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As filed with the Securities and Exchange Commission on March 30, 2000.

SECURITIES AND EXCHANGE COMMISSION

FORM 10-K

For the fiscal year ended December 31, 1999

AMERICAN MOBILE SATELLITE CORPORATION

Registrant’s telephone number, including area code: (703) 758-6000

Securities registered pursuant to Section 12(b) of the Act: None

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such report(s), and (2) has been subject to such filing requirements for the past 90 days. Yes  X No

The aggregate market value of shares of Common Stock held by non-affiliates at March 27, 2000 was approximately $1,055,180,513.

Number of shares of Common Stock outstanding at March 27, 2000: 49,455,775.

DOCUMENTS INCORPORATED BY REFERENCE

Certain information in the Company’s definitive Proxy Statement for its 2000 Annual Meeting of Stockholders is incorporated by reference in Part III of this Form 10-K.

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendments to this Form 10-K.    

AMERICAN MOBILE SATELLITE CORPORATION

1999 Annual Report on Form 10-K

PART I

This Annual Report on Form 10-K includes “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 and requirements are forward-looking statements. These statements can sometimes be identified by our use of forward-looking words or phrases such as, for example, “may,” “will,” “anticipate,” “estimate,” “expect,” “project,” or “intend.” These forward-looking statements reflect our plans, expectations and beliefs, and, accordingly, are subject to certain risks and uncertainties. We cannot guarantee that any of such forward-looking statements will be realized. Factors that may cause actual results to differ materially from those contemplated by such forward-looking statements (“Cautionary Statements”) include, among others, those described under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Overview,” and elsewhere in this annual report, including in conjunction with the forward-looking statements included in this annual report. All of our subsequent written and oral forward-looking statements (or statements that may be attributed to us) are expressly qualified by the Cautionary Statements. You should carefully review the risk factors described in our other filings with the Securities and Exchange Commission (the “SEC”) from time to time, including our registration statement on Form S-3 (File No. 333-81459), and our quarterly reports on Form 10-Q to be filed after this annual report, as well as our other reports and filings with the SEC. In addition, you are urged to review carefully the Report on Form 8-K, dated February 25, 2000, of XM Satellite Radio Holdings Inc. (“XM Radio”) (File No. 0-27441) describing the risk factors relating to XM Radio’s business, as well as XM Radio’s other reports filed from time to time with the SEC.

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Item 1.  Business

Overview

We are a nationwide provider of two-way, wireless mobile data services and mobile Internet services, principally for business-to-business uses. Our customers use our networks and applications for email messaging and dispatch and voice communications services, enabling businesses and mobile workers to transfer electronic information and messages and access corporate databases and the Internet. We have developed a versatile array of services targeted at customers in four primary market segments: (1) mobile email and other Internet-based content services, (2) telemetry, which refers to device to device communications for database access or remote monitoring, (3) transportation and package delivery, and (4) field service. Our network is designed to offer a broad array of wireless data services such as:

	•	two-way mobile Internet services, including our recently-launched eLinkSM wireless email service, that provide business-to-business users integrated wireless access to a broad range of corporate and Internet email and Net-based information;
	•	telemetry systems that connect remote equipment, such as wireless point-of-sale terminals, with a central monitoring facility;
	•	mobile data and call dispatch fleet management systems, used by large transportation companies and field service organizations;
	•	global position tracking systems that permit businesses to manage mobile assets; and
	•	point-to-multi-point voice communications systems used by natural resource companies, utilities, government agencies and other entities with mobile fleets and field workers.

We have been providing terrestrial wireless services to customers for several years, using a network which possesses four key design attributes: (1) two-way communication, (2) deep in-building penetration, (3) user mobility, and (4) broad nationwide coverage. We offer our customers the nation’s largest, most fully-deployed terrestrial wireless two-way data network, comprising nearly 2,000 base stations that provide service to 427 of the nation’s largest cities and towns, including virtually all metropolitan areas. In 1999, we significantly improved terrestrial network performance and coverage, adding approximately 300 new base stations. Our satellite in geosynchronous orbit overlays our terrestrial network, thereby extending the service area coverage of our network for certain of our service offerings throughout all 50 states and the Caribbean. The satellite also provides nationwide voice and dispatch services. As of December 31, 1999, there were approximately 140,700 end users on our networks, of which 122,200 were using data services, and 18,500 were using voice services.

We believe that our network’s rapid message response time, extensive nationwide coverage and deep in-building penetration are key competitive advantages. Our business-to-business customers enjoy the advantages of wireless integrated network applications and mobile Internet services for mission critical applications, built on a fully redundant network architecture. We are the only mobile data network to offer guaranteed message delivery to our customers.

Our Strategy

Our objective is to penetrate aggressively the large and growing markets for mobile Internet data communications services, and wireless telemetry applications. To meet this objective we intend to:

Leverage Resources of Strategic Distribution Partners. To penetrate our target markets, we have signed a number of strategic distribution alliances with industry leaders. We intend to access the resources and large existing corporate customer bases of these partners to address significantly more potential customers than we would be able to address on our own. For example, we have formed alliances with SkyTel, a leading national paging company with several hundred trained sales representatives, and Critical Path, an email outsourcer which hosts more than 11 million email boxes. We have also formed a strategic alliance with IBM, providing us with the opportunity to market our services to an established base of large corporate customers. In the

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Develop New Wireless Applications. We intend to exploit the market potential of our wireless network by working with value-added partners and major e-business solutions providers to develop additional innovative wireless applications and content-based services, including future enhancements to our eLink wireless email service. As market acceptance and demand for wireless email grows, we believe users will demand a wide variety of content-based services and features currently accessible on the Internet. As an example of this strategy, we have formed a strategic relationship with MicroStrategy under which subscribers to our eLink service will be able to receive, and act upon, timely, personalized alerts and updates on subjects such as finance, weather, news and sports. We have also signed agreements to develop Internet content-based services for use with our eLink service with GoAmerica and Neomar, and we are pursuing other similar agreements. In addition, we have formed an important strategic alliance with IBM, under which we will jointly develop and market wireless enterprise-wide email and other e-business solutions to corporate customers, as well as large email hosting Internet Service Providers, Mail Service Providers, and Applications Service Providers.

Work With Vendors to Develop Less Expensive and More Functional User Devices. We will continue to work with vendors to develop new generations of user devices and applications that combine improved functionality and convenience at a lower price. We also intend to work with vendors to help bring our network services to existing popular PDA platforms, such as held-held devices. In addition, we will continue to incorporate inexpensive, off the shelf software or free software in our services. We believe that lower price points will accelerate the acceptance and adoption of our services in our traditional markets, and will also enable us to better penetrate our targeted new wireless markets. By working with suppliers and other business partners and by making strategic software and hardware investments, we have significantly lowered the total cost of ownership of our products. At the same time, we have improved the functionality of our devices and made them smaller and more convenient.

Capitalize on, and Enhance, Our Network’s Technical Advantages. We have been providing terrestrial wireless services to customers for several years, using the nation’s largest, most fully deployed terrestrial wireless two-way data network. Unlike many competitors who are in the process of building limited city-wide or regional terrestrial networks, or planning to launch satellites, we have deployed a national network that is well tested and reliable, and our future network expansion requirements are expected to arise primarily from increased customer demand. We believe that our terrestrial network provides key competitive advantages currently unmatched by any competitor: broad nationwide geographic coverage, guaranteed two-way message delivery, rapid message response time, and deep in-building penetration with superior performance characteristics when compared with cellular-based architectures or satellite-only alternatives. We also believe that our two-way messaging and wireless email products are superior to currently available “two-way paging” services, due to the full, two-way messaging capabilities that our network enables. We will continue to enhance our terrestrial network’s capacity and coverage by acquiring additional frequency, building more base stations, both in existing and new geographic markets, and selectively upgrading the technological capabilities of existing base stations.

Our Wireless Service Offerings

We offer wireless services in four general categories: (1) terrestrial data, including eLink wireless email, (2) multi-mode data, (3) satellite-only data, and (4) satellite voice and dispatch. We describe each of these categories below.

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Terrestrial Data Services

General. Terrestrial data services are the core of our wireless business. Utilizing a variety of portable and hand-held user devices, our terrestrial data services enable communications between groups of mobile or fixed terminals and a single “hub.” We target our data applications to both vertical and horizontal markets. Applications include wireless email, Internet and Intranet access, fax, peer-to-peer communications, asset tracking, dispatch, point-of-sale, and other telemetry applications. There are over 30 types of subscriber devices available from more than 15 manufacturers for use on our terrestrial network. These devices include Research in Motion’s (RIM) handheld eLink devices, ruggedized laptops, handheld digital assistants, and wireless modems for PC’s. A variety of software firms have developed “middleware” which helps to minimize our customers’ development efforts in connecting the customer’s application to our network. Also, a number of off-the-shelf software packages enable popular email software applications on our network.

In the field service market, long-standing customers such as IBM, Sears, Pitney Bowes, and NCR use our customized terrestrial data applications to enable their mobile field service technicians to stay connected. These customers value the broad, nationwide coverage and deep in-building penetration of our terrestrial data network.

Our largest single terrestrial data application is in the package delivery market, where UPS has registered for service approximately 32,700 of its third generation package tracking devices on our network, under a multi-year agreement with us that calls for UPS to deploy approximately 50,000 devices on our network by the end of 2001.

eLink Wireless Email. Our eLink wireless email service, which we launched in the fall of 1999, provides mobile users with integrated wireless access to a broad range of corporate and Internet email and personal information management (PIM) applications. The eLink service uses a palm-sized wireless handheld device, the RIM 850, manufactured by Research in Motion. This device features a full QWERTY keyboard and a thumbwheel which functions as a mouse. We sell the RIM 850 for $359, with a monthly fee of $59.95 for unlimited email service or a limited use plan priced at $24.95 per month.

We currently offer two versions of eLink, “Agent^SM ,” and “Messenger^SM.”

Users of our eLink Agent service can send and receive email messages, using their existing corporate or Internet email address, over our terrestrial network, as long as the user’s email system is compliant with the industry protocol known as Post Office Protocol 3, or POP 3. Outgoing mail sent form the device appears to have come from the user’s desktop PC. eLink Agent synchronizes with a user’s desktop PC so that full calendar, task list, and contact information can be instantly swapped to and from the device.

Our eLink Messenger service assigns a unique email address (separate from the user’s corporate or Internet email address), allowing users to send and receive wireless email messages independent of other email systems. In addition, the Messenger service allows users to send faxes from their device, and the device also functions as a pager.

We are actively working on a number of innovative enhancements to our eLink service. For example, we are currently developing an IMAP4 solution for eLink, which will provide a more robust Internet email application protocol, thereby enabling seamless connectivity of our eLink service with a wider variety of commercial email applications. We are also developing a combined Agent/ Messenger offering, which will allow users to “toggle” back and forth between the two services. We expect to introduce several of these enhancements to the marketplace shortly.

While eLink currently is a wireless email service, we believe it will serve as a platform for future applications that go beyond simple email, such as wirelessly extending corporate enterprise-wide information management tools and systems.

Telemetry. We work with a variety of resellers in the telemetry market. These resellers integrate customer-specific devices and systems with our network to provide a wireless means of transmitting data from a fixed or mobile site to a central monitoring facility. Applications include wireless point-of-sale systems, utility meter reading, vending and office machine automation, and security/alarm monitoring.

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Pricing of Terrestrial Data Services. Terrestrial data service customers are charged a monthly access fee. In addition to this access fee, users pay for usage depending on the number of kilobytes of data transmitted. Our pricing plans offer a wide variety of volume packaging and discounts, consistent with customer demand and market conditions. The average monthly bill for our data customers (other than eLink) range from below $10 for high unit quantity, low traffic volume, off-peak telemetry users, to over $100 for high-volume, peak users in the field service market. Our average monthly revenue per data user in the fourth quarter of 1999 was approximately $43.

Multi-Mode Data Services

Our multi-mode communications service, MobileMAX2^SM, uses our terrestrial and satellite network to provide “least-cost-routing” for our customers’ two-way data communications. MobileMAX2 does this by actively seeking connections to the lower cost terrestrial network before automatically switching to our satellite network. By using both networks, the multi-mode service offers complete nationwide coverage. We believe that MobileMAX2, a lightweight, easily-installed device, will prove to be a cost-effective solution for long-haul trucking customers, as well as the broader transportation industry, including the less-than-truckload and package delivery markets. In addition to selling the MobileMAX2 service, we have initiated a bundled leasing program targeted at smaller and medium-sized trucking companies who may not be able to afford the capital expenditure associated with a purchase of the equipment. Multi-mode users are charged a monthly access fee that includes a specified number of vehicle location reports. Multi-mode customers, such as Sitton Motor Lines and Southeastern Freight Lines, value the least-cost-routing feature and complete nationwide coverage of our multi-mode service.

Satellite-Only Data Service

We offer satellite-only messaging as an alternative to our multi-mode service for customers in the long-haul trucking segment. Customers with broad network coverage requirements but relatively low usage requirements can get the service they need at an affordable price by subscribing to our satellite-only data service. Representative customers in this segment include CNF and Cannon Express.

Satellite Voice and Dispatch Services

Our satellite telephone service supports two-way circuit-switched voice, facsimile and data service. We offer a wide range of satellite phone configurations developed to address the particular communications needs of our customers. We market telephone service to businesses that have nationwide coverage requirements, including those operating in geographic areas that lack significant terrestrial coverage, such as natural resource companies, utilities and telecommunications companies that require backup and restoral support, public safety organizations, and maritime users seeking expanded or less costly coverage for both commercial and recreational vessels. Our satellite telephone customers include CBS, the Red Cross, FEMA, and the State of Louisiana.

Our satellite dispatch service provides point-to-multi-point voice communications among users in a customer-defined group using a push-to-talk device. This service facilitates team-based contingency-driven operations of groups operating over wide and/or remote areas. Our targeted customer groups include oil and gas pipeline companies, utilities and telecommunications companies with outside maintenance fleets, state and local public safety organizations, and public service organizations who need to seamlessly link resources on a nationwide basis. Our satellite dispatch customers include AT&T, MCI WorldCom, and the Williams Companies.

Satellite telephone users are charged both fixed access and variable usage fees. Our satellite dispatch customers are charged a fixed access fee for virtually unlimited usage. Monthly bills for satellite voice customers range from over $100 for high volume users to a low of $35 for certain public safety and emergency restoral applications. Our average monthly revenue per voice user in the fourth quarter of 1999 was approximately $73.

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Our Wireless Customers

As of December 31, 1999, there were approximately 140,700 user devices in service on our network and an established customer base of large corporations in the following market segments:

As of December 31, 1999, our customer base included the following product segments:

Marketing and Distribution

We market our wireless services through distribution partners and resellers, our direct sales force, and dealers.

Distribution Partners and Resellers. To penetrate new wireless data markets with significant growth potential, we have signed a variety of distribution alliances with key industry leaders. We intend to leverage the resources and large existing corporate customer bases of these partners to address significantly more potential customers than we would be able to address on our own. For example, we have formed an alliance with SkyTel, a leading national paging company, under which SkyTel offers our eLink service to SkyTel’s customers through its sales force of several hundred trained sales representatives and its resale partners. We have formed similar distribution alliances with internet service providers, such as GoAmerica. We also have a marketing agreement with Critical Path, an email outsourcer which hosts more than 11 million email boxes. We have also formed a strategic partnership with IBM, under which we will jointly develop and market wireless enterprise-wide email and other e-business solutions to corporate customers. We use resellers to distribute our services and to resell capacity on our network. Typically, we use resellers either in non-core markets, such as the maritime voice market, where Stratos Global Corporation is our exclusive reseller, or in specialized markets, such as telemetry, where we sell capacity on our network to resellers who integrate their customers’ equipment and systems with our network to provide a customized application. In the telemetry market, we have entered into reseller agreements with U.S. Wireless (point-of-sale), ABB Information Systems (utility monitoring), and Ameritech SecurityLink (alarm monitoring). We also use three specialized government resellers, one of which has included certain of our products and services on its General Services Administration schedule. We intend to seek other, similar means of expanding our opportunities to sell to the

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Direct Sales Force. We have a direct sales force that is experienced in selling our various wireless services. Historically, our direct sales force has focused on the requirements of business customers who need customized applications. With the launch of our eLink wireless email service, we have also built up a significant sales force concentrated on promoting our eLink offering to vertical markets. Our corporate accounts group is focused on promoting our eLink wireless email service to wirelessly enable enterprise-wide email systems for Fortune 500 accounts. For our wireless data services, we also have regionally based representatives who specialize in specific industry segments. Sales to corporate account targets generally require a sustained marketing effort lasting several months. Prior to making a buying decision, a majority of the accounts exercise a due diligence process where competitive alternatives are evaluated. Our employees often assist in developing justification studies, application design support, hardware testing, planning and training. In the wireless email area, our internal sales force has been key to our ability to convey crucial customer feedback to our product management team, enabling us to identify and develop new product and service features, such as an IMAP4 solution, the new, more robust internet mail application protocol, and additional connectivity options.

Dealers. We use dealers to market and sell our satellite voice and dispatch services. These dealers typically have strong business relationships with regional public safety entities, as well as with smaller field service fleets. We believe that opportunities exist to capitalize on the strengths of this channel by introducing a low-cost terrestrial data device with minimum integration requirements. Typically these dealers serve as agents for sales and service and do not provide billing and collection services. These dealers are generally compensated with a standard activation fee, plus a modest percentage of the service revenue for which they are responsible.

Our Network

Our wireless network consists of (1) the largest two-way terrestrial data network in the United States, providing service to 427 of the nation’s largest cities and towns, including virtually all metropolitan areas, and (2) a satellite in geosynchronous orbit with coverage of the continental United States, Alaska, Hawaii, Puerto Rico, the U.S. Virgin Islands and U.S. coastal waters and airspace. The network provides a wide range of mobile data and voice services.

Users of our network access it through subscriber units that may be portable, mobile or stationary devices. Generally, subscriber units enable either data or voice communications and are designed to operate over either the terrestrial data-only network or the satellite network, which provides both voice and data communications. In addition, our multi-mode subscriber equipment is designed to provide least-cost routing of data messages over the integrated terrestrial and satellite network.

Subscriber units receive and transmit wireless data or voice messages from either terrestrial base stations or our satellite, MSAT-2. Terrestrial messages are routed to their destination via data switches that we own, which connect to the public data network. Satellite messages are routed to their destination via satellite data and voice switches, located at our headquarters, which connect to the public data and switched voice networks. A data switch located in Lincolnshire, Illinois links the terrestrial and satellite networks for the delivery of our multi-mode data service.

Our terrestrial network delivers superior in-building penetration, completion rates and response times compared to other wireless data networks through the use of a patented single frequency reuse technology

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Our satellite, MSAT-2, has an expected end of service date of 2006 subject to potential malfunctions and other factors. We have an agreement with TMI Communications and Company, Limited Partnership, a Canadian company which owns and operates a technologically identical satellite known as MSAT-1, for back up, restoral and additional capacity if our satellite fails or we need additional capacity. In return, we have agreed to provide TMI with similar back-up service on our MSAT-2 satellite.

Equipment and Supplier Relationships

We have contracts with multiple vendors to supply equipment configurations designed to meet the requirements of specific end-user applications. We continue to pursue enhancements to these devices that will result in additional desirable features and reduced cost of ownership. Although many of the components of our products are available from a number of different suppliers, we rely on a relatively small number of key suppliers. The devices used with our services generally are subject to various product certification requirements and regulatory approvals before they are delivered for use by our customers.

Our eLink wireless email service uses the RIM 850, a palm-sized handheld device manufactured by Research in Motion, Limited. This device includes a full QWERTY keyboard and features a unique thumb wheel that functions similarly to a PC mouse. Research In Motion also manufactures modems designed to be integrated into handheld field service terminals, telemetry devices, utility monitoring and security systems and certain other computing systems, as well as the modem that is incorporated into MobileMAX2, our second generation multi-mode terminal manufactured by Vistar Telecommunications. Our supply arrangements with Research in Motion are not exclusive, and Research in Motion manufactures similar hardware products for other companies, including BellSouth Wireless, our competitor in the two-way wireless email market segment.

In addition to the messaging devices manufactured by Research in Motion, there are currently over 30 other types of subscriber units available from approximately 15 manufacturers that can operate on our terrestrial network. Examples of portable subscriber units include ruggedized laptop computers, small external modems, handheld or palmtop “assistants,” and pen based “tablets.”

In the transportation segment, we have an agreement with Vistar Telecommunications Inc., a Canadian company, to provide multi-mode data terminal equipment, including our second generation multi-mode terminal, MobileMAX2. The new multi-mode terminal incorporates a modem provided by Research in Motion.

Mobile satellite voice telephones are offered in a number of different configurations that deliver a variety of features and options to meet specific market needs. The primary suppliers of our voice terminal equipment have been Westinghouse Wireless Solutions, Inc. and Mitsubishi Electronics America. We have no arrangements with Westinghouse or Mitsubishi for the delivery of any new voice terminal equipment, and, when our remaining voice inventory is depleted, our customers who need voice equipment will need to buy such equipment from Westinghouse, Mitsubishi or another manufacturer whose equipment works on our satellite network, through such vendors’ designated distribution channels. Other vendors are exploring putting new voice terminal equipment on our network and we are committed to working with such vendors to facilitate their development efforts with a view toward certifying new equipment on our network. We continue working with Westinghouse and Mitsubishi to provide support and service to our voice customers.

Tandem Computer provides the terrestrial network switching computers under a multi-year lease that extends through 2000, while AT&T provides network services including a nationwide wireline data network, and leased sites which house regional switching equipment for our terrestrial network.

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We also have a relationship with AT&T as our vendor for switched inbound and outbound public switched telephone network services. The satellite system terminates calls from its telephone product via both the AT&T and Sprint networks.

We have an agreement with Motorola under which Motorola provides certain continued support for the terrestrial network infrastructure, and ongoing maintenance and service of the terrestrial network base stations. An unrelated third party also provides certain lease administration services for a portion of the terrestrial network base station site leases.

Hughes Network Systems Ltd. manufactures and supports the key component to our multi-mode and satellite messaging products, namely the land earth stations. There are currently four land earth stations that are operational, with a fifth under development. The platform for our voice products, the communications ground segment, depends upon products from multiple vendors, most of which are generally commercially available. Northern Telecom manufactures and supports the core voice switch. Digital Equipment Corporation supplies the computing platform that runs the communications ground segment.

We own certain patents, technical data and other intellectual property that has been developed in connection with our communications network. We jointly own certain intellectual property with TMI, the Canadian mobile satellite service provider, and we license intellectual property from other vendors for operation of our network. We believe our ownership of and rights to intellectual property for our system is sufficient for our business purposes.

The terrestrial network, and certain of its competitive strengths such as deep in-building penetration, is based upon single frequency reuse technology. Motorola holds the patent for the single frequency reuse technology. We have entered into support agreements with Motorola to provide for certain support of the operations of the terrestrial network. However, there can be no assurance that Motorola will not enter into arrangements with our competitors, or that if it does, such arrangements would not harm our business.

Competition

The wireless communications industry is highly competitive and is characterized by constant technological innovation. We compete by providing unmatched geographic coverage, deep in-building penetration, and guaranteed reliability distinguish us from existing and emerging competitors. Our wireless business solutions are used by businesses that need critical customer and operational information in a mobile environment.

We have multiple business lines and compete with a variety of service providers, from small startups to Fortune 500 companies. Because we compete in several market segments with a broad range of services, competitors and competing technologies may address one or more of our market segments. We face competition from service providers in (1) dedicated mobile data, (2) PCS/cellular, (3) narrowband PCS/enhanced paging, (4) emerging technology platforms, and (5) mobile satellite services.

Dedicated Mobile Data. Companies using packet data on dedicated mobile networks provide wireless data services that compete directly with a number of our data products. In a packet data environment data messages are transmitted in short bursts. Primary competitors using this technology include BellSouth Wireless Data and Metricom. BellSouth Wireless Data, a wholly owned subsidiary of BellSouth Corporation, operates a terrestrial-only network that provides data services to customers in vertical markets such as the field service, transportation and utility industries, and two-way messaging service to the the horizontal market. We believe that our network provides broader coverage, and superior in-building penetration than BellSouth Wireless Data’s network. In addition, we continue to upgrade our network in major metropolitan areas to continue to offer broader geographic coverage and operate at faster speeds than the BellSouth Wireless Data network. Metricom’s Ricochet service provides wireless access to the Internet, private intranets, local area networks and email. Because of the large size of the Metricom modem, the mobility of the user is limited while using the service. Metricom currently offers its service in limited regions, comprised of San Francisco, Seattle, parts of New York City and Washington, D.C. Metricom plans to add several more cities in 2000.

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The vendor of our wireless email device, Research in Motion, also offers a competing wireless messaging service, called Blackberry, which utilizes BellSouth Wireless Data’s network. Blackberry offers wireless email and Personal Information Management (PIM) functionality, but only serves users in a Microsoft Exchange environment. We believe that our eLink wireless email service is superior to similar products offered by competitors because of (1) the ability to combine a wider variety of corporate and Internet email applications with the eLink email service, (2) a unique synchronizing cradle that automatically updates users’ personal information management features, (3) more attractive pricing, (4) a rechargeable battery option, and (5) the nationwide breadth of our terrestrial wireless network.

PCS/ Cellular. PCS and cellular services presently serve the majority of mobile communications users in the United States, with over 73 million subscribers at the end of 1999. There are a large number of cellular and PCS systems collectively providing voice service throughout most of the United States, with no single competitor providing the seamless, national footprint that is available through our network. As the average voice revenue per subscriber declines, wireless voice carriers are beginning to focus on delivering wireless data services in an effort to differentiate their voice products and to retain voice customers. The first of these services is the Sprint PCS Wireless Web. Sprint allows circuit switched wireless web access to several content services using the numeric keypad of the phone. Other voice carriers are also beginning to offer wireless data services through mobile phones, but we believe the limitations of today’s PCS and cellular features and networks will limit competition in our target markets. Users must type messages using the numeric keypad, must have a digital phone and digital service, and do not have access to data services when they roam onto analog networks, detracting from the user experience. Pricing today is based on per-minute charges that can accumulate quickly as users are required to log on to the Sprint web browser and use Yahoo to send or receive email or access content services. It is expected to take several years before PCS/cellular carriers will have the breadth of coverage to match our services.

Cellular digital packet data (CDPD), the cellular industry’s only packet data service, is available in fewer geographic markets than our service, covering approximately 55% of the U.S. population. Expansion of the CDPD networks has slowed considerably as carriers such as AT&T and Bell Atlantic Mobile look to other means to provide data services to their voice customers. Some cellular and PCS carriers offer short message capabilities, depending on the protocol they use, and expect to offer larger capacity packet data services in the next few years.

Narrowband PCS/ Enhanced Paging. Some traditional paging companies, such as SkyTel, Arch and Metrocall, are expanding beyond their traditional alpha/numeric paging into two-way wireless messaging services using narrowband PCS. Typical applications include wireless email, near-real time delivery of stock quotes and other time sensitive information, and mobile workforce communications. Although some paging companies have begun to offer limited two-way messaging services, initial challenges in coverage, responsiveness and throughput, as well as the high cost of service, currently limit their adoption by our targeted customers. These services compete primarily with our eLink wireless email services. We have signed a strategic alliance with SkyTel under which SkyTel markets our eLink service to its customers, and we have similar reseller agreements with our national distribution partners.

Emerging technology platforms. A variety of new technologies, devices and services will result in new types of competition for us in the near future. The emergence of new protocols such as WAP (Wireless Access Protocol) and Bluetooth is expected to enable the use of the Internet as a platform to exchange information between people with different devices on different networks. WAP defines a protocol for altering Internet sites to make their content more readily transmittable to mobile user devices, where bandwidth is limited. Bluetooth is a wireless networking technology that will enable communications between disparate devices in a home or office setting. Manufacturers such as Nokia, Ericsson and Qualcomm are developing mobile phones and devices to work with the WAP and Bluetooth protocols. Within the next few years, it is expected that new, so-called “3G technologies,” new forms of CDMA, TDMA and GSM, will increase the data capabilities of voice and data services and may have a competitive impact on portions of our business.

The growth in wireless data opportunities has led traditional hardware manufacturers and software developers to invest in technologies that will allow the migration of core products and services to a mobile environment.

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Although the emergence of new technologies and new players expands our competitive environment, we believe it provides more of an opportunity than a threat. For example, we have formed a strategic partnership with IBM to develop mobile services that will be sold into IBM’s enterprise customers and users of Lotus Notes. Through IBM and other partners, we intend to be able to offer a full range of services, from simple wireless email to customized wireless data solutions, to our target customers in the enterprise market.

Mobile Satellite Services. A number of companies are selling or developing mobile satellite services that compete with our satellite voice and data services as well as our multi-mode transportation product. We do not view these mobile satellite services as competitors to the terrestrial component of our network because they are satellite-based and lack the extensive urban and in-building coverage we provide.

We face competition in the limited satellite voice and data services market from several companies that utilize a variety of satellite technologies. TMI, a Canadian company that operates a geosynchronous satellite comparable to our MSAT-2 satellite, received permission in November 1999 from the FCC to offer mobile messaging services in the United States using its Canadian-licensed MSAT-1 satellite. Its offerings are similar to many of our satellite voice and data services. As described below in “Regulation”, we have appealed the FCC decision granting TMI authority to operate in the United States. Globalstar recently launched its satellite services in limited areas of the globe, including the areas covered by our satellite. Globalstar’s system consists of a constellation of forty-eight low earth orbiting satellites that covers more than eighty percent of the globe. Globalstar offers or plans to offer global voice, fax, and data services. We do not foresee Globalstar providing a nationwide dispatch service such as ours or a data service in excess of 9600 bps. It is a more complex and expensive system than the satellite component of our network, but offers some advantages over our voice services such as smaller handheld telephones, global coverage, and in certain circumstances, reduced transmission delay.

Our multi-mode transportation product, MobileMAX2, utilizes both the satellite and terrestrial components of our network and competes in the trucking market, principally with Qualcomm’s satellite-only, low-speed OmniTRACS product. While both MobileMAX2 and OmniTRACS provide similar service, OmniTRACS currently does not have a terrestrial communications path or least-cost routing capabilities similar to our MobileMAX2 product. With OmniTRACS, transmissions to and from a vehicle must be routed exclusively over a satellite network and are subject to line of sight blocking and higher transmission costs. Qualcomm plans to launch a separate terrestrial-only service in 2000 using the Sprint PCS CDMA network.

In addition to relatively complex non-geosynchronous systems designed to provide mobile voice services, there are relatively simple “little” low earth orbit systems that would provide only low-speed packet data services. These systems, including ORBCOMM Global, L.P., and LEO One USA, have access to comparatively limited spectrum and are expected to compete for customers who require specialty applications such as asset tracking services for untethered trailers.

Employees

At December 31, 1999, we had 493 employees. None of our employees is represented by a labor union. We consider our relations with our employees to be good.

Our Investment in XM Radio

In addition to our core wireless business, we have a significant investment in XM Satellite Radio Holdings Inc., a development stage company. XM Radio is seeking to become a nationwide provider of digital quality audio entertainment and information programming transmitted directly by satellites to vehicle, home and portable radios. XM Radio owns one of two FCC licenses to provide a satellite digital audio radio service for the United States. XM Radio is developing its service, which it will call “XM Radio,” to provide a wide variety of music, news, talk, sports and other programming offering up to 100 distinctive channels.

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XM Radio has a separate management team and a business plan that is distinct from our core wireless business. To date, XM Radio has received substantially all of its required funding from independent sources in exchange for debt and equity interests in XM Radio. We are not required to provide any additional funding to XM Radio, and we currently expect that XM Radio will continue to obtain substantially all of its required funding from other sources. Accordingly, we do not expect that development of the XM Radio business will have a material effect on our consolidated liquidity, capital resources or cash flows.

For more details about XM Radio, its business and a discussion of certain risk factors related to its business plan, readers are urged to review carefully XM Radio’s Current Report on Form 8-K, dated February 25, 2000 (File No. 0-27441) filed with the SEC, as well as XM Radio’s other reports filed with the SEC from time to time.

Regulation

The satellite network and terrestrial two-way wireless data network used in our core wireless business are regulated to varying degrees at the federal, state, and local levels. Various legislative and regulatory proposals under consideration from time to time by Congress and the FCC have in the past materially affected and may in the future materially affect the telecommunications industry in general, and our wireless business in particular. The following is a summary of significant laws, regulations and policies affecting the operation of our core wireless business. In addition, many aspects of regulation at the federal, state and local level currently are subject to judicial review or are the subject of administrative or legislative proposals to modify, repeal, or adopt new laws and administrative regulations and policies. Neither the outcome of these proceedings nor their impact on our operations can be predicted at this time.

General Regulatory Matters Applicable to Our Wireless Business

The ownership and operation of our satellite and terrestrial networks are subject to the rules and regulations of the FCC, which acts under authority established by the Communications Act and related federal laws. Among other things, the FCC allocates portions of the radio frequency spectrum to certain services and grants licenses to and regulates individual entities using that spectrum. American Mobile operates pursuant to various licenses granted by the FCC.

American Mobile is a Commercial Mobile Radio Service provider and therefore is regulated as a common carrier. We must offer service at just and reasonable rates on a first-come, first-served basis, without any unjust or unreasonable discrimination, and we are subject to the FCC’s complaint processes. The FCC has forborne from applying numerous common carrier provisions of the Communications Act to Commercial Mobile Radio Service providers. In particular, we are not subject to traditional public utility rate-of-return regulation, and we are not required to file tariffs with the FCC for our domestic services.

As a provider of interstate telecommunications services, we are required to contribute to the FCC’s universal service fund, which supports the provision of affordable telecommunications to high-cost areas, and the provision of advanced telecommunications services to schools, libraries, and rural health care providers. Under the FCC’s current rules, we are required to contribute a percentage of the end-user telecommunications revenues we derive from the retail sale of interstate telecommunications services. Currently excluded from a carrier’s universal service contribution base are end-user revenues derived from the sale of information and other non-telecommunications services and wholesale revenues derived from the sale of telecommunications. A significant portion of the terrestrial network revenue falls within the excluded categories, thereby reducing our universal service assessments. Current rules also do not require that we impute to our contribution base retail revenues derived when we use our own transmission facilities to provide a service that includes both information service and telecommunications components. There can be no assurances that the FCC will retain the exclusions described herein or its current policy regarding the scope of a carrier’s contribution base. American Mobile may also be required to contribute to state universal service programs. The requirement to

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American Mobile is subject to the Communications Assistance for Law Enforcement Act (“CALEA”). Under CALEA, we must ensure that law enforcement agencies can intercept certain communications transmitted over our networks. We must also ensure that law enforcement agencies are able to access certain call-identifying information relating to communications over our networks. We must comply with the CALEA requirements and any rules subsequently promulgated by June 30, 2000 or face possible sanctions, including substantial fines and possible imprisonment of company officials. It is possible that we may not be able to comply with all of CALEA’s requirements or do so in a timely manner. Where compliance with any requirement is deemed by the FCC to be not “reasonably achievable,” we may be exempted from such requirement. In addition, CALEA establishes a federal fund to compensate telecommunications carriers for all reasonable costs directly associated with modifications performed by carriers in connection with equipment, facilities, and services installed or deployed on or before January 1, 1995. For equipment, facilities, and services deployed after January 1, 1995, the CALEA fund is supposed to compensate carriers for any reasonable costs associated with modifications required to make compliance “reasonably achievable.” It is possible that all necessary modifications will not qualify for this compensation and that the available funds will not be sufficient to reimburse American Mobile. The requirement to comply with CALEA could have a material adverse effect on the conduct of our business.

As a matter of general regulation by the FCC, we are subject to, among other things, payment of regulatory fees, restrictions on the level of radio frequency emissions of our systems’ mobile terminals and base stations, and “rate integration” regulations requiring that providers of interstate interexchange telecommunications services charge the same rates for these services in every state, including Puerto Rico and the U.S. Virgin Islands. Any of these regulations may have an adverse impact on the conduct of our business.

The FCC licenses of American Mobile are subject to restrictions in the Communications Act that (1) certain FCC licenses may not be held by a corporation of which more than 20% of its capital stock is directly owned of record or voted by non-U.S. citizens or entities or their representatives and (2) that no such FCC license may be held by a corporation controlled by another corporation (“indirect ownership”) if more than 25% of the controlling corporation’s capital stock is owned of record or voted by non-U.S. citizens or entities or their representatives, if the FCC finds that the public interest is served by the refusal or revocation of such license. However, with the implementation of the Basic Telecommunications Agreement, negotiated under the auspices of the World Trade Organization (“WTO”) and to which the United States is a party, the FCC will presume that indirect ownership interests in American Mobile’s FCC licenses in excess of 25% by non-U.S. citizens or entities will be permissible to the extent that the ownership interests are from WTO-member countries. The Basic Telecommunications Agreement and this presumption regarding indirect ownership by non-U.S. citizens or entities do not apply to XM Radio’s satellite radio license. If the 25% foreign ownership limit is exceeded, the FCC could potentially take a range of actions which could harm our business.

Our Terrestrial Network

Our terrestrial network consists of base stations licensed in the Business Radio and Specialized Mobile Radio Service, all operating in the 800 MHz frequency band. The terrestrial network is interconnected with the public switched data network.

The FCC’s licensing regime in effect when it issued licenses for the terrestrial network provided for the issuance of individual licenses for specific channels at specific sites. With respect to the part of the band in which all of the terrestrial base stations operate, however, the FCC has implemented a new licensing regime. The new licensing regime involves the auctioning of licenses for specific channels for wide geographic areas, within which the licensee will have substantial flexibility to operate any number of base stations, including base stations that may operate on the same channels as incumbent licensees such as American Mobile. The FCC proposes to prohibit the new geographic licensees from causing interference to incumbents, but there is concern that such interference may occur and that practical application of these rules is uncertain.

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We believe that we have licenses for sufficient channels to meet our current needs for capacity on the terrestrial network. To the extent that we need additional capacity, we may be required to either participate in the upcoming auctions or acquire channels from other licensees. As part of its new licensing regime, the FCC permits a wide-area geographic licensee, with prior FCC approval, to sell a portion of its geographic area to another entity. This partitioning authority may increase our flexibility to operate additional base stations, but the practical utility of this option is uncertain at this time.

We operate the terrestrial network under a number of waivers of the FCC’s technical rules, including rules on station identification, for-profit use of excess capacity, system loading, and multiple station ownership. Several of these waivers were first obtained individually by IBM and Motorola, which operated separate wireless data systems until forming the ARDIS joint venture in 1990. The FCC incorporated a number of these waivers into its regulations when it implemented Congress’ statutory provision creating the Commercial Mobile Radio Service classification, and we no longer require those waivers. As of March 3, 1999, we completed our planned construction of base stations for which extended implementation was granted by the FCC in 1996.

Our Satellite Network

We are licensed by the FCC to provide a broad range of mobile voice, data and dispatch services via satellite to land, air and sea-based customers in a service area consisting of the continental United States, Alaska, Hawaii, Puerto Rico, the U.S. Virgin Islands and U.S. coastal waters and airspace. American Mobile is also authorized to provide fixed site voice and data services via satellite to locations within this service area, so long as such services remain incidental to American Mobile’s mobile communications services. American Mobile is authorized to build, launch and operate three geosynchronous satellites in accordance with a specified schedule. We are not in compliance with the schedule for commencement and construction of our second and third satellites and we have petitioned the FCC for changes to the schedule. Certain of these extension requests have been opposed by third parties. The FCC has not acted on our requests. The FCC has the authority to revoke the authorizations for the second and third satellites and, in connection with such a revocation, could exercise its authority to rescind our license. We believe that the exercise of such authority to rescind the license is unlikely. The term of the license for each of our three authorized satellites is ten years, beginning when we certify that the respective satellite is operating in compliance with the license. The ten-year term of the license for MSAT-2 began August 21, 1995. Although we anticipate that the authorizations are likely to be extended in due course to correspond to the useful lives of the satellites and that new licenses will be granted for replacement satellites, there is no assurance of such extension or grant.

On July 2, 1998, we filed an application for authority to launch and operate our second-generation mobile satellite system. This satellite is intended to support our existing satellite services and also allow the provision of an extended array of services, such as higher data rate services and services to lower-power terminals. There is no guarantee that the FCC will grant this application. The filing of the application does not commit us to expend any resources toward this project; however, should we decide to proceed with the construction of the follow-on satellite, we would be required to raise substantial additional capital to fund this project.

MSAT-2 is designed to operate over the 1530-1559/1631.5-1660.5 MHz bands (the “L-band”). American Mobile is currently licensed to operate in the 1544-1559/1645-1660.5 MHz bands (the “upper L-band”). The FCC has designated American Mobile as the licensee for both MSS and Aeronautical Mobile Satellite (Route) Service (“AMS®S”). AMS®S includes satellite communications related to air traffic control, as well as aeronautical safety-related operational and administrative functions. As a condition to its authorization, American Mobile is required by the FCC to be capable of providing priority and preemptive access for AMS®S traffic in the upper L-band and to be interoperable with and capable of transferring AMS®S traffic to international and foreign systems providing such service. We currently anticipate we will be able to meet these requirements without any material adverse effect on our business. If we are unable to meet these requirements, the FCC may authorize and give priority spectrum access to one or more additional satellite systems that meet the specified requirements.

We have applied for authorization to operate in the 1530-1544/1631.5-1645.5 MHz band (the “lower L-band”). If we are assigned spectrum in the lower L-band, we will be required by the FCC to provide similar

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American Mobile’s mobile terminal authorizations are subject to compliance with certain requirements regarding interference protection to the Global Positioning System (“GPS”). With the consent of the FAA, the FCC granted our application subject to certain conditions, including that the grant may be modified after the interference issue is studied. The FCC is now proposing to impose more stringent limits on the out-of-band emissions from certain mobile terminals, including those used in connection with our system, in order to protect GPS and the Russian Global Navigation Satellite System. Some of our existing mobile terminals may not comply with this proposed standard. Under the FCC’s proposal, all mobile terminals commissioned after January 1, 2002 must comply with this new limit, and any terminals not meeting the new specifications must be retired or retrofitted by 2005. While we believe that we will be able to comply with the proposed 2002 deadline for newly commissioned terminals, we have opposed the 2005 deadline for the retirement or retrofitting of existing, non-compliant terminals. If adopted by the FCC, this policy could have a material adverse effect on our business.

American Mobile’s license authorizes MSAT-2 to operate using certain telemetry, transfer and control frequencies in the Ku-band. American Mobile operates MSAT-2 at the 101 degrees W.L. orbital location. GE American Communications, Inc., also operates a satellite at the 101 degrees W.L. orbital location. American Mobile and GE American have an agreement covering MSAT-2 that may require us to modify our operations or make certain payments to GE American if our operations cause interference to those of GE American. While there can be no assurances, we do not anticipate any interference in the operations of MSAT-2 and those of GE American.

American Mobile’s subscriber equipment will operate in L-band frequencies that are limited in available bandwidth. The feeder-link earth stations and the network communications controller of the communications ground segment operate in the more plentiful fixed satellite service Ku-band frequencies. Of the 30 MHz in the upper L-band frequencies, American Mobile is currently licensed to operate in the 1544-1559/1645.5-1660.5 MHz bands. Of the 30 MHz assigned to American Mobile by the FCC, one MHz is limited to AMS®S and one-way paging and two MHz are limited to distress and safety communications. We do not plan to operate on these three MHz of bandwidth.

In June 1996, the FCC issued a notice of proposed rulemaking proposing to assign to American Mobile the first 28 MHz of internationally coordinated L-band spectrum from either the upper or lower portion of the

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In the Ku-band frequencies, American Mobile is currently licensed to operate MSAT-2 using 200 MHz within the bands 10.75-10.95 GHz for downlink transmissions and 13.0-13.15 GHz and 13.2-13.25 GHz for uplink transmissions. We have applied for authority to operate using an additional 200 MHz of spectrum within the same bands.

Spectrum availability, particularly in the L-band, is a function not only of how much spectrum is assigned to us by the FCC, but also the extent to which the same frequencies are used by other systems in the North American region, and the manner of such use. All spectrum use must be coordinated with other parties that are providing or plan to provide mobile satellite-based communications in the same geographical region using the same spectrum. At this time, the other parties with which spectrum use must be coordinated include Canada, Mexico, the Russian Federation and Inmarsat. In addition, a new Japanese system proposes to operate in a manner that would interfere with our system and other systems in this region, and this Japanese system’s spectrum use will have to be coordinated with these regional operators.

Use of the spectrum is determined through a series of negotiations between the United States government and the other user agencies, pursuant to the rules and regulations of the International Telecommunication Union. For the past several years, each of the countries and international organizations that have used or will use L-band frequencies within the North American region have met regularly to negotiate and coordinate their current and future use of that spectrum. This international coordination process is not yet complete and there has been no spectrum sharing arrangement since the end of 1999. In the absence of a coordination agreement, we must operate our system on a non-interference basis.

We estimate that international coordination will make approximately 20 MHz of L-band spectrum available to the United States for MSAT-2. Since the coordination process involves many parties and there is uncertainty about the total outcome, the actual amount of spectrum available may be less than that estimated. The operation of the new Japanese system may have the effect of further reducing our access to spectrum. Some of the spectrum that may be available to us may include a portion of the 28 MHz lower L-band spectrum adjacent to the frequencies already assigned to us by the FCC.

The International Telecommunications Union Radio Regulations include a table of frequency allocations that prescribe the permitted uses of the radio spectrum. As a result of the International Telecommunications Union satellite plan for parts of the Ku-band, there also may be restrictions on our ability to deploy feederlink earth stations in Alaska, Hawaii, Puerto Rico, and the U.S. Virgin Islands.

During the course of the licensing process for American Mobile and several times since, the FCC has stated that there is only enough spectrum in the MSS L-band for the FCC to authorize a single mobile satellite services system to provide service in the United States. On November 30, 1999, however, the FCC granted two applications to use TMI’s Canadian-licensed system to provide service in the United States to up to 125,000 mobile terminals. TMI’s system operates in the MSS L-band and has a satellite footprint that covers the United States. We are currently appealing the FCC’s grant of these applications to the United States Court of Appeals for the D.C. Circuit. There is no assurance that this appeal will be successful. TMI’s entry into the domestic U.S. marketplace may increase TMI’s demand for spectrum in the international coordination process and otherwise make it more difficult for us to secure access to 20 MHz of spectrum. The FCC may grant additional applications to use TMI’s system or other foreign-licensed L-band systems to provide service to domestic U.S. customers.

American Mobile is operating under waivers of certain FCC rules. In 1996, the FCC issued an order requiring all Commercial Mobile Radio Service providers to offer what are known as “enhanced 9-1-1 services” including the ability to automatically locate the position of all transmitting mobile terminals. We would not

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The FCC enacted “rate integration” regulations requiring that providers of interstate interexchange telecommunications services charge the same rates for these services in every state, including Puerto Rico and the U.S. Virgin Islands. We have opposed the imposition of this rate integration requirement on our mobile satellite services system, so that we may preserve the flexibility to charge more for service in areas covered by satellite beams that require more satellite power. The FCC has denied our request for a permanent exemption from its rate integration requirement, but has not yet ruled on our request for a temporary waiver of a year or more. The FCC has granted American Mobile an interim waiver from its rate integration requirement until its decision on American Mobile’s temporary waiver request.

Item 2.  Properties.

We lease approximately 94,000 square feet at our headquarters office space and network operations center in Reston, Virginia. The lease has a term which runs through August 3, 2003 (which may be extended at our election for an additional five years). In addition, we lease a back-up Ku-band radio frequency facility in Alexandria, Virginia. We also lease approximately 86,000 square feet of space for office space and an operations center in Lincolnshire, Illinois, the lease for which expires December 31, 2005 (which may be extended at our election for an additional five years). We also lease site space for nearly 2,000 base stations and antennas across the country for the terrestrial network under one- to five-year lease contracts with renewal provisions. We anticipate that we will be able to gain access to additional base station sites when necessary on acceptable terms.

Item 3.  Legal Proceedings.

There are no material pending legal proceedings that are required to be disclosed.

Item 4.  Submission of Matters to a Vote of Security Holders.

No matters were submitted to a vote of the Company’s Stockholders during the fourth quarter of fiscal 1999.

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PART II

Items 5, 6, 7 and 8.

The information called for by Items 5 through 8 of Part II is presented in a separate section of this Annual Report on Form 10-K commencing on the page numbers specified below:

None.

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PART III

Items 10, 11, 12 and 13.

The information called for by Part III (Items 10, 11, 12 and 13) is incorporated herein by reference from the material included under the captions “Nominees,” “Board Committees, Meetings, and Compensation,” “Executive Officers,” “Performance Graph,” “Summary Compensation Table,” Option/ SAR Grants in Last Fiscal Year,” “Option/ SAR Exercises and Year-End Option Values,” “Compensation and Stock Option Committee Report,” “Security Ownership of Certain Beneficial Owners and Management,” “Agreements Among Stockholders,” “Compensation and Stock Option Committee Interlocks and Insider Participation” and “Section 16(a) Beneficial Ownership Reporting Compliance” in the Company’s definitive proxy statement (to be filed) for its Annual Meeting of Stockholders to be held May 23, 2000 (the “Proxy Statement”). The Proxy Statement is being prepared and will be filed with the Securities and Exchange Commission pursuant to Regulation 14A, and furnished to the Company’s Stockholders, on or about April 19, 2000.

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PART IV

Item 14.  Exhibits, Financial Statement Schedules, and Reports on Form 8-K.

(a) 1.  Financial Statements.

The following consolidated financial statements of the Company and its subsidiaries are included in a separate section of this Annual Report on Form 10-K commencing on the page numbers specified below:

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     2.  Financial Statement Schedules.

Financial Statement Schedules not included with the ones listed below have been omitted because they are not required or not applicable, or because the required information is shown in the financial statements or notes thereto.

     3.  Exhibits.

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*	Management contract or compensatory plan or arrangement required to be filed as an exhibit to this report pursuant to Item 14(c) of this report.

(b)	Reports on Form 8-K:

     None.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	AMERICAN MOBILE SATELLITE CORPORATION

	By	/s/ WALTER V. PURNELL, JR.

	Walter V. Purnell, Jr.
	President and Chief Executive Officer

Date: March 30, 2000

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

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INDEX

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Management’s Discussion and Analysis of Financial Condition and Results of Operations

This Annual Report on Form 10-K includes “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 and requirements are forward-looking statements. These statements can sometimes be identified by our use of forward-looking words or phrases such as, for example, “may,” “will,” “anticipate,” “estimate,” “expect,” “project,” or “intend.” These forward-looking statements reflect our plans, expectations and beliefs, and, accordingly, are subject to certain risks and uncertainties. We cannot guarantee that any of such forward-looking statements will be realized. Factors that may cause actual results to differ materially from those contemplated by such forward-looking statements (“Cautionary Statements”) include, among others, those described under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Overview,” and elsewhere in this annual report, including in conjunction with the forward-looking statements included in this annual report. All of our subsequent written and oral forward-looking statements (or statements that may be attributed to us) are expressly qualified by the Cautionary Statements. You should carefully review the risk factors described in our other filings with the Securities and Exchange Commission (the “SEC”) from time to time, including our registration statement on Form S-3 (File No. 333-81459), and our quarterly reports on Form 10-Q to be filed after this annual report, as well as our other reports and filings with the SEC. In addition, you are urged to review carefully the Report on Form 8-K, dated February 25, 2000 (File No. 0-27441) of XM Satellite Radio Holdings Inc. (“XM Radio”) describing the risk factors relating to its business, as well as XM Radio’s other reports filed from time to time with the SEC.

General

This section provides information which we believe is relevant to an assessment and understanding of the financial condition and consolidated results of operations of American Mobile Satellite Corporation (with its subsidiaries, “American Mobile” or the “Company”). The discussion should be read in conjunction with the consolidated financial statements and notes thereto. American Mobile has six wholly-owned subsidiaries which, for purposes of this annual report, are referred to as the core wireless business, and a controlling interest in three other subsidiaries, referred to as XM Radio (defined below). On a consolidated basis, we refer to these entities as American Mobile.

Core Wireless Business

American Mobile was formed in May 1988 and, until 1996, was a development stage company, engaged primarily in the design, development, construction, deployment and financing of a mobile satellite communication system. We have expanded our network through acquisitions over the last several years. In late 1996, we expanded our mobile data messaging service through the acquisition of Rockwell International Corporation’s dual mode mobile messaging and global positioning and monitoring service. On March 31, 1998, we acquired ARDIS Company from Motorola, Inc.. With these acquisitions, we became a leading provider of nationwide wireless communications services, including data, dispatch and voice services, primarily to business customers in the United States. We offer a broad range of end-to-end wireless solutions utilizing a seamless network consisting of the nation’s largest, most fully-deployed terrestrial wireless data network and a satellite in geosynchronous orbit. Combined, we refer to these as the network.

During 1999, we made substantial investments in two new products — eLink^SM and MobileMAX2^SM . Our eLink service is a two-way wireless email device and electronic organizer that uses our terrestrial network. We believe that this product will capitalize on the rapid expansion of internet email usage, particularly in the business-to-business environment. MobileMAX2 is our second generation multi-mode mobile data messaging service which uses both our satellite and terrestrial networks to provide least-cost-routing capabilities. We believe MobileMAX2 will improve our competitive position in the transportation industry, since the product has a relatively low cost of entry, and contains added functionality that should allow us to increase our penetration of the less-than-truckload market.

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We expect that our rollout of eLink and MobileMAX2 will require a significant investment of financial resources. We believe that the market opportunity represented by these wireless data offerings is substantial, and we have decided to focus the majority of our available future resources on expanding our wireless data business. As a result of these factors and in light of certain regulatory developments in late 1999 with respect to our satellite voice business, we expect that the future level of investment in our voice business and satellite-related product lines will decrease as a percentage of our overall investment. While we expect that this shift in resources will ultimately yield an increase in our customer base, we expect that it will have the effect of driving down average revenue per unit as the percentage of voice customers decreases.

XM Radio

As of March 15, 2000, we had an equity interest in XM Satellite Radio Holdings Inc. (“XM Radio”) of approximately 34.4% (or 25.5% on a fully diluted basis) of the common stock of XM Radio; however, we continue to control XM Radio through Board of Director membership and common stock voting rights. We will continue to consolidate XM Radio until we no longer control XM Radio. We must request and receive FCC approval to relinquish control of XM Radio. Accordingly, the results of XM Radio are consolidated with our financial statements. The operations and financing of XM Radio are maintained separate and apart from the operations and financing of American Mobile (see discussion of Liquidity and Capital Resources below). XM Radio completed its initial public offering in October 1999. Please refer to XM Radio’s SEC reports and filings for more detail about its business plan, risks, and financial results.

Our significant acquisitions in recent years and the impact of consolidating the results of XM Radio, make period to period comparison of our financial results less meaningful, and therefore, you should not rely on them as an indication of future operating performance.

Overview

We have incurred significant operating losses and negative cash flows in each year since we started operations, due primarily to start-up costs, the costs of developing and building the networks and the cost of developing, selling and providing our products and services. We are, and will continue to be, highly leveraged (see discussion of Liquidity and Capital Resources — below).

Our future operating results could be adversely affected by a number of uncertainties and factors, including:

	•	the launch of new products or the entry into new market segments, which may require us to continue to incur significant operating losses,
	•	our ability to fully recover the value of our inventory in a timely manner,
	•	our ability to gain market acceptance of new products and services, including our new product offerings, eLink and MobileMAX2,
	•	the timely roll-out of certain key customer initiatives and new products, including for example MobileMAX2,
	•	our ability to respond and react to changes in our business and the industry because we have substantial indebtedness,
	•	our ability to fund anticipated capital expenditures, operating losses and debt service requirements and our ability to secure additional financing as necessary,
	•	our ability to modify the organization, strategy and product mix to maximize the market opportunities as the market changes,
	•	our ability to manage growth effectively,
	•	competition from existing companies that provide services using existing communications technologies and the possibility of competition from companies using new technology in the future,

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	•	our ability to maintain, on commercially reasonable terms or at all, certain technologies licensed from third parties,
	•	the loss of one or more of our key customers,
	•	the timely availability of an adequate supply of subscriber equipment at competitive price points,
	•	our ability to expand our networks on a timely basis and at a commercially reasonable cost, or at all, as additional future demand increases,
	•	regulation by the FCC,
	•	technical anomalies that may occur within the network, which could impact, among other things, customer performance, satisfaction and revenue under contractual arrangements with certain customers, or the operation of the satellite network and the cost, scope or availability of in-orbit insurance.

Additionally, XM Radio is a development stage company with no revenues, and its business is subject to a number of significant risks and uncertainties including the following:

	•	the ability to obtain additional financing necessary to complete the build out of its system and maintain operations until such time as it can reach cash flow positive,
	•	satellite launch failure, destruction or damage during launch, and premature failure of XM Radio’s satellite that will not be fully covered by insurance,
	•	the ability of XM Radio to successfully integrate complex technologies into a technologically feasible configuration,
	•	the timely availability of XM Radio subscriber equipment at competitive prices,
	•	the ability of XM Radio to gain market acceptance of its service, and
	•	the ability of XM Radio to achieve profitability given certain distribution agreement obligations and joint development funding requirements.

The Company has a significant investment in XM Radio which may be effected by the foregoing risks and impact the market price of XM Radio’s stock. For an expanded discussion of XM Radio’s risk factors, please refer to XM Radio’s Report on Form 8-K dated February 25, 2000 filed with the SEC.

Years Ended December 31, 1999 and 1998

Service Revenue and Subscriber Statistics

Service revenues, which includes our data, voice, and capacity reseller services, approximated $67.7 million for 1999, which constituted a $9.7 million, or 17% increase over 1998. The increase in service revenues year over year was primarily attributable to a full year of ARDIS data service in 1999, versus only nine months in 1998. Our 1999 revenue growth was slowed as a result of delays in our rollout of new product initiatives. In the case of MobileMAX2, this delay also caused us to have product shortages of our first-generation equipment, so we had limited equipment available for sale to generate new customers.

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The decrease in service revenue from voice services was primarily a result of a 32% decrease in our average revenue per unit for maritime subscribers following the sale of our maritime business to a reseller in late 1998. This was offset by an increase in our total voice subscriber customer base of 42% as well as Year 2000 priority service fees. Our data service revenue increased as a result of the inclusion of ARDIS for the full twelve months in 1999 as compared to nine months in 1998, which contributed $9.0 million in additional revenue year over year, and a 15% increase in mobile data units during 1999. Service revenue from capacity resellers, who handle both voice and data services, increased primarily as a result of two new customers and increased contract commitments from current customers.

The decrease in revenue from the sale of equipment revenue reflects the sale of approximately $8.5 million of maritime voice equipment to one customer in the fourth quarter of 1998. Excluding this sale, revenue from the sale of equipment increased in 1999 because of increased voice product sales primarily associated with companies preparing for Year 2000, as well as marketing promotions which increased the sales of both data and voice equipment.

As is common in our industry, we report subscriber information and average revenue per unit per month statistics. Although these measures are not required under Generally Accepted Accounting Principles (“GAAP”), we believe that this information helps to demonstrate important trends in our business.

Additionally, our mix of subscribers can be broken down into the following markets:

As the mix of subscribers shifts more to our data business, and more of the voice business is handled by resellers, we expect that the overall average revenue per unit will continue to decline over time towards the average revenue per unit for the data service.

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Expenses

As of January 1999, as a result of the completion of the integration of the ARDIS network’s accounting systems and the achievement of certain related cost synergies, we no longer report separate company information for ARDIS. Additionally, effective July 7, 1999, we assumed control of XM Radio and we consolidated its results with ours from that point forward. Consequently, the discussion of the 1999 results reflect the costs of the consolidated entity.

Cost of service and operations includes costs to support subscribers and to operate the network. As a percentage of total revenues, cost of service and operations was 76% for 1999 and 64% for 1998. The increase in cost of service and operations was primarily attributable to (i) additional headcount, primarily as a result of the ARDIS acquisition, (ii) increased communication charges associated with increased service usage and costs to support the terrestrial network, (iii) system and base station maintenance to support the terrestrial network, (iv) site rental costs associated with the terrestrial network, and (v) approximately $3.6 million of incremental Year 2000 costs that we do not anticipate to recur in future years. As a percentage of revenue, cost of service and operations has increased as a result of the variable costs incurred within the terrestrial network, such as site rent and telecommunications costs. XM Radio did not incur any cost of service and operations expenses in 1999.

The cost of equipment sold decreased $0.9 million, or 3%, from $30.4 million in 1998 to $29.5 million in 1999. The decrease from 1998 to 1999 in the cost of equipment sold was primarily attributable to the impact of the sale of the maritime business in 1998, mentioned above, offset by (i) increased sales of voice products supporting Year 2000 preparedness, (ii) increased warranty costs associated with the increased number of registered first-generation multi-mode data products, and (iii) an inventory valuation charge of approximately $4.2 million recorded in the fourth quarter of 1999 related to older voice and satellite-only transportation inventory.

The 20% increase in sales and advertising expenses from 1998 to 1999 was primarily attributable to (i) increased headcount costs resulting from the inclusion of ARDIS acquisition for the full twelve months of 1999 and (ii) costs associated with the launch of our new eLink service offering which included additional advertising and headcount for sales and support staff. We expect these costs to continue to increase as we introduce new products and services and invest in customer acquisition. XM Radio did not incur any sales and advertising expenses in 1999.

General and administrative expenses were $40.3 million in 1999, of which $20.9 million were related to XM Radio. Excluding XM Radio expenses, general and administrative expenses represented 21% and 20% of total revenue in 1999 and 1998, respectively. The $2.1 million increase in general and administrative expenses was primarily attributable to an increase in headcount from the prior year causing an increase in bonuses, training costs, payroll taxes, and 401(K) match expense.

Depreciation and amortization expenses were $55.8 million in 1999, of which $0.9 million was incurred by XM Radio. Excluding XM Radio, depreciation and amortization was approximately 60% of total revenue in 1999 and 1998. The dollar increase in depreciation and amortization expense was primarily attributable to

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Interest and other income, including that earned by XM Radio, was $8.5 million for 1999, as compared to $4.4 million for 1998. Excluding $2.8 million of interest earned by XM Radio on its short-term investments, the increase was primarily a result of interest earned on XM Radio convertible debt, prior to the consolidation of XM Radio, offset by lower balances on escrows established with the proceeds from the $335 million debt offering.

We incurred $66.0 million of interest expense in 1999, of which $2.7 million was incurred by XM Radio, compared to $53.8 million of interest expense in 1998, reflecting (i) the amortization of debt discount, prepaid interest and debt offering costs in the amount of $15.8 million, excluding XM Radio, in 1999, compared to $16.2 million in 1998, (ii) interest expense, at 12  1/4 %, on the $335 million notes issued in March 1998, offset by lower debt balances on our bank facility as a result of the partial repayment in July 1999, as discussed below. We expect that interest costs will continue to increase as we continue to draw down on our bank revolver; however, we expect that a portion of the increased interest expense will be offset by reduced amortization of debt discount costs that were written off when $59 million of debt was repaid and extinguished under the term facility in July 1999.

In January 1999, we issued a note payable to Baron Asset Fund, a stockholder and a guarantor of our bank facility, in the amount of $21.5 million. The note was secured and was exchangeable for a portion of our shares of XM Radio. Since the note was indexed to XM Radio stock, which increased in value during the year, we recorded an unrealized loss in 1999 in the amount of $27.4 million. The note payable was exchanged for XM Radio stock in January 2000, and we will record an offsetting gain in the first quarter of 2000 for the difference between the carrying value of the debt and XM Radio stock exchanged to settle the obligation.

Net capital expenditures, excluding XM Radio, in 1999 for property and equipment were $13.8 million compared to $12.5 million in 1998. Expenditures consisted primarily of assets necessary to continue the build out of our terrestrial network. In addition from the period July 1, 1999 through December 31, 1999, XM Radio expended $1.7 million primarily for office furniture and equipment.

Net capital expenditures for property under construction represent those costs associated with the build out of the XM Radio network. It is anticipated that these expenditures will continue to be significant as XM Radio continues to build out its satellites and ground segments. For the period from July 1, 1999 through December 31, 1999, XM Radio expended $141.2 million for property under construction.

Years Ended December 31, 1998 and 1997

Service Revenue

Service revenues, which includes our data, voice, and capacity reseller services, approximated $58.0 million for 1998, which constituted a $37.3 million increase over 1997. The significant increase in service revenues

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The increase in service revenue from voice services was primarily a result of a 34% increase in voice customers in 1998 as compared to 1997. The increase in service revenue from our data services was a result of $30.4 million from the ARDIS data service and a 26% increase in mobile data units during 1998. Service revenue from capacity resellers, who handle both voice and data services, increased primarily as a result of increased contract commitments from current customers.

The increase in revenue from the sale of equipment includes the sale of approximately $8.5 million of maritime voice equipment to a maritime reseller in the fourth quarter of 1998. Excluding this sale, revenue from the sale of equipment decreased due to reductions in prices for certain data products. ARDIS equipment sales were $1.4 million.

As of December 31, 1998, there were approximately 105,700 subscribers on the network, as compared to approximately 32,400 at the end of 1997.

Expenses

Cost of service and operations for 1998 includes costs to support subscribers and to operate the network. As a percentage of total revenues, cost of service and operations was 64% and 72% for 1998 and 1997, respectively. This increase was primarily attributable to (i) $24.6 million related to ARDIS and (ii) increased interconnect charges associated with increased service usage, offset by (iii) a reduction in information technology costs caused by reducing the dependence on outside consultants. Absent the acquisition of ARDIS on March 31, 1998, cost of service and operations for 1998 was $31.1 million, or a $0.9 million decrease from 1997.

The decrease from 1997 to 1998 in the cost of equipment sold was primarily attributable to the impact of an inventory valuation allowance of approximately $12.0 million recorded in the fourth quarter of 1997 and the resulting decrease in 1998 equipment prices, offset by the cost of the sale of the maritime equipment, mentioned above.

The 59% increase in sales and advertising expenses from 1997 to 1998 was primarily attributable to ARDIS. Absent the acquisition of ARDIS, sales and advertising expenses for 1998 were $12.3 million, an increase of

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General and administrative expenses represented 20% and 34% of total revenue in 1998 and 1997, respectively. The dollar increase in general and administrative expenses for 1998 compared to 1997 was primarily attributable to $5.4 million of ARDIS costs offset by reductions of approximately $2.9 million of expenses attributable to (i) $0.9 million in taxes relating to a reversal of an accrual as a result of obtaining a favorable property tax ruling, and (ii) reductions of bad debt expense. Absent the acquisition of ARDIS, general and administrative expenses for 1998 were $11.9 million.

Depreciation and amortization expense represented approximately 60% of total revenue in 1998, as compared to 96% of total revenue in 1997. The dollar increase in depreciation and amortization expense was primarily attributable to the addition of ARDIS assets and step-up in the basis of ARDIS licenses. Absent the acquisition of ARDIS, depreciation and amortization expenses for 1998 was $40.0 million, or a reduction of $2.4 million from 1997.

Interest and other income was $4.4 million for 1998 as compared to $1.1 million for 1997. The increase was primarily a result of interest earned on escrows established with the proceeds from the $335 million debt offering. We incurred $53.8 million of interest expense in 1998 compared to $21.6 million in 1997, reflecting (i) the amortization of debt discount, prepaid interest and debt offering costs in the amount of $16.2 million in 1998, compared to $9.4 million in 1997, (ii) interest expense on the $335 million Notes at 12  1/4%, offset by lower debt balances on our bank facility.

Interest expense in 1998 was significant as a result of borrowings under our bank facility, the amortization of borrowing costs incurred in conjunction with securing the facility, and interest accrued on the notes issued in the ARDIS acquisition. It is anticipated that interest costs will continue to be significant as a result of the bank facility and notes (see discussion of Liquidity and Capital Resources below).

Net capital expenditures for 1998 for property and equipment were $12.5 million compared to $8.6 million for 1997. The increase was largely attributable to the acquisition of assets necessary to continue the build-outs of the terrestrial network.

Liquidity and Capital Resources

Core Wireless Business

Adequate liquidity and capital are critical to our ability to continue as a going concern and to fund subscriber acquisition programs necessary to achieve positive cash flow and profitable operations. We expect to continue to make significant capital outlays to fund interest expense, new product rollouts, capital expenditures and working capital before we begin to generate positive cash flow from operations. We expect these outlays to continue for the foreseeable future.

In August 1999, we raised $116 million, net of underwriting discounts and expenses, through the issuance of 7 million shares of our common stock in a public offering. Of the proceeds, we used $59 million to pay down a portion of, and permanently reduce, our term loan facility. The rest of the proceeds were used to pay down the revolving loan, which are available for re-borrowing as needed.

Summary of Liquidity and Financing Sources for Core Wireless Business

Our current operating assumptions and projections reflect our best estimate of subscriber and revenue growth and operating expenses. We anticipate that capital expenditures, operating losses, working capital and debt service requirements through 2000, and beyond, can be met by (i) the borrowings available under the bank financing and the vendor financing, (ii) proceeds from the exercise of stock options and warrants and (iii) additional debt or equity financing transactions. We also believe that our investment in XM Radio may provide us, in the future, with flexibility for obtaining additional liquidity in the future, should that be necessary. However, there are various restrictions on our ability to realize liquidity on our investment in XM Radio. Our ability to meet our projections is subject to numerous uncertainties and we cannot guarantee that

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Our current financing arrangements are summarized below:

	•	A $141 million bank financing facility, consisting of (i) a $100 million unsecured five-year reducing revolving credit facility and (ii) a $41 million five-year term loan facility, with up to three additional one-year extensions subject to the lenders’ approval, which is secured by the assets of the Company, principally our stockholdings in XM Radio. The bank financing is severally guaranteed by Hughes Electronics Corporation, Singapore Telecommunications Ltd., and Baron Capital Partners, L.P. Both facilities bear interest, generally, at 100 basis points above London Interbank Offered Rate — LIBOR. Certain proceeds that we may receive are required to be used to repay and reduce the bank financing, unless otherwise waived by the lenders and the guarantors. As of February 29, 2000, the Company had outstanding borrowings of $41 million under the term loan facility at 7.1875%, and $69 million under the revolving credit facility at rates ranging from 6.9375% to 7.1875%. Additionally, in connection with the bank financing, we entered into an interest rate swap agreement which reduces the impact of interest rate increases on the term loan facility. Under the swap agreement, we will receive an amount equal to LIBOR plus 50 basis points, paid directly to the banks on a quarterly basis, on a notional amount of $41 million until the termination date of March 31, 2001. The unamortized fee paid for the swap agreement is reflected as an asset in the accompanying financial statements. We are exposed to a credit loss in the event the counter party does not perform under this agreement; however, we do not believe there is a significant risk of non performance, since the counter party to the swap agreement is a major financial institution.
	•	A vendor financing commitment from Motorola, Inc., a stockholder, to provide up to $10 million of vendor financing to finance up to 75% of the purchase price of additional terrestrial network base stations. Loans under this facility bear interest at a rate equal to LIBOR plus 7.0% and are guaranteed by American Mobile and each of its wholly-owned subsidiaries. The terms of the facility require that amounts borrowed be secured by the equipment purchased therewith. As of December 31, 1999, $4.1 million was available under this facility.
	•	$335 million of senior notes issued at the time of the ARDIS acquisition. The notes bear interest at 12 1/4% annually and are due in 2008. A portion of the net proceeds of the sale of the notes were used to finance pledged securities that are intended to provide for the payment of the first six interest payments on these notes. Interest payments are due semi-annually, in arrears, and began on October 1, 1998. The notes were issued by a subsidiary of American Mobile, and are fully guaranteed by American Mobile.
	•	We have also arranged the financing of certain trade payables, and as of December 31, 1999, $4.0 million of deferred trade payables were outstanding at rates ranging from 6.07% to 12.00% and are generally payable by the end of 2000.

For a complete description of these financings and their terms, please see Footnote Number 8 to our financial statements included herein.

Commitments

At December 31, 1999, we had remaining contractual commitments to purchase subscriber equipment inventory, primarily related to eLink and MobileMAX2, in the maximum amount of $44.9 million during 2000 and 2001. We have the right to terminate certain of these commitments by incurring a cancellation penalty representing a percentage of the unfulfilled portion of the contract. As of December 31, 1999, the cancellation penalty would have been approximately $7.4 million.

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We have also contracted for the purchase of $10.4 million of base stations to expand our coverage and complete certain necessary site build-outs, $0.4 million for certain software development, and certain other operating expense contract commitments that total approximately $1.2 million over the next year.

XM Radio

XM Radio is operated, managed, and funded separately from our core wireless business. While we do not have any obligation or commitments to provide additional funding to XM Radio, and do not expect to provide any additional funding, we may choose to do so in the future. XM Radio will require significant additional funding in the future. If XM Radio is not successful in obtaining the additional required financing, our investment in XM Radio could be negatively impacted.

On July 7, 1999, XM Radio issued $250 million of Series A subordinated convertible notes to several new strategic and financial investors including General Motors Corporation, Clear Channel Investments, DIRECTV, Telcom Ventures, Columbia Capital and Madison Dearborn Partners. $75 million of the proceeds from this financing were used to repay an outstanding note payable, and the remainder was used for working capital. In October 1999, XM Radio raised net proceeds of approximately $114.1 million through the issuance of 10.2 million shares of common stock in an initial public offering. Concurrent with this offering, the Series A subordinated convertible notes converted to either common stock or preferred stock. In the first quarter of 2000, XM Radio raised an additional $228.5 million in net proceeds through a follow-on offering of 4.4 million shares of common stock and 2.0 million shares of convertible redeemable preferred stock. In March 2000, XM Radio completed a high yield debt offering of 325,000 units, each unit consisting of $1,000 principal amount of 14% Senior Secured Notes due 2010 and one warrant to purchase 8.024815 shares of Class A common stock of XM Radio at an exercise price of $49.50 per share. XM Radio realized net proceeds of $191.0 million, excluding $123.0 million used to acquire securities which will be used to pay interest payments due under the notes for the first three years.

XM Radio is also subject to certain commitments and contingencies. XM Radio has a distribution agreement with General Motors that will require significant expenditures in the future. Under its satellite contract with Hughes Space and Communications, Inc., XM Radio will incur payment obligations of approximately $541.3 million of which $183.9 million had been paid as of December 31, 1999. XM Radio has signed a contract with LCC International, Inc., for the engineering of its terrestrial repeater network with total contract payments expected to be approximately $115 million through 2001. As of December 31, 1999, XM Radio has paid $6.6 million under this contract. In February 2000, XM Radio signed a contract with Hughes Network Systems for the design, development, and purchase of terrestrial repeater equipment. The total value of this contract is $128 million and XM Radio has paid $3.5 million under a letter agreement through December 31, 1999 in anticipation of this contract. On February 16, 2000, XM Radio and Sirius Satellite Radio, a competitor of XM Radio, signed an agreement to develop a unified standard for satellite radios to facilitate the ability of consumers to purchase one radio capable of receiving both XM Radio’s and Sirius Satellite Radio’s services.

Other

All of our wholly owned subsidiaries are subject to financing agreements that limit the amount of cash dividends and loans that can be advanced to American Mobile Parent. At December 31, 1999, all of the subsidiaries’ net assets were restricted under these agreements. These restrictions will have an impact on our ability to pay dividends.

Cash used in operating activities was $107.0 million for 1999, of which $12.8 million was attributable to XM Radio, compared to $56.2 million for 1998. Excluding XM Radio, cash used in operating activities was $94.2 million. The decrease in cash used in operating activities was primarily attributable to (i) increased operating losses, and (ii) a decrease in net working capital primarily due to the timing of payments on accounts receivables and prepaid expenses. Cash used in investing activities was $218.1 million for 1999, of which $215.8 million was attributable to XM Radio, compared to $190.0 million for 1998. Excluding XM Radio, cash used in investing activities was $2.3 million. This decrease was primarily attributable to the 1998 acquisition of ARDIS and the funding of certain escrows required in connection with the acquisition and issuance of notes. This decrease was offset by a reduction in funding of escrows for two semi-annual interest

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Regulation

The ownership and operations of our communication systems are subject to significant regulation by the FCC, which acts under authority granted by the Communications Act of 1934, as amended (the “Communications Act”), and related federal laws. A number of our licenses are subject to renewal by the FCC and, with respect to our satellite operations, are subject to international frequency coordination. In addition, current FCC regulations generally limit the ownership and control of American Mobile by non-U.S. citizens or entities to 25%. We cannot assure that the rules and regulations of the FCC will continue to support our operations as presently conducted and contemplated to be conducted in the future, or that all existing licenses will be renewed and requisite frequencies coordinated.

As described in greater detail in “Part I, Item 1. Business — Regulation”, in November 1999 the FCC granted two applications to use a Canadian competitor’s satellite system to provide mobile satellite services in the United States. This decision represents a departure from the FCC’s previous statements that there is only enough spectrum in the mobile satellite services L-band to authorize a single mobile satellite services system to provide service in the United States. While American Mobile has appealed this decision, there can be no assurances that it will be overturned. The loss of exclusive right to provide these services will result in competition from other providers to provide mobile satellite services and cause us to reduce the prices charged and revenue related to these services.

Other Matters

As previously reported, the satellite has, in the past, experienced certain technological anomalies, and there can be no assurance that the satellite will not experience subsequent anomalies that could adversely impact the Company’s financial condition, results of operations and cash flows. See “Part I, Item 1. Business — Our Network”.

Year 2000 Readiness

American Mobile has completed its Year 2000 Readiness program and did not experience any significant problems as a result of the roll over to the year 2000. We do not anticipate any continued business impacts related to this issue. American Mobile incurred approximately $2.4 million in 1998 and $6.0 million in 1999 to address Year 2000 issues. Only a negligible amount is budgeted for the year 2000.

Accounting Standards

In June 1998, FASB issued Statement No. 133, “Accounting for Derivative Instruments and Hedging Activities,” which requires the recognition of all derivatives as either assets or liabilities measured at fair value. In June 1999, FASB issued Statement No. 137, which defers the effective date of Statement No. 133 until fiscal quarters beginning after June 15, 2000. We do not believe that the adoption of this statement will have a material impact on our financial position and results of operations.

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Report of Independent Public Accountants

To American Mobile Satellite Corporation:

We have audited the accompanying consolidated balance sheets of American Mobile Satellite Corporation (a Delaware corporation) and Subsidiaries as of December 31, 1999 and 1998, and the related consolidated statements of operations, stockholders’ equity (deficit) and cash flows for each of the three years in the period ended December 31, 1999. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We did not audit the financial statements of XM Satellite Radio Holdings Inc, which statements reflect total assets and total revenues of 57% and 0%, respectively, in 1999 of the related consolidated totals. Those statements were audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for XM Satellite Radio Holdings Inc., is based solely on the report of the other auditors.

We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform an audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits and the report of other auditors provide a reasonable basis for our opinion.

In our opinion, based on our audits and the report of other auditors, the financial statements referred to above present fairly, in all material respects, the financial position of American Mobile Satellite Corporation and Subsidiaries as of December 31, 1999 and 1998, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1999, in conformity with accounting principles generally accepted in the United States.

/s/ Arthur Anderson LLP

March 15, 2000

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INDEPENDENT AUDITORS’ REPORT

To the Board of Directors and Stockholders
XM Satellite Radio Holdings Inc. and Subsidiaries:

We have audited the consolidated balance sheets of XM Satellite Radio Holdings Inc. and subsidiaries (a development stage company) (the “Company”) as of December 31, 1998 and 1999, and the related consolidated statements of operations, stockholders’ equity (deficit), and cash flows for each of the years in the three-year period ended December 31, 1999, and for the period from December 15, 1992 (date of inception) to December 31, 1999, which are not included herein. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of XM Satellite Radio Holdings Inc. and subsidiaries (a development stage company) as of December 31, 1998 and 1999, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1999 and for the period from December 15, 1992 (date of inception) to December 31, 1999, in conformity with generally accepted accounting principles.

The consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in note 11 to the consolidated financial statements, the Company has not commenced operations and is dependent upon additional debt or equity financing, which raises substantial doubt about its ability to continue as a going concern. Management’s plan in regard to these matters is also described in note 11. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

	/s/ KPMG LLP

McLean, VA
February 16, 2000, except
for Note 14, which is
as of March 15, 2000

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American Mobile Satellite Corporation and Subsidiaries

Consolidated Statements of Operations

The accompanying notes are an integral part of these consolidated financial statements.

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American Mobile Satellite Corporation and Subsidiaries

Consolidated Balance Sheets

The accompanying notes are an integral part of these consolidated financial statements.

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The accompanying notes are an integral part of these consolidated financial statements.

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American Mobile Satellite Corporation and Subsidiaries