documentation, board and stockholder approval, and
various regulatory approvals. Because the letter of intent is non-binding, the
parties have no obligation to negotiate such documentation or otherwise
consummate the transactions. Therefore, the transactions may not be consummated
on the currently proposed terms or may never be consummated.
Our Terrestrial Wireless Business
We are a provider of two-way, wireless mobile data services and mobile Internet
services in the top 40 MSAs in the United States. Owning and operating a
wireless radio data network that provides wireless mobile data service to
customers, we generate revenue primarily from the sale of airtime on our network
and from the sale of communications devices to our customers. Our customers use
our network and our wireless applications for wireless email messaging and
wireless data transmission, enabling businesses, mobile workers and consumers to
wirelessly transfer electronic information and messages and to access corporate
databases and the Internet.
In addition to selling wireless data services that use our own network, Motient
is also a reseller of airtime on the Cingular and Sprint wireless networks.
These arrangements allow Motient to provide integrated wireless data solutions
to its customers using a variety of networks. In December 2004, Motient launched
a new set of products and services designed to provide these integrated wireless
data solutions to its customers called iMotient SolutionsTM. iMotient allows
Motient's customers to use these multiple networks via a single connection to
Motient's back-office systems, providing a single alternative for application
and software development, device management and billing across multiple
networks, including but not limited to GPRS, 1XRTT and our own DataTac network.
Once connected to iMotient, customers receive proprietary applications and
services that reduce airtime usage, improve performance and reduce costs.
Motient only recently generated initial revenues from iMotient Solutions and it
anticipates that iMotient revenues will increase over the course of 2005.
Motient cannot anticipate whether these revenues will increase rapidly enough to
offset anticipated revenue declines in other segments of its business.
31
Of our revenues, for the nine months ended September 30, 2005, approximately 55%
were generated in connection with our BlackBerry TM by Motient wireless email
service and our own eLinkSM wireless email service, our "Wireless Internet"
market segment. These wireless email services are utilized by our customers
primarily in conjunction with Research In Motion's RIM 850 and 857 wireless
handheld devices, which are no longer produced by Research in Motion.
We believe that consumers, in general, wish to use and purchase wireless
internet devices that cannot be supported on our DataTac network, such as
wireless internet devices that are data and voice capable. We expect our
revenues from these products will continue to decline, but we will attempt to
capture revenue from the migration of our wireless internet customers to newer
technologies through, among other alternatives, our reseller agreements with
RACO Wireless, Inc. and eAccess Solutions, Inc., which allows us to receive a
one-time commission for signing up customers to use alternative network
providers wireless internet service. Motient is currently exploring ways to
offer Wireless Internet services under our iMotient SolutionsTM platform, but
Motient can make no assurances that it will ever be able to effectively offer
such a product.
Over the course of 2004, Motient implemented and completed certain initiatives
to rationalize the size of its network, primarily to remove unprofitable base
stations and reduce unneeded capacity and coverage. During the first quarter of
2005, Motient announced a plan to refocus its DataTac network primarily on the
top 40 Metropolitan Statistical Areas (MSAs), and in the second quarter of 2005,
we deconstructed DataTac network components and terminated service in previously
served MSAs above the top 40. Given the similar coverage profiles of the
Cingular and Sprint networks, the significantly increased bandwidth capabilities
of these networks relative to the DataTac network and the concentration of our
revenues in the top 40 MSAs, we determined that this plan best allowed us to
match our network infrastructure costs with our revenue base, while continuing
to meet the needs of as many of our customers as possible. Although these
actions resulted in a decline in our revenues, we believe that the initial
revenue decline will be offset by a reduction in our network operating costs.
These network changes may put further negative pressure on our revenues in all
market segments in 2005 as customers may elect to pursue other alternative
network carriers with alternative coverage. We are making every effort to retain
our customers or migrate them to our iMotient SolutionsTM product and services,
but we can make no assurances that it will be able to retain these customers.
Our Satellite Communications Business - TerreStar Networks Inc.
On May 11, 2005, we acquired approximately an additional 13.4% ownership in
TerreStar Networks, Inc. for a total 61% ownership interest in, and operating
control over, TerreStar Networks Inc. Prior to that date, TerreStar was a
subsidiary of MSV established to, among other things, develop a satellite
communications system in the 2 GHz frequency band, often known as the "S-band".
We acquired our ownership interest in TerreStar when, in conjunction of a
spin-off of TerreStar to the owners of MSV, we purchased an additional $200
million of newly issued TerreStar common stock. In conjunction with this
transaction, TerreStar also received a perpetual, royalty-free license to
utilize MSV's patent portfolio, including those patents related to "ancillary
terrestrial component", or ATC, which we anticipate will allow us to deploy a
communications network that seamlessly integrates satellite and terrestrial
communications, giving a user ubiquitous wireless coverage across North America.
Approximately $78 million was allocated to intangible assets that include the
rights to receive licenses in the 2 GHz band and other intangibles. The
allocation is calculated as follows (in thousands):
32
Purchase price $200,000
Minority interest 39.1455%
--------
Subtotal 78,291
--------
Increase in Motient ownership 13.4%
TerreStar net book value before purchase 643
--------
Add: Motient interest in increased book value 86
--------
Remaining value (a) $78,377
========
(a) The remaining value was allocated as follows:
Value allocated to FCC license rights $66,699
========
Value allocated to Intellectual Property $11,678
========
By offering Mobile Satellite Service, or MSS, in the S-band in conjunction with
ATC, TerreStar can effectively deploy a hybrid satellite and terrestrial
wireless communications network. This network could, for instance, eventually
allow a user to utilize a mobile device that would communicate with a
traditional land-based wireless network when in range of that network, but
communicate with a satellite when not in range of such a land-based network.
These mobile devices could be used for a myriad of communications applications,
including potentially voice, data and video services.
TerreStar is currently in the process of building its first satellite pursuant
to a construction contract with Space Systems/Loral, Inc. This satellite is
scheduled to be completed in November 2007, with commercial operations scheduled
to begin in 2008. Once launched, the satellite, with an antenna almost sixty
feet across, will be able to communicate with terrestrial base stations and
standard wireless devices. The construction, launch and operation of this
satellite will require significant additional capital, with satellite
construction costs alone expected to exceed $550 million, paid out over the next
several years.
Our ability to offer these services depends on TerreStar's right to receive
certain regulatory authorizations allowing it to provide MSS in the S-band. In
order to use ATC, TerreStar will need to apply for authority with the FCC, which
has not yet done. These authorizations are subject to various regulatory
milestones relating to the construction, launch and operational date of the
satellite system required to provide this service.
Over the course of 2005 through 2008, we expect that TerreStar will continue to
work on building, testing and deploying its satellite communications system,
which will require large capital expenditures, as well as the incurrence of
significant operating expenses. During this period, we do not expect that
TerreStar will generate any revenues. Therefore, we anticipate that TerreStar
will generate operating losses during this period. We anticipate that TerreStar
will not be in a position to generate revenues from business operations until
2008 at the earliest.
33
Intangible Assets
FCC licenses and other intangible assets consist of the following:
September 30,
2005 December 31,
(unaudited) 2004
----------- ----
(in thousands)
-----------------------------
FCC 800 MHz licenses $76,141 $80,594
FCC 2 GHz licenses 66,864 --
Intellectual property 11,707 --
Customer contracts 349 349
-- --
155,061 80,943
Less accumulated amortization (18,284) (13,294)
-------- --------
FCC licenses and other intangible assets, net $136,777 $67,649
======== =======
The Company has utilized numerous assumptions and estimates in applying its
valuation methodologies and in projecting future operating characteristics for
the TerreStar business enterprise. In general, the Company considered
population, market penetration, products and services offered, unit prices,
operating expenses, depreciation, taxes, capital expenditures and working
capital. The Company also considered competition, satellite and wireless
communications industry projections and trends, regulations and general economic
conditions. In the application of its valuation methodologies, the Company
applies certain royalty and discount rates that are based on analyses of public
company information, assessment of risk and other factors and estimates.
The Company's valuation of TerreStar's intellectual property rights was
determined utilizing a form of the income approach referred to as the relief
from royalty valuation method. The Company assumed a 10% to 12% royalty rate
applied to a projected revenue stream generated by a hypothetical licensee
utilizing such intellectual property rights. The projected revenue was based on
a business case for the operations and consisted of the following principal
assumptions and estimates:
- - A 20 year forecast period.
- - Specific cash outflows in the first four years of the forecast period to
account for TerreStar's portion of satellite design, construction and
launch expenditures.
- - Annual population growth of 1.6% based on U.S. Census Bureau estimates of
the U.S. population in 2004.
- - Market penetration assumptions of zero to 7% to 12% over the forecast
period, depending on the specific market and when the market is launched.
- - Average monthly revenue per customer of $40.00 when services are launched,
increasing to $44.50 over the forecast period. This increase equates to a
compound annual growth rate of 0.6%. A substantial portion of this revenue
is generated by the terrestrial component of the ATC network.
- - Tax rate of 40% after the consumption of net operating losses generated in
the early years of the forecast period.
- - A 25% discount rate based on a weighted average cost of capital (WACC)
determined by analyzing and weighting the cost of capital for a peer group
of publicly traded satellite service providers, wireless communications
companies and telecommunications companies in general.
The Company's valuation of its spectrum assets is based on a form of the income
approach known as the "Build-Out Method." The method applies a discounted cash
flow framework to the Company's "build-out" business case. This build-out
34
approach is intended to incorporate all of historical and future development
costs, as well as projected revenues, operating expenses and cash flows
generated from the build-out of a hybrid satellite and terrestrial
communications system utilizing the Company's frequency assets. This "build-out
method" business case and the applied discounted cash flow valuation consisted
of the following principal assumptions and estimates:
- - A 20-year forecast period, comprised of a high growth period for the first
10 years and a declining growth period beginning in year 11 and a terminal
period to perpetuity.
- - Development cash outflows and capital expenditures related to the design
and construction of two satellites in the first 3 years of the forecast
period and the launch of one of these satellites in the fourth year of the
forecast period. Replacement costs for the construction and launch of one
satellite are included in the declining growth period.
- - Satellite only revenues based on market size data for traditional satellite
segments (maritime, fleet management, public safety, telematics and
aeronautical) compiled generally by third party research groups and
penetration estimates of 10% to 40% of this potential customer base,
depending on the specific market segment addressed over the 20 year
forecast period.
- - Terrestrial revenues calculated as eleven percent of the total revenues
generated by a joint or strategic partner with whom TerreStar would intend
to deploy a terrestrial infrastructure and launch terrestrial services.
Total partnership revenues are based on (i) market penetration assumptions
of zero to 7 to 12% over the forecast period depending on the specific city
and when the city is launched, and (ii) average monthly revenue per
customer of $40.00 when services are launched, increasing to $44.50 over
the forecast period. This increase equates to a compound annual growth rate
of 0.6%.
- - Operating expenses covering the operation of satellite facilities. These
include a network operations center, tracking, telemetry and command
systems, interconnect costs, in-orbit insurance, technical staff, and
general and administrative personnel. Under the projected expense
structure, EBITDA margins grow to 60% early in the forecast period and
expand to 70% later in the forecast period.
- - All capital expenditures required to design and construct two satellites
and launch one satellite during the first four years of the forecast
period. Additional capital expenditures for constructing ground station
segments and investing in handset development.
- - Tax rate of 40% after the consumption of net operating losses generated in
the early years of the forecast period.
- - A 19 to 21% discount rate based on a weighted average cost of capital
(WACC) determined by analyzing and weighting the cost of capital for a peer
group of publicly traded satellite service providers, wireless
communications companies and telecommunications companies in general, with
more weight given to traditional satellite service providers. A terminal
value calculated using a WACC of 12% and a perpetuity growth rate of 2.5%.
The Company will test for impairment of its intangible assets by reviewing all
of the assumptions and estimates utilized relative to the valuation
methodologies discussed above. To the extent that it determines that these
assumptions and estimates are no longer accurate, either because actual results
have materially differed from the assumptions and estimates, or because changing
circumstances have caused the Company to reevaluate these assumptions and
estimates for future periods, the Company will revalue these intangible assets
based on revised assumptions and estimates.
35
Summary of Risk Factors
In addition to the challenge of growing revenue as described above, our future
operating results could be adversely affected by a number of uncertainties and
factors, including:
o We Are Not Cash Flow Positive, And We Will Need Additional Liquidity To
Fund Our Operations And Fully Fund All Of The Necessary TerreStar Capital
Expenditures.
o We Will Continue To Incur Significant Losses.
o We May Not Be Able To Realize Value From Our Investment In TerreStar Or
MSV Due To Risks Associated With Their Next-Generation Business Plans.
o We May Not Be Able To Effectively Execute TerreStar's Business Plan.
o Funding Requirements For TerreStar May Jeopardize Our Investment In, And
Control Over, TerreStar.
o We Could Lose Market Share And Revenues As A Result Of Increasing
Competition From Companies In The Wireless Communications Industry That
Have Greater Resources, Name Recognition And Newer Technologies.
o We Generate A Large Part Of Our Revenues And Cash Flows From A Small
Number Of Customers On Our DataTac Network, And The Loss Of One Or More
Key Customers Could Result In A Significant Reduction In Revenues And Cash
Flows.
o The Value Of Our Intangible Assets In Our Financial Statements Is Based On
Assumptions And Estimates, Which May Not Be Correct.
o We May Not Be Able To Develop, Acquire And Maintain Proprietary
Information And Intellectual Property Rights, Which Could Limit The Growth
Of Our Business And Reduce Our Market Share.
o Government Regulation May Increase Our Cost Of Providing Services, Slow
Our Expansion Into New Markets, Subject Our Services To Additional
Competitive Pressures And Affect The Value Of Our Common Stock.
o Motient's Competitive Position May Be Harmed If The Wireless Terrestrial
Network Technology It Licenses From Motorola Is Made Available To
Competitors.
o We Do Not Expect To Pay Any Dividends On Our Common Stock For The
Foreseeable Future.
o Future Sales Of Our Common Stock Could Adversely Affect Its Price And/Or
Our Ability To Raise Capital.
o Motient May Have To Take Actions That Are Disruptive To Its Business To
Avoid Registration Under The Investment Company Act Of 1940.
o We Face Burdens Relating To The Recent Trend Toward Stricter Corporate
Governance And Financial Reporting Standards.
o 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.
o The Consummation and Potential Impact of the Proposed Consolidation of MSV
and TerreStar by Motient is Uncertain.
o Ongoing Litigation Could Negatively Impact Our Value and Our Ability to
Successfully Implement Our Business Plan.
For a more complete description of the above factors, please see the section
entitled "Risk Factors" in Motient's recently filed registration statement on
Form S-1.
36
Results of Operations
Due to our purchase of ownership interests in TerreStar on May 11, 2005 and our
consequent 61% ownership of TerreStar, the operating results herein include the
operating results of TerreStar from that date through September 30, 2005. We
have identified the impact of TerreStar on our results of operations where
material.
Subscriber Statistics
Our customer base can be generally divided into six broad categories, Wireless
Internet, Field Services, Transportation, Telemetry, iMotient and Other.
Wireless Internet primarily consists of customers using our network and
applications to access certain internet functions, like email. Devices and
airtime used by transportation and shipping companies, or by personnel in the
field service industries (such as repair personnel), for dispatching, routing
and other vital communications functions are known as Transportation and Field
Service, respectively. Telemetry typically covers devices and airtime used to
connect remote equipment, such as wireless point-of-sale terminals, with a
central monitoring facility. iMotient consists of integrated wireless data
solutions revenues through the resale of airtime on the Cingular and Sprint
wireless networks. Other revenues may consist of sales commissions, consulting
fees or other fees. An explanation of certain changes in revenue and subscribers
is set forth below.
The table below summarizes the make up of our registered subscriber base.
Wireless devices may be divided into three categories, registered, billable and
active. Registered devices represent devices that our customers have registered
for use on our network. Certain numbers of these devices may be kept in
inventory by our customers for future use and generally are not revenue
producing. Customers then move such inventory into a production status upon
which it typically becomes billable and generates revenue. However, billable
units may not pass traffic and thus will not be counted as active. We count a
device as active when it is removed from inventory by the customer and transmits
greater than zero kilobytes of data traffic.
<table>
As of September 30,
2005 2004 % Change
--------
Registered Billable Active Registered Billable Active Registered Billable Active
---------- -------- ------ ---------- -------- ------ ---------- -------- ------
Wireless Internet(1) 38,148 14,981 5,539 81,738 41,708 25,651 (53)% (64)% (78)%
Field Services 1,703 1,701 125 10,951 10,901 5,421 (84) (84) (98)
Transportation 49,038 38,286 38,376 46,361 39,677 38,286 6 (4) 0
Telemetry 24,413 17,523 7,139 31,058 28,500 13,834 (21) (39) (48)
iMotient 1,753 2,096 1,208 -- -- -- -- -- --
All Other 208 96 81 393 244 159 (47) (61) (49)
------- ------- ------- ------- ------- ------- ------- ------- -------
Total 115,263 74,683 52,468 170,501 121,030 83,351 (32)% (38)% (37)%
======= ======= ======= ======= ======= ======= ======= ======= =======
</table>
1) Reflects deregistration of units by SkyTel on December 30, 2004 of
approximately 30,000 units and deregistration of 9,000 units in the
first quarter of 2005 by certain other resellers.
37
Revenues
The tables below set forth, for the periods indicated, a year-over-year
comparison of the key components of revenue.
<table>
Three Months Ended September 30,
-------------------------------------
Summary of Revenue 2005 2004 Change % Change
- ------------------ ---- ---- ------ --------
(in millions)
Wireless Internet $ 1.7 $ 4.3 (2.6) (60)%
Field Services 0.1 1.4 (1.3) (91)
Transportation 0.4 0.9 (0.5) (56)
Telemetry 0.4 0.6 (0.2) (37)
iMotient 0.1 -- 0.1 --
All Other 0.3 0.2 0.1 55
------- ------- ------ ------
Service Revenue 3.0 7.4 (4.4) (59)
Equipment Revenue 0.1 1.0 (0.9) (89)
------- ------- ------ ------
Total $ 3.1 $ 8.4 $ (5.3) (63)%
======= ======= ====== ======
Nine Months Ended September 30,
-------------------------------------
Summary of Revenue 2005 2004 Change % Change
- ------------------ ---- ---- ------ --------
(in millions)
Wireless Internet $ 6.4 $ 15.7 (9.3) (59)%
Field Services 1.0 4.7 (3.7) (78)
Transportation 1.4 2.7 (1.3) (47)
Telemetry 1.3 1.8 (0.5) (29)
iMotient 0.2 -- 0.2 --
All Other 0.5 2.6 (2.1) (80)
------- ------- ------ ------
Service Revenue 10.8 27.5 (16.7) (61)
Equipment Revenue 0.9 3.8 (2.9) (77)
------- ------- ------ ------
Total $ 11.7 $ 31.3 $(19.6) (63)%
======= ======= ====== ======
</table>
The decrease in service revenue was the result of a decrease in revenue in all
our market segments (except iMotient), primarily as a result of migration by our
customers to newer technologies with capabilities that our network is not
capable of supporting (such as voice enabled handheld devices), or more modern
networks with greater capacity than our own (such as so-called 2G or 3G networks
from providers such as Sprint, Cingular, Verizon or T-Mobile). We believe that
our network reduction efforts, announced to our customers in the first quarter,
may have also caused negative pressure on our revenues as certain customer may
have elected to terminate service with Motient in favor of other alternative
wireless carriers. If we cannot generate additional revenue from other sources
to offset this lost revenue, our overall revenues will decline in the future.
The decrease in total revenue was primarily a result of decreased service and
equipment revenues.
During the first quarter of 2005, Motient initiated a plan to refocus its
DataTac network primarily on the top 40 MSAs of the United States. This plan
involves the decommissioning of DataTac network components and termination of
service in previously served MSAs other than the top 40. Given the similar
coverage profiles of the Cingular and Sprint networks, the significantly
increased bandwidth capabilities of these networks relative to DataTac and the
concentration of our revenues in the top 40 MSAs, we determined that this plan
best allowed us to match our network infrastructure costs with our revenue base,
while continuing to meet the needs of as many of our customers as possible. This
decommissioning occurred in June 2005. We are making every effort to provide any
impacted customers with alternatives to migrate their services and applications
to either our new iMotient Solutions(TM) platform or to other networks using our
agreements with RACO Wireless, Inc. and eAccess Solutions, Inc. These network
changes may put further negative pressure on our revenues in all market segments
in 2005 as customers may elect to pursue other alternative network carriers with
alternative coverage. We are making every effort to retain our customers or
migrate them to our iMotient Solutions(TM) product and services, but Motient can
make no assurances that it will be able to retain these customers.
38
By revenue segment, we note that:
o Wireless Internet: The revenue decline in the Wireless Internet sector
during this period represented customer losses that we are experiencing in
both our direct and reseller channels as a result of the migration of
Wireless Internet customers to other networks with additional features,
such as voice-capable wireless internet devices. These customer losses have
been exacerbated because Research in Motion, or RIM, no longer manufactures
any devices which will operate on our DataTac network, which has and will
continue to negatively impact the ability of our resellers to add new
devices to our network to replace those that are migrating from their
respective customer bases. These factors, in addition to our continued
network reduction efforts, may lead to additional declining Wireless
Internet revenues in 2005. In September 2005, we recorded $0.3 million of
revenues from RIM that had previously been deferred related to the
settlement of a dispute over certain overage charges the Company charged
RIM in 2003, 2004 and 2005. This dispute has been resolved and will not
recur in any later period. Motient is currently exploring ways to offer
Wireless Internet services under our iMotient Solutions(TM) platform, but
Motient can make no assurances that it will ever be able to effective offer
such a product.
o Field Services: The decrease in field service revenue was primarily the
result of the termination of several large customer contracts, including
IBM, Brinks, Bannex, Pitney Bowes and Schindler, as well as the general
reduction of units and/or rates across the remainder of our field service
customer base. Our network changes, discussed above, may put further
negative pressure on our revenues in this market segment in 2005. Motient
believes that this market segment will potentially present new
opportunities to generate new revenues with our iMotient Solutions(TM)
products and services.
o Transportation: The decrease in revenue from the transportation sector was
primarily the result of UPS removing units from our network. UPS
represented $0.1 million and $0.4 million of revenue for the three and nine
months ended September 30, 2005 as compared to $0.2 million and $0.7
million of revenue for the three and nine months ended September 30, 2004.
Our network changes, discussed above, may put further negative pressure on
our revenues in this market segment in 2005. Motient believes that this
market segment will potentially present new opportunities to generate new
revenues with our iMotient Solutions(TM) products and services.
o Telemetry: While we experienced revenue growth in certain telemetry
customer accounts, this revenue growth was equally offset by customer
losses in other telemetry accounts. Our network changes, discussed above,
may put further negative pressure on our revenues in this market segment in
2005. Motient believes that this market segment will potentially present
new opportunities to generate new revenues with our iMotient Solutions(TM)
products and services.
o iMotient: We activated our first customer units and generated our initial
revenue from the iMotient platform in February of 2005. As of September 30,
2005, we had 2,096 billable units utilizing our iMotient platform and
generated $0.2 million in revenues for the nine months ended September 30,
2005. We expect iMotient revenues to increase over the course of 2005.
39
o All Other: The decrease in other revenue for the nine months ended
September 30, 2005 as compared to the same period in 2004 was primarily due
to the termination of our agreements with Verizon and T-Mobile, which
allowed us to sell and promote wireless email and wireless internet
applications on their networks. We no longer generate significant revenues
in this product segment and do not expect to generate material revenues in
the future. The increase in other revenue for the three months ended
September 30, 2005 as compared to the same period in 2004 was the result of
certain consulting revenues related to certain customer projects.
o Equipment: The decrease in equipment revenues for these periods was the
result of the decline sales of devices attributable to our now-terminated
agency and dealer agreements with Verizon and T-Mobile.
Operating Expenses
The tables below summarize our operating expenses for the three and nine months
ended September 30, 2005 and 2004. An explanation of certain changes in
operating expenses is set forth below.
<table>
Three Months Ended September 30,
--------------------------------------
Summary of Expenses 2005 (1) 2004 (2) Change % Change
- ------------------- -------- -------- ------ --------
(in millions)
Cost of Service and Operations $ 3.9 $ 7.8 $ (3.9) (50)%
Cost of Equipment Sales 0.1 0.9 (0.8) (89)
Sales and Advertising 0.2 0.2 -- --
General and Administration 7.6 2.0 5.6 280
Research and Development 1.3 -- 1.3 --
Operational Restructuring Costs -- -- -- --
Depreciation and Amortization 4.1 3.7 0.4 11
(Gain)/Loss on Asset Disposal 0.7 -- 0.7 100
(Gain) on Debt & Capital Lease Retirement -- -- -- --
------- ------- ------ -------
Total $ 17.9 $ 14.6 $ 3.3 22%
======= ======= ====== =======
</table>
(1) Includes expenses of $1.3 million related to stock compensation.
(2) Includes expenses of $0.1 million related to stock compensation.
<table>
Nine Months Ended September 30,
--------------------------------------
Summary of Expenses 2005 (1) 2004 (2) Change % Change
- ------------------- -------- -------- ------ --------
(in millions)
Cost of Service and Operations $ 16.6 $ 29.5 $ (12.8) (44)%
Cost of Equipment Sales 0.9 3.7 (2.9) (76)
Sales and Advertising 0.8 2.1 (1.3) (62)
General and Administration 26.6 6.9 19.6 283
Research and Development 1.7 -- 1.7 --
Operational Restructuring Costs 5.7 6.3 (0.6) (10)
Depreciation and Amortization 12.8 12.1 0.7 6
(Gain)/Loss on Asset Disposal 0.7 -- 0.7 --
(Gain) on Debt & Capital Lease Retirement -- (0.8) 0.8 100
------- ------- ------ -------
Total $ 65.8 $ 59.8 $ 5.9 10%
======= ======= ====== =======
</table>
(1) Includes compensation expense of $12.6 million related to stock
compensation.
(2) Includes compensation expense of $4.0 million related to stock
compensation.
40
o Cost of Service and Operations: Our largest single cost center is the cost
of service and operations, which includes costs to support subscribers,
such as network telecommunications charges and site rent for network
facilities, network operations employee salary and related costs, network
and hardware and software maintenance charges, among other things. The
decrease in these expenses was partially the result of lower employee
salary and related costs of $0.3 million and $1.1 million for the three and
nine months ended September 30, 2005 as compared to the same periods in
2004 due to workforce reductions implemented in February 2004 and March
2005. The decrease in these expenses was also partially the result of lower
fees paid to RIM of $0.6 and $2.2 million for the three and nine months
ended September 30, 2005 as compared to the same periods in 2004 for
licensing Blackberry as a result of the decline of Wireless Internet units
and revenues, which fees we anticipate will continue to decline in the
future as well. The decrease in these expenses was also impacted by the
continued removal of older-generation base stations from the network and
the removal of base stations and other network equipment under our network
rationalization efforts initiated in the second quarter of 2004 and the
first quarter 2005 and the resulting decreases in telecommunications of
$1.5 million and $4.9 million for the three and nine months ended September
30, 2005 as compared to the same periods in 2004, site lease rental cost
decreases of $0.9 million and $2.9 million for the three and nine months
ended September 30, 2005 as compared to the same periods in 2004 and base
station maintenance decreases of $0.1 million and $0.6 million for the
three and nine months ended September 30, 2005 as compared to the same
periods in 2004. As we continue to remove base stations from the network,
these costs will continue to decrease. The decrease in costs of service and
operations was also partially the result of reductions in hardware and
software maintenance costs as a result of the network rationalization
efforts and negotiation of lower rates on maintenance service contracts in
2004. The decreases in costs discussed above were partially offset by
compensation expenses associated with stock options issued to employees of
$(0.5) and $0.6 million for the three and nine months ended September 30,
2005. Compensation expenses associated with stock options issued to
employees totaled $0.7 and $2.0 million for the three and nine months ended
September 30, 2004. Excluding these compensation charges, cost of service
and operations decreased $3.4 million, or 44%, for the three months ended
September 30, 2005, and $11.3 million, or 41%, for the nine months ended
September 30, 2005 as compared to the same periods in 2004. Given our
ongoing cost-reduction efforts, we expect these costs to continue to
decrease. The extent of the decrease will depend both upon our ability to
successfully manage our cost-reduction efforts as well as the necessity for
these expenditures in the future if our customer base declines.
o Cost of Equipment: The decrease in cost of equipment was the result of the
elimination of sales of devices attributable to agency and dealer
agreements with Verizon Wireless and T-Mobile USA. Our efforts to sell
under our agent relationships with T-Mobile USA and Verizon Wireless were
reduced significantly in the third and fourth quarter of 2004 and these
contracts were terminated in the fourth quarter of 2004 to accommodate our
agreements with Sprint and Cingular. We anticipate that these costs will be
minor in the future given the elimination of the T-Mobile USA and Verizon
Wireless reseller agreements.
o Sales and Advertising: Sales and advertising expense was approximately the
same for the three month period ended September 30, 2005 as compared to the
same period for 2004. The decrease in sales and advertising expense for the
nine month period ended September 30, 2005 as compared to the same period
41
for 2004 was primarily attributable to lower employee salaries of $0.7
million, including sales commissions, due to lower sales volumes and the
workforce reductions implemented in February 2004 and March 2005. These
decreases included compensation expenses associated with stock options
issued to employees of $0.0 and $0.1 million for the three and nine months
ended September 30, 2005 as compared to $0.1 and $0.8 million for the same
periods in 2004. Excluding these compensation charges, sales and
advertising expense decreased $0.0 million, or 9%, for the three months
ended September 30, 2005, and $0.5 million, or 44%, for the nine months
ended September 30, 2005 as compared to the same periods in 2004. We
anticipate that these costs will increase in the future in conjunction with
our increasing efforts to sell and promote our iMotient Solutions(TM)
platform.
o General and Administrative: The increase in general and administrative
expenses was primarily attributable to increases in legal, audit and
regulatory fees, fees paid to advisors and consultants for both TerreStar
and Motient. Our audit expenses increased $0.3 and $1.5 million for the
three and nine months ended September 30, 2005 as compared to the same
periods in 2004, mainly due to our requirements to comply with
Sarbanes-Oxley guidelines for 2004 and our corporate finance activity in
the first and second quarters of 2005. Legal and regulatory fees increased
$2.5 and $2.7 million for the three and nine months ended September 30,
2005 as compared to the same periods in 2004 as a result of our corporate
finance activity in the first nine months of 2005, our mergers and
acquisitions activity in the first nine months, our litigation support
requirements and our related reporting and security registration
requirements. General and administrative expenses also increased as a
result of certain costs to support our development efforts with TerreStar
and certain regulatory fees paid related to our rationalization efforts and
our Motient Communications frequencies. Consulting and advisory fees
increased $1.4 and $12.2 million for the three and nine months ended
September 30, 2005 as compared to the same periods in 2004 due to certain
corporate finance related fees discussed below, fees paid to consultants to
support our regulatory efforts for both Motient Communications and
TerreStar and consulting support we utilize for our success-based site
lease negotiation efforts. A consulting fee of $3.7 million, consisting of
$0.9 million in cash and 95,000 shares of stock valued at $2.8 million, was
paid to CTA and an affiliated entity of Gary Singer in the first quarter of
2005 for services rendered in conjunction with the acquisition of further
MSV interests from Telcom Ventures, Columbia Capital and Spectrum Equity in
February 2005. Salaries increased $0.3 million and $0.4 million for the
three and nine months ended September 30, 2005 as compared to the same
periods in 2004 mainly due to the TerreStar salary expenses. These
increases were partially offset by lower directors and officers liability
insurance costs. General and Administrative expenses include approximately
$2.9 million of general and administrative costs from TerreStar from the
period May 11, 2005 to September 30, 2005. We expect these costs from
TerreStar to increase in the future as development efforts on its satellite
system accelerate. Compensation expense associated with stock options
issued under the Company's stock option plan and the stock issued to
advisors as a result of the corporate finance activity discussed above
totaled $1.8 and $12.0 million for the three and nine months ended
September 30, 2005. Compensation expenses associated with stock options
issued to employees totaled $0.1 and $1.1 million for the same periods in
2004. Excluding these compensation charges, general and administrative
expenses increased $3.9 million, or 201%, for the three months ended
September 30, 2005, and $8.8 million, or 151%, for the nine months ended
42
September 30, 2005 as compared to the same periods in 2004. We anticipate
certain general and administrative costs will decline in the future in
conjunction with the completion of our initial Sarbanes-Oxley report, and
our overall cost-cutting efforts. As we expand our efforts on TerreStar,
however, related general and administrative expenses are anticipated to
increase.
o Research and Development: Research and development consists of
approximately $1.3 and $1.7 million of research and development costs from
TerreStar for the three months ended September 30, 2005 and the period May
11, 2005 to September 30, 2005. We expect these costs from TerreStar to
increase in the future as development efforts on its satellite system
accelerate.
o Operational Restructuring Charges: The 2005 operational restructuring
charges of $5.7 million include $0.1 million in the first quarter of 2005
resulting from the severance and related salary charges as a result of the
reductions in force in March 2005 and $5.6 million in the second quarter of
2005 resulting from additional network rationalization initiatives in June
2005. Operational restructuring charges of $6.3 million in 2004 consist of
$1.2 million in the first quarter of 2004 resulting from the severance and
related salary charges as a result of the reductions in force in February
2004, and $5.1 million in the second quarter of 2004 related to certain
network rationalization initiatives in June 2004.
o Depreciation and Amortization: Depreciation and amortization expense
increased $1.3 and $2.0 million for the three months ended September 30,
2005 and the period May 11, 2005 to September 30, 2005 as a result of the
amortization of our intangible assets of TerreStar and $1.8 million for the
nine months ended September 30, 2005 due to our June 2005 network
rationalization for which we accelerated the depreciation of certain base
station equipment. Excluding these items, our depreciation and amortization
expense declined $1.1 million or 30% and $3.1 million or 26% for the three
and nine months ended September 30, 2005 as compared to the same periods
for 2004. Our depreciation expense declined as a result of our decline in
asset value related to network reduction efforts in 2004 and 2005 and our
write-down of related assets and reduced amortization as a result of our
additional impairment of our customer contract intangibles in December
2004. As a result of continued network restructuring initiatives planned in
2005, we expect depreciation and amortization to continue to decrease in
2005.
43
Other Expenses & Income
<table>
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
September 30, September 30 September 30 September 30,
Summary of Expenses 2005 2004 2005 2004
- ------------------- ---- ---- ---- ----
(in thousands)
Interest Income (Expense), net $ 2,755 $ (556) $ 4,870 $ (3,595)
Write-off of deferred financing costs -- -- -- (8,052)
Other Income, net -- 66 80 265
Other Income from UPS 1,112 -- 1,112 --
Other Income from Aether -- 650 -- 1,957
Equity in Losses of Mobile Satellite Ventures (3,954) (3,779) (18,675) (8,617)
Minority Interest in TerreStar 1,348 -- 1,752 --
</table>
o For the three and nine months ended September 30, 2005, we generated
interest income of $2.8 and $4.9 million on cash balances from the proceeds
of our financing transactions. In 2004, we generated interest income on the
interest accrued on our note receivable from MSV, however, as a result of
November 2004 investment transaction into MSV, the principal and interest
outstanding under our note receivable from MSV was converted into limited
partnership units in MSV. Interest expense decreased for the three and nine
months ended September 30, 2005 as compared to the same periods in 2004,
due to income on cash balances, the April 2004 repayment of our term credit
facility and its subsequent termination on December 31, 2004.
o In April 2004, we expensed $8.1 million of deferred financing costs related
to the repayment of our term credit facility.
o Other income of $1.1 million is related to the September 2005 UPS
agreement. Motient made a payment of $2.0 million to UPS, and in exchange,
all but $0.6 million of the outstanding prepayment of $3.7 million was
terminated.
o We recorded equity in losses of MSV of $4.0 and $18.7 million for the three
and nine months ended September 30, 2005, as compared to $3.8 and $8.6
million for the same periods in 2004. The 2005 MSV losses are Motient's
38.6% and 48.8% of MSV's losses for the same period, and losses for 2004
are Motient's 46.5% of MSV's losses for the same period. For the three and
nine months ended September 30, 2005, MSV had revenues of $7.9 and $22.6
million, operating expenses of $27.0 and $61.5 million and net losses of
$6.7 and $33.4 million, respectively.
o For the three months ended September 30, 2005 and the period May 11, 2005
through September 30, 2005, the Company recorded approximately a $3.4 and
$4.5 million net loss respectively for TerreStar Networks. The $1.3 and
$1.8 million minority interest in TerreStar represents the approximately
39% of TerreStar Networks that is not owned by the Company.
Liquidity and Capital Resources
As of September 30, 2005, we had approximately $240 million of cash and cash
equivalents, which includes approximately $150 million of unrestricted cash held
by TerreStar. Approximately $42 of additional cash, also as of September 30,
2005 is held in an escrow account that will be used to make payments in
44
accordance with our TerreStar satellite construction contract with Space
Systems/Loral, Inc. Approximately $43 million of additional cash, also as of
September 30, 2005 is held in an escrow account that will be used to make the
first two years of dividend payments on our Series A and Series B Preferred
Stock. The first such payment, representing interest earned for the first six
months of such period, was made on October 15, 2005.
The increase of $223 million from September 30, 2004 is mainly attributable to
an increase in cash provided by financing activities, offset by decreases in net
cash used in operating and investing activities, as described below. Our
principal source of funds is currently, and as of September 30, 2005, cash on
hand.
On November 4, 2005, the Executive Committee of the Board of Directors of
Motient Corporation authorized Motient to repurchase up to $50 million of its
outstanding common shares. Motient intends to repurchase shares from time to
time in the open market or otherwise under this program. The number of shares to
be purchased and the timing of the purchases will be based on the level of cash
balances, general business conditions and other factors, including alternative
investment opportunities. The program may be discontinued at any time.
Summary of Cash Flow for the nine months ended September 30, 2005 and 2004
<table>
Nine Months Ended Nine Months Ended
September 30, 2005 September 30, 2004
(Unaudited) (Unaudited)
----------- -----------
Cash Flows from Operating Activities: $ (21,854) $ (14,578)
Cash Flows from Investing Activities: (82,170) 2,445
Cash Flows from Financing Activities:
Proceeds from issuance of employee stock options 1,241 1,235
Proceeds from issuance of stock 679 55,480
Stock issuance costs and other charges (9) (1,422)
Principal payments under capital leases -- (2,419)
Proceeds from issuance of Series A Cumulative
Convertible Preferred Stock 408,500 --
Issuance cost associated with Series A Cumulative
Convertible Preferred Stock (17,483) --
Principal payments under Vendor Financing -- (2,582)
Repayment under Term Credit Facility -- (6,785)
Proceeds from Term Credit Facility -- 1,500
Repayment of Notes Payable (8,739) (19,750)
Purchase of treasury stock (56,916) --
--------- ---------
Net cash provided by financing activities 327,273 25,257
--------- ---------
Net increase in cash and cash equivalents 223,249 13,124
Cash and Cash Equivalents, beginning of period 16,945 3,618
--------- ---------
Cash and Cash Equivalents, end of period $ 240,194 $ 16,742
========= =========
</table>
Cash used in operating activities increased primarily as a result of decreases
in funds provided by revenue and increases in certain fees and expenses related
to financial reporting requirements, corporate finance transactions and
TerreStar expenses. While we are attempting to reduce cash used in operating
activities as a result of our cost cutting efforts and through our attempts to
increase our revenues by focusing on our iMotient Solutions(TM) products and
services, it is possible revenue declines will be sufficient to offset or
overtake the cash saved by our cost cutting efforts in the future.
45
The increase in cash used in investing activities was attributable to increases
in restricted cash consisting of approximately $42 million related to the
satellite construction contract for TerreStar Networks, approximately $43
million related to future interest payments on Series A and Series B Cumulative
Convertible Preferred Stock and capital equipment purchases of approximately $2
million for TerreStar in the first nine months of 2005 as compared to the same
period in 2004, offset by $6 million in restricted cash acquired in the
TerreStar purchase.
The increase in cash provided by financing activities was the result of the
proceeds from the preferred stock financing completed in April 2005 and the
exercise of certain employee stock options and warrants, offset by the repayment
of the TerreStar note payable to MSV, the purchase of treasury stock and
deferred financing fees related to the Series A Cumulative Convertible Preferred
Stock.
We believe that our funds available at September 30, 2005 will be adequate to
satisfy our current and planned operations for at least the next 12 months. We
have no definite plans with respect to the acquisition of any additional debt or
equity financing. However, to the extent that we require additional liquidity to
fund our operations (including, but not limited to, construction costs of
TerreStar's communications network), we may undertake additional debt or equity
financings.
Outstanding Obligations
As of September 30, 2005, Motient had no outstanding debt obligations other than
obligations with respect to the repayment of its Series A Preferred Stock. On
October 27, 2005, $318.5 million of the Series A Preferred Stock was exchanged
for Series B Preferred Stock, which has substantially identical economic terms.
If not converted or repaid, the entire amount of $408.5 million of Series A and
Series B Preferred Stock will be due on April 15, 2010. The first two years'
dividend payments (approximately $43 million) were placed in escrow, and
approximately $11 million of such escrowed funds were distributed on October 15,
2005. Future dividend payments will be due bi-annually, payable in cash (at a
5.25% annual interest rate) or in common stock (at a 6.25% annual interest
rate).
Restructuring Costs
In February 2004, the Company recorded a restructuring charge for a workforce
reduction of $1.1 million. In June 2004, the Company recorded a restructuring
charge of $5.1 million related to certain network rationalization initiatives,
consisting of base station deconstruct costs of $0.5 million, the loss on the
retirement of certain base station equipment of $2.8 million and termination
liabilities of $1.8 million for site leases no longer required for removed base
stations. In March 2005, the Company recorded a restructuring charge for a
further workforce reduction of $0.1 million. In June 2005, the Company recorded
a restructuring charge of $5.6 million related to additional network
rationalization initiatives, consisting of base station deconstruct costs of
$0.1 million, the loss on the cancellation of frequencies of $3.6 million and
termination liabilities of $1.9 million for site leases no longer required for
removed base stations. Of these amounts, as of June 30, 2005, the Company had
incurred workforce reduction cost of $0.9 million, base station deconstruct
costs of $0.5 million, the loss on the retirement of certain base station
equipment of $2.8 million, termination liabilities of $1.4 million for site
leases no longer required for removed base stations and $3.6 million for the
cancellation of frequencies.
46
The following table displays the activity and balances of the restructuring
reserve account from January 1, 2004 to September 30, 2005:
Base Station
Employee FCC License Asset Base Station FCC License Site Lease
Terminations Terminations Write-Offs Deconstruction Terminations Terminations Total
------------ ------------ ---------- -------------- ------------ ------------ -----
Balance January 1,
2004 $--- $--- $--- $--- $--- $--- $---
- ------------------------------------------------------------------------------------------------------------------------------
Restructure Charge (1,107) --- --- --- --- --- (1,107)
Deductions - Cash 333 --- --- --- --- --- 333
- ------------------------------------------------------------------------------------------------------------------------------
Balance March 31,
2004 (774) --- --- --- --- --- (774)
- -----------------------------------------------------------------------------------------------------------------------------
Restructure Charge --- --- (2,795) (398) (113) (1,854) (5,160)
Deductions - Cash 242 --- --- 75 25 61 403
Deductions - Non-
Cash --- --- 2,795 --- --- --- 2,795
- -----------------------------------------------------------------------------------------------------------------------------
Balance June 30,
2004 (532) --- --- (323) (88) (1,793) (2,736)
- ------------------------------------------------------------------------------------------------------------------------------
Deductions - Cash 132 --- --- 252 39 416 839
- ------------------------------------------------------------------------------------------------------------------------------
Balance September 30,
2004 (400) --- --- (71) (49) (1,377) (1,897)
- ------------------------------------------------------------------------------------------------------------------------------
Deductions - Cash 50 --- --- 71 54 435 610
- ------------------------------------------------------------------------------------------------------------------------------
Balance December 31,
2004 (350) --- --- --- 5 (942) (1,287)
- ------------------------------------------------------------------------------------------------------------------------------
Restructure Charge (85) --- --- --- --- --- (85)
Deductions - Cash 39 --- --- --- --- 197 236
- ------------------------------------------------------------------------------------------------------------------------------
Balance March 31,
2005 (396) --- --- --- 5 (745) (1,136)
- ------------------------------------------------------------------------------------------------------------------------------
Restructure Charge --- (3,581) --- (147) --- (1,852) (5,580)
- ------------------------------------------------------------------------------------------------------------------------------
Increase due to
reclassification of
site lease accrual --- --- --- --- --- (206) (206)
- ------------------------------------------------------------------------------------------------------------------------------
Deductions - Cash 164 --- 24 --- 498 686
- ------------------------------------------------------------------------------------------------------------------------------
Deductions - Non-
Cash --- 3,581 --- --- --- --- 3,581
- ------------------------------------------------------------------------------------------------------------------------------
Balance June 30, (232) --- --- (123) 5 (2,305) (2,655)
2005
- ------------------------------------------------------------------------------------------------------------------------------
Deductions - Cash 232 --- --- 123 --- 620 975
- ------------------------------------------------------------------------------------------------------------------------------
Deductions - Non-
Cash --- --- --- (5) --- (5)
- ------------------------------------------------------------------------------------------------------------------------------
Balance September 30,
2005 $--- $--- $--- $--- $--- $(1,685) $(1,685)
- ------------------------------------------------------------------------------------------------------------------------------
Commitments
As of September 30, 2005, we had no outstanding commitments to purchase
inventory.
47
Series A Cumulative Convertible Preferred Stock
- -----------------------------------------------
The Company accounts for Series A Cumulative Convertible Preferred Stock under
Accounting Series Release 268. "Redeemable Preferred Stocks". On April 15, 2005,
the Company issued 408,500 shares of Series A Preferred Stock, par value of
$0.01; 5,000,000 shares authorized at June 30, 2005 and December 31, 2004;
408,500 shares issued and outstanding at September 30, 2005, no shares issued or
outstanding at December 31, 2004. On October 26, 2005, $318.5 million (318,500
shares) of the Series A Preferred Stock was exchanged for a like amount of
Series B Preferred Stock, which has substantially identical economic terms.
On August 16, 2005, Highland Equity Focus Fund, L.P., Highland Crusader Offshore
Partners, L.P., Highland Capital Management Services, Inc., and Highland Capital
Management, L.P. filed a lawsuit in Dallas County, Texas against Motient
challenging the validity of the Series A Preferred on the basis of the confusion
regarding the voting rights of the Series A Preferred and seeking rescission of
their purchase of the shares of Series A Preferred that they purchased from
Motient in the private placement in April 2005. These entities acquired 90,000
shares of Series A Preferred for a purchase price of $90 million in that private
placement. Motient believes that this claim is without merit and intends to
vigorously defend this lawsuit.
UPS Deferred Revenue and Prepayment
- -----------------------------------
In December 2002, Motient entered into an agreement with UPS pursuant to which
UPS prepaid an aggregate of $5 million in respect of network airtime service to
be provided beginning January 1, 2004. In April 2005, this agreement was
amended, and then in September 2005, the agreement was amended again. Motient
made a payment of $2.0 million to UPS, and in exchange, all but $0.6 million of
the outstanding prepayment of $3.7 million was terminated. The remaining $0.6
million prepayment must be used by UPS prior to March 31, 2006. If not used, UPS
will forfeit this prepayment, and it will not be repaid.
Critical Accounting Policies and Significant Estimates
- ------------------------------------------------------
Below are our accounting policies, which are both important to our financial
condition and operating results, and require management's most difficult,
subjective and complex judgments in determining the underlying estimates and
assumptions. The estimates and assumptions affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the date
of the consolidated financial statements and the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from those
estimates, as they require assumptions that are inherently uncertain.
Concentrations of Credit Risk
- -----------------------------
For the three months ended September 30, 2005, four customers accounted for
approximately 47% of the Company's service revenue, with two customers, RIM and
SkyTel accounting for 18% and 16%, respectively. In September 2005, we
recognized $0.3 million of deferred revenue from RIM related to the settlement
of a dispute over certain overage charges the Company charged RIM in 2003, 2004
and 2005. Excluding the $0.3 million, RIM accounted for 11% of the Company's
service revenue for the three months ended September 30, 2005. For the nine
months ended September 30, 2005, four customers accounted for approximately 37%
48
of the Company's service revenue, with one customer, SkyTel Communications, Inc.
("SkyTel"), accounting for more than 12%. As of September 30, 2005, two
customers, Geologic Solutions and Avaya, Inc. accounted for approximately 11%
and 10%, respectively of our net accounts receivable. No other single customer
accounted for more than 10% of our net accounts receivable. For the three month
period ended September 30, 2004, four customers accounted for approximately 44%
of the Company's service revenue, with one customer, SkyTel, accounting for more
than 23%. For the nine month period ended September 30, 2004, four customers
accounted for approximately 41% of the Company's service revenue, with one
customer, SkyTel, accounting for more than 21%. RIM accounted for 13% of the
Company's net accounts receivable at September 30, 2004; no other single
customer accounted for more than 9% of the Company's net accounts receivable at
September 30, 2004.
The revenue attributable to such customers varies with the level of network
airtime usage consumed by such customers, and none of the service contracts with
such customers requires that the customers use any specified quantity of network
airtime, nor do such contracts specify any minimum level of revenue. There can
be no assurance that the revenue generated from these customers will continue in
future periods.
Investment in MSV
- -----------------
The Company uses the equity method of accounting for its investment in MSV. The
Company considers whether the fair value of its investment has declined below
its carrying value whenever adverse events or circumstances indicate that the
recorded value may not be recoverable. If the Company considers such decline to
be other than temporary, a write down would be recorded to estimate fair value.
TerreStar Asset Purchase
- ------------------------
On May 11, 2005, Motient Ventures Holding Inc., or MVH, a wholly owned
subsidiary of Motient Corporation, purchased 8,190,008 shares of newly issued
common stock of TerreStar from TerreStar for $200 million pursuant to a Purchase
Agreement by and between MVH and TerreStar. On the same day, TerreStar was
spun-off by MSV to its limited partners and, in connection with that spin-off,
Motient acquired ownership of approximately 48% of the issued and outstanding
shares of capital stock of TerreStar and the subsequent $200 million stock
purchase increased Motient's ownership to its current 61% of TerreStar's issued
and outstanding common stock.
Assets acquired and liabilities assumed in the asset purchase were recorded on
the Company's Consolidated Balance Sheet as of the purchase date based upon
their fair values at such date. The results of operations of the net assets
acquired by the Company have been included in the Company's Statements of
Operations since its date of purchase. Approximately $78 million was allocated
to intangible assets that include the rights to receive licenses in the 2 GHz
band and other intangibles. These intangible assets are being amortized over an
average life of 15 years. Approximately $78 million represents the 39% minority
interest in TerreStar. There was no excess purchase price over the estimated
fair values of the underlying assets acquired and liabilities assumed. In
certain circumstances, the allocation of the purchase price is based upon
preliminary estimates and assumptions. Accordingly, the allocations are subject
to revision when the Company receives final information and other analyses.
Revisions to the fair values, which may be significant, will be recorded by the
Company as further adjustments to the purchase price allocations.
49
Deferred Taxes
- --------------
The Company accounts for income taxes under the liability method as required in
SFAS No. 109, "Accounting for Income Taxes". Under the liability method,
deferred income taxes are recognized for the tax consequences of "temporary
differences" by applying enacted statutory tax laws and rates applicable to
future years to differences between the financial statement carrying amounts and
the tax bases of existing assets and liabilities. Under this method, the effect
on deferred taxes of a change in tax rates is recognized in income in the period
that includes the enactment date. A valuation reserve is established for
deferred tax assets if the realization of such benefits cannot be sufficiently
assured.
Revenue Recognition
- -------------------
The Company generates revenue through equipment sales, airtime service
agreements and consulting services. In 2000, the Company adopted SAB No. 101,
which provides guidance on the recognition, presentation and disclosure of
revenue in financial statements. In certain circumstances, SAB No. 101 requires
the Company to defer the recognition of revenue and costs related to equipment
sold as part of a service agreement.
In December 2003, the Staff of the SEC issued SAB No. 104, "Revenue
Recognition", which supersedes SAB No. 101, "Revenue Recognition in Financial
Statements". SAB No. 104's primary purpose is to rescind accounting guidance
contained in SAB No. 101 related to multiple-element revenue arrangements and to
rescind the SEC's "Revenue Recognition in Financial Statements Frequently Asked
Questions and Answers" ("FAQ") issued with SAB No. 101. Selected portions of the
FAQ have been incorporated into SAB No. 104. The adoption of SAB No. 104 did not
have a material impact on the Company's revenue recognition policies.
Effective July 1, 2003, the Company adopted Emerging Issues Task Force (EITF)
No. 00-21, Accounting for Revenue Arrangements with Multiple Deliverables, which
is being applied on a prospective basis. The consensus addresses how to account
for arrangements that may involve the delivery or performance of multiple
products, services and/or rights to use assets. Revenue arrangements with
multiple deliverables are required to be divided into separate units of
accounting if the deliverables in the arrangement meet certain criteria.
Arrangement consideration must be allocated among the separate units of
accounting based on their relative fair values. The consensus also supersedes
certain guidance set forth in Securities and Exchange Commission (SEC) Staff
Accounting Bulletin Number 101, Revenue Recognition in Financial Statements (SAB
101). SAB 101 was amended in December 2003 by Staff Accounting Bulletin Number
104 (SAB 104).
Revenue is recognized as follows:
Service revenue: Revenues from the Company's wireless services are recognized
when the services are performed, evidence of an arrangement exists, the fee is
fixed and determinable and collectability is probable. Service discounts and
incentives are recorded as a reduction of revenue when granted, or ratably over
a contract period. The Company defers and amortizes any revenue and costs
associated with activation of a subscriber on the Company's network over an
estimated customer life of two years.
50
The Company packages airtime usage on its network that involves a wide variety
of volume packaging, anything from a 35 kilobytes per month plan up to unlimited
kilobyte usage per month, with various gradations in between. Discounts may be
applied when comparing one customer to another, and such service discounts are
recorded as a reduction of revenue when granted.
Service discounts and incentives are recorded as a reduction of revenue when
granted, or ratably over a contract period. The Company does not offer
incentives generally as part of its service offerings, however, if offered they
would be recorded as a reduction of revenue ratably over a contract period.
To date, the majority of the Company's business has been transacted with
telecommunications, field services, professional service and transportation
companies located throughout the United States. The Company grants credit based
on an evaluation of the customer's financial condition, generally without
requiring collateral or deposits. The Company establishes a valuation allowance
for doubtful accounts receivable for bad debt and other credit adjustments.
Valuation allowances for revenue credits are established through a charge to
revenue, while valuation allowances for bad debts are established through a
charge to general and administrative expenses. The Company assesses the adequacy
of these reserves quarterly, evaluating factors such as the length of time
individual receivables are past due, historical collection experience, the
economic environment and changes in credit worthiness of the Company's
customers. If circumstances related to specific customers change or economic
conditions worsen such that the Company's past collection experience and
assessments of the economic environment are no longer relevant, the Company's
estimate of the recoverability of its trade receivables could be further
reduced.
Equipment and service sales: The Company sells equipment to resellers who market
its terrestrial product and airtime service to the public. The Company also
sells its product directly to end-users. Revenue from the sale of the equipment,
as well as the cost of the equipment, are initially deferred and are recognized
over a period corresponding to the Company's estimate of customer life of two
years. Equipment costs are deferred only to the extent of deferred revenue.
As of September 30, 2005 and 2004, the Company had capitalized a total of $0.1
million and $1.5 million of deferred equipment revenue, respectively, and had
deferred equipment costs of $0.1 million and $1.5 million, respectively.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Quantitative and Qualitative Disclosures about Market Risk
Currently, we do not use derivative financial instruments to manage our interest
rate risk. We invest our cash in short-term commercial paper, investment-grade
corporate and government obligations and money market funds.
Item 4. Controls and Procedures
Evaluation of 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
51
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 as of the end of the period covered by this quarterly report on Form 10-Q.
As previously disclosed in the Company's annual Report on Form 10-K for the year
ended December 31, 2004, the Company determined that, as of the end of December
2004, there were material weaknesses affecting aspects of its internal control
over financial reporting and, as a result of those weaknesses, the Company's
disclosure controls and procedures were not effective. As described below, the
Company believes it has remediated those material weaknesses, but cannot
finalize the results of our third quarter testing until after the filing of our
September 30, 2005 Form 10-Q. Consequently, based on the evaluation described
above, the Company's management, including its principal executive officer and
principal financial officer, have concluded that, as of the end of the third
quarter of 2005, the Company's disclosure controls and procedures were not
effective.
Changes in internal control over financial reporting
During the second and third quarters of 2005, the Company was engaged in an
ongoing review of its internal control over financial reporting as described
below. Based on that review, management believes that during 2005 there were
changes in the company's internal control over financial reporting, as described
below, that have materially affected, or are reasonably likely to materially
affect, those controls.
We believe that the corrective actions described below, 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. It is expected that all in process
remediation and interim testing will be completed by the end of the fourth
quarter 2005.
Two material weaknesses have been identified by management, including our
principal executive officer and principal financial officer as part of our SOX
process 404 report completed on April 30, 2005.
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.
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.
52
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 conducted a review and
evaluation of the access to our financial reporting software applications by all
personnel, and reassigned 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 written and have implemented remedial control procedures to
address (i) operating systems access and (ii) control policies and
procedures in certain transaction cycles. We are in the process of
implementing remedial control procedures to address: (i) information
technology back-up and recovery and (ii) firewall protections.
o We have implemented additional monitoring activities, as well as
evaluated 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 are utilizing the
consulting services of an independent certified public accounting firm
and we subscribe to a GAAP and SEC compliance service. 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, have been remedied with the addition of these
additional resources.
53
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Please see the discussion regarding Legal Proceedings contained in Note 4
("Legal and Regulatory Matters") of notes to consolidated financial statements,
which is incorporated by reference herein.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
On October 26, 2005, Motient completed an exchange offer in which it allowed
each holder of Series A Preferred the opportunity to exchange their shares of
Series A Preferred and a release of any claims relating to the issuance of the
Series A Preferred for shares of Series B Preferred, which will have rights,
preferences and privileges substantially identical to the Series A Preferred,
except that upon (a) the accumulation of accrued and unpaid dividends on the
outstanding shares of Series B Preferred for two or more six month periods,
whether or not consecutive; (b) the failure of Motient to properly redeem the
Series B Preferred Stock, or (c) the failure of Motient to comply with any of
the other covenants or agreements set forth in the Certificate of Designations
for the Series B Preferred Stock, and the continuance of such failure for 30
consecutive days or more after receipt of notice of such failure from the
holders of at least 25% of the Series B Preferred then outstanding, then the
holders of at least a majority of the then-outstanding shares of Series B
Preferred, with the holders of shares of any parity securities upon which like
voting rights have been conferred and are exercisable, voting as a single class,
will be entitled to elect a majority of the members of Motient's Board of
Directors for successive one-year terms until such defect listed above has been
cured. All of the holders of the Series A Preferred except for those affiliated
with Highland Capital Management exchange their shares in this offer.
Accordingly, approximately 318,500 shares of Series A Preferred shares were
exchanged for Series B Preferred shares of the same face amount, and 90,000
shares of Series A Preferred shares remain outstanding.
Issuer Purchases of Equity Securities
During the fiscal quarter ended September 30, 2005, we repurchased shares of our
common stock on the dates and in the amounts set forth in the table below:
- -------------------------------------------------------------------------------------------------------------
Period (a) Total Number of (b) Average Price (c) Total Number of (d) Maximum Number
Shares (or Units) Paid per Share (or Shares (or Units) (or Approximate
Purchased Unit) Purchased as Part Dollar Value) of
of publicly Shares (or Units)
Announced Plans or that May Yet Be
Programs Purchased Under the
Plans or Programs
- -------------------------------------------------------------------------------------------------------------
July 1, 2005 - July 31, 0 N/A 0 0
2005
- -------------------------------------------------------------------------------------------------------------
August 1, 2005 - August 0 N/A 0 0
31, 2005
- -------------------------------------------------------------------------------------------------------------
September 1, 2005 - 6,989 $23.75 0 0
September 30, 2005
- -------------------------------------------------------------------------------------------------------------
Total 6,989 $23.75 0 0
- -------------------------------------------------------------------------------------------------------------
(1) All shares were repurchased in privately negotiated transactions.
Item 6. Exhibits
The Exhibit Index filed herewith is incorporated herein by reference.
54
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)
March 30, 2006 /s/Christopher W. Downie
------------------------
Christopher W. Downie
Executive Vice President,
Chief Operating Officer and
Treasurer (principal
executive officer and duly
authorized officer to sign
on behalf of the
registrant)
55
EXHIBIT INDEX
Number Description
3.1 - Certificate of Designations of the Series A Cumulative
Convertible Preferred Stock (incorporated by reference to
Exhibit 3.1 to the Company's Current Report on Form 8-K
filed on April 18, 2005)
3.2 - Certificate of Correction to the Series A Cumulative
Convertible Preferred Stock (incorporated by reference to
Exhibit 3.2 to the Company's Current Report on Form 8-K/A
filed on August 2, 2005)
3.3 - Amendment to Restated Certificate of Incorporation
(incorporated by reference to Motient's Registration
Statement on Form S-1 filed on June 24, 2005).
3.4 - Certificate of Designations of the Series B Cumulative
Convertible Preferred Stock (incorporated by reference to
Exhibit 3.1 to the Registrant's Current Report on Form 8-K
dated October 31, 2005)
10.56 - Consent Agreement, dated January 27, 2005, by and among
Columbia Space (QP), Inc., et al (incorporated by reference
to Exhibit 10.56 to the Company's Registration Statement on
Form S-1/A filed on February 14, 2005)
10.57 - Merger Agreement, dated as of February 9, 2005, by and among
Motient Corporation, Telcom Satellite Ventures Inc., et al
(incorporated by reference to Exhibit 10.57 to the Company's
Registration Statement on Form S-1/A filed on February 14,
2005)
10.58 - Form of Stock Purchase Agreement, dated February 9, 2005
(incorporated by reference to Exhibit 10.58 to the Company's
Registration Statement on Form S-1/A filed on February 14,
2005)
10.59 - Registration Rights Agreement, dated February 9, 2005 by and
among Motient Corporation, Telcom Satellite Ventures Inc.,
et al (incorporated by reference to Exhibit 10.59 to the
Company's Registration Statement on Form S-1/A filed on
February 14, 2005)
10.60 - Form of Warrant to purchase Motient common stock, dated
February 9, 2005 (incorporated by reference to Exhibit 10.60
to the Company's Registration Statement on Form S-1/A filed
on February 14, 2005)
10.61 - Form of Stockholder's Agreement, dated February 9, 2005
(incorporated by reference to Exhibit 10.61 to the Company's
Registration Statement on Form S-1/A filed on February 14,
2005)
56
10.62 - Securities Purchase Agreement dated April 15, 2005 by and
among the Registrant and the Purchasers listed on Schedule 1
thereto (incorporated by reference to Exhibit 10.1 to the
Company's Current Report on Form 8-K filed on April 18,
2005)
10.63 - Amended and Restated Registration Rights Agreement dated
October 26, 2005 by and among the Registrant and the
Purchasers listed on Schedule 1 thereto (incorporated by
reference to Exhibit 10.1 to the Registrant's Current Report
on Form 8-K dated October 31, 2005)
10.64 - Form of Common Stock Purchase Warrant (incorporated by
reference to Exhibit 10.3 to the Company's Current Report on
Form 8-K filed on April 18, 2005)
10.65 - Purchase Agreement dated May 11, 2005 by and between Motient
Ventures Holding Inc. and TerreStar Networks Inc.
(incorporated by reference to Exhibit 10.1 to the
Registrant's Current Report on Form 8-K dated May 11, 2005)
10.66 - Conditional Waiver and Consent Agreement dated May 11, 2005
by and among the Registrant and each other party listed on
the signature page thereto (incorporated by reference to
Exhibit 10.2 to the Registrant's Current Report on Form 8-K
dated May 11, 2005)
10.67 - Stockholders Agreement dated May 11, 2005 by and among
Motient Ventures Holding Inc. and the other parties thereto
(incorporated by reference to Exhibit 10.3 to the
Registrant's Current Report on Form 8-K dated May 11, 2005)
10.68 - Purchase Agreement dated May 13, 2005 by and between Motient
Corporation and George Haywood (incorporated by reference to
Exhibit 10.1 to the Registrant's Current Report on Form 8-K
dated May 19, 2005)
10.69 - Form of Purchase Agreement dated May 17, 2005 by and between
Motient Corporation and Columbia Capital Investors III, LLC,
et al (incorporated by reference to Exhibit 10.2 to the
Registrant's Current Report on Form 8-K dated May 19, 2005)
10.70 - Amendment to Motient Corporation 2002 Stock Option Plan
(incorporated by reference to Motient's Registration
Statement on Form S-1 filed June 24, 2005)
10.71 - Amended and Restated Registration Escrow Agreement dated
October 26, 2005 by and among the Registrant and
Computershare (incorporated by reference to Exhibit 10.2 to
the Registrant's Current Report on Form 8-K dated October
31, 2005)
31.1 - Certification Pursuant to Rule 13a-14(a)/15d-14(a), of the
Executive Vice President, Chief Operating Officer and
Treasurer (principal executive officer) (filed herewith).
31.2 - Certification Pursuant to Rule 13a-14(a)/15d-14(a), of the
Controller and Chief Accounting Officer (principal financial
officer) (filed herewith)
57
32.1 - Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
of the Executive Vice President, Chief Operating Officer and
Treasurer (principal executive officer) (filed herewith).
32.2 - Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
of the Controller and Chief Accounting Officer (principal
financial officer) (filed herewith)
58