UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2006
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to ____________
Commission File Number: 0-23044
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MOTIENT CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 93-0976127
(State or other jurisdiction of (I.R.S. Employee Identification Number)
Incorporation or organization)
300 Knightsbridge Parkway, Lincolnshire, IL 60069
(Address of principal executive offices and zip code)
847-478-4200
(Registrant's telephone number, including area code)
--------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such report(s), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No[ ]
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check
one):
Large accelerated filer [X] Accelerated filer [ ] Non-accelerated filer [ ]
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 November 1, 2006: 69,610,780
MOTIENT CORPORATION
FORM 10-Q
FOR THE PERIOD ENDED SEPTEMBER 30, 2006
TABLE OF CONTENTS
PAGE
----
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Operations for the Three and Nine Months Ended
September 30, 2006 and 2005 3
Consolidated Balance Sheets as of September 30, 2006 and December 31, 2005 4
Consolidated Statements of Cash Flows for the Nine Months Ended September
30, 2006 and 2005
5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations 24
Item 3. Quantitative and Qualitative Disclosures about Market Risk 36
Item 4. Controls and Procedures 36
PART II
OTHER INFORMATION
Item 1. Legal Proceedings 38
Item 6. Exhibits 40
2
PART I- FINANCIAL INFORMATION
- -----------------------------
Item 1. Financial Statements
Motient Corporation and Subsidiaries
Consolidated Statements of Operations
(in thousands, except per share data)
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
September 30, September 30, September 30, September 30,
2006 2005 2006 2005
---- ---- ---- ----
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
COSTS AND EXPENSES
Selling, general and administrative (including expense to MSV,
a related party, of $0 and $559 for the three months ended
September 30, 2006 and 2005, respectively and $313 and $842
for the nine months ended September 30, 2006 and 2005,
respectively) 30,605 6,169 59,554 21,989
Research and development (including expense to MSV, a
related party, of $216 and $1,312 for the three months ended
September 30, 2006 and 2005, respectively and $933
and $1,663 for the nine months ended September 30, 2006 and
2005, respectively) 2,399 1,382 5,377 1,764
Depreciation and amortization (excluded from above captions) 1,454 1,341 4,094 2,142
--------- --------- --------- ---------
Total Costs and expenses 34,458 8,892 69,025 25,895
--------- --------- --------- ---------
Loss from continuing operations (34,458) (8,892) (69,025) (25,895)
Gain on exchange of investments 196,905 --- 196,905 ---
Interest and other income 1,441 2,755 5,857 4,950
Equity in loss of MSV (8,423) (3,954) (25,803) (18,675)
Minority interests in losses of TerreStar 9,397 1,348 16,481 1,752
--------- --------- --------- ---------
Income/(loss) from continuing operations before
income taxes 164,862 (8,743) 124,415 (37,868)
Income tax expense (17,100) --- (17,100) ---
--------- --------- --------- ---------
Income (loss) from continuing operations 147,762 (8,743) 107,315 (37,868)
--------- --------- --------- ---------
Loss from discontinued operations (9,600) (4,696) (31,283) (26,999)
--------- --------- --------- ---------
Net income/(loss) 138,162 (13,439) 76,032 (64,867)
Less:
Dividends on Series A and Series B Cumulative Convertible
Preferred Stock (5,960) (5,916) (17,653) (10,791)
Accretion of issuance costs associated with Series A and
Series B Cumulative Convertible Preferred Stock (1,020) (763) (2,994) (1,377)
--------- --------- --------- ---------
Net income/(loss) available to Common Stockholders $ 131,182 $ (20,118) $ 55,385 $ (77,035)
========= ========= ========= =========
Basic Earnings (Loss) Per Share - Continuing
Operations: $ 2.21 $ (0.25) $ 1.37 $ (0.81)
Diluted Earnings (Loss) Per Share - Continuing
Operations $ 1.87 $ (0.25) $ 1.30 $ (0.81)
Basic and Diluted Loss Per Share - Discontinued
Operations $ (0.15) $ (0.08) $ (0.49) $ (0.44)
Basic Earnings (Loss) Per Share $ 2.06 $ (0.32) $ 0.87 $ (1.24)
Diluted Earnings (Loss) Per Share $ 1.75 $ (0.32) $ 0.83 $ (1.24)
Weighted-Average Common Shares Outstanding - basic 63,782 62,464 63,375 61,946
========= ========= ========= =========
Weighted-Average Common Shares Outstanding - diluted 78,899 62,464 66,767 61,946
========= ========= ========= =========
Non-cash stock-based compensation included above is as follows:
General and administrative $ 20,250 $ 1,759 $ 34,691 $ 11,963
Discontinued operations 3,240 (465) 4,862 630
--------- --------- --------- ---------
Total non-cash stock-based compensation $ 23,490 $ (1,294) $ 39,553 $ 12,593
========= ========= ========= =========
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)
September 30, 2006 December 31, 2005
------------------ -----------------
(Unaudited) (Audited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 46,471 $ 179,524
Cash committed for satellite construction costs, due within twelve
months 33,709 77,946
Restricted cash for Series A and Series B Cumulative Convertible
Preferred Stock dividends 21,446 24,905
Deferred Issuance costs associated with Series A and Series B
Cumulative Convertible Preferred Stock 4,197 4,029
Assets held for sale 628 261
Other current assets 822 2,025
Net current assets of discontinued operations --- 1,888
----------- -----------
Total current assets 107,273 290,578
RESTRICTED INVESTMENTS 7,505 76
PROPERTY AND EQUIPMENT, net 177,769 70,986
INTANGIBLE ASSETS, net 138,162 75,218
INVESTMENT IN MSV 185,340 496,208
INVESTMENT IN SKY TERRA 438,677 ---
RESTRICTED CASH FOR SERIES A AND SERIES B CUMULATIVE CONVERTIBLE
PREFERRED STOCK DIVIDENDS --- 7,264
DEFERRED ISSUANCE COSTS ASSOCIATED WITH SERIES A AND SERIES B
CUMULATIVE CONVERTIBLE PREFERRED STOCK 11,785 14,947
NET NONCURRENT ASSETS OF DISCONTINUED OPERATIONS --- 10,546
----------- -----------
Total assets $ 1,066,511 $ 965,823
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses (including amounts due to
MSV, a related party, of $139 at September 30, 2006 and $699
December 31, 2005) $ 36,218 $ 8,105
Accounts payable to Loral for satellite construction contract 17,671 59,771
Deferred revenue and other current liabilities 91 72
Retained liabilities of discontinued operations 3,177 ---
Series A and Series B Cumulative Convertible Preferred Stock
dividends payable 12,924 5,994
----------- -----------
Total current liabilities 70,081 73,942
----------- -----------
LONG-TERM LIABILITIES:
Other long-term liabilities 108 ---
----------- -----------
Total long-term liabilities 108 ---
----------- -----------
Total liabilities 70,189 73,942
----------- -----------
COMMITMENTS AND CONTINGENCIES --- --
MINORITY INTEREST 75,922 74,840
SERIES A CUMULATIVE CONVERTIBLE PREFERRED STOCK ($0.01 par value,
450,000 shares authorized and 90,000 shares issued and outstanding 90,000 90,000
SERIES B CUMULATIVE CONVERTIBLE PREFERRED STOCK ($0.01 par value,
500,000 shares authorized and 318,500 shares issued and outstanding 318,500 318,500
STOCKHOLDERS' EQUITY:
Common Stock; voting (par value $0.01; 200,000,000 shares authorized,
73,539,974 and 66,606,504 shares issued at September 30, 2006 and
December 31, 2005, respectively and 69,588,772 and 63,119,302 shares
outstanding at September 30, 2006 and December 31, 2005, respectively) 735 666
Additional paid-in capital 860,879 752,777
Common stock purchase warrants 73,487 74,600
Less: 3,951,202 and 3,487,202 common shares held in treasury stock at
September 30, 2006 and December 31, 2005 respectively, at cost (73,877) (67,086)
Other comprehensive income (loss) (52,293) ---
Accumulated deficit (297,031) (352,416)
----------- -----------
Total stockholders' equity 511,900 408,541
----------- -----------
Total liabilities, and stockholders' equity $ 1,066,511 $ 965,823
=========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
4
Motient Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(in thousands)
Nine Months Nine Months
Ended Ended
September 30, 2006 September 30, 2005
------------------ ------------------
(Unaudited) (Unaudited)
CASH FLOWS FROM CONTINUING OPERATING ACTIVITIES:
Net income/(loss) $ 76,032 $ (64,867)
Adjustments to reconcile income/(loss) to net cash (used in)
continuing operating activities:
Loss from discontinued operations 31,283 26,999
Depreciation and amortization 4,094 2,142
Equity in losses of MSV 25,803 18,675
Minority interest in losses of TerreStar (16,481) (1,752)
Gain on exchange of investment (196,905) ---
Non cash 401(k) match 151 200
Non-cash stock based compensation expense 39,553 12,593
Changes in assets and liabilities, net of acquisitions and
dispositions:
Other current assets 1,201 (404)
Accounts payable and accrued expenses (including payments to MSV,
a related party, of $1,806 and $1,727 for the nine months
ended September 30, 2006 and 2005, respectively) 18,113 254
Deferred revenue and other current liabilities 127 (11)
--------- ---------
Net cash (used in) continuing operating activities (17,029) (6,171)
--------- ---------
CASH FLOWS FROM CONTINUING INVESTING ACTIVITIES:
Cash acquired in TerreStar asset purchase --- 6,165
Proceeds of restricted investments 47,531 (85,117)
Additions to property and equipment (89,142) (3,137)
Accounts payable to Loral for satellite construction contract (59,771) ---
--------- ---------
Net cash (used in) continuing investing activities (101,382) (82,089)
--------- ---------
CASH FLOWS FROM CONTINUING FINANCING ACTIVITIES:
Proceeds from issuance of Series A Cumulative Convertible
Preferred Stock --- 408,500
Issuance costs associated with Series A Cumulative Convertible
Preferred Stock --- (17,483)
Dividends paid on Series A Cumulative Convertible Preferred Stock (10,723) ---
Repayment of notes payable --- (8,739)
Proceeds from issuance of common stock 18,548 679
Proceeds from exercise of employee stock options 361 1,241
Purchase of treasury stock (6,789) (56,916)
Stock issuance costs and other charges --- (9)
--------- ---------
Net cash provided by continuing financing activities 1,397 327,273
--------- ---------
Net cash (used in) provided by continuing operations (117,014) 239,013
--------- ---------
Net cash (used in) discontinued operating activities (16,039) (15,683)
Net cash (used in) discontinued investing activities --- (81)
Net cash (used in) provided by discontinued financing activities --- ---
--------- ---------
Net cash (used in) discontinued operations (16,039) (15,764)
--------- ---------
Net (decrease) increase in cash and cash equivalents (133,053) 223,249
CASH AND CASH EQUIVALENTS, beginning of period 179,524 15,695
--------- ---------
CASH AND CASH EQUIVALENTS, end of period $ 46,471 $ 238,944
========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
5
MOTIENT CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 2006
(Unaudited)
1. ORGANIZATION AND BUSINESS
Our Business Segments
Motient Corporation (with its subsidiaries, "Motient" or the "Company")
currently owns interests in two wireless communications businesses. Our primary
business is TerreStar Networks Inc. ("TerreStar"), a development stage company
in the process of building its first satellite. In addition, as of September 30,
2006, we own 17% of another satellite communications company, called Mobile
Satellite Ventures LP, ("MSV"), and 45% of MSV's parent, SkyTerra
Communications, Inc. ("SkyTerra"). We do not have operating control of the
business of MSV or SkyTerra. Our investments in TerreStar and MSV are governed
by stockholder agreements with the other equity owners of those entities, and
our interest in SkyTerra is non-voting.
Through September 14, 2006, we also provided our active direct customers with
two-way terrestrial wireless data communications services. On September 14,
2006, we sold most of the assets and liabilities relating to that business. The
accompanying financial statements, including those for prior periods, present
our terrestrial wireless business as a discontinued operation. Pursuant to such
presentation, the Company's continuing operations are reflected as a single
operating segment.
TerreStar
In February 2002, MSV established TerreStar Networks Inc. 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, TerreStar was spun-off
by MSV to its limited partners, including Motient, which resulted in Motient
receiving ownership of approximately 49% of the issued and outstanding shares of
capital stock of TerreStar. On the same day a wholly owned subsidiary of Motient
Corporation purchased 8,190,008 shares of newly issued common stock of TerreStar
from TerreStar for $200 million. The TerreStar common stock purchase increased
Motient's ownership to 60.6% (54.2% on a fully diluted basis) and resulted in
Motient starting to consolidate TerreStar's financial statements.
On August 21, 2006, Motient purchased 700,156 additional shares of newly issued
common stock from TerreStar for $21 million. The TerreStar common stock purchase
increased Motient's ownership to 61.4% (54.6% on a fully diluted basis).
Upon the initial consolidation of TerreStar, the assets and liabilities of
TerreStar were recorded on the Company's Consolidated Balance Sheet based upon
their fair values at such date. 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. There was no excess purchase price over the estimated
fair values of the underlying assets and liabilities consolidated into Motient.
We anticipate that TerreStar will allow us to provide Mobile Satellite Service,
or MSS, in the S-band in conjunction with ancillary terrestrial component, or
ATC, which would allow us to integrate satellite based two-way communications
6
services with land-based two-way communications services. The mobile devices
utilizing this service could be used for a variety of communications
applications, including voice, data and video services.
TerreStar's ability to effectively use ATC depends on its continued ability to
license certain intellectual property from MSV, including patents covering ATC
operations. TerreStar has a perpetual, royalty free license to such technology
pursuant to its agreement with MSV.
During 2002, TerreStar entered into a contract with Space Systems/Loral, Inc. to
purchase a satellite system, including certain ground infrastructure for use
with the 2 GHz band. Principal construction of this satellite began in mid-2005.
Terms of the contract include restricting certain cash balances in escrow
accounts in favor of Loral. At the end of 2005, TerreStar executed a contract
with Hughes Networks Systems, LLC for additional ground-based components of the
system. The contract calls for regular payments over time of up to $38 million,
excluding any optional services or components TerreStar elects to purchase. The
satellite portion of the communications system being developed by TerreStar will
ultimately include a main satellite, a spare satellite, ground-switching
infrastructure, launch costs and insurance, among other things. The cost of the
satellites alone could exceed $550 million. In August 2006, TerreStar exercised
an option under its 2002 satellite construction contract with Space
Systems/Loral to purchase a second satellite similar to the satellite currently
under construction. The cost of this second satellite is expected to be $187
million, plus incentive payments. As of September 30, 2006, TerreStar paid $3
million under this option for the second satellite and an additional $10
million is expected to be paid in the fourth quarter of 2006. The second
satellite is required as an on-ground spare for the ATC FCC spectrum license. 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. Although Motient is under no contractual obligation to
provide such financing to TerreStar, Motient has contributed some of its excess
cash to TerreStar. Motient's cash resources are not sufficient to fund
TerreStar's total expected future funding requirements. The value of our
investment in TerreStar could be negatively impacted if TerreStar cannot meet
any such funding requirements.
TerreStar and MSV Ownership Changes
In May 2006, Motient entered into a series of agreements to consolidate the
ownership of TerreStar under Motient and the ownership of MSV under SkyTerra,
one of the other current investors in MSV and TerreStar. Pursuant to these
transactions, Motient issued shares of its common stock in exchange for shares
of TerreStar common stock, and exchanged limited partnership units of MSV for
shares of SkyTerra common stock. We closed some of the transactions related to
these agreements on September 25, 2006, which increased our ownership of
TerreStar to 68% (61% on a fully-diluted basis), decreased our ownership of MSV
to 17%, and resulted in the acquisition of approximately 45% of SkyTerra, each
on a fully-diluted basis. The Company recorded a $197 million gain on the
exchange of these investments.
Of the approximately 29.1 million shares of SkyTerra common stock Motient
received, it has agreed to use its commercially reasonable efforts to dividend
approximately 25.5 million shares to Motient shareholders. The shares of
SkyTerra common stock that Motient holds are currently non-voting, but will
become voting upon such dividend, or upon distribution or sale by Motient. In
October 2006, Motient sold approximately 3.6 million shares of SkyTerra common
7
stock pursuant to a resale registration statement filed by SkyTerra. Another
stockholder of TerreStar, TMI Communications & Company, has contractual
"tag-along" rights through early 2007. They have announced that they intend to
exercise these rights in 2007. In addition, TerreStar option holders also have
contractual tag-along rights that may be exercised. If these holders exercise
their tag-along rights, our ownership of TerreStar would be significantly
increased. This may result in Motient owning in excess of 85% of TerreStar's
issued and outstanding stock by early 2007.
Mobile Satellite Ventures LP
MSV is also 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 and in various coastal waters.
MSV, together with Mobile Satellite Ventures (Canada) Inc., licensed by Industry
Canada, is licensed to operate in the L-Band spectrum which it has coordinated
for use. MSV currently has coordinated approximately 30 MHz of L-band spectrum
for use throughout the United States and Canada. The L-band spectrum is
positioned within the range of frequencies used by terrestrial wireless
providers in the United States and Canada. Like TerreStar, MSV is also
developing an ATC- based next-generation integrated wireless network.
Terrestrial Wireless Business
On June 19, 2006, various subsidiaries of Motient entered into an asset purchase
agreement with Geologic Solutions, Inc. and Logo Acquisition Corporation, a
wholly-owned subsidiary of Geologic. The transaction closed on September 14,
2006.
In the transaction, Motient sold Logo most of the assets relating to Motient's
terrestrial DataTac network and its iMotient platform for a nominal cash sum,
and Logo assumed most of the post-closing liabilities relating to the
terrestrial business. The assets and liabilities transferred were limited to
those that relate to the current operations of Motient's terrestrial wireless
network, and did not include any assets or liabilities related to TerreStar or
MSV. Motient estimates that the transaction will save Motient $15 to $18 million
in total future operating costs.
Our historical financial statements have been recast and our current financial
statements have been prepared to reflect this business as a discontinued
operation. The following tables depict the financial results and condition of
those discontinued operations for the periods ended and as of the date indicated
(dollars in thousands):
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
September 30, September 30, September 30, September 30,
2006 2005 2006 2005
---- ---- ---- ----
Loss from discontinued operations consists of the following:
Revenues $ 1,727 $ 3,163 $ 5,630 $ 11,721
Cost of equipment sold 8 (105) (22) (843)
Cost of services and operations (4,803) (3,853) (15,430) (16,676)
Sales and advertising (662) (220) (1,376) (749)
General and administrative (2,089) (1,338) (4,342) (4,524)
Restructuring charges --- --- --- (5,665)
Depreciation and amortization (375) (2,714) (3,789) (10,640)
Loss on asset disposals --- (741) (141) (735)
Loss on asset impairment --- --- (2,721) ---
Other income --- 1,112 326 1,112
Impairment of net assets of discontinued operations (3,406) --- (9,418) ---
-------- -------- -------- --------
Total loss from discontinued operations $ (9,600) $ (4,696) $(31,283) $(26,999)
======== ======== ======== ========
8
December 31, 2005
-----------------
Cash and cash equivalents $ 1,250
Other current assets 1,663
Property and equipment, net 5,003
Intangible assets, net 5,850
Other noncurrent assets 36
Accounts payable and accrued expenses (49)
Other current liabilities (976)
Long-term liabilities (343)
--------
Net assets of discontinued operations $ 12,434
========
The 2006 impairment loss reflects the Company's loss on the sale based on the
nominal purchase price and the expected carrying value of the net assets sold on
the closing date less sales costs.
2. SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying consolidated financial statements have been prepared by the
Company and are unaudited. The consolidated financial statements include the
accounts of Motient and its wholly and majority-owned subsidiaries. All
significant intercompany accounts and transactions have been eliminated. Through
September 25, 2006, the results of MSV have been accounted for pursuant to the
equity method of accounting. The results of TerreStar have been consolidated
with Motient since TerreStar's spin off from MSV and Motient's concurrent
additional investment in TerreStar on May 11, 2005. Certain amounts from prior
years have been reclassified to conform to the current year presentation,
including the presentation of our terrestrial wireless business as a
discontinued operation. The results of operations for the three and nine months
ended September 30, 2006 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, 2006, and for all periods
presented, have been made. Footnote disclosure has been condensed or omitted as
permitted under Securities and Exchange Commission rules covering in interim
financial statements.
Use of Accounting Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles ("GAAP") requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. The Company's most significant estimates
relate to the valuation of its investments in TerreStar's intangible assets and
MSV, the valuation of deferred income tax assets, the ability to realize
tangible long-lived assets and the assumptions used to value stock compensation
awards. Actual results could differ from those estimates.
Cash and 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. The carrying amount of cash and cash equivalents approximates fair
value because of the short maturity of those instruments.
9
Restricted Cash
The Company had approximately $63 million of restricted cash at September 30,
2006 held in money market escrow accounts. Of that amount, $55 million is
reflected as a current asset and is restricted in accordance with the Company's
satellite construction and preferred stock agreements and is expected to be paid
before September 30, 2007. Approximately $8 million in restricted investments
extends beyond September 30, 2007 and is related to security deposits, leases
and the escrow deposits of the asset purchase agreement between various
subsidiaries of Motient, Geologic Solutions, Inc. and Logo Acquisition
Corporation. At December 31, 2005, the Company had approximately $110 million of
restricted cash.
Valuation of Long-Lived Assets
The Company evaluates whether long-lived assets, excluding goodwill, have been
impaired when circumstances indicate the carrying value of those assets may not
be recoverable. For such long-lived assets, an impairment exists when its
carrying value exceeds the sum of estimates of the undiscounted cash flows
expected to result from the use and eventual disposition of the asset. When
alternative courses of action to recover the carrying amount of a long-lived
asset are under consideration, a probability-weighted approach is used for
developing estimates of future undiscounted cash flows. If the carrying value of
the long-lived asset is not recoverable based on these estimated future
undiscounted cash flows, the impairment loss is measured as the excess of the
asset's carrying value over its fair value, such that the asset's carrying value
is adjusted to its estimated fair value.
The Company reviews and accounts for impairment of long-lived assets 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 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.
Income Taxes
The Company accounts for income taxes under the liability method as required in
SFAS No. 109, "Accounting for Income Taxes". Under the liability method,
deferred income taxes are recognized for tax credit carry forwards and the
income 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 income tax bases of existing assets
and liabilities. Under this method, the effect on deferred income taxes of a
change in income tax rates is recognized in operations in the period that
includes the enactment date. A valuation reserve is established for deferred
income tax assets if the realization of such benefits cannot be determined to be
more likely than not.
10
Revenue Recognition
The Company is not expected to recognize revenues from continuing operations
until TerreStar's satellite is in operation. TerreStar will then recognize
revenue primarily from satellite utilization charges and, to a lesser extent,
from providing managed services to our customers over the period during which
services are provided, as long as collection of the related receivable is
reasonably assured.
Revenue from our discontinued operations was primarily generated through airtime
services agreements, under which revenue is recognized when services are
performed and in accordance with the Securities and Exchange Commission's
("SEC") Staff Accounting Bulletin ("SAB") No. 104, Revenue Recognition and
Emerging Issues Task Force ("EITF") No. 00-21, Accounting For Revenue
Arrangements With Multiple Deliverables, including deferral of revenue for
portions of fees associated with activation of a subscriber.
Property and Equipment
Property and equipment are recorded at cost and adjusted for impairment and are
depreciated over the shorter of their estimated useful lives or the term of the
lease using the straight-line method. Leasehold improvements are amortized over
the shorter of their estimated useful lives or the term of the lease. The
estimated useful lives of office furniture and equipment vary from two to ten
years. Repairs and maintenance that do not significantly increase the utility or
useful life of an asset are expensed as incurred, while expenditures for
refurbishments and improvements that significantly add to the productive
capacity or extend the useful life of an asset are capitalized.
Satellite Under Construction
Satellite under construction, a component of property and equipment, is stated
at cost and aggregated $177 million and $71 million at September 30, 2006 and
December 31, 2005, respectively. These costs consist primarily of the cost of
satellite construction and will include launch costs, launch insurance and
insurance during the period of in-orbit testing, the net present value of any
performance incentives expected to be payable to the satellite manufacturers,
costs directly associated with the monitoring and support of satellite
construction and interest costs incurred during the period of satellite
construction. Satellite construction and launch services have generally been or
will be procured under long-term contracts that provide for payments by us over
the contract periods.
Assets Held for Sale
Assets held for sale as of September 30, 2006 includes $0.3 million of certain
800 MHz frequencies which we ceased use of during the second quarter of 2006 and
$0.3 million of previously idle frequencies. The $0.3 million that was recorded
in the second quarter of 2006 relating to the net book value of the remaining
800 MHz frequencies less a second quarter 2006 impairment charge of $2.7 million
based on the Company's current estimate of potential sales proceeds, less cost
to sell, of each individual frequency. The impairment charge is reflected as a
component of Loss from discontinued operations. The Company expects to sell
these frequencies by June 30, 2007.
11
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.
Stock-Based Compensation
Effective January 1, 2006, the Company adopted Statement of Financial Accounting
Standards No. 123 (revised), "Share-Based Payment, an amendment of FASB
Statements Nos. 123 and 95" ("SFAS 123R"), applying the modified prospective
method. Prior to the adoption of SFAS 123R, the Company applied the provisions
of Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB 25") in accounting for its stock-based awards, and accordingly,
recognized no compensation costs for its stock option plans other than for
instances where APB 25 required variable plan accounting related to
performance-based stock options, stock option modifications and restricted stock
awards. Under the modified prospective method, SFAS 123R applies to new awards
and to awards that were outstanding as of December 31, 2005 that are
subsequently vested, modified, repurchased or cancelled. Compensation expense
recognized during the nine months of 2006 includes the portion vesting during
the period for (1) all share-based payments granted prior to, but not yet
vested, as of December 31, 2005, based on the grant date fair value estimated in
accordance with the original provisions of SFAS 123 and (2) all share-based
payments granted subsequent to December 31, 2005, based on the grant date fair
value estimated using the Black-Scholes option pricing model. Since our adoption
of SFAS 123R, there have been no changes to our equity plans. In September 2006,
the Company accelerated the vesting of all the outstanding restricted stock and
options of the former Motient Board of Directors. As a result of the Company's
decision to adopt the standard using the modified prospective method, prior
period results have not been restated. Compensation expense recorded in the
three and nine months ended September 30, under SFAS 123R is as follows (in
thousands):
Three Months Nine Months
Ended Ended
September 30, 2006 September 30, 2006
------------------ ------------------
Related to stock options granted prior to December 31, 2005 $ 7,708 $14,097
Related to stock options granted during 2006 9,896 14,530
Restricted stock awarded prior to December 31, 2005 --- ---
Restricted stock awarded during 2006 2,646 6,064
------- -------
Stock-based compensation from continuing operations 20,250 34,691
Stock-based compensation from discontinued operations 3,240 4,862
------- -------
Total stock-based compensation $23,490 $39,553
======= =======
Included in continuing operations for the three months and nine months ended
September 30, 2006 is the impact of revising the requisite service period
related to stock compensation awards previously-granted to TerreStar employees
and certain Motient executives. This revised estimate was a shortening of the
service period from previous estimates to September 25, 2006, the closing date
of the TerreStar and MSV ownership exchanges described in Note 1. In accordance
with the stock compensation awards, that transaction qualifies as an event which
triggers automatic acceleration of all the outstanding unvested awards.
Similarly, included in discontinued operations for the three months and nine
months ended September 30, 2006 is the impact of shortening the requisite
service period related to stock compensation awards previously-granted to
certain Motient employees due to the automatic acceleration which occurred upon
12
the closing of the sale of our terrestrial wireless business ( as described in
Note 1) on September 14, 2006.
In November 2005, the Company granted an aggregate of 155,000 shares of
restricted stock to three executives, which will vest upon the completion of
strategic events, generally involving a change of control, which had not
occurred as of December 31, 2005. Through December 31, 2005, the Company had not
recorded any compensation charges associated with the grants, as they were
assigned a zero probability of vesting. On March 9, 2006, the Company amended
certain provisions regarding these restricted shares. Based upon a then 30%
probability that the restricted stock would vest pursuant to the amended
provisions, the Company recorded a compensation charge associated with the
restricted stock in the amount of $1.0 million during the first quarter of 2006.
These restricted shares vested on September 25, 2006, and the full compensation
charge has been included in the results of operations for the nine months ended
September 30, 2006.
In August 2006, the Company granted an aggregate of 300,000 shares of restricted
stock to members of its current and former Board of Directors.
Before adoption of SFAS 123R, pro forma disclosures were used to reflect the
potential impact of accounting under the fair value measurements of SFAS 123R
rather than under the intrinsic value measurements under APB 25. The following
tables provide information regarding the fair value of stock options granted
during the nine months ended September 30, 2006 and 2005 and relevant pro forma
information regarding stock-based compensation for the three and nine months
ended September 30, 2005. The value of restricted stock awards is computed as
the value of the shares awarded on the date of the award under both SFAS 123R
and APB 25.
Nine Months Nine Months
Ended September 30, Ended September 30
2006 2005
---- ----
Weighted fair value of stock options granted:
To acquire Motient common stock $ 7.53 $21.34
To acquire TerreStar common stock $ 6.36 $17.39
Weighted average assumptions:
Motient stock options:
Risk-free interest rate 4.62% 2.86%
Dividend yield --- ---
Expected volatility 84% 711%
Expected option life in years 5.3 10
TerreStar stock options:
Risk-free interest rate 4.64% 4.02%
Dividend yield --- ---
Expected volatility 36.0% 72.0%
Expected option life in years 1.6 6.5
Three Months Nine Months
Ended Ended
September 30, September 30,
2005 2005
---- ----
Net loss attributable to common stockholders, as reported $(20,118) $(77,035)
Add back recorded stock-based compensation expense:
Motient compensation expense 1,294 12,593
Deduct stock-based compensation expense as if recorded under
the fair valuemethod:
Motient compensation expense (1,536) (14,705)
-------- --------
Pro forma net loss $(20,360) $(79,147)
======== ========
Basic and Diluted loss per share:
As reported $ (0.32) $ (1.24)
Pro forma $ (0.33) $ (1.28)
13
The aggregate intrinsic value (defined as the spread between the market value of
the Company's common stock as of the end of the period and the exercise price of
the stock options) for Motient stock options outstanding and exercisable as of
September 30, 2006 was $339,159 of which $258,166 relates to discontinued
operations. Similarly, for TerreStar options (as computed based on TerreStar's
estimated market value), the aggregate intrinsic value of its stock options
outstanding and exercisable was $18,776,555 as of such date.
SFAS 123R also requires the benefits of tax deductions in excess of recognized
compensation cost to be reported as cash flow from financing activities rather
than as cash flow from operations as required under Emerging Issues Task Force
("EITF") issue No. 0015, "Classification in the Statement of Cash Flow of the
Income Tax Benefit Received by a Company upon Exercise of a Nonqualified
Employee Stock Option".
The following is a summary of nonvested stock awards activity:
Stock options Restricted Stock
------------- ----------------
Weighted Weighted
Average Average
Grant Grant
Number Date Fair Number Date Fair
of Shares Value of Shares Value
--------- ----- --------- -----
Motient:
Nonvested as of
December 31, 2005 319,134 $ 21.03 --- ---
Granted 260,000 $ 7.53 455,000 $ 16.31
Vested (359,421) $ 17.53 (343,000) $ 17.28
Cancelled (49,713) $ 15.71 --- ---
--------- ---------
Nonvested as of
September 30, 2006 170,000 $ 9.35 112,000 $ 13.35
========= =========
TerreStar:
Nonvested as of
December 31, 2005 713,593 $ 17.39 --- ---
Granted 2,241,000 $ 6.36 --- ---
Vested (2,954,593) $ 9.02 --- ---
Cancelled --- --- --- ---
---------- ---------
Nonvested as of
September 30,2006 --- --- --- ---
========== =========
At September 30, 2006, there was $3 million and $0 total pre-tax unrecognized
stock-based compensation costs related to Motient's and TerreStar's options and
restricted stock, respectively.
Earnings (loss) Per Share
The company accounts for earnings per share ("EPS") in accordance with SFAS 128
"Earnings Per Share", which requires dual presentation of basic and diluted EPS
on the face of the income statement for entities with complex capital structures
and requires a reconciliation of the numerator and the denominator of the basic
EPS computation to the numerator and denominator of the diluted EPS computation.
Basic and diluted EPS are computed by dividing net income available to common
shareholders by the weighted average number of shares outstanding during the
period. This includes the reported net income plus the loss attributable to
preferred stock dividends and accretion. Basic EPS excludes the effect of
potentially dilutive securities while diluted EPS reflects the potential
dilution that would occur if securities to issue common stock were exercised,
converted into or resulted in the issuance of common stock. Common stock
equivalents consist of common stock issuable under the assumed exercise of stock
options and warrants, computed based on the treasury stock method, and the
assumed conversion of the Company's issued and outstanding preferred stock
Common stock equivalents are not included in the dilutive EPS calculations to
the extent their inclusion would be anti dilutive.
14
For the Quarter Ended September 30, 2006
-------------------------------------------------------------------------
Basic Effect of Effect of Effect of Diluted
Earnings Dilutive Dilutive Convertible Earnings
Per Share Options Warrants Preferred Stock Per Share
-------------------------------------------------------------------------
Income from continuing operations $ 147,762 $ 147,762 $ 147,762 $ 147,762 $ 147,762
Loss from discontinued operations (9,600) (9,600) (9,600) (9,600) (9,600)
--------- --------- --------- --------- ---------
Net income 138,162 138,162 138,162 138,162 138,162
Less
Dividends on Series A and Series B
Cumulative Convertible Preferred Stock (5,960) (5,960) (5,960) --- ---
Accretion of issuance costs associated with
Series A and Series B Cumulative
Convertible Preferred Stock (1,020) (1,020) (1,020) --- ---
--------- --------- --------- --------- ---------
Net income available to Common Stockholders $ 131,182 $ 131,182 $ 131,182 $ 138,162 $ 138,162
========= ========= ========= ========= =========
Earnings Per Share - Continuing Operations $ 2.21 $ 2.21 $ 2.11 $ 1.87 $ 1.87
========= ========= ========= ========= =========
Loss Per Share - Discontinued Operations $ (0.15) $ (0.15) $ (0.15) $ (0.15) $ (0.15)
========= ========= ========= ========= =========
Earnings Per Share available to Common
Stockholders $ 2.06 $ 2.06 $ 1.97 $ 1.75 $ 1.75
========= ========= ========= ========= =========
Weighted average Common Shares outstanding -
basic 63,782 63,782 63,782 63,782 63,782
Effect of dilutive options --- 30 30 30 30
Effect of dilutive warrants --- --- 2,832 2,832 2,832
Effect of convertible Preferred Stock --- --- --- 12,255 12,255
--------- --------- --------- --------- ---------
Weighted average Common Shares outstanding -
dilutive 63,782 63,812 66,644 78,899 78,899
========= ========= ========= ========= =========
For the Nine Months Ended September 30, 2006
-------------------------------------------------------------------------
Basic Effect of Effect of Effect of Diluted
Earnings Dilutive Dilutive Convertible Earnings
Per Share Options Warrants Preferred Stock Per Share
-------------------------------------------------------------------------
Income from continuing operations $ 107,315 $ 107,315 $ 107,315 $ 107,315 $ 107,315
Loss from discontinued operations (31,283) (31,283) (31,283) (31,283) (31,283)
--------- --------- --------- --------- ---------
Net income 76,032 76,032 76,032 76,032 76,032
Less
Dividends on Series A and Series B
Cumulative Convertible Preferred Stock (17,653) (17,653) (17,653) (17,653) (17,653)
Accretion of issuance costs associated with
Series A and Series B Cumulative
Convertible Preferred Stock (2,994) (2,994) (2,994) (2,994) (2,994)
--------- --------- --------- --------- ---------
15
For the Nine Months Ended September 30, 2006
-------------------------------------------------------------------------
Basic Effect of Effect of Effect of Diluted
Earnings Dilutive Dilutive Convertible Earnings
Per Share Options Warrants Preferred Stock Per Share
-------------------------------------------------------------------------
Net income available to Common Stockholders $ 55,385 $ 55,385 $ 55,385 $ 55,385 $ 55,385
========= ========= ========= ========= =========
Earnings Per Share - Continuing Operations $ 1.37 $ 1.37 $ 1.30 $ 1.30 $ 1.30
========= ========= ========= ========= =========
Loss Per Share - Discontinued Operations $ (0.49) $ (0.49) $ (0.49) $ (0.49) $ (0.49)
========= ========= ========= ========= =========
Earnings Per Share available to Common
Stockholders $ 0.87 $ 0.87 $ 0.83 $ 0.83 $ 0.83
========= ========= ========= ========= =========
Weighted average Common Shares outstanding -
basic 63,375 63,375 63,375 63,375 63,375
Effect of dilutive options --- 31 31 31 31
Effect of dilutive warrants --- --- 3,361 3,361 3,361
Effect of convertible Preferred Stock --- --- --- --- ---
--------- --------- --------- --------- ---------
Weighted average Common Shares outstanding -
dilutive 63,375 63,406 66,767 66,767 66,767
========= ========= ========= ========= =========
As of September 30, 2006 and 2005, there were 90,000 and 408,500 shares of
Series A Cumulative Convertible Preferred Stock and 318,500 and 0 shares of
Series B Cumulative Convertible Preferred Stock, respectively outstanding which
were entitled to be converted into a total of 12,255,000 shares of Motient
common stock. As of September 30, 2006 and 2005, there were outstanding warrants
to acquire approximately 5,730,320 and 6,740,376 shares, respectively of Motient
common stock and outstanding options to purchase 903,645 and 371,743 shares,
respectively of Motient common stock.
16
3. RELATED PARTY TRANSACTIONS
The Company made cash payments of $0.6 million and $2.8 million to related
parties for service-related obligations during the three and nine months ended
September 30, 2006, respectively. Of that amount, $0.3 million and $1.8 million,
respectively, was paid to MSV for consulting services related to TerreStar and
$0.3 million and $1.0 million, respectively was paid to Capital & Technology
Advisors ("CTA"), a consulting and private advisory firm specializing in the
technology and telecommunications sectors. CTA's founder, Jared Abbruzzese,
serves as chairman of the Board of TerreStar Networks. CTA has been engaged to
act as consultants to Motient. As consideration for this work, Motient has
agreed to pay to CTA a monthly fee of $100,000, which increased from $60,000 per
month in November 2005. This engagement terminates on November 30, 2006 and will
not be renewed. For the three and nine months ended September 30, 2005, $0.2
million and $1.6 million, respectively was paid to CTA for consulting services
and $1.6 and $1.7 million, respectively was paid to MSV for consulting services
related to TerreStar.
4. COMMON AND PREFERRED STOCK
Common Stock
- ------------
In May 2005, the Company repurchased 2,900,000 shares of its common stock for an
aggregate $57 million from various investors, and from September through
December 2005, Motient repurchased an additional 587,102 shares of its common
stock for approximately $10 million. In April 2006 and June 2006, the Company
repurchased a combined 464,100 shares of its common stock for an aggregate $7
million. The repurchased shares are included in treasury stock and are available
for general corporate purposes.
On September 7, 2006, Motient completed a rights offering for its common stock.
In the offering, Motient sold 2,135,240 shares of common stock at a price of
$8.57 per share for net proceeds of $18.3 million. The rights offering was open
to the Company's stockholders of record as of December 17, 2004 who had not
17
participated in the Company's private placement of common stock in November
2004. Each eligible record holder received a right to purchase 0.103 shares of
Motient common stock for each share of common stock held on the record date.
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.
If any shares of Series A or Series B Preferred remain outstanding on April 15,
2010, Motient is required to redeem such shares for an amount equal to the
purchase price paid per share plus any accrued but unpaid dividends on such
shares. In addition, Motient granted warrants exercisable for an aggregate of
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, and were all
vested by September 8, 2006.
5. COMMITMENTS AND CONTINGENCIES
As of September 30, 2006, we had the following outstanding cash contractual
operating commitments in addition to the preferred stock commitments described
above:
More than 5
Total <1 Year 1-3 Years 3-5 Years Years
----- ------- --------- --------- -----
(in thousands)
TerreStar Satellite (1) $292,033 $156,663 $135,370 $ --- $ ---
Operating leases 10,581 1,917 5,599 3,065 ---
-------- -------- -------- -------- -------
Continuing Operations 302,614 158,580 140,969 3,065 ---
Discontinued Operations (2) 354 184 157 13 ---
-------- -------- -------- -------- -----
Total Contractual Cash Obligations $302,968 $158,764 $141,126 $ 3,078 $ ---
======== ======== ======== ======== =======
(1) These commitments include time payments related to the satellite
construction contract with Space Systems/Loral, Inc. and the ground-based
satellite beam access subsystem contract with Hughes Network Systems, LLC.
TerreStar 1 is scheduled to be completed in November 2007 and TerreStar 2
is scheduled to be completed in the second quarter of 2009.
(2) These commitments generally contain provisions that provide for an
acceleration of rent upon a default by us, except that certain long-term
real estate leases, categorized as Operating Leases, may not contain such
provisions.
On November 21, 2005, Motient entered into employment agreements with three
executives. On March 9, 2006, the Company amended these agreements, but such
amendments did not change cash compensation or employment terms. One of these
agreements terminated on September 28, 2006, one was amended on September 22,
2006 and the third was amended on November 1, 2006.
6. LEGAL AND REGULATORY MATTERS
Legal
18
On April 12, 2006, an entity controlled by James D. Dondero, a former director
of the Company, made a demand to inspect Motient's books and records under
Section 220(b) of the Delaware General Corporation Law. Motient denied this
request on April 20 as inappropriate for a number of reasons including (but not
limited to) the lack of a proper purpose for the demand and the continuing
refusal by Mr. Dondero and Highland to respond to discovery requests in the
several pending lawsuits. On April 25, the entity filed suit under Section 220
in the Court of Chancery of the State of Delaware. On July 6, 2006, the court
dismissed the suit. The plaintiff has appealed the court's ruling.
On June 19, 2006, another entity controlled by James D. Dondero filed a lawsuit
in the District Court of Travis County, Texas alleging that Motient's proposed
transaction with SkyTerra to consolidate the ownership of MSV violates the
Investment Company Act of 1940. The plaintiff asked the Court to, among other
things, declare the proposed transaction unenforceable, rescind the agreement
with SkyTerra and enjoin the registration statement required by the SkyTerra
agreements. Highland also named Capital Technology Advisors, Inc., (CTA) in the
suit, and seeks rescission of Motient's contracts with CTA. A preliminary
hearing on the injunction has been set for early September 2006. Motient removed
the case to the United States District Court for the Western District of Texas,
Austin Division, and subsequently filed a motion to dismiss; the plaintiff moved
to remand the case to state court. Both motions have been fully briefed and were
argued to the Court on October 4, 2006. The parties are awaiting the Court's
disposition of the motions.
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 business is 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 business in
particular. The following is a summary of significant laws, regulations and
policies affecting the operation of Motient's wireless business. In addition,
many aspects of regulation at the federal, state and local level currently are
subject to judicial review or are the subject of administrative or legislative
proposals to modify, repeal or adopt new laws and administrative regulations and
policies. Neither the outcome of these proceedings nor their impact on Motient's
operations can be predicted at this time.
Regulation Of TerreStar & MSV
ATC
In February 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 network. This order was
applicable to both the L-band (MSV), and the S-band (TerreStar). The ATC Order
19
established a set of preconditions and technical limits for ATC operations, as
well as an application process for approval of specific ATC systems.
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 enhance its service coverage further, but it specifically
deferred its ruling on other MSV waiver requests at that time. On February 25,
2005, the FCC issued a revised set of rules for ATC. The decision clarified the
outstanding technical issues left open by the February 2003 and November 2004
decisions. In particular, these revised rules allow MSV to (i) increase
significantly the reuse of its frequencies for ATC, resulting in enhanced ATC
capacity and coverage and (ii) increase base station power, permitting MSV to
deploy base stations in a more cost-effective manner and to offer innovative
services. MSV has filed an application for approval from the FCC to modify its
ATC license to conform to the revised rules. In the interim, MSV can operate an
ATC network pursuant to the November 2004 decision.
The February 2003, November 2004 and February 2005, orders set forth various
limitations and conditions necessary to the use of ATC by MSV. There can be no
assurances that such conditions will be satisfied by MSV, or that such
limitations will not be unnecessarily burdensome. One of MSV's competitors has
asked the FCC to review the November 2004 and February 2005 decisions. We cannot
predict the outcome of this review.
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 a next generation L-band
satellite. Use of the two authorizations together gives MSV the authority it
needs to replace its existing satellites and utilize the full complement of
spectrum available to it.
TerreStar has not applied for ATC authority, and there are several regulatory
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 Communications ("TMI"), a shareholder of TerreStar, holds an 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 U.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.
20
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 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 and will need to be modified to reflect certain changes
in ownership of TerreStar and the eventual transfer of the Canadian MSS
authorization to TerreStar Canada. Furthermore, TMI's letter of intent will have
to be modified to reflect technical changes to the satellite and a change in the
orbital location specified in the Canadian MSS authorization. The remaining
milestones relate to satellite launch and operation, and are in November 2007
and 2008, respectively.
On July 26, 2005, Industry Canada modified TMI's S-band authorization to provide
for a 2 x 10 MHz reservation (20 MHz in total). 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 December 2005, the FCC provided TMI a reservation of 2 x 10 MHz (20 MHz in
total) of spectrum within the 2 GHz 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 as its satellite reaches its
intended orbit. TMI's current spectrum reservation from the FCC reflects the
December 2005 order dividing all of the then available S-band MSS spectrum
between the two 2 GHz MSS licensees, TMI and ICO Satellite ("ICO") Services. TMI
and ICO were the only remaining S-band authorization holders whose
authorizations had not been surrendered or cancelled by the FCC, and in the
December 2005 order the FCC rejected proposals to make recaptured 2 GHz spectrum
available to new MSS applicants or to non-MSS services. Several parties have
challenged the December 2005 ruling and the revocation of their S-band
authorizations, and we cannot predict the outcome of these challenges.
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.
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, and one such factor is that, 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
21
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 2 GHz 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. 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 TMI and/or
TerreStar, if any, but they could range from $0 to in excess of $100 million.
7. CONSOLIDATION OF TERRESTAR
The following table sets forth our unaudited pro forma results of operations for
the three and nine months ended September 30, 2005 reflecting our purchase of
the TerreStar 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 present the
transaction as if the transaction occurred on January 1, 2005. The pro forma
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 period (in thousands).
Motient Corporation and Subsidiaries
Selected Consolidated Pro-forma
Results of Operations
Three Months Ended Nine Months Ended
September 30, 2005 September 30, 2005
Loss from continuing operations $ (8,892) $(27,312)
Net loss from continuing operations $(15,422) $(50,955)
Loss per share from continuing operations $ (0.25) $ (0.82)
8. INVESTMENT IN MSV
Until September 25, 2006, the Company used the equity method of accounting for
its investment in MSV. The Company considered whether the fair value of its
investment had declined below its carrying value whenever adverse events or
circumstances indicated that the recorded value may not be recoverable. Upon the
exchange of limited partnership units of MSV for shares of SkyTerra common stock
our ownership of MSV decreased to 17% and we now account for our investment
under the cost method. Summarized income statement information of MSV for the
three and nine months ended September 30, 2006 and 2005 is as follows (in
millions):
Three Months Nine Months
Ended September 30, Ended September 30,
2006 2005 2006 2005
---- ---- ---- ----
Total revenues $ 9.3 $ 7.9 $ 26.8 $ 22.6
Total operating expenses 18.5 27.0 58.5 61.5
------- ------- ------- -------
Operating loss (9.2) (19.1) (31.7) (38.9)
Other income (expense) (7.4) 12.4 (13.7) 5.5
------- ------- ------- -------
Loss from continuing operations $ (16.6) $ (6.7) $ (45.4) $ (33.4)
======= ======== ======== ========
22
9. INVESTMENT IN SKYTERRA
On September 25, 2006, Motient received approximately 29.1 million shares of
SkyTerra common stock which resulted in the acquisition of approximately 45% of
SkyTerra, on a fully diluted basis. The Company uses the cost method to account
for its investment in SkyTerra as the shares of SkyTerra common stock that
Motient holds are currently non-voting, but will become voting upon a dividend
of the shares or upon distribution or sale of the shares by Motient.
10. OTHER COMPREHENSIVE INCOME
Other comprehensive income consists of the mark-to-market adjustment for our
investment in SkyTerra. We account for this investment in accordance with SFAS
No. 115, "Accounting for Certain Investments in Debt and Equity Securities" and
consider the securities as "Available for Sale".
11. SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental cash flows information for the nine months ended September 30, 2006
and 2005 is presented in the following table (in thousands):
2006 2005
---- ----
Non-cash investing and financing activities:
Gain on exchange of investment $ 196,905 $ ---
Increase in intangible assets due to exchange of investments $ (59,398) $ ---
Other comprehensive loss $ (52,293) $ ---
Accrued Satellite under construction $ 17,671 $ ---
Amortization of deferred financing fees related to
Series A Cumulative Convertible Preferred Stock $ 2,994 $ 1,377
Dividends payable on Series A and Series B
Cumulative Convertible Preferred Stock $ 17,653 $ 10,791
Issuance of common stock $ --- $ 370,980
Issuance of common stock purchase warrants $ --- $ 57,255
Exercise and Expiration of common stock warrants $ (820) $ (6,445)
12. SUBSEQUENT EVENTS
On October 10, 2006, Motient sold 3,573,216 shares of SkyTerra common stock for
net proceeds of $46,950,589.
On October 16, 2006 and October 20, 2006 Motient Ventures Holding Inc. ("MVH"),
a wholly owned subsidiary of the Company, purchased 491,320 and 982,640 shares
of common stock of TerreStar from TerreStar for $15.0 million and $30 million,
respectively pursuant to a Stock Purchase Agreement by and between MVH and
TerreStar. These purchases increased Motient's ownership of TerreStar to 70% on
a non-diluted basis.
On November 8, 2006 TerreStar signed a contract with Arianespace to launch the
TerreStar-1 satellite.
23
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
This quarterly report on Form 10-Q contains and incorporates forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All
statements regarding our expected financial position and operating results, our
business strategy and our financing plans are forward-looking statements. These
statements can sometimes be identified by our use of forward-looking words such
as "may", "will", "anticipate", "estimate", "expect", "project" or "intend".
These forward-looking statements reflect our plans, expectations and beliefs
and, accordingly, are subject to certain risks and uncertainties. We cannot
guarantee that any of such forward-looking statements will be realized.
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 Part II, Item 1A. of
this report as well as those in our other filings with the Securities and
Exchange Commission from time to time, including those in 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.
Our Business Segments
Motient Corporation (with its subsidiaries, "Motient" or the "Company")
currently owns two wireless communications businesses. Our primary business is
TerreStar Networks Inc. ("TerreStar"), a development stage company in the
process of building its first satellite. In addition, as of September 30, 2006,
we own 17% of another satellite communications company, called Mobile Satellite
Ventures LP, ("MSV"), and 45% of MSV's parent, SkyTerra Communications, Inc.
("SkyTerra"). We do not have operating control of the business of either MSV or
SkyTerra. Our investments in TerreStar and MSV are governed by stockholder
agreements with the other equity owners of those entities, and our interest in
SkyTerra is non-voting.
Through September 14, 2006, we also provided two-way terrestrial wireless data
communications services. On September 14, 2006, we sold most of the assets and
liabilities relating to that business. The accompanying financial statements,
including those for prior periods, present our terrestrial wireless business as
a discontinued operation. Pursuant to such presentation, the Company's
continuing operations are reflected as a single operating segment.
TerreStar
TerreStar was created 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".
24
We anticipate that TerreStar will allow us to provide Mobile Satellite Service,
or MSS, in the S-band in conjunction with ancillary terrestrial component, or
ATC, which would allow us to integrate satellite-based two-way communications
services with land-based two-way communications services. The mobile devices
utilizing this service could be used for a variety of communications
applications, including 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.
During 2002, TerreStar entered into a contract with Space Systems/Loral, Inc. to
purchase a satellite system, including certain ground infrastructure for use
with the 2 GHz band. Principal construction of this satellite began in mid-2005.
Terms of the contract include restricting certain cash balances in escrow
accounts in favor of Loral. At the end of 2005, TerreStar entered into a letter
of intent to execute, and in January 2006, TerreStar executed a contract with
Hughes Networks Systems, LLC for additional ground-based components of the
system. The contract calls for regular payments over time of up to $38 million,
excluding any optional services or components TerreStar elects to purchase. The
communications system being developed by TerreStar will ultimately include a
main satellite, a spare satellite, ground-switching infrastructure, launch costs
and insurance, among other things. The cost of the satellite system alone could
exceed $550 million. In August 2006, TerreStar exercised an option under its
2002 satellite construction contract with Space Systems/Loral to purchase a
second satellite similar to the satellite currently under construction. The cost
of this second satellite is expected to be $187 million, plus incentive
payments. As of September 30, 2006, TerreStar paid $3 million under this option
for the second satellite and $10 million is expected to be paid in the fourth
quarter of 2006. The second satellite is required as an on-ground spare for the
ATC FCC spectrum license. 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. Although Motient is
under no contractual obligation to provide such financing to TerreStar, Motient
has contributed some of its excess cash to TerreStar. Motient's cash resources
are not sufficient to fund TerreStar's total expected future funding
requirements. The value of our investment in TerreStar could be negatively
impacted if TerreStar cannot meet any such funding requirements.
TerreStar and MSV Ownership Changes
In May 2006, Motient entered into a series of agreements to consolidate the
ownership of TerreStar under Motient and the ownership of MSV under SkyTerra,
one of the other current investors in MSV and TerreStar. Pursuant to these
transactions, Motient issued shares of its common stock in exchange for shares
of TerreStar common stock, and exchanged limited partnership units of MSV for
shares of SkyTerra common stock. We closed some of the transactions related to
these agreements on September 25, 2006, which increased our ownership of
TerreStar to 68% (61% on a fully diluted basis), decreased our ownership of MSV
to 17%, and resulted in the acquisition of approximately 45% of SkyTerra, each
on a fully-diluted basis.
Of the approximately 29.1 million shares of SkyTerra common stock Motient
received, it has agreed to use commercially reasonable efforts to dividend
approximately 25.5 million shares to Motient shareholders. The shares of
SkyTerra common stock that Motient holds are currently non-voting, but will
become voting upon such dividend, or upon distribution or sale by Motient.
25
Motient has also sold approximately 3.6 million shares of SkyTerra common stock
pursuant to a resale registration statement filed by SkyTerra. Another
stockholder of TerreStar, TMI Communications & Company, has contractual
"tag-along" rights through early 2007. They have announced that they intend to
exercise these rights in 2007. In addition, TerreStar option holders also have
contractual tag-along rights that may be exercised, most likely in the fourth
quarter of 2006. If these holders exercise their tag-along rights, our ownership
of TerreStar would be significantly increased. This may result in Motient owning
in excess of 85% of TerreStar's issued and outstanding sock by early 2007.
Results of Operations
We consolidate TerreStar's operating results into our financial statements, and
we account for our ownership interest in MSV/SkyTerra using the cost method.
Expenses
The tables below summarize, for the periods indicated, a period-over-period
comparison of the key components of our continuing operating expenses. Please
note that 2006 includes expenses related to TerreStar which were not
consolidated in the first quarter of 2005.
Three Months Ended September 30,
--------------------------------------------------------
Summary of Expenses 2006(1) 2005 (2) Change % Change
- ------------------- ------- -------- ------ --------
(dollars in millions)
Research and Development 2.4 1.4 1 71%
Selling, General and
Administrative 30.6 6.2 24.4 394%
Depreciation and Amortization 1.5 1.3 0.2 15%
------- ------ ------- ---
Total Costs and Expenses $ 34.5 $ 8.9 $ 25.6 288%
======= ====== ======= ===
(1) Includes non-cash stock-based compensation expense of $20.3 million in
General and Administrative.
(2) Includes non-cash stock-based compensation expense of $1.8 million in
General and Administrative.
Nine Months Ended September 30,
--------------------------------------------------------
Summary of Expenses 2006(1) 2005 (2) Change % Change
- ------------------- ------- -------- ------ --------
(dollars in millions)
Research and Development 5.4 1.8 3.6 200%
Selling, General and
Administrative 59.5 22.0 37.5 170%
Depreciation and Amortization 4.1 2.1 2.0 95%
------- ------- ------- ---
Total Costs and Expenses $ 69.0 $ 25.9 $ 43.1 166%
======= ======= ======= ===
(1) Includes non-cash stock-based compensation expense of $34.7 million in
General and Administrative.
(2) Includes non-cash stock-based compensation expense of $12.0 million in
general and Administrative.
Research and Development: Research and development expenses increased for the
three and nine months ended September 30, 2006 as compared to the same periods
for 2005 due to the commencement of various TerreStar R&D projects as well as a
change in the management of pre-existing R&D projects from external consultants
to TerreStar personnel.
Selling, General and Administrative: Our aggregate expenses, including TerreStar
expense, in this area increased $24.4 million and $37.5 million for the three
and nine months ended September 30, 2006, respectively as compared to the same
periods for 2005. The change in general and administrative expenses was
primarily attributable to:
26
For the three months ended September 30, 2006 as compared to the same period for
2005,
o $15.6 million of the increase relates to stock-based compensation;
consisting of a $(0.7) million decrease in stock-based compensation
which is now included in discontinued operations as it relates to the
closing of our September 14, 2006 asset sale and $16.3 million of
expense related to the closing of our September 25, 2006 TerreStar and
MSV ownership consolidation transaction,
o $2.8 million in stock-based compensation granted to our board of
directors,
o $4.4 million consists of an increase in consulting and advisory fees,
primarily related to the development of TerreStar's network,
o salaries and other employee compensation increased $0.3 million;
TerreStar's employee compensation increased by $1.6 million, which was
offset by a reduction in corporate employee compensation of $1.3
million,
o corporate legal fees decreased $0.2 million due to lower third quarter
costs for our litigation defense efforts.
For the nine months ended September 30, 2006 as compared to the same period
for 2005,
o $31.5 million of the increase relates to the accelerated vesting of
employee stock-based compensation, consisting of $4.7 million in
Motient stock options related to the closing of our September 14, 2006
asset sale and $26.8 million of expense related to the closing of our
September 25, 2006 TerreStar and MSV ownership consolidation
transaction,
o consulting and advisory fees decreased $7.8 million, consisting of a
$9.0 million decrease in stock issued to advisors as a result of our
2005 corporate financing activities, a decrease of $1.1 million in
corporate consulting fees and an increase of $2.3 million in TerreStar
consulting expenses,
o legal fees increased $6.5 million consisting of $3.8 million in
litigation defense for efforts the first half of 2006 and $2.7 million
of TerreStar legal costs,
o salaries and other employee compensation increased $3.8 million
primarily due to the building of the TerreStar organization,
o audit expense increased $0.8 million due to additional resources
needed to support TerreStar growth.
We anticipate our selling, general and administrative expenses will increase in
the future as we expand our efforts on TerreStar to build its integrated mobile
satellite and terrestrial communications network.
Depreciation And Amortization: Consists primarily of the amortization of
TerreStar's intangible assets of $1.4 and $4.0 million for the three and nine
months ended September 30, 2006, respectively. The nine month increase of $2.0
million for 2006 is due to TerreStar's intangible amortization expense for a
full nine months in 2006 as compared to approximately five months of intangible
asset amortization in 2005.
27
Other Expenses & Income
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
September 30, September 30, September 30, September 30,
2006 2005 2006 2005
---- ---- ---- ----
Other Income/Expense
- --------------------
(in thousands)
Gain on Sale of Investments $ 196,905 $ --- $ 196,905 $ ---
Interest and other Income 1,441 2,755 5,857 4,950
Equity in Losses of Mobile Satellite
Ventures (8,423) (3,954) (25,803) (18,675)
Minority interests in losses of TerreStar 9,397 1,348 16,481 1,752
Discontinued Operations $ (9,600) $ (4,696) $ (31,283) $ (26,999)
Gain on Sale of Investments: The initial closing on September 25, 2006 of the
exchange of approximately 61% of our limited partnership interests in MSV for
approximately 25.5 million shares of SkyTerra and the exchange of approximately
4.1 million shares of Motient for approximately 3.6 million shares of SkyTerra,
less expenses and estimated income taxes, resulted in a net gain of $196,905
million on the transaction.
Interest and Other Income: Interest and other income decreased for the three
months ended September 30, 2006 as compared to the same period for 2005 due to
lower cash balances for the comparative quarters of approximately $194 million,
offset by higher interest rates for 2006. Interest and other income for the nine
months ended September 30, 2006 increased over the same period in 2005 as our
2005 interest income did not become significant until the second quarter when
$391 million in proceeds from our April 15, 2005 preferred stock sale were
received.
Equity in Losses of Mobile Satellite Ventures: Our ownership in MSV increased
from approximately 47% to approximately 49% on February 9, 2005 as a result of
an exchange of Motient common stock valued at $371 million for additional
interests in MSV and then decreased to approximately 17% on September 25, 2006
as the result of our exchange of limited partnership units of MSV for shares of
SkyTerra common stock on September 25, 2006. Pursuant to the February 2005
transaction, Motient's investment in MSV included a significant fair value
adjustment regarding MSV's intangible assets. As such, the recorded equity in
MSV's losses for the periods July 1, 2006 through September 25, 2006 and January
1, 2006 through September 25, 2006 and the three and nine months ended September
30, and 2005 include Motient's applicable percentage of MSV's net losses plus
$1.7 million and $5.0 million for 2006, respectively, as compared to $1.7
million and $4.3 million for 2005, respectively of amortization of this fair
value adjustment. For the periods July 1, 2006 through September 25, 2006 and
January 1, 2006 through September 25, 2006, MSV had revenues of $8.7 and $26.2
million, operating expenses of $15.7 and $55.7 million and net losses of $14.0
and $42.8 million, respectively. 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.
Minority Interest in TerreStar: For the three and nine months ended September
30, 2006, the Company recorded a net loss from TerreStar of approximately $25.0
million and $42.9 million, respectively. The respective $9.4 and $16.5 million
minority interest in TerreStar's net losses represents the percentage of
TerreStar that is not owned by the Company (approximately 39% through September
25, 2006 and approximately 32% from September 25, 2006 through September 30,
2006). We anticipate that the minority interest in TerreStar losses will
decrease in the fourth quarter of 2006 as the closing of the TerreStar and MSV
ownership exchange increased our majority ownership percentage of TerreStar.
28
Discontinued Operations: Discontinued operations includes revenues from our
DataTac and iMotient networks of $1.7 million and $5.6 million for the three and
nine months ended September 30, 2006, respectively as compared to $3.1 million
and $11.7 million for the same periods of 2005. Our iMotient revenues, however,
increased $0.4 million and $0.9 million for the three and nine months ended
September 30, 2006, respectively as compared to the same periods of 2005.
Loss from discontinued operations increased $4.9 million for the three months
ended September 30, 2006 as compared to the same period for 2005. The increase
is primarily due to $3.5 million in accelerated vesting of employee stock-based
compensation and $0.8 million decrease in other income from customer contracts.
Loss from discontinued operations increased $4.3 million for the nine months
ended September 30, 2006 as compared to the same period for 2005, also primarily
due to the accelerated vesting of employee stock-based compensation.
Liquidity And Capital Resources
The Company has as of September 30, 2006 $46 million of unrestricted cash on
hand, of which approximately $36 million is held by Motient and $10 million is
held by TerreStar. In October 2006, the Company sold approximately 3.6 million
shares of SkyTerra stock in the open market, which generated an additional cash
amount of approximately $47 million. The Company owns units of MSV which can be
converted to SkyTerra shares as well as additional shares totaling approximately
44 million shares after this sale.
The Company's future financial performance will depend on the successful
implementation of the business plan of its principal operating unit TerreStar.
The TerreStar business plan will require substantial funds to finance both
operating expenses and capital expenditures required to complete its satellite
and terrestrial network. For the remainder of 2006 and the full year 2007 ending
December 31, TerreStar will need approximately $600-$650 million of financing
which coincides with the planned completion and launch of TerreStar's first
satellite. This funding need breaks down into approximately $370-$400 million
required for construction of satellites, launch costs, launch insurance, and
ground stations to operate the satellites; approximately $150-$160 million for
terrestrial network equipment and handset related development, and approximately
$80-$90 million for operating expenses.
Motient can partially fund this cash need through the end of 2007 using its cash
on hand and potential sale of its liquid assets, but will require substantial
additional outside funding to implement the TerreStar business plan to complete
the satellite and terrestrial network in a timely fashion. TerreStar's cash
needs, along with the possible obligation to rescind $90 million of the Series A
Preferred Stock, will place significant pressure on the Company's liquidity and
the value of its assets and/or investments. The Company intends to raise
additional capital in the short term to meet the needs of its business plan.
However, the Company cannot guarantee that additional financing will be
available during this time period or that financing will be available on
favorable terms. If financing is not available, the Company may have to delay
and/or terminate various vendor contractual commitments, which could materially
impede TerreStar's ability to implement its network, retain its spectrum license
and generate future revenues.
29
Summary Of Cash Flows For The Nine Months Ended September 30, (in thousands):
2006 2005
---- ----
Net cash flows used in Continuing Operating Activities: $ (17,029) $ (6,171)
Net cash flows used in continuing Investing Activities: (101,382) (82,089)
Cash flows from Continuing Financing Activities:
Proceeds from the issuance of equity securities 18,548 679
Stock issuance costs and other charges --- (9)
Proceeds from the issuance of preferred stock --- 408,500
Issuance costs associated with preferred stock --- (17,483)
Proceeds from the exercise of employee stock options 361 1,241
Repayment of notes payable --- (8,739)
Purchase of treasury stock (6,789) (56,916)
Dividends paid on Series A and Series B Cumulative
Convertible Preferred Stock (10,723) ---
Net cash provided by continuing financing activities 1,397 327,273
Net cash provided by (used in) continuing operations (117,014) 239,013
Net cash (used in) discontinued operating activities (16,039) (15,683)
Net cash (used in) discontinued investing activities --- (81)
Net cash (used in) discontinued financing activities --- ---
Net cash (used in) discontinued operations (16,039) (15,764)
Net increase (decrease) in cash and cash equivalents (133,053) 223,249
Cash and Cash Equivalents, beginning of period 179,524 15,695
Cash and Cash Equivalents, end of period $ 46,741 $ 238,944
Operating Activities:
Cash used in continuing operating activities was $17.0 million for the first
three quarters of 2006 as compared to $6.2 million for the first three quarters
of 2005. The $10.8 million increase in cash used in continuing operations was
primarily a result of cash used for TerreStar operations.
Investing Activities:
Net cash used in continuing investing activities for the nine months ended
September 30, 2006 was $101.4 million as compared to $82.1 million cash used for
the same period in 2005. The additional cash usage in 2006 was attributable to
the TerreStar satellite for payments placed in escrow and/or released to Loral
and Hughes related to TerreStar's satellite and ground segment construction
contracts.
Financing Activities:
Net cash provided by in continuing financing activities was $1.4 million for the
nine months ended September 30, 2006 as compared to $327.3 million provided by
continuing financing activities for the nine months ended September 30, 2005.
The $325.9 million decrease in cash provided by financing activities in 2006
over 2005 was primarily the result of $391 million in net proceeds from our 2005
preferred stock sale and a 2006 decrease in treasury stock purchased of
approximately $50 million.
Discontinued Operations:
Net cash used in discontinued operating activities was $16.0 million for the
nine months ended September 30, 2006 as compared to $15.7 million for the same
period in 2005. The $0.3 million increase in cash used is primarily related to
30
costs associated with our 2006 network reduction efforts intended to reduce
expenses related to our base stations.
Outstanding Obligations
As of September 30, 2006, Motient had no outstanding debt or preferred stock
obligations, other than obligations with respect to the repayment of its Series
A and B Preferred Stock. If not converted or repaid, the entire preferred stock
amount of $408.5 million will be due on April 15, 2010. As of September 30,
2006, restricted cash of approximately $21.5 million represents the unpaid
portion of the dividends that were required to be placed in escrow. Of this
amount, half was paid out on October 16, 2006, and the remaining half will be
paid out on April 15, 2007. Additional dividend payments after April 15, 2007
will be due bi-annually in April and October, payable in cash (at a 5.25% annual
interest rate) or in common stock (at a 6.25% annual interest rate) through
April 15, 2010.
Contractual Cash Obligations
As of September 30, 2006, we had the following outstanding cash contractual
operating commitments in addition to the preferred stock commitments described
above:
More than 5
Total <1 Year 1-3 Years 3-5 Years Years
----- ------- --------- --------- -----
(in thousands)
TerreStar Satellite (1) $292,033 $156,663 $135,370 $ --- $ ---
Operating leases 10,581 1,917 5,599 3,065 ---
-------- -------- -------- -------- -------
Continuing Operations 302,614 158,580 140,969 3,065 ---
Discontinued Operations (2) 354 184 157 13 ---
-------- -------- -------- -------- -------
Total Contractual Cash Obligations $302,968 $158,764 $141,126 $ 3,078 $ ---
======== ======== ======== ======== =======
(1) These commitments include time payments related to the satellite
construction contract with Space Systems/Loral, Inc. and the ground-based
satellite beam access subsystem contract with Hughes Network Systems, LLC.
TerreStar 1 is scheduled to be completed in November 2007 and TerreStar 2
is scheduled to be completed in the second quarter of 2009.
(2) These commitments generally contain provisions that provide for an
acceleration of rent upon a default by us, except that certain long-term
real estate leases, categorized as Operating Leases, may not contain such
provisions.
Other
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., affiliates of James Dondero, a former director of Motient,
filed a lawsuit in Dallas County, Texas against Motient. The Plaintiffs
purchased 90,000 shares of Series A Preferred for $90 million in the private
placement in April 2005. Their lawsuit sought rescission of their purchase of
Series A Preferred, and unspecified damages, on the ground that the absence of
voting rights was material to purchasers of the Series A Preferred including the
Plaintiffs. Trial in this case is set for summer 2007. Motient believes that
this claim is without merit and intends to vigorously defend this lawsuit.
Critical Accounting Policies And Significant Estimates
Below are our accounting policies that 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
31
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.
Deferred Taxes
SFAS No. 109 "Accounting for Income Taxes" requires that a valuation allowance
be established when it is more likely than not that all or a portion of a
deferred tax asset will not be realized. As of September 30, 2005, we had
recorded a valuation allowance against 100% of our deferred income tax assets
because management determined that it was not more likely than not that the
deferred income tax assets would be realized based on our business model at that
time. This determination was based on current projections of future taxable
income when taking into consideration limitations on the utilization of net
operating loss carryforwards (NOLs) imposed by Section 382 of the Internal
Revenue Code (Section 382). We have had our ability to utilize these losses
limited on two occasions as a result of transactions that caused a change of
control in accordance with the Internal Revenue Service Code Section 382. For
the three months ended September 30, 2006, we generated taxable income for
income tax purposes, but through the utilization of our net operating loss
carryforwards we eliminated most, but not all, of our income tax liability,
recognizing an income tax provision of $17,100,000. See Note 2, "Significant
Accounting Policies - Income Taxes", of notes to the consolidated financial
statements for further details.
Revenue Recognition
The Company's revenues have historically been recorded in accordance with the
Securities and Exchange Commission's (SEC) Staff Accounting Bulletin (SAB) No.
104, Revenue Recognition and Emerging Issues Task Force (EITF) No. 00-21,
Accounting For Revenue Arrangements With Multiple Deliverables. TerreStar will
recognize revenue primarily from satellite utilization charges and, to a lesser
extent, from providing managed services to our customers. TerreStar will
recognize revenue over the period during which services are provided, as long as
collection of the related receivable is reasonably assured. TerreStar will make
estimates regarding the likelihood of collection based upon an evaluation of the
customer's creditworthiness, the customer's payment history and other conditions
or circumstances that may affect the likelihood of payment, such as political
and economic conditions in the country in which the customer is located. When
TerreStar has determined that the collection of payments for satellite
utilization or managed services is not reasonably assured at the time the
service is provided, we will defer recognition of the revenue until such time
that collection is believed to be reasonably assured or the payment is received.
TerreStar will also maintain an allowance for doubtful accounts for customers'
receivables where the collection of these receivables is uncertain. If
TerreStar's estimate of the likelihood of collection is not accurate, they may
experience lower revenue or an increase in our bad debt expense. Upon receipt of
payments from customers in advance of our providing services and amounts that
might be received from customers pursuant to satellite capacity prepayment
options will be recorded in the financial statements as deferred revenue. These
deferred amounts will be recognized as revenue on a straight-line basis over the
agreement terms. Our revenue recognition policy as described above complies with
the criteria set forth in Staff Accounting Bulletin No. 101, Revenue
Recognition, as amended by Staff Accounting Bulletin No. 104.
Valuation of Long-Lived Assets
The Company evaluates whether long-lived assets, excluding goodwill, have been
impaired when circumstances indicate the carrying value of those assets may not
be recoverable. For such long-lived assets, an impairment exists when its
carrying value exceeds the sum of estimates of the undiscounted cash flows
expected to result from the use and eventual disposition of the asset. When
alternative courses of action to recover the carrying amount of a long-lived
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asset are under consideration, a probability-weighted approach is used for
developing estimates of future undiscounted cash flows. If the carrying value of
the long-lived asset is not recoverable based on these estimated future
undiscounted cash flows, the impairment loss is measured as the excess of the
asset's carrying value over its fair value, such that the asset's carrying value
is adjusted to its estimated fair value.
Other Intangible Assets
Upon the initial consolidation of TerreStar on May 11, 2005, the assets and
liabilities of TerreStar were recorded on the Company's Consolidated Balance
Sheet based upon their fair values at such date. TerreStar's results of
operations have been included in the Company's Consolidated Statements of
Operations since that date.
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. There
was no excess purchase price over the estimated fair values of the underlying
assets and liabilities consolidated into Motient. 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. The Company will record
revisions to the fair values, which may be significant, as further adjustments
to the purchase price allocations.
Our subsequent investments in TerreStar on August 21, 2006 and September 25,
2006 increased the value allocated to the intangible assets by $7.6 million and
$59.4 million respectively.
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 business model used to prepare the valuation of TerreStar's assets
relies on revenues and cash flows generated by communications services provided
by its satellites as well as terrestrial infrastructure. Communications services
are assumed to be provided in three principal ways - (i) by utilizing only the
satellites, (ii) by utilizing only the terrestrial infrastructure, or (iii) by
utilizing a combination thereof via appropriate interfaces between the two
methods. The valuation model assumes that a substantial portion of TerreStar's
future revenues will be generated by the provision of services utilizing
terrestrial components only (approximately on average two-thirds of all revenues
over the projection period). The Company believes that a significant portion of
the value of TerreStar's spectrum and intellectual property assets lies in the
amount of revenue generated from these terrestrial components. If the amount of
terrestrial revenues generated by TerreStar's operating business in the future
is lower than anticipated, this could materially decrease the value of TerreStar
and its assets.
The valuation model further assumes that these terrestrial revenues will be
generated in partnership with a terrestrial wireless service partner that either
(i) already has existing terrestrial infrastructure, or (ii) who would have the
interest and the capital to deploy such terrestrial infrastructure to provide
the scale and scope of communications services assumed in the Company's
valuation model. The Company believes that this partner could also potentially
provide a large existing subscriber base and/or brand recognition, to go along
33
with the terrestrial infrastructure. Since the model assumes that this partner
would provide substantial operating, marketing and capital expenditures in
support of these terrestrial services, the Company has assumed that TerreStar
would receive a low percentage of the revenue generated by the business (as
detailed below). The Company can provide no assurance that it will be successful
in entering into a partnership of this nature on the terms assumed in the
Company's valuation model, if at all. If it is not successful, it may be
required to raise significantly more capital to provide support services to
TerreStar and/or to deploy a terrestrial infrastructure on its own, which may be
dilutive to existing shareholders. In this case, the Company would retain all of
the revenues from the provision of terrestrial services. However, if raising the
capital necessary to reach the scale and scope assumed in the valuation model is
not possible, the value of TerreStar and its assets would be materially
decreased.
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 (rather than the satellite
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
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 systems 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.
34
- - 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 our 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, (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 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, as necessary, record impairment
charges to reduces these intangible assets down to their revised estimated
values and/or adjust the remaining amortization periods. The Company has
determined that as of September 30, 2006
35
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
Disclosure Controls and Procedures
We have performed an evaluation under the supervision and with the participation
of our management, including our principal executive officer and principal
financial officer, of the effectiveness of our disclosure controls and
procedures, as defined in Rule 13a-15(e) under the Securities Exchange Act of
1934 (the "Exchange Act").
As previously disclosed in the Company's annual Report on Form 10-K for the year
ended December 31, 2005, the Company determined that, as of the end of December
2005, 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 taken the measures necessary to remediate those material
weaknesses, but cannot be certain until our testing of those remediation efforts
are complete. 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
2006, the Company's disclosure controls and procedures were not effective.
Material Weakness
The following material weakness was identified and included in management's
assessment of the Company's internal control over financial reporting reported
in the Company's Annual Report on Form 10-K for the year ended December 31,
2005:
Management has identified a lack of sufficient oversight and review involved in
the quarterly and year-end financial reporting process. In addition, management
identified a lack of resources to ensure complete application of generally
accepted accounting principles as it relates to non-routine transactions.
Specifically in 2005, we consummated two merger and acquisition transactions
related to two separate entities that we have a material investment in (MSV) or
acquired a controlling interest in (TerreStar). This deficiency in the design
and implementation of the Company's internal control over financial reporting
resulted in a misstatement to the financial statements for the quarterly
reporting periods in 2005. The Company filed amended Form 10-Q's for all 2005
quarters in March 2006 to reflect the adjustments for these restatements and the
information presented in this report for the quarter ended September 30, 2006 is
that restated information. The quarterly statements provided herein reflect the
adjustments for these restatements. No additional restatements related to this
deficiency were required.
36
Actions Taken to Correct Material Weakness
We have taken the following actions to remediate the above identified material
weakness:
We engaged the consulting services of an independent consulting firm to review
and support our quarterly and annual accounting and reporting functions. We have
also selected new consultants to assist in our Sarbanes-Oxley Section 404
reporting requirements. We have extended our subscription to a GAAP and SEC
compliance information service and are increasing the participation of financial
management personnel in continuing education courses. Given our resulting
material weakness despite adding additional resources in 2005, we intend to
continually evaluate the need for additional resources to support our evaluation
of complex transactions as discussed above for 2006 and beyond. We will also
dedicate additional substantial review at the point of each complex transaction
to review all appropriate accounting requirements. We believe that the control
deficiency involving lack of sufficient oversight and review of the processes
involved in the financial reporting process as it relates to complex, unique and
sophisticated transactions will be remedied with the addition of these
additional resources. We have discussed our corrective actions and future plans
with our Audit Committee, which has approved them, and with our independent
registered public accounting firm.
The Company believes that the corrective action described above will remediate
the internal control deficiencies identified in this report, but the Company and
the Audit Committee will continue to monitor the effectiveness of these actions
and will make any other changes or take such other actions as management
determines to be appropriate.
Changes in Internal Control Over Financial Reporting
In addition to the actions taken to correct material weaknesses identified
above, the Company added the position of Chief Financial Officer in the third
quarter of 2006. The Company believes that although the Principal Financial
Officer has changed, there has been no change in our internal control over
financial reporting that occurred during our last fiscal quarter that has
materially affected, or is reasonably likely to materially affect, our internal
control over financial reporting.
37
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Please see the discussion regarding Legal Proceedings contained in Note 6
("Legal and Regulatory Matters") of notes to consolidated financial statements,
which is incorporated by reference herein.
Item 6. Exhibits
The Exhibit Index filed herewith is incorporated herein by reference.
38
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)
November 9, 2006 /s/ Neil L. Hazard
------------------
Neil L. Hazard
Executive Vice President and Chief Financial
Officer (principal financial officer and
duly authorized officer to sign on behalf of
the registrant)
39
EXHIBIT INDEX
Number Description
3.1 - Restated Certificate of Incorporation of the Company (as restated
effective May 1, 2002) (incorporated by reference to Exhibit 3.1 of
the Company's Amendment No. 2 to Registration Statement on Form 8-A,
filed May 1, 2002).
3.2 - Certificate of Amendment to Restated Certificate of Incorporation of
the Company (incorporated by reference to Exhibit 3.4 of the
Company's Registration Statement on Form S-1 (File No. 333-126099)
filed June 24, 2005).
3.3 - Certificate of Amendment to Restated Certificate of Incorporation of
the Company (incorporated by reference to Exhibit 3.6 of the
Company's Registration Statement on Form S-3 (File No. 333-136366)
filed August 7, 2006).
10.58 - Purchase Agreement dated August 21, 2006 by and between Motient
Ventures Holding Inc. and TerreStar Networks Inc. (incorporated by
reference to Exhibit 10.1 to the Company's current report on Form
8-K dated August 21, 2006).
10.59 - Registration Rights Agreement by and between the Company and
SkyTerra Communications, Inc. dated September 25, 2006 (incorporated
by reference to Exhibit 10.1 to the Company's current report on Form
8-K dated September 25, 2006).
10.60 - Employment Agreement by and between the Company and Myrna Newman
dated November 1, 2006 (incorporated by reference to Exhibit 10.1 to
the Company's current report on Form 8-K dated November 6, 2006).
31.1 - Certification Pursuant to Rule 13a-14(a)/15d-14(a), of Executive
Vice President and Chief Financial Officer (principal financial
officer).
31.2 - Certification Pursuant to Rule 13a-14(a)/15d-14(a), of Executive
Vice President and Chief Financial Officer (principal financial
officer)
32 - Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, of
President and Chief Executive Officer (principal executive officer)
and Executive Vice President and Chief Financial Officer (principal
financial officer)
- ----------------------------------
40