SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
Commission File No. 0-23044
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MOTIENT CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 93-0976127
(State or other jurisdiction of (I.R.S. Employee Identification Number)
incorporation or organization)
10802 Parkridge Boulevard
Reston, Virginia 20191-5416
(703) 758-6000
(Address, including zip code, and telephone number, including area
code, of registrant's principal executive offices)
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such report(s)), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No[ ]
Number of shares of Common Stock outstanding at November 10, 2000: 49,563,737
<PAGE>
PART I- FINANCIAL INFORMATION
Item 1. Financial Statements
Motient Corporation and Subsidiaries
Consolidated Condensed Statements of Operations
(in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
------------- -------------
2000 1999 2000 1999
---- ---- ---- ----
REVENUES
<S> <C> <C> <C> <C>
Services $ 19,810 $ 17,290 $55,182 $ 50,076
Sales of equipment 6,847 5,680 19,333 15,997
----- ----- ------ ------
Total Revenues 26,657 22,970 74,515 66,073
COSTS AND EXPENSES
Cost of services and operations 18,573 17,287 55,365 51,673
Cost of equipment sold 10,678 6,045 23,883 17,167
Sales and advertising 8,633 5,548 22,479 16,018
General and administrative 32,952 13,119 73,528 22,596
Depreciation and amortization 9,932 14,911 28,220 42,315
----- ------ ------ ------
Operating Loss (54,111) (33,940) (128,960) (83,696)
Interest and Other Income 9,015 990 24,168 4,622
Interest Expense (15,278) (18,136) (46,288) (50,957)
Unrealized Loss on Note Receivable From XM Radio -- -- -- (9,919)
Gain on Conversion of Convertible Note Payable to
Related Party -- -- 32,854 --
Unrealized (Loss) Gain on Convertible Note Payable to
Related Party -- (2,807) 3,925 7,229
Minority Interest in Loss of XM Radio 13,391 -- 24,074 --
Equity in Loss of XM Radio -- -- -- (6,692)
-------- ---------- -------- ---------
Net Loss before Extraordinary Item, Preferred
Dividend, and Beneficial Conversion Charge (46,983) (53,893) (90,227) (139,413)
Extraordinary Loss on Extinguishment of Debt -- (12,132) (417) (12,132)
--------- ---------- --------- ----------
Net Loss before Preferred Dividend and Beneficial
Conversion Charge (46,983) (66,025) (90,644) (151,545)
Preferred Stock Dividend Requirement of XM Radio (1,914) -- (3,165) --
Beneficial Conversion and Beneficial Conversion
Charges of XM Radio (44,438) -- (44,438) --
-------- ---------- ------- ----------
Net Loss Attributable to Common Shareholders ($93,335) ($66,025) ($138,247) ($151,545)
========= ========= ========= ==========
Basic and Diluted Loss Per Share of Common Stock ($1.88) ($1.18) ($2.79) ($3.79)
Basic and Diluted Loss Per Share Extraordinary item -- ($0.27) (0.01) ($0.33)
---------- ------- --------- -------
Basic and Diluted Net Loss Per Share of common stock ($1.88) ($1.45) ($2.80) ($4.12)
======= ======= ========= ===========
Weighted-Average Common Shares Outstanding During
the Period 49,532 45,421 49,378 36,740
See notes to consolidated condensed financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Motient Corporation and Subsidiaries
Consolidated Condensed Balance Sheets
(in thousands)
September 30, 2000 December 31, 1999
------------------ -----------------
(Unaudited)
ASSETS
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents (includes $312,711 from XM Radio
at September 30, 2000 and $50,698 at December 31, 1999) $313,082 $51,474
Short-term investments of XM Radio -- 69,472
Accounts receivable-trade, net 21,512 16,594
Inventory 27,290 28,616
Restricted short-term investments 41,038 41,038
Restricted short-term investments of XM Radio 93,403 --
Other current assets 20,986 13,100
------ ------
Total current assets 517,311 220,294
PROPERTY AND EQUIPMENT, NET 161,545 116,516
XM RADIO SYSTEM UNDER CONSTRUCTION 728,773 357,278
GOODWILL AND OTHER INTANGIBLES, NET 76,591 62,211
RESTRICTED INVESTMENTS 15,635 31,109
RESTRICTED INVESTMENTS OF XM RADIO 60,743 --
DEFERRED CHARGES AND OTHER ASSETS, NET 17,266 22,540
------ ------
Total Assets $1,577,864 $809,948
========== ========
See notes to consolidated condensed financial statements.
</TABLE>
<PAGE>
Motient Corporation and Subsidiaries
Consolidated Condensed Balance Sheets
(in thousands)
<TABLE>
<CAPTION>
September 30, 2000 December 31, 1999
------------------ -----------------
(Unaudited)
LIABILITIES, MINORITY INTEREST AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
<S> <C> <C>
Accounts payable and accrued expenses $102,885 $67,885
Obligations under capital leases due within one year 4,019 6,154
Current portion of vendor financing commitment due to related party 4,172 1,977
Current portion of deferred trade payables 3,564 3,983
Other current liabilities 13,260 1,646
------ -----
Total current liabilities 127,900 81,645
LONG-TERM LIABILITIES:
Obligations under Senior Notes, net of discount 328,249 327,576
Senior Secured Notes of XM Radio, net of discount 262,815 --
Obligations under Bank Financing 121,000 85,000
Capital lease obligations 8,849 247
Net assets acquired in excess of purchase price 812 1,333
Vendor financing commitment due to related party 5,058 2,535
Convertible note payable due to related party, at fair value -- 50,138
Other long-term liabilities 24,538 3,955
------ -----
Total long-term liabilities 751,321 470,784
Total liabilities 879,221 552,429
------- -------
MINORITY INTEREST IN XM RADIO 650,716 274,745
STOCKHOLDERS' EQUITY (DEFICIT):
Preferred Stock -- --
Common Stock 495 485
Additional paid-in capital 976,384 844,181
Deferred compensation (3,829) (6,536)
Common Stock purchase warrants and conversion rights 80,855 63,290
Unamortized guarantee warrants (15,072) (18,384)
Cumulative loss (990,906) (900,262)
--------- --------
STOCKHOLDERS' EQUITY (DEFICIT) 47,927 (17,226)
------ ---------
Total Liabilities, Minority Interest, and Stockholders' Equity (Deficit) $1,577,864 $809,948
========== =========
See notes to consolidated condensed financial statements.
</TABLE>
<PAGE>
Motient Corporation and Subsidiaries
Consolidated Condensed Statements of Cash Flows
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine months ended September 30,
2000 1999
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net loss $(90,644) $(151,545)
Adjustments to reconcile net loss to net cash used in operating activities:
Amortization of Guarantee Warrants and debt related costs 8,783 13,151
Depreciation and amortization 28,220 42,315
Equity in loss of XM Radio -- 6,692
Net unrealized (gain) loss on marketable securities (3,925) 2,690
Extraordinary loss on extinguishment of debt 417 12,132
Non cash stock compensation of XM Radio 8,264 --
Gain on conversion of convertible note payable to related party (32,854) --
Minority Interest (24,074) --
Changes in assets and liabilities, net of acquisitions:
Inventory 1,326 (1,004)
Prepaid in-orbit insurance (215) (1,449)
Accounts receivable-trade (5,594) (5,395)
Other current assets (4,029) (7,629)
Accounts payable and accrued expenses 19,759 (9,762)
Deferred trade payables (1,103) 975
Deferred items, net 15,169 393
------ ---
Net cash used in operating activities (80,500) (98,436)
CASH FLOWS FROM INVESTING ACTIVITIES:
Payment of Senior Note interest from escrow 20,503 20,503
Purchase of XM Radio Note Receivable -- (21,419)
XM Radio Acquisition costs -- (788)
Purchase of long-term restricted investments (5,030) (3,613)
Net Purchase/Maturity of XM Radio's short-term investments 69,472 --
System under construction (347,134) (75,579)
Purchase of restricted investments by XM Radio (104,637) --
Other investing activities by XM Radio (55,122) --
Asset Sale Agreement to Satellite Ventures 10,836 --
Additions to property and equipment (51,609) (9,928)
-------- -------
Net cash used in investing activities (462,721) (90,824)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of Common Stock 5,584 121,974
Proceeds from issuance of conversion option to the investors of Satellite 18,411 --
Ventures
Proceeds from issuance of Common and Preferred Stock by XM Radio 436,026 --
Proceeds from Senior Secured Notes and Stock Purchases Warrants issued by 322,898 250,000
XM Radio
Principal payments under capital leases (3,463) (4,421)
Principal payments under Vendor Financing (2,136) (861)
Proceeds from Bank Financing 72,000 52,000
Repayment of Term Loan (1,000) (59,000)
Repayment of XM Radio Bank Loan -- (73)
Repayment of WorldSpace loan by XM Radio -- (75,000)
Proceeds from reduction of interest rate swap -- 6,009
Repayments on Revolver (35,000) (53,000)
Proceeds from note payable to related party -- 21,500
Debt issuance costs (8,491) (10,722)
------- --------
Net cash provided by financing activities 804,829 248,406
Net increase in cash and cash equivalents 261,608 59,146
CASH AND CASH EQUIVALENTS, beginning of period 51,474 2,285
------ -----
CASH AND CASH EQUIVALENTS, end of period $313,082 $61,431
======== =======
See notes to consolidated condensed financial statements.
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (continued)
MOTIENT CORPORATION AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
September 30, 2000
(Unaudited)
1. ORGANIZATION AND BUSINESS
Motient Corporation is a leading provider of two-way mobile communications
services principally to business-to-business customers and enterprises. Motient
Corporation (with its subsidiaries, "Motient" or the "Company") serves a variety
of markets including mobile professionals, telemetry, transportation, field
service, and nationwide voice dispatch, to customers in the United States.
Motient provides its eLink (SM) two-way wireless email services to customers
accessing email through corporate servers, Internet Service Providers (ISP) and
Mail Service Provider (MSP) accounts, and paging network suppliers. In November
2000, Motient launched its BlackBerry (TM) by Motient wireless email solution,
developed by Research in Motion ("RIM") and licensed to operate on Motient's
network. BlackBerry by Motient is designed for large corporate accounts
operating in a Microsoft Exchange environment and contains advanced encryption
features.
As of September 30, 2000, the Company had an equity interest in XM Satellite
Radio Holdings Inc. ("XM Radio") of approximately 33.1% (or 21.8% on a fully
diluted basis); however, the Company continues to control XM Radio through its
Board of Director membership and common stock voting rights. The operations and
financing of XM Radio are maintained separate and apart from the operations and
financing of Motient. Please refer to XM Radio's audited financial statements,
included in its reports and filings with the Securities and Exchange Commission
("SEC"), for more detail about its business plan, risks, and financial results.
Motient is devoting its efforts to expanding its business. This effort involves
substantial risk. Specifically, future operating results will be subject to
significant business, economic, regulatory, technical, and competitive
uncertainties and contingencies. Depending on their extent and timing, these
factors, individually or in the aggregate, could have an adverse effect on the
Company's financial condition and future results of operations.
2. SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The unaudited consolidated condensed financial statements included herein have
been prepared pursuant to the rules and regulations of the SEC. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted. While the Company believes that the disclosures made are
adequate to not make the information misleading, these consolidated condensed
financial statements should be read in conjunction with the consolidated
financial statements and related notes included in the Company's filings and the
filings of XM Radio with the SEC. All filings of the Company before April 24,
2000 can be found under the Company's former name, American Mobile Satellite
Corporation.
The consolidated balance sheet as of September 30, 2000, the consolidated
statements of operations for the three and nine months ended September 30, 2000
and 1999, and cash flows for the nine months ended September 30, 2000 and 1999,
have been prepared by the Company and are unaudited. In the opinion of
management, all adjustments (consisting of normal recurring adjustments)
necessary to present fairly the financial position, results of operations and
cash flows at September 30, 2000, and for all periods presented have been made.
Consolidation
The consolidated financial statements include the accounts of Motient, its
wholly owned subsidiaries, and its controlled subsidiary -- XM Radio. All
significant inter-company transactions and accounts have been eliminated.
In July 1999 the Company acquired all of the outstanding debt and equity
interest in XM Radio from its other investor (the "XM Acquisition"). As a
result, all of XM Radio's results for the period from July 7, 1999 have been
included in the Company's consolidated condensed financial statements. The
Company will continue to consolidate XM Radio until the Company no longer
controls XM Radio. The Company must request and receive FCC approval to
relinquish control of XM Radio. Prior to July 7, 1999, the Company's investment
in XM Radio was accounted for pursuant to the equity method of accounting.
On March 30, 2000, the FCC approved an application filed by XM Radio which would
allow the Company to reduce its voting interest in XM Radio to a minimum of 40%,
provided that the Company retains its right to elect a majority of the directors
of XM Radio's Board of Directors. The Company has not reduced its voting
interest in XM Radio and still maintains control of XM Radio. On July 14, 2000,
XM Radio filed an application with the FCC to allow XM Radio to transfer its
control from the Company to a diffuse group of owners, none of whom will have a
controlling interest. This application is pending with the FCC. Under the terms
outlined in this application, the Company will still retain its Board of
Director membership but will no longer have the right to elect a majority of XM
Radio's Board of Directors. At such time that the Company ceases to control XM
Radio, the Company will account for its investment in XM Radio pursuant to the
equity method.
Additionally, Motient Satellite Ventures LLC ("Satellite Ventures") was formed
on June 29, 2000 (see Note 4 - Motient Satellite Ventures LLC). Although the
Company has an 80% interest in Satellite Ventures, the minority investors have
certain participative rights which provide for their participation in certain
business decisions that may be made in the normal course of business; therefore,
in accordance with Emerging Issues Task Force Issue No 96-16, the Company's
investment in Satellite Ventures is recorded pursuant to the equity method.
Loss Per Share
Basic and diluted loss per common share is computed by dividing income available
to common stockholders by the weighted-average number of common shares
outstanding for the period. Diluted earnings per share reflects the potential
dilution that could occur if securities or other contracts to issue common stock
were exercised or converted into common stock or resulted in the issuance of
common stock that then shared in the earnings of the entity. Options and
warrants to purchase shares of common stock were not included in the computation
of loss per share as the effect would be antidilutive. As a result, the basic
and diluted earnings per share amounts are identical. As of September 30, 2000,
there were approximately 4.6 million options and warrants that were not included
in this calculation, because the effect would be antidilutive. Net loss
attributable to common shareholders for the quarter ended September 30, 2000
reflects the deduction from net loss of the Company's share of XM Radio's 8.25%
Series B convertible redeemable preferred stock dividend, as well as the
Company's share of XM Radio's $123.0 million Series C convertible redeemable
preferred stock beneficial conversion charge accrued for the third quarter. The
dividend was paid on November 1, 2000. See Note 10-Subsequent events. For the
nine months ended Sept. 30, 2000, the net loss attributable to common
shareholders reflects the Company's share of the first, second and third quarter
preferred stock dividends of XM Radio, as well as the beneficial conversion
charge for XM Radio's placement of the Series C convertible securities.
Comprehensive Income
SFAS No. 130, "Reporting of Comprehensive Income" requires "comprehensive
income" and the components of "other comprehensive income" to be reported in the
financial statements and/or notes thereto. Since the Company does not have any
components of "other comprehensive income," reported net income is the same as
"comprehensive income" for the three and nine months ended September 30, 2000
and September 30, 1999.
Segment Disclosures
In accordance with SFAS 131, "Disclosures about Segments of an Enterprise and
Related Information," the Company has two operating segments: wireless
communications services and XM Radio's satellite-based digital audio radio
service. The Company provides a wide range of two-way mobile and internet
communications services principally to business-to-business customers and
enterprises. The Company's service covers all of the 50 states, Puerto Rico, the
U.S. Virgin Islands, and hundreds of miles of U.S. coastal waters. XM Radio is
in the process of constructing its satellite system to provide digital radio
programming transmitted from satellites to vehicles, homes, and portable radios.
XM Radio is currently in the development stage and thus has no revenue
generating operations. The following summarizes the Company's core wireless
communications services and equipment revenue by major product lines:
<TABLE>
<CAPTION>
Revenue for the Three Revenue for the Nine
Months Ended Months Ended
September 30, September 30,
------------- -------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Data Services $14.0 $ 12.6 $40.0 $ 36.9
Voice Service 2.8 3.5 9.7 9.7
Capacity Resellers and Other 3.0 1.2 5.5 3.5
Equipment 6.8 5.7 19.3 16.0
</TABLE>
New Accounting Pronouncements
In September 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. This
statement was originally effective for the year ended December 31, 2000. In
September 1999, FASB issued Statement No. 137, which defers the effective date
of Statement No. 133 until fiscal years beginning after September 15, 2000. In
September 2000, the FASB issued Statement No. 138, "Accounting for Certain
Derivative Instruments and Certain Hedging Activities", which amends FASB
Statement No. 133. This Statement limits the scope to certain derivatives and
hedging activities. The effective date of Statement No. 138 is for fiscal years
beginning after September 15, 2000. The Company does not believe that the
adoption of Statement No. 138 will have a material impact on its financial
position, results of operations and cash flows.
In December 1999, the SEC issued Staff Accounting Bulletin No. 101, "Revenue
Recognition" ("SAB 101"). SAB 101 provides guidance on the recognition,
presentation, and disclosure of revenue in financial statements. The Company is
currently evaluating the impact of SAB 101 on its consolidated results of
operations and financial condition. On September 26, 2000, the SEC delayed
implementation of SAB 101 until the fourth quarter of fiscal years beginning
after December 15, 1999. Any change in accounting principle required from
adoption of SAB 101 will be reported as a cumulative effect of a change in
accounting principle as of January 1, 2000.
During the third quarter, XM Radio adopted Financial Accounting Standards Board
Interpretation No. 44, Accounting for Certain Transactions Involving Stock
Compensation ("FIN 44"), effective July 1, 2000, to account for all options
repriced by XM Radio during the period covered by FIN 44. The application
resulted in additional compensation expense of $4.8 million recognized during
the quarter ended September 30, 2000.
Concentrations of Credit Risk
For the nine months ended September 30, 2000, five customers accounted for
approximately 26% of the Company's total revenue.
Inventory Valuation
Inventories are stated at lower of cost or market using the weighted-average
cost method. In the third quarter of 2000, the Company reocrded an inventory
write-down of $3.6 million associated with certain first-generation eLink
devices.
Other
The Company paid approximately $6.9 million and $6.2 million in the nine-month
period ended September 30, 2000 and September 30, 1999, respectively, to related
parties for capital assets, service-related obligations, and payments under
pre-existing financing agreements. There were no payments from related parties
in the nine-month period ended September 30, 2000 and September 30, 1999. Total
indebtedness to related parties at September 30, 2000 was approximately $8.0
million, and amounts due from related parties totaled $0.3 million. As described
in Note 7-Commitments and Contingencies, XM Radio has contracted with Boeing
Satellite Systems International, Inc. ("BSS", formerly Hughes Space and
Communications, Inc.), a related party to the Company, for the construction and
launch of XM Radio's satellite. Obligations under this contract are
approximately $541.3 million, of which $461.1 million had been paid and $1.5
million was accrued as of September 30, 2000.
3. STOCKHOLDERS' EQUITY (DEFICIT)
Significant activity in stockholders' equity from December 31, 1999 to September
30, 2000 consists of the following:
<TABLE>
<CAPTION>
Additional
Common Paid-in Deferred Common Stock Unamortized
Stock Capital Compensation Purchase Warrants Guarantee Warrants
<S> <C> <C> <C> <C> <C>
Balance December 31, 1999 $ 485 $844,181 ($6,536) $63,290 ($18,384)
Warrant Exercises 5 7,788 -- (7,048) --
Reduction in deferred compensation
on restricted stock -- (2,707) 2,707 -- --
Issuance of Motient Satellite
Ventures LLC investors' option to
convert into Motient common stock -- -- -- 18,411 --
(See Note 4)
Amortization of Guarantee warrants -- -- -- -- 4,335
Reduction of Guarantee warrants
related to extinguishment of debt -- -- -- -- 329
Guarantee Warrant revaluation -- -- -- 1,352 (1,352)
Common Stock Warrants issued in
connection with Yahoo! contract -- -- -- 4,850 --
Stock Option Exercises 4 4,409 -- -- --
Gain in connection with XM Radio
equity transactions -- 121,530 -- -- --
Issuance of shares under 401(k)
Savings Plan, Stock Purchase
Plan, and award of bonus stock 1 1,183 -- -- --
-------- ---------- ----------- ---------- ----------
Ending Balance September 30, 2000 $495 $976,384 ($3,829) $80,855 ($15,072)
======== ========== =========== ========== ===========
</TABLE>
In July 2000, we signed an agreement with Yahoo! to promote our newly developed
eLink Fortified with Yahoo! wireless product. In addition to our advertising
commitment under this contract, we also issued common stock purchase warrants to
Yahoo! The Yahoo! warrants were valued at approximately $4.9 million. These
warrants will be amortized to sales and advertising expense in accordance with
the roll out of the advertising plan, anticipated to run through July 2002.
4. MOTIENT SATELLITE VENTURES LLC
In June 2000, the Company formed a joint venture subsidiary, Motient Satellite
Ventures LLC ("Satellite Ventures"), in which the Company owns 80% of the
membership interests. The remaining 20% interest in Satellite Ventures is owned
by three investors controlled by Columbia Capital, Spectrum Equity Investors LP
and Telcom Ventures, L.L.C. (collectively, the "Investors"). The Investors paid
$50 million to Satellite Ventures (in the aggregate), in exchange for their 20%
interest, pursuant to an Investment Agreement, dated June 29, 2000, by and among
Motient, Satellite Ventures, and the Investors.
Of the $50 million payment received by Satellite Ventures, $6.0 million is being
retained by Satellite Ventures and will be used to fund certain research and
development activities, with the remaining $44 million paid to Motient Services
Inc. (which owns the Company's satellite and related assets), as described
below. Motient is not required to provide additional financing to Satellite
Ventures.
Satellite Ventures will conduct research and development activities to explore
the technical, strategic, and market potential of new wireless data
communications services making use of the Company's existing satellite network.
Satellite Ventures has signed a Research & Development, Marketing and Service
Agreement, dated June 29, 2000 (the "R&D Agreement"), with Motient Services,
under which Motient Services will provide technical, engineering, and similar
assistance to Satellite Ventures. Motient Services will also provide Satellite
Ventures with dedicated bandwidth on its satellite network, for the purpose of
Satellite Ventures' testing and R&D activities. In exchange for these access
rights and services, Satellite Ventures paid Motient Services a one-time,
up-front fee of $20 million. The R&D Agreement would terminate upon any
consummation of the Asset Sale Agreement described below.
At any time during the next two years, the Investors have the right to elect to
purchase up to an additional 40% stake in Satellite Ventures, for an extra
payment of $120 million (which amount will increase by a specified daily amount,
after one year) (such payment is referred to as the "Additional Payment"). Upon
such exercise, Satellite Ventures will consummate the purchase of all of the
assets owned by Motient Services that relate to the satellite business, pursuant
to the terms of an Asset Sale Agreement dated June 29, 2000, between Satellite
Ventures and Motient Services. This Asset Sale Agreement is intended to be
amended to reflect the pending sale of Motient Services' retail transportation
business to Aether Systems, Inc. (see Note 5). The purchase price for such
assets will be equal to the sum of $24 million (paid as a down payment in
connection with the signing of the Asset Sale Agreement in June of 2000), and
the Additional Payment received by Satellite Ventures from the Investors.
Also, at any time during the next two years, if the Investors decide that they
do not wish to acquire control of Satellite Ventures and acquire the satellite
assets of Motient Services as described above, they may convert their existing
minority position in Satellite Ventures into shares of the Company's common
stock, at a conversion price which will be set at the time of exercise, between
$12 and $20 per share, as specified in the Investment Agreement. The Investors
may not exercise this right, however, until after December 29, 2000, except
under certain limited circumstances.
The $44 million received by Motient Services Inc. has been allocated, for
accounting purposes, to the R&D Agreement, the Asset Sale Agreement, and the
Investors' right to convert their minority interest in Satellite Ventures into
shares of the Company's common stock, based on each component's relative fair
value. Based on an independent valuation, the Company assigned approximately
$18.6 million to the Investors' conversion right which is recorded as common
stock warrants in the accompanying consolidated condensed balance sheet. The R&D
agreement and Asset Sale Agreement were assigned relative fair values of
approximately $14.6 million and $10.8 million, respectively, and are reflected
in the accompanying consolidated condensed balance sheet as deferred revenue and
long- term deposits, respectively. The funds received pursuant to the R&D
Agreement will be recognized as service revenue over two years.
The Company received partial waivers from the banks and the Bank Facility
Guarantors (as defined in Note 6 below) for the requirement in the Bank Facility
that 50% of certain proceeds that the Company received be used to repay and
permanently reduce the Revolving Credit Facility. In connection with these
waivers, the Company agreed to reprice the remaining outstanding Bank Facility
Guarantors' warrants. Under the terms of the bank facility waivers received,
only $2.75 million of the initial $44 million payment received was used to repay
outstanding amounts, and permanently reduce commitments, under the Company's
Revolving Credit Facility, with the remainder of the initial $44 million payment
retained by the Company. If the Investors elect to acquire control of Satellite
Ventures and the Additional Payment is made as described above, then the Company
will be required to use 50% of such proceeds to pay down outstanding balances
and/or reduce commitments, under our Revolving Credit Facility and/or the Term
Loan Facility. As a result of the $2.75 million permanent reduction of the
Revolving Credit Facility, the Company recorded an extraordinary loss on
extinguishment of debt of approximately $417,000 consisting of the write off, on
a pro rata basis, of the deferred financing fees associated with the placement
of the Bank Financing and warrants held by the Bank Facility Guarantors.
5. SALE OF RETAIL TRANSPORTATION BUSINESS
On September 19, 2000, the Company signed a binding letter agreement to sell its
retail transportation business to Aether Systems, Inc. ("Aether"). Aether will
purchase the assets comprising the Company's wireless communications business
for the transportation market, including the satellite-only and MobileMAX2
multi-mode mobile messaging business. In addition, Aether will enter into
long-term, prepaid network airtime agreements pursuant to which Aether will
purchase airtime on the Company's satellite and terrestrial networks. Aether
will also become an authorized reseller of the Company's eLink wireless email
service offering. Aether will acquire all of the assets used or useful in the
retail transportation business, and will assume the related liabilities. Aether
will also purchase the existing inventory in the business, and will be granted a
perpetual license to use and modify any intellectual property owned by or
licensed to the Company in connection with the business. The purchase price for
these assets will be $45 million, plus the then-current book value of the
inventory for the business. All of this amount will be paid at closing, except
for $10 million which will be deposited in an escrow account and will be
released to Motient upon satisfaction of certain criteria with respect to
MobileMAX2. In addition, the Company has the opportunity to receive up to an
additional $22.5 million as an "earn-out" payment, subject to the satisfaction
of certain operating results for the business during 2001. Of the proceeds to be
received by the Company from Aether, $20 million will be used to immediately
repay and permanently reduce the Revolving Credit Facility. Proceeds, if any,
from the $10 million escrow and the earn-out will also be used to repay and
permanently reduce the Revolving Credit Facility.
To enable Aether to continue to operate the retail transportation business after
the transaction closes, the Company and Aether will sign two long-term network
airtime agreements, under which Aether will purchase airtime on the satellite
and terrestrial networks. These agreements have a total value of $25 million,
and Aether will prepay a significant portion of such amount upon closing. As
part of these agreements, Aether will also become an authorized reseller of
Motient's eLink wireless email service, as well as BlackBerry (TM) by Motient.
The Company and Aether will also enter into certain transition arrangements with
respect to certain facilities and functions. Aether intends to hire all of
Motient's employees in the business. It is expected that the transaction will
close in the fourth quarter 2000.
In connection with this transaction, the Company and the other members of
Satellite Ventures agreed to reduce the purchase price in the asset sale
agreement between Satellite Ventures and Motient Services, to account for the
fact that Motient Services will receive certain consideration in the Aether
transaction in exchange for the assets to be acquired by Aether, which assets
otherwise would have been available to be acquired by Satellite Ventures. Upon
closing of the Aether transaction, the purchase price to be paid by Satellite
Ventures for the remaining assets of Motient Services will be reduced from $120
million to $80.5 million, and will be further reduced by an amount equal to
one-half of any earn-out consideration received by the Company.
6. LIQUIDITY AND FINANCING
Adequate liquidity and capital are critical for the Company to continue as a
going concern and to fund subscriber acquisition programs necessary to achieve
positive cash flow and profitable operations. The Company expects to continue to
make significant capital outlays to fund interest expense, capital expenditures
and working capital prior to the time it begins to generate positive cash flow
from operations and for the foreseeable future.
The Company's current operating assumptions and projections reflect management's
best estimate of subscriber and revenue growth and operating expenses. The
Company anticipates that capital expenditures, operating losses, working capital
and debt service requirements through 2000 can be met by (i) net proceeds from
the Aether transaction, which is expected to close in the fourth quarter, or a
combination of the following: (ii) cash on hand, (iii) the borrowings available
under the bank financing and the vendor financing, (iv) proceeds realized
through the sale of inventory relating to eLink and MobileMAX2 and (v)
additional debt or equity financing transactions. Additionally, Motient Parent
Company has the ability to monetize its investment in XM Radio, via direct
quarterly sales or other arrangements, and transfer a portion of the proceeds to
its subsidiaries. The Company's ability to meet its projections is subject to
numerous uncertainties and there can be no assurance that the Company's current
projections regarding the timing of its ability to achieve positive operating
cash flow will be accurate. If the Company's cash requirements are more than
projected, the Company may require additional financing in amounts which may be
material. The type, timing and terms of financing that the Company selects will
be dependent upon its cash needs, the availability of other financing sources
and the prevailing conditions in the financial markets. The Company cannot
guarantee that additional financing sources will be available at any given time
or available on favorable terms.
XM Radio is operated, managed, and funded separately from the Company. See
consolidating financial statements in Footnote 9 for XM Radio's separate
financial statements. While the Company does not have any obligation or
commitments to provide additional funding to XM Radio, and does not expect to
provide such funding, it may chose to provide additional financing in the
future. XM Radio will continue to require significant additional funding in the
future. The failure of XM Radio to obtain the necessary financing could have a
material adverse effect on the value of the Company's investment in XM Radio.
$335 Million Unit Offering
On March 30, 1998, Motient Holdings Inc. (formerly AMSC Acquisition Company,
Inc.) issued $335 million of Units (the "Units") consisting of 12 1/4% Senior
Notes due 2008 (the "Senior Notes"), and one warrant to purchase 3.75749 shares
of Common Stock of the Company for each $1,000 principal amount of Senior Notes
(the "Warrants") at an exercise price of $12.51 per share. The Warrants were
valued at $8.5 million and are reflected in the balance sheet as a debt
discount. In connection with the Senior Notes, Motient Holdings Inc. purchased
approximately $112.3 million of restricted investments that are restricted for
the payment of the first six interest payments on the Senior Notes. Interest
payments are due semi-annually, in arrears, beginning October 1, 1998. As a
result of the automatic application of certain adjustment provisions following
the issuance of 7.0 million shares in the 1999 public offering, the exercise
price of the warrants associated with the Senior Notes was reduced to $12.28 per
share, the number of shares per warrant was increased to 3.83 shares for each
$1,000 principle amount of Senior Notes, and the aggregate number of shares
issuable upon exercise of such warrants was increased by 24,294. The additional
Senior Note warrants and re-pricing were valued at $440,000. This was recorded
as additional debt discount in the third quarter of 1999.
Bank Financing
In March 1998, the Company entered into two bank facilities: (i) the Revolving
Credit Facility, a $100 million unsecured five-year reducing revolving credit
facility maturing September 30, 2003, and (ii) the Term Loan Facility, a $100
million five-year, term loan facility with up to three additional one-year
extensions subject to the lenders' approval. The Term Loan Facility was reduced
to $40.0 million using proceeds from stock issuances in 1999 and 2000 and is not
available for re-borrowing, and the Revolving Credit Facility was permanently
reduced to $97.3 million using the proceeds received in June 2000 from the
Satellite Ventures transaction. The Bank Financing is severally guaranteed by
Hughes Electronics Corporation, Singapore Telecommunications Ltd. and Baron
Capital Partners, L.P. (collectively, the "Bank Facility Guarantors"). As of
October 31, 2000, the Company had outstanding borrowings of $40.0 million under
the Term Loan Facility at 7.6875%, and $91.0 million under the Revolving Credit
Facility at 7.625% to 8%. As noted above, upon the closing of the Aether
transaction, $20 million will be used to immediately repay and permanently
reduce the Revolving Credit Facility. Proceeds, if any, from the Aether $10
million escrow and the Aether earn-out will also be used to repay and
permanently reduce the Revolving Credit Facility.
The Guarantees
In connection with the Bank Financing, the Bank Facility Guarantors extended
separate guarantees of the obligations of Motient Holdings Inc. and the Company
to the banks, which on a several basis aggregated to $200 million. In their
agreement with Motient Holdings Inc. and the Company (the "Guarantee Issuance
Agreement"), the Bank Facility Guarantors agreed to make their guarantees
available for the Bank Financing. In exchange for the additional risks
undertaken by the Bank Facility Guarantors in connection with the Bank
Financing, the Company agreed to compensate the Bank Facility Guarantors,
principally in the form of 1 million additional warrants and re-pricing of 5.5
million warrants previously issued in connection with the Company's previous
bank facility (together, the "Guarantee Warrants"). The Guarantee Warrants were
originally issued with an exercise price of $12.51, reduced to $7.50 in April
1999 in exchange for the elimination of certain covenants in the Guarantee
Issuance Agreement, and further reduced to $7.3571 in connection with the
automatic application of certain adjustment provisions following the stock
offering in 1999. In exchange for the Bank Facility Guarantors' consents
received in connection with the Satellite Ventures transaction described above,
the exercise price of the Guarantee Warrants was further reduced to $6.25 per
share. The value of the re-pricing was approximately $1.4 million.
In connection with the Bank Financing, the Company entered into an interest rate
swap agreement, with an implied annual rate of 6.51%. The swap agreement reduces
the impact of interest rate increases on the Term Loan Facility. The Company
paid a fee of approximately $17.9 million for the swap agreement. Under the swap
agreement, an amount equal to LIBOR plus 50 basis points, is paid on a quarterly
basis directly to the respective banks on behalf of the Company, on a notional
amount of $100 million until the termination date of September 30, 2001. In
connection with the pay down of a portion of the Term Loan Facility in 1999, the
Company reduced the notional amount of its swap agreement from $100 million to
$41 million. The Company is exposed to a credit loss in the event of non-
performance by the counter party under the swap agreement. The Company does not
believe there is a significant risk of non-performance as the counter party to
the swap agreement is a major financial institution.
Other Financing
Motorola has entered into an agreement with the Company to provide up to $15
million of vendor financing, to finance up to 75% of the purchase price of
additional network base stations. As of September 30, 2000, $9.2 million was
outstanding under this facility at interest rates ranging from 13.0% to 13.629%,
and $2.9 million was available for borrowing.
In July 2000, the Company financed the acquisition of approximately $8.4 million
of network equipment through a capital lease. The lease has a three- year term
and an effective interest rate of 14.4%.
The Company has also arranged the financing of certain trade payables, and as of
September 30, 2000, $3.6 million of deferred trade payables were outstanding at
rates ranging from 5.93% to 7.24%.
Baron XM Radio Convertible Note
In January 1999 the Company issued to Baron Asset Fund ("Baron"), a stockholder
and guarantor of the Company's Bank Facility, a $21.5 million note convertible
into shares of common stock of XM Radio (the "Convertible Note Payable to
Related Party" or "Baron XM Radio Convertible Note".) The Baron XM Radio
Convertible note was indexed to XM Radio stock. Due to a decrease in value of XM
Radio stock, from December 31, 1999 to January 12, 2000, the Company recorded an
unrealized gain of $3.9 million in the first quarter of 2000. On January 13,
2000, Baron notified the Company of its intention to exchange the Baron XM Radio
Convertible Note for 1,314,914 shares of XM Radio Class B Stock, subsequently
converted to Class A Stock on a one-for-one basis. The exchange of the
convertible note resulted in a non-recurring gain of $32.9 million at March 31,
2000 computed as the difference in the carrying value of the Baron XM Radio
Convertible Note and the Company's cost basis in XM Radio stock exchanged upon
conversion of this note.
XM Radio Financing
In the first quarter of 2000, XM Radio completed a supplemental stock offering
of 4.4 million shares of Class A Common Stock, at $32 per share, and 2.0 million
shares of newly designated Series B convertible redeemable preferred stock, at
$50 per share. The Series B convertible redeemable preferred stock provides for
8.25% cumulative dividends that may be paid in Class A common stock or cash. The
Series B convertible redeemable preferred stock is convertible into Class A
common stock at a conversion price of $40 per share and is redeemable in Class A
common stock on February 3, 2003. Net proceeds raised from this stock offering
were approximately $228.6 million.
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 $191.3 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.
On August 8, 2000, XM Radio closed on a private offering of 235,000 shares for
$1,000 per share of its 8.25% Series C convertible redeemable preferred stock,
which yielded net proceeds of approximately $206.4 million and a stock
subscription of $20.0 million. XM Radio recorded a $123.0 million beneficial
conversion charge that reduced earnings available to common stockholders. The
issuance of the Series C preferred stock caused the exercise price of the
warrants sold in March 2000 to be adjusted to $47.94.
In connection with the first quarter and third quarter 2000 stock offering and
in accordance with Staff Accounting Bulletin 51 (SAB 51), the Company recorded
an increase to its investment in XM Radio of approximately $121.5 million to
reflect the increase in the net book value of XM Radio. SAB 51 addresses the
accounting for sales of stock by a subsidiary. Since XM Radio is a development
stage company, SAB 51 requires that the difference in the carrying amount of the
Company's investment in XM Radio and the net book value of XM Radio after the
equity transactions, be reflected as a capital transaction. Accordingly the
$121.5 million increase to the Company's investment in XM Radio is reflected as
an addition to additional paid-in capital in the accompanying consolidated
condensed balance sheet.
7. COMMITMENTS AND CONTINGENCIES
At September 30, 2000, the Company had remaining contractual commitments to
purchase subscriber equipment inventory, primarily related to eLink and
MobileMAX2, in the amount of $29.3 million during 2000 and 2001. The Company has
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 September 30, 2000 the cancellation penalty would have been approximately
$4.1 million.
The Company has also contracted for the purchase of $800,000 of base stations to
expand its coverage and complete certain necessary site build-outs, and has
certain other operating expense contract commitments that total approximately
$1.2 million over the next year.
The aggregate fixed and determinable portion of all inventory commitments and
obligations for other fixed contracts is $31.2 million, of which $6.5 million is
due in 2000 and $23.9 million is due in 2001.
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 BSS, XM Radio will
incur payment obligations of approximately $541.3 million of which $461.1
million had been paid, and $1.5 million had been accrued, as of September 30,
2000. XM Radio has signed a contract with LCC International, Inc. (a related
party to XM Radio), for the engineering of its terrestrial repeater network with
total contract payments expected to be approximately $115 million through 2001.
As of September 30, 2000, XM Radio has paid $30.8 million, and accrued an
additional $12.9 million, under this contract. Effective October 1999, XM Radio
signed a contract with Hughes Electronics Corporation for the design,
development, and purchase of terrestrial repeater equipment. The total value of
this contract is $128.0 million and XM Radio has paid $12.9 million under this
contract as of September 30, 2000. 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. Refer to XM Radio's filings with the SEC for additional
information regarding these contractual commitments.
8. LEGAL AND REGULATORY MATTERS
Like other mobile service providers in the telecommunications industry, the
Company is subject to substantial domestic, foreign and international regulation
including the need for regulatory approvals to operate and expand the satellite
network and operate and modify subscriber equipment.
The ownership and operation of the mobile satellite services system and
ground-based two-way wireless data system are subject to the rules and
regulations of the FCC, which acts under authority granted by the Communications
Act and related federal laws. Among other things, the FCC allocates portions of
the radio frequency spectrum to certain services and grants licenses to and
regulates individual entities using the spectrum. Motient operates pursuant to
various licenses granted by the FCC.
The successful operation of the satellite network is dependent on a number of
factors, including the amount of L-band spectrum made available to the Company
pursuant to an international coordination process. The United States is
currently engaged in an international process of coordinating the Company's
access to the spectrum that the FCC has assigned to the Company. This
international coordination process is not yet complete. In the absence of a
coordination agreement, Motient must operate its system on a non- interference
basis. The inability of the United States government to secure sufficient
spectrum could have an adverse effect on the Company's financial position,
results of operations and cash flows.
The Company has the necessary regulatory approvals, some of which are pursuant
to special temporary authority, to continue its operations as currently
contemplated. The Company has filed applications with the FCC and expects to
file applications in the future with respect to the continued operations, change
in operation and expansion of the network and certain types of subscriber
equipment. Certain of its applications pertaining to future service have been
opposed. While the Company, for various reasons, believes that it will receive
the necessary approvals on a timely basis, there can be no assurance that the
requests will be granted, will be granted on a timely basis or will be granted
on conditions favorable to the Company. Any significant changes to the
applications resulting from the FCC's review process or any significant delay in
their approval could adversely affect the Company's financial position, results
of operations and cash flows.
On November 30,1999, the FCC granted two applications to use TMI Communications
and Company, Limited Partnership's (TMI) 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. Motient appealed the FCC's grant of these applications to the United
States Court of Appeals for the D.C. Circuit.
The United States Court of Appeals affirmed the FCC's decision. TMI's entry into
the domestic U.S. marketplace provides additional competition to Motient and may
increase TMI's demand for spectrum in the international coordination process.
The FCC is also currently considering applications to use the Inmarsat satellite
system to provide mobile messaging service in the United States. The grant of
any of these applications would provide additional competition and may further
adversely impact Motient's ability to coordinate spectrum access.
Motient is authorized to build, launch, and operate three geosynchronous
satellites in accordance with a specific schedule. Motient is not in compliance
with the schedule for commencement and construction of its second and third
satellites and has 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 Motient's requests. The FCC has the authority to revoke the
authorizations for the second and third satellites and in connection with such
revocation could exercise its authority to rescind Motient's license. Motient
believes that the exercise of such authority to rescind the license is unlikely.
The term of the license for each of Motient's three authorized satellites is ten
years, beginning when Motient certifies that the respective satellite is
operating in compliance with Motient's license. The ten-year term of MSAT-2
began August 21, 1995. Although Motient anticipates that the authorization for
MSAT-2 is likely to be extended in due course to correspond to the useful life
of the satellite and a new license granted for any replacement satellites, there
is no assurance of such extension or grants.
XM Radio is also subject to the rules and regulations of the FCC. The FCC has
established certain system development milestones that must be met in order for
XM Radio to maintain its license to operate its satellite system. XM Radio
believes it is in compliance with the FCC milestones.
One of the bidders for the DARS licenses filed an Application for Review by the
FCC of the Licensing Order which granted XM Radio its FCC license. The
Application for Review alleges that a prior XM Radio shareholder had effectively
taken control of XM Radio without the approval of the FCC. The FCC or the U.S.
Court of Appeals has the authority to overturn the award of the FCC license to
XM Radio. XM Radio believes that it should be able to maintain its FCC license
since the party referenced is no longer a stockholder of XM Radio. XM Radio is
unable to predict the outcome of this Application for Review.
In January 1999, a competitor of XM Radio, Sirius Radio, filed an action against
XM Radio for patent infringement. In February 2000, this suit was resolved in
accordance with the terms of a joint development agreement between XM Radio and
Sirius Radio in which both companies agreed to cross-license their respective
property. If this agreement is terminated due to XM Radio failing to perform on
a material covenant or obligation, the suit could be filed again.
9. FINANCIAL STATEMENTS OF SUBSIDIARIES
In connection with the Company's acquisition of Motient Communications Company
(formerly known as ARDIS Company) on March 31, 1998 (the "Motient Communications
Acquisition"), and related financing discussed above, the Company formed a new
wholly-owned subsidiary, Motient Holdings Inc. ("Motient Holdings"). The Company
contributed all of its inter-company notes receivables and transferred its
rights, title and interests in Motient Services Inc. and certain other
subsidiaries that were subsequently dissolved (together with Motient
Communications, the "Subsidiary Guarantors") to Motient Holdings, and Motient
Holdings was the acquirer of Motient Communications and the issuer of the Senior
Notes. Motient Corporation ("Motient Parent") is a guarantor of the Senior
Notes. The Senior Notes contain covenants that, among other things, limit the
ability of Motient Holdings and its Subsidiaries to incur additional
indebtedness, pay dividends or make other distributions, repurchase any capital
stock or subordinated indebtedness, make certain investments, create certain
liens, enter into certain transactions with affiliates, sell assets, enter into
certain mergers and consolidations, and enter into sale and leaseback
transactions.
The Senior Notes are jointly and severally guaranteed on full and unconditional
basis by the Subsidiary Guarantors and Motient Parent. The following unaudited
condensed consolidating information for these entities presents:
o Condensed consolidating balance sheets as of September 30, 2000 and
December 31, 1999, the condensed consolidating statements of operations
for the three and nine months ended September 30, 2000 and 1999, and the
condensed consolidating statement of cash flows for the nine months
ended September 30, 2000 and 1999.
o Elimination entries necessary to combine the entities comprising Motient.
<PAGE>
Condensed Consolidating Balance Sheet
As of September 30, 2000
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Consolidated Consolidated
Subsidiary Motient Elimi- Motient Motient Motient
Guarantors Holdings nations Holdings Parent XM Radio Eliminations Parent
---------- -------- --------- -------- ------ -------- ------------ ------
ASSETS
CURRENT ASSETS:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Cash and cash equivalents $ 371 $ -- $ -- $ 371 $ -- $ 312,711 $ -- $ 313,082
Inventory 27,290 -- -- 27,290 -- -- -- 27,290
Accounts receivable -- net 21,512 -- -- 21,512 -- -- -- 21,512
Restricted short-term investments -- 41,038 -- 41,038 -- 93,403 -- 134,441
Other current assets 18,285 -- -- 18,285 1,277 1,424 -- 20,986
------ -- -- ------ ----- ----- -- ------
Total current assets 67,458 41,038 -- 108,496 1,277 407,538 -- 517,311
PROPERTY AND EQUIPMENT -- NET 131,909 -- (11,370) 120,539 -- 42,133 -- 162,672
SYSTEM UNDER CONSTRUCTION -- -- -- -- -- 732,727 (5,081) 727,646
GOODWILL AND
INTANGIBLES -- NET 52,507 11,696 -- 64,203 1,653 24,348 (13,613) 76,591
INVESTMENT IN XM RADIO -- -- -- -- 284,705 -- (284,705) --
DEFERRED CHARGES AND OTHER
ASSETS -- NET 3,656 11,662 -- 15,318 (11,662) 13,656 (46) 17,266
RESTRICTED INVESTMENTS 2,614 435 -- 3,049 12,586 60,743 -- 76,378
----- --- -- ----- ------ ------ ---------- ------
Total assets $258,144 $64,831 $(11,370) $311,605 $288,559 $1,281,145 $ (303,445) $1,577,864
======== ======= ========= ======== ======== ========== =========== ==========
LIABILITIES, MINORITY INTEREST AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable and
accrued expenses $ 27,586 $ 21,423 $ -- $49,009 $ 1,028 $ 52,283 $ -- $ 102,320
Obligations under capital
leases due within one year 4,019 -- -- 4,019 -- 565 -- 4,584
Current portion long-term debt 7,736 -- -- 7,736 -- -- -- 7,736
Other current liabilities 10,291 -- -- 10,291 -- 2,969 -- 13,260
------ -- -- ------ -- ----- -- ------
Total current liabilities 49,632 21,423 -- 71,055 1,028 55,817 -- 127,900
DUE TO PARENT/AFFILIATE 815,853 90,666 (904,197) 2,322 213,604 46 (215,972) --
LONG-TERM LIABILITIES
Note payable to /from Issuer/Parent -- 14,000 -- 14,000 (14,000) -- -- --
Obligations under Bank Financing -- 81,000 -- 81,000 40,000 -- -- 121,000
Senior Notes, net of discount -- 328,249 -- 328,249 -- 262,815 -- 591,064
Other long-term debt 5,058 -- -- 5,058 -- 967 -- 6,025
Capital lease obligations 7,882 -- -- 7,882 -- -- -- 7,882
Net assets acquired in excess
of purchase price 812 -- -- 812 -- -- -- 812
Other 18,002 -- -- 18,002 -- 6,536 -- 24,538
------ -- -- ------ -- --------- -- ------
Total long-term liabilities 31,754 423,249 -- 455,003 26,000 270,318 -- 751,321
Total liabilities 897,239 535,338 (904,197) 528,380 240,632 326,181 (215,972) 879,221
MINORITY INTEREST -- -- -- -- -- -- 650,716 650,716
STOCKHOLDERS' EQUITY (DEFICIT) (639,095) (470,507) 892,827 (216,775) 47,927 954,964 (738,189) 47,927
--------- --------- ------- --------- ------ --------- --------- ------
Total Liabilities, Minority
Interest, and Stockholders'
Equity (Deficit) $258,144 $64,831 $(11,370) $311,605 $288,559 $1,281,145 $(303,445) $1,577,864
======== ======= ========= ======== ======== ========== ========== ==========
</TABLE>
<PAGE>
Condensed Consolidating Balance Sheet
As of December 31, 1999
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Consoli- Consoli-
dated dated
Subsidiary Motient Elimi- Motient Motient Motient
Guarantors Holdings nations Holdings Parent XM Radio Eliminations Parent
---------- -------- --------- -------- ------- -------- ------------ -------
ASSETS
CURRENT ASSETS:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Cash and cash equivalents $ 776 $ -- $ -- $ 776 $ -- $ 50,698 $ -- $ 51,474
Short-term investments -- -- -- -- -- 69,472 -- 69,472
Inventory 28,616 -- -- 28,616 -- -- -- 28,616
Prepaid in-orbit insurance 3,381 -- -- 3,381 -- -- -- 3,381
Accounts receivable-net 16,594 -- -- 16,594 -- -- -- 16,594
Restricted short-term investments -- 41,038 -- 41,038 -- -- -- 41,038
Other current assets 6,074 -- -- 6,074 2,568 1,077 -- 9,719
----- -- -- ----- ----- ----- -- -----
Total current assets 55,441 41,038 -- 96,479 2,568 121,247 -- 220,294
PROPERTY AND EQUIPMENT-NET 126,914 -- (12,949) 113,965 -- 2,551 -- 116,516
SYSTEM UNDER CONSTRUCITON -- -- -- -- -- 362,358 (5,080) 357,278
GOODWILL AND INTANGIBLES--NET 51,158 -- -- 51,158 -- 25,380 (14,327) 62,211
INVESTMENT IN XM RADIO -- -- -- -- 190,757 -- (190,757) --
INVESTMENTIN/DUE FROM SUBSIDIARY
-- 176,450 (176,450) -- (148,913) -- 148,913 --
DEFERRED CHARGES AND OTHER ASSETS--NET
2,977 26,507 -- 29,484 (10,597) 3,653 -- 22,540
RESTRICTED INVESTMENTS 320 18,360 -- 18,680 12,429 -- -- 31,109
--- ------ -- ------ ------ -- -- ------
Total assets $236,810 $262,355 $(189,399) $309,766 $46,244 $515,189 $(61,251) $809,948
======== ======== ========== ======== ======= ======== ========= ========
LIABILITIES, MINORITY INTEREST AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable and accrued expense $ 31,073 $ 10,866 $ -- $ 41,939 $ 1,266 $ 24,680 $ -- $ 67,885
Obligations under capital lease due within
one year 5,982 -- -- 5,982 -- 172 -- 6,154
Current portion long-term debt 5,960 -- -- 5,960 -- -- -- 5,960
Other current liabilities -- -- -- -- -- 1,646 -- 1,646
-- -- -- -- -- ----- -- -----
Total current liabilities 43,015 10,866 -- 53,881 1,266 26,498 -- 81,645
DUE TO PARENT/AFFILIATE 769,564 -- (769,626) (62) (14,934) 62 14,934 --
LONG-TERM LIABILITIES:Note payable
to/from Issuer/Parent -- 14,000 -- 14,000 (14,000) -- -- --
Obligations under Bank Financing -- 44,000 -- 44,000 41,000 -- -- 85,000
Senior Notes, net of discount -- 327,576 -- 327,576 -- -- -- 327,576
Other long-term debt 2,535 -- -- 2,535 50,138 -- -- 52,673
Capital Lease obligations 35 -- -- 35 -- 212 -- 247
Net assets acquired in excess of purchase 1,333 -- -- 1,333 -- -- -- 1,333
price
Other long-term liabilities 555 -- -- 555 -- 3,400 -- 3,955
--- -- -- --- -- ----- -- -----
Total long-term liabilities 4,458 385,576 -- 390,034 77,138 3,612 -- 470,784
Total liabilities 817,037 396,442 (769,626) 443,853 63,470 30,172 14,934 552,429
------- ------- --------- ------- ------ ------ ------ -------
MINORITY INTEREST -- -- -- -- -- -- 274,745 274,745
STOCKHOLDERS' EQUITY (DEFICIT) (580,227) (134,087) 580,227 (134,087) (17,226) 485,017 (350,930) (17,226)
--------- --------- ------- --------- -------- ------- --------- --------
Total liabilities, minority interest, and
stockholders' equity (deficit) $236,810 $262,355 $(189,399) $309,766 $46,244 $515,189 $(61,251) $809,948
======== ======== ========== ======== ======= ======== ========= ========
</TABLE>
<PAGE>
Condensed Consolidating Statement of Operations
Three Months ended September 30, 2000
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Consoli- Consoli-
dated dated
Subsidiary Motient Elimi- Motient Motient Motient
Guarantors Holdings nations Holdings Parent XM Radio Eliminations Parent
---------- -------- --------- -------- ------- -------- ------------ -------
REVENUES
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Services $19,810 $-- $-- $19,810 $300 $-- $(300) $19,810
Sales of equipment 6,847 -- -- 6,847 -- -- -- 6,847
----- -- -- ----- -- -- -- -----
Total Revenues 26,657 -- -- 26,657 300 -- (300) 26,657
COSTS AND EXPENSES
Cost of service and operations 18,573 -- -- 18,573 -- -- -- 18,573
Cost of equipment sold 10,678 -- -- 10,678 -- -- -- 10,678
Sales and advertising 8,632 -- -- 8,632 1 -- -- 8,633
General and administrative 5,593 338 -- 5,931 222 27,118 (319) 32,952
Depreciation and amortization 9,181 -- -- 9,181 -- 991 (240) 9,932
----- -- -- ----- -------- --- ----- -----
Operating Loss (26,000) (338) -- (26,338) 77 (28,109) 259 (54,111)
Interest and Other Income 226 4,514 (3,886) 854 400 8,047 (286) 9,015
Minority Interest in Loss of -- -- -- -- -- -- 13,391 13,391
Subsidiaries
Equity in Loss of Subsidiaries -- (30,028) 30,028 -- (43,089) -- 43,089 --
Interest Expense (4,254) (13,909) 3,886 (14,277) (1,288) 2 285 (15,278)
------- -------- ----- -------- ------- ----- --- --------
Net Loss Before
Preferred Dividend and Beneficial
Conversion Charge (30,028) (39,761) 30,028 (39,761) (43,900) (20,060) 56,738 (46,983)
Preferred Stock Dividend
Requirement and Beneficial
Conversion Charge -- -- -- -- (46,352) (140,035) 140,035 (46,352)
-- -- -- -- -------- --------- ------- --------
Net Loss Attributable to Common
Shareholders ($30,028) ($39,761) $30,028 ($39,761) ($90,252) ($160,095) $196,773 ($93,335)
========= ========= ======= ========= ========= ========== ======== =========
</TABLE>
<PAGE>
Condensed Consolidating Statement of Operations
Three Months ended September 30, 1999
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Consoli- Consoli-
dated dated
Subsidiary Motient Elimi- Motient Motient Motient
Guarantors Holdings nations Holdings Parent XM Radio Eliminations Parent
---------- -------- --------- -------- ------- -------- ------------ -------
REVENUES
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Services $17,290 $-- $ -- $17,290 $300 -- $(300) $17,290
Sales of equipment 5,680 -- -- 5,680 -- -- -- 5,680
----- -- -- ----- -- -- -- -----
Total Revenues 22,970 -- -- 22,970 300 -- (300) 22,970
COSTS AND EXPENSES
Cost of service and operations 17,287 -- -- 17,287 -- -- -- 17,287
Cost of equipment sold 6,045 -- -- 6,045 -- -- -- 6,045
Sales and advertising 5,524 -- -- 5,524 24 -- -- 5,548
General and administrative 4,316 339 -- 4,655 258 8,506 (300) 13,119
Depreciation and amortization 14,794 -- (526) 14,268 -- 865 (222) 14,911
------ -- ----- ------ -- --- ----- ------
Operating Loss (24,996) (339) 526 (24,809) 18 (9,371) 222 (33,940)
Interest and Other Income 85 4,883 (3,885) 1,083 2,651 854 (3,598) 990
Unrealized Loss on Note Receivable
From XM Radio -- -- -- -- (2,807) -- -- (2,807)
Unrealized Gain on Note Payable to
Related Party -- -- -- -- -- -- -- --
Equity in Loss of Subsidiaries -- (29,437) 29,437 -- (54,407) 54,407 --
Interest Expense (4,526) (12,638) 3,885 (13,279) (2,324) (8,885) 6,352 (18,136)
------- -------- ----- -------- ------- ------- ----- --------
Loss before Extraordinary item (29,437) (37,531) 29,963 (37,005) (56,869) (17,402) 57,383 (53,893)
Extraordinary Loss on Extinguishment
on Debt -- -- -- -- (12,132) -- -- (12,132)
--------- --------- -------- --------- --------- --------- -------- ---------
Net Loss ($29,437) ($37,531) $29,963 ($37,005) ($69,001) ($17,402) $57,383 ($66,025)
========= ========= ======= ========= ========= ========= ======== =========
</TABLE>
<PAGE>
Condensed Consolidating Statement of Operations
Nine Months ended September 30, 2000
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Consoli- Consoli-
dated dated
Subsidiary Motient Elimi- Motient Motient Motient
Guarantors Holdings nations Holdings Parent XM Radio Eliminations Parent
---------- -------- --------- -------- ------- -------- ------------ -------
REVENUES
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Services $55,182 $-- $-- $55,182 $900 $ -- $(900) $55,182
Sales of equipment 19,333 -- -- 19,333 -- -- -- 19,333
------ -- -- ------ -- -- -- ------
Total Revenues 74,515 -- -- 74,515 900 -- (900) 74,515
COSTS AND EXPENSES
Cost of service and operations 55,365 -- -- 55,365 -- -- -- 55,365
Cost of equipment sold 23,883 -- -- 23,883 -- -- -- 23,883
Sales and advertising 22,362 -- -- 22,362 117 -- -- 22,479
General and administrative 15,639 1,016 -- 16,655 862 56,929 (918) 73,528
Depreciation and amortization 26,930 -- -- 26,930 -- 2,005 (715) 28,220
------ ------- -------- ------ ------- ----- ----- ------
Operating Loss (69,664) (1,016) -- (70,680) (79) (58,934) 733 (128,960)
Interest and Other Income 421 14,149 (11,573) 2,997 919 21,046 (794) 24,168
Gain on Conversion of Convertible Note
Payable to Related Party -- -- -- -- 32,854 -- -- 32,854
Unrealized Gain on Convertible Note
Payable to Related Party -- -- -- 3,925 -- -- 3,925
Equity in Loss of Subsidiaries -- (82,283) 82,283 -- (124,784) -- 124,784 --
Minority Interest in Loss of -- -- -- -- -- -- 24,074 24,074
Subsidiaries
Interest Expense (13,040) (41,403) 11,573 (42,870) (4,213) -- 795 (46,288)
-------- -------- ------ -------- ------- -------- --- --------
Net Loss before Extraordinary Item,
Preferred Dividend and Beneficial
Conversion Charge (82,283) (110,553) 82,283 (110,553) (91,378) (37,888) 149,592 (90,227)
Extraordinary Loss on Extinguishment of
Debt -- (417) -- (417) -- -- -- (417)
Preferred Stock Dividend Requirement
and Beneficial Conversion Charge -- -- -- -- (47,603) (143,678) 143,678 (47,603)
-- -- -- -- -------- --------- ------- --------
Net Loss Attributable to Common
Shareholders ($82,283) ($110,970) $82,283 ($110,970) ($138,981) ($181,566) $293,270 ($138,247)
========= ========== ======= ========== ========== ========== ======== ==========
</TABLE>
<PAGE>
Condensed Consolidating Statement of Operations
Nine Months ended September 30, 1999
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Consoli- Consoli-
dated dated
Subsidiary Motient Elimi- Motient Motient Motient
Guarantors Holdings nations Holdings Parent XM Radio Eliminations Parent
---------- -------- --------- -------- ------- -------- ------------ -------
REVENUES
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Services $50,076 $-- $ -- $50,076 $900 -- $(900) $50,076
Sales of equipment 15,997 -- -- 15,997 -- -- 15,997
------ -- -- ------ -- -- ------
Total Revenues 66,073 -- -- 66,073 900 (900) 66,073
COSTS AND EXPENSES
Cost of service and operations 51,673 -- -- 51,673 -- -- 51,673
Cost of equipment sold 17,167 -- -- 17,167 -- -- 17,167
Sales and advertising 15,893 -- -- 15,893 125 -- 16,018
General and administrative 13,355 1,030 -- 14,385 605 8,506 (900) 22,596
Depreciation and amortization 43,251 -- (1,579) 41,672 -- 865 (222) 42,315
------ -- ------- ------ -- --- ----- ------
Operating Loss (75,266) (1,030) 1,579 (74,717) 170 (9,371) 222 (83,696)
Interest and Other Income 257 14,695 (11,530) 3,422 3,944 854 (3,598) 4,622
UNREALIZED LOSS ON NOTE RECEIVABLE FROM
XM RADIO -- -- -- -- (9,919) -- (9,919)
UNREALIZED GAIN ON NOTE PAYABLE TO
RELATED PARTY -- -- -- -- 7,229 -- 7,229
EQUITY IN LOSS OF SUBSIDIARIES -- (88,041) 88,041 -- (135,208) 128,516 (6,692)
INTEREST EXPENSE (13,032) (38,317) 11,530 (39,819) (8,605) (8,885) 6,352 (50,957)
-------- -------- ------ -------- ------- ------- ----- --------
LOSS BEFORE EXTRAORDINARY ITEM (88,041) (112,693) 89,620 (111,114) (142,389) (17,402) 131,492 (139,413)
EXTRAORDINARY LOSS ON EXTINGUISHMENT
OF DEBT -- -- -- -- (12,132) -- -- (12,132)
-- -- -- -- -------- -- -------- --------
NET LOSS ($88,041) ($112,693) $89,620 ($111,114) ($154,521) ($17,402) $131,492 ($151,545)
========= ========== ======= ========== ========== ========= ======== ==========
</TABLE>
<PAGE>
Condensed Consolidating Statement of Cash flow
Nine Months Ended September 30, 2000
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Consoli- Consoli-
dated dated
Subsidiary Motient Elimi- Motient Motient Motient
Guarantors Holdings nations Holdings Parent XM Radio Eliminations Parent
---------- -------- --------- -------- ------- -------- ------------ -------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net loss ($82,283) ($ 110,970) $ 82,283 ($ 110,970) ($ 91,378) ($ 37,888) $ 149,592 ($ 90,644)
Adjustments to reconcile net loss to net
cash (used in) provided by operating
activities:
Amortization of Guarantee Warrants and debt
discount and issuance costs -- 5,204 -- 5,204 3,579 -- -- 8,783
Depreciation and amortization 26,930 -- -- 26,930 -- 2,005 (715) 28,220
Non cash stock compensation of XM Radio -- -- -- -- -- 8,264 -- 8,264
Extraordinary loss on extinguishment of debt -- 417 -- 417 -- -- -- 417
Minority Interest -- -- -- -- -- -- (24,074) (24,074)
Gain on conversion on convertible note
payable to related party -- -- -- -- (32,854) -- -- (32,854)
Unrealized gain on marketable securities -- -- -- -- (3,925) -- -- (3,925)
Changes in assets & liabilities
Inventory 1,326 -- -- 1,326 -- -- -- 1,326
Prepaid in-orbit insurance (215) -- -- (215) -- -- -- (215)
Trade accounts receivable (5,594) -- -- (5,594) -- -- -- (5,594)
Other current assets (4,953) -- -- (4,953) 1,272 (348) -- (4,029)
Accounts payable and accrued expenses (4,053) 10,557 -- 6,504 (238) 13,493 -- 19,759
Deferred trade payables (1,103) -- -- (1,103) -- -- -- (1,103)
Deferred Items--net 14,031 -- -- 14,031 1,138 -- -- 15,169
------ -- -- ------ ----- -- -- ------
Net cash (used in) provided by operating
activities (55,914) (94,792) 82,283 (68,423) (122,406) (14,474) 124,803 (80,500)
CASH FLOWS FROM INVESTING ACTIVITIES:
Payment of Senior Note interest from escrow -- 20,503 -- 20,503 -- -- -- 20,503
Additions to property & equipment (14,958) -- -- (14,958) -- (36,651) -- (51,609)
Asset Sale agreement to Satellite 10,836 -- -- 10,836 -- -- -- 10,836
Ventures
System under construction -- -- -- -- -- (347,134) -- (347,134)
Net Purchase/Maturity of short-term
investments -- -- -- -- -- 69,472 -- 69,472
Other investing activities by XM Radio -- -- -- -- -- (55,122) -- (55,122)
Purchase of long-term, restricted investments (2,294) (2,579) -- (4,873) (157) (104,637) -- (109,667)
------- ------- -- ------- ----- --------- -- ---------
Net cash (used in) provided by investing (6,416) 17,924 -- 11,508 (157) (474,072) -- (462,721)
activities
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of Common and Preferred Stock -- -- -- -- 5,584 436,026 -- 441,610
Proceeds from issuance of conversion
option to the investors of
Satellite Ventures -- -- -- -- 18,411 -- -- 18,411
Funding from parent/subsidiary 67,524 39,868 (82,283) 25,109 99,694 -- (124,803) --
Principal payments under capital leases (3,463) -- -- (3,463) -- -- -- (3,463)
Principal payments under vendor lease (2,136) -- -- (2,136) -- -- -- (2,136)
Proceeds from Senior Secured Notes and
Stock Purchase Warrants -- -- -- -- -- 322,898 -- 322,898
Proceeds from bank financing -- 37,000 -- 37,000 (1,000) -- -- 36,000
Debt issuance costs -- -- -- -- (126) (8,365) -- (8,491)
------- --------- --------- ------- --------- ------- --------- -------
Net cash provided by (used in) financing 61,925 76,868 (82,283) 56,510 122,563 750,559 (124,803) 804,829
activities
Net increase in cash and cash equivalants (405) -- -- (405) -- 262,013 -- 261,608
CASH & CASH EQUIVALENTS, beginning of
period 776 -- -- 776 -- 50,698 -- 51,474
--- -- -- --- ------ ------
CASH & CASH EQUIVALENTS, end of
period $ 371 $ -- $ -- $ 371 $ -- $ 312,711 $ -- $ 313,082
===== ==== ==== ===== ==== ========= ==== =========
</TABLE>
<PAGE>
Condensed Consolidating Statement of Cash Flow
Nine Months Ended September 30, 1999
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Consoli- Consoli-
dated dated
Subsidiary Motient Elimi- Motient Motient Motient
Guarantors Holdings nations Holdings Parent XM Radio Eliminations Parent
---------- -------- --------- -------- ------- -------- ------------ -------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net loss ($88,041) ($112,693) $89,620 ($111,114) ($154,521) ($17,402) $131,492 ($151,545)
Adjustments to reconcile net loss to net cash
(used in) provided by operating
activities:
Amortization of Guarantee Warrants and debt
discount and issuance costs -- 5,823 -- 5,823 6,850 478 -- 13,151
Depreciation and amortization 41,673 -- -- 41,673 -- 642 -- 42,315
Extraordinary loss on extinguishment of debt -- -- -- -- 12,132 -- -- 12,132
Equity in loss in XM Radio -- -- -- -- 6,692 -- -- 6,692
Unrealized loss on note receivable from XM Radio -- -- -- -- 2,690 -- --- 2,690
Changes in assets & liabilities
Inventory (1,004) -- -- (1,004) -- -- -- (1,004)
Prepaid in-orbit insurance (1,449) -- -- (1,449) -- -- -- (1,449)
Accounts receivable--trade (5,395) -- -- (5,395) -- -- -- (5,395)
Other current assets (7,618) 20 -- (7,598) 3,573 (3,604) -- (7,629)
Accounts payable and accrued expenses (30,315) 37,485 -- 7,170 706 (17,654) -- (9,778)
Accrued interest on Senior Notes -- 16 -- 16 -- -- -- 16
Deferred trade payables 975 -- -- 975 -- -- -- 975
Deferred Items--net 1,423 -- -- 1,423 (1,030) -- -- 393
----- -- -- ----- ------- -- -- ---
Net cash (used in) provided by operating (89,751) (69,349) 89,620 (69,480) (122,908) (37,540) 131,492 (98,436)
activities
CASH FLOWS FROM INVESTING ACTIVITIES:
Payment of Senior Note interest from escrow -- 20,503 -- 20,503 -- -- -- 20,503
Additions to property & equipment (9,730) -- -- (9,730) -- (198) -- (9,928)
System under construction -- -- -- -- -- (75,579) -- (75,579)
Purchase of XM Radio note receivable -- -- -- -- (21,419) -- -- (21,419)
XM Radio Acquisition costs -- -- -- -- (951) 163 -- (788)
Purchase of long-term, restricted investments (536) (1,217) -- (1,753) (1,860) -- -- (3,613)
----- ------- -- ------- ------- -- -- -------
Net cash (used in) provided by investing (10,266) 19,286 -- 9,020 (24,230) (75,614) -- (90,824)
activities
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of Common Stock -- -- -- -- 121,974 -- 121,974
Funding from parent 110,089 51,063 (89,620) 71,532 56,984 2,976 (131,492) --
Principal payments under capital leases (4,421) -- -- (4,421) -- -- -- (4,421)
Principal payments under vendor Financing (861) -- -- (861) -- -- -- (861)
Proceeds from bank financing -- 52,000 -- 52,000 -- -- -- 52,000
Proceeds from Series A subordinated -- -- -- -- -- 250,000 -- 250,000
convertible notes
Repayments on Revolver -- (53,000) -- (53,000) -- -- -- (53,000)
Repayment on term loan -- -- -- -- (59,000) -- -- (59,000)
Repayment on XM Radio bank loan -- -- -- -- -- (73) -- (73)
Repayment of WorldSpace loan -- -- -- -- -- (75,000) -- (75,000)
Proceeds from reduction of interest rate swap -- -- -- -- 6,009 -- -- 6,009
Debt issuance costs -- -- -- -- (329) (10,393) -- (10,722)
Proceeds from note payable to related party -- -- -- -- 21,500 -- -- 21,500
------- ------ ------- ------ ------ -------- --------- ------
Net cash provided by (used in) financing 104,807 50,063 (89,620) 65,250 147,138 167,510 (131,492) 248,406
activities
Net increase in cash and cash equivalents 4,790 -- -- 4,790 -- 54,356 -- 59,146
CASH & CASH EQUIVALENTS, beginning of
period 2,285 -- -- 2,285 -- -- -- 2,285
----- -- -- ----- -- ------- -- -----
CASH & CASH EQUIVALENTS, end of period $7,075 $-- $-- $7,075 $-- $54,356 $-- $61,431
====== === === ====== == ======= === =======
</TABLE>
<PAGE>
10. Subsequent Events
On October 5, 2000, XM Radio announced its regular quarterly dividend on its
8.25% Series B convertible redeemable preferred stock. The dividend was paid on
November 1, 2000, in shares of Class A common stock and 25,734 shares of Class A
Common stock were issued to the holders of record on October 20, 2000. The net
loss attributable to common shareholders in the consolidated condensed statement
of operations for quarter and nine months ended September 30, 2000 reflects the
accrual and payments of these dividend to the preferred stockholders as of
September 30, 2000.
<PAGE>
PART I- FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Management's Discussion and Analysis of Financial Condition and Results of
Operations
This Quarterly Report on Form 10-Q 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 quarterly report, including in conjunction with the forward-looking
statements included in this quarterly report. All of our subsequent written and
oral forward- looking statements (or statements that may be attributed to us)
are expressly qualified by the Cautionary Statements. You should carefully
review the risk factors described in our other filings with the Securities and
Exchange Commission (the "SEC") from time to time, including our registration
statement on Form S-3 (File No. 333-42104), our Form 10-K Annual Report filed on
March 30, 2000 and our Form 10-Q Quarterly Reports to be filed subsequent to
this Form 10-Q, as well as our other reports and filings with the SEC. In
addition, you are urged to review carefully the most recently filed prospectus
of XM Radio describing the risk factors relating to its business, as well as XM
Radio's Form 10-K Annual Report for 1999 and its 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 Motient Corporation (with its subsidiaries, "Motient" or the
"Company"). The discussion should be read in conjunction with the consolidated
financial statements and notes thereto. Motient has six wholly-owned
subsidiaries which, for purposes of this quarterly 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 Motient.
On June 29, 2000 we formed a new joint venture subsidiary, Motient Satellite
Ventures LLC ('Satellite Ventures"), in which we own 80% of the membership
interest. The remaining 20% interest in Satellite Ventures is owned by three
investors controlled by Columbia Capital, Spectrum Equity Investors LP and
Telcom Ventures, L.L.C. (collectively, the "Investors"). The investors paid $50
million to Satellite Ventures in exchange for their 20% interest. Satellite
Ventures will conduct research and development activities to explore the
technical, strategic, and market potential of new wireless data communications
using our existing satellite network. See Item 1-Notes to Consolidated Condensed
Financial Statements for further detail on this transaction.
Core Wireless Business
We are a leading provider of two-way mobile communications services principally
to business-to-business customers and enterprises. Motient serves a variety of
markets including mobile professionals, telemetry, transportation, field
service, and nationwide voice dispatch, to customers in the United States.
We have made substantial investments in new products -- eLink (SM) and
MobileMAX2 (TM). Our eLink service is a two-way wireless email device and
electronic organizer that uses our terrestrial network. We believe that these
products will capitalize on the rapid expansion of internet email usage,
particularly in the business-to-business environment. We provide our
industry-leading eLink two-way wireless email service to customers accessing
email through corporate servers, Internet Service Providers (ISP) and Mail
Service Provider (MSP) accounts, and paging network suppliers. Also, in July we
entered into an agreement with Yahoo! Inc., a leading global Internet
communications, commerce and media company, to use our eLink service to provide
Yahoo! users wireless access to Yahoo! content and services. In November 2000,
we launched our eLink Fortified with Yahoo! (TM) service. In November 2000, we
launched our BlackBerry (TM) by Motient solution specifically designed for large
corporate accounts operating in a Microsoft Exchange environment. BlackBerry is
a popular wireless email solution developed by Research in Motion ("RIM") and is
being provided on the Motient network under license from RIM.
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, primarily to the transportation industry. We
believe MobileMAX2 will allow for a lower cost of entry and contains added
functionality that should allow the increased penetration of the
less-than-truckload market. On September 19, 2000, the Company signed a binding
letter agreement to sell its retail transportation business to Aether Systems,
Inc. ("Aether"). Aether will purchase the assets comprising our wireless
communications business for the transportation market, including the
satellite-only and MobileMAX2 multi-mode mobile messaging business. Aether will
acquire all of the assets used or useful in the retail transportation business,
and will assume the related liabilities. Aether will also purchase the existing
inventory in the business, and will be granted a perpetual license to use and
modify any intellectual property owned by or licensed to the us in connection
with the business. See "Liquidity and Capital Resources" for further details of
this transaction.
We expect that our rollout of eLink, BlackBerry by Motient and eLink Fortified
with Yahoo! 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 September 30, 2000, we had an equity interest in XM Satellite Radio
Holdings Inc. ("XM Radio") of approximately 33.1% (or 21.8% on a fully diluted
basis); however, we continue to control XM Radio through our Board of Director
membership and common stock voting rights. In July 1999 we acquired all of the
outstanding debt and equity interest in XM Radio from its other investor (the
"XM Acquisition"). As a result, all of XM Radio's results for the period from
July 7, 1999 have been included in our consolidated condensed financial
statements. 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. Prior to July 7, 1999, our investment in XM Radio was accounted for
pursuant to the equity method of accounting. On July 14, 2000, XM Radio filed an
application with the FCC to allow XM Radio to transfer its control from us to a
diffuse group of owners, none of whom will have a controlling interest. This
application is pending with the FCC. Under the terms outlined in this
application, we will still retain our Board of Director membership but will no
longer have the right to elect a majority of XM Radio's Board of Directors. At
such time that we cease to control XM Radio, we will account for our investment
in XM Radio pursuant to the equity method.
The operations and financing of XM Radio are maintained separate and apart from
the operations and financing of Motient. XM Radio completed its initial public
offering in October 1999. Please refer to XM Radio's audited financial
statements, included in its reports and filings with the SEC, 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:
o the launch of new products or the entry into new market segments,
which may require us to continue to incur significant operating
losses,
o our ability to complete the Aether transaction in a timely manner and
to provide the appropriate resources during the transition period,
o our ability to fully recover the value of our inventory in a timely
manner,
o our ability to gain market acceptance of new products and services,
including our new product offerings, eLink, BlackBerry by Motient and
eLink Fortified with Yahoo!,
o the timely roll-out of certain key customer initiatives and new
products, including for example eLink Fortified with Yahoo!,
o our ability to respond and react to changes in our business and the
industry because we have substantial indebtedness,
o our ability to fund anticipated capital expenditures, operating losses
and debt service requirements and our ability to secure additional
financing as necessary,
o our ability to modify the organization, strategy and product mix to
maximize the market opportunities as the market changes,
o our ability to manage growth effectively,
o competition from existing companies that provide services using
existing communications technologies and the possibility of
competition from companies using new technology in the future,
o our ability to maintain, on commercially reasonable terms or at all,
certain technologies licensed from third parties,
o the loss of one or more of our key customers,
o our ability to attract and retain key personnel,
o the timely availability of an adequate supply of subscriber equipment
at competitive price points,
o our dependence on third party distribution relationships to provide
access to potential customers,
o our ability to expand our networks on a timely basis and at a
commercially reasonable cost, or at all, as additional future demand
increases,
o regulation by the FCC, and
o technical anomalies that may occur within the network, including
product development, which could impact, among other things, customer
performance, satisfaction and revenue under contractual arrangements
with certain customers, or the operation of the satellite network and
the cost, scope or availability of in-orbit insurance.
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:
o the ability to obtain additional financing necessary to complete the
build out of its system and maintain operations until such time as it
can reach cash flow positive,
o satellite launch failure, destruction or damage during launch, and
premature failure of XM Radio's satellite that will not be fully
covered by insurance,
o the ability of XM Radio to successfully integrate complex technologies
into a technologically feasible configuration,
o the timely availability of XM Radio subscriber equipment at
competitive prices,
o the ability of XM Radio to gain market acceptance of its service, and
o 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 most
recently filed prospectus with the SEC.
Quarter and nine months ended September 30, 2000 and September 30, 1999
Revenue and Subscriber Statistics
Service revenues, which includes our data, voice, and capacity reseller
services, approximated $19.8 million and $55.2 million for the three and nine
months ended September 30, 2000, respectively, which constituted a $2.5 million,
or 14% increase over the three months ended September 30, 1999 and a $5.1
million, or 10% increase over the nine months ended September 30, 1999. The
increase in service revenues for the third quarter and first nine months of 2000
was primarily attributable to a 44% increase in subscribers, partially offset by
average revenue per user reductions.
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended
September 30,
Summary of Revenue 2000 1999 Change % Change
(in millions)
<S> <C> <C> <C> <C>
Data Services $ 14.0 $ 12.6 $ 1.4 11%
Voice Service 2.8 3.5 (.07) (20)
Capacity Resellers and Other 3.0 1.2 1.8 150
Equipment Revenue 6.8 5.7 1.1 19
------ ------ ---
Total $ 26.6 $23.0 $3.6 16%
====== ====== ====
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
Summary of Revenue 2000 1999 Change % Change
(in millions)
<S> <C> <C> <C> <C>
Data Services $40.0 $36.9 $3.1 8%
Voice Service 9.7 9.7 --- ---
Capacity Resellers and Other 5.5 3.5 2.0 57
Equipment Revenue 19.3 16.0 3.3 21
----- ----- ---
Total $74.5 $66.1 $8.4 13%
===== ===== ====
</TABLE>
Our data service revenue increased as a result of approximately 53,000
additional subscribers at September 30, 2000 as compared to September 30, 1999,
broken down as follows:
<TABLE>
<CAPTION>
Revenue Growth
Subscribers
<S> <C> <C>
eLink 29,300 $1.4
Transportation 26,400 6.7
Field Service (4,700) (5.8)
Telemetry 2,000 0.6
------- -----
Total 53,000 $2.9
======= =====
</TABLE>
The growth in our transportation segment was primarily for UPS and multi-mode
customers. The decrease in field service was a result of (i) contract price
reductions from existing large customers and (ii) the expiration of a large
contract.
The increase in service revenue from voice services was primarily the result of
an increase in our voice subscribers of approximately 25% from September 30,
1999 to September 30, 2000. This was offset by a decrease in our average revenue
per unit ("ARPU") caused by a shift in customer usage to lower-usage emergency
response services, and a continued drop in average revenue per user for our
maritime customers.
Service revenue from capacity resellers, who handle both voice and data
services, increased primarily as a result of approximately $1.8 million in
revenue under our Research and Development agreement with Satellite Ventures,
offset by a reduction of approximately $260,000 in quarterly revenue from one
customer who cancelled their back-up satellite capacity channels.
For the first nine months of 2000 we experienced an 14% decrease in ARPU caused
by (i) late quarter subscriber additions and delayed sales through the reseller
channels for our eLink product that did not add materially to revenues, (ii) the
impact of a one-time voice contract credit, and (iii) a larger percentage of our
customers using our data service, versus our voice service, which typically have
a higher ARPU, offset by an increase in the ARPU related to the revenue from the
Research and Development Agreement for which no subscribers were added. When
normalized for the late quarter loading, one-time adjustment and revenue from
the Research and Development Agreement, our ARPU decreased by 16% as compared to
the ARPU as of December 31, 1999.
The increase in revenue for the nine months ended September 30, 2000 from the
sale of equipment reflects the sale of hardware equipment associated with our
eLink offerings of approximately $10.0 million, offset by a decrease in sales of
single-mode, multi-mode and voice equipment of approximately $6.7 million. We
expect this trend to continue with additional eLink offerings and the shift away
from the voice business.
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.
<TABLE>
<CAPTION>
Subscribers
As of September 30,
-------------------
2000 1999
---- ----
<S> <C> <C>
eLink 30,653 1,312
Field Service 43,878 48,544
Transportation 73,637 47,232
Telemetry 15,121 13,120
Maritime 6,423 5,248
Other 19,494 15,744
------- -------
Total 189,206 131,200
======= =======
Average revenue per user $37 $45
=== ===
</TABLE>
<TABLE>
<CAPTION>
Expenses
Three Months Ended
September 30,
Summary of Expense 2000 1999 Change % Change
------------------ ---- ---- ------ --------
(in millions)
<S> <C> <C> <C> <C>
Cost of Service & Operations $18.6 $17.3 $1.3 8%
Cost of Equipment Sales 10.7 6.1 4.6 75
Sales & Advertising 8.6 5.5 3.1 56
General & Administration-core 5.8 4.6 1.2 26
wireless
General & Administration-XM Radio 27.1 8.5 18.6 219
Depreciation & Amortization-core 9.2 14.3 (5.1) (36)
wireless
Depreciation & Amortization-XM Radio 0.8 0.6 0.2 33
----- ----- ---
Total $80.8 $56.9 $23.9 42%
===== ===== =====
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
Summary of Expense 2000 1999 Change % Change
------------------ ---- ---- ------ --------
(in millions)
<S> <C> <C> <C> <C>
Cost of Service & Operations $ 55.4 $51.7 3.7 7%
Cost of Equipment Sales 23.9 17.2 6.7 39
Sales & Advertising 22.5 16.0 6.5 40
General & Administration-core 16.6 14.1 2.5 18
wireless
General & Administration-XM Radio 56.9 8.5 48.4 569
Depreciation & Amortization-core 26.9 41.7 (14.8) 35
wireless
Depreciation & Amortization-XM Radio 1.3 0.6 0.7 117
------ ------ ---
Total $203.5 $149.8 $53.7 36%
====== ====== =====
</TABLE>
Effective July 7, 1999, we assumed control of XM Radio and we consolidated its
results with ours from that point forward. Consequently, the results for the
three and nine months ended September 30, 2000 reflect the costs of the
consolidated entity. The results for the three and nine months ended September
30, 1999 include expenses on a consolidated basis from July 7, 1999 forward.
Results of XM Radio prior to July 7, 1999 were accounted for under the equity
method of accounting.
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 70 % for the three months ended September 30, 2000 and 74% for
nine months ended September 30, 2000, compared to 75% and 78% for the three and
nine months ended September 30, 1999, respectively. The dollar increase in cost
of service and operations for the nine months ended September 30, 2000 was
primarily attributable to (i) a 28% increase in communication charges associated
with increased service usage and more base stations and increased rates under
communication contracts to that support the terrestrial network, (ii) a 15%
increase in maintenance costs primarily for maintenance of our base stations,
(iii) an 8% increase in headcount as we continue the build-out of our network
and to support our network, and (iv) a 17% increase for site rental costs
associated with the build out of the terrestrial network, offset by (i) a
reduction of approximately $2.6 million in Year 2000 costs and (ii) a 23%
reduction in in-orbit insurance premiums.
The $6.7 million increase in cost of equipment sold for the nine months ended
September 30, 2000, as compared to the first nine months of 1999, was a result
of our growth in the sales of our eLink product line, which was introduced in
the third quarter of 1999, offset by a $3.6 million inventory write-down
associated with certain of these first generation devices. Additionally, sales
of our single mode, multi mode and voice products were down 43% from the same
period last year, which is reflected in the associated decrease in cost of those
sales.
Sales and advertising expenses as a percentage of total revenue were
approximately 32% and 30% for the quarter and nine months ended September 30,
2000, respectively, compared to 24% for the quarter and nine months ended
September 30, 1999. The increase in sales and advertising expenses from the
quarter and nine months ended September 30, 1999 to the quarter and nine months
ended September 30, 2000 was primarily attributable to (i) increased trade show
activity in the third quarter and first nine months of 2000 compared to the same
periods in 1999, (ii) costs incurred in connection with our company name change
in April 2000, (iii) an increase in advertising for the first nine months of
2000 to heighten our presence in the marketplace and to highlight our new
product offerings, and (iv) eLink customer acquisition costs. We expect these
costs to continue to increase as we increase our customer acquisitions and brand
recognition efforts. XM Radio did not incur any sales and advertising expenses
in the first nine months of 2000.
In July 2000, we signed an agreement with Yahoo! to promote our newly-developed
eLink Fortified with Yahoo! wireless product. In addition to our advertising
commitment under this contract, we also issued common stock purchase warrants to
Yahoo! The Yahoo! warrants were valued at approximately $4.9 million. These
warrants will be amortized to sales and advertising expense in accordance with
the roll out of the advertising plan, anticipated to run through July 2002.
General and administrative expenses for the core wireless business as a
percentage of total revenue were approximately 22% for the quarter and nine
months ended September 30, 2000, compared to 20% and 21% for the same periods in
1999. The increase from the nine months ended September 30, 1999 to the nine
months ended September 30, 2000 in our core wireless business general and
administrative expenses was attributable to (i) a 15% increase in headcount from
the prior year causing an increase in employee-related costs, (ii) increases in
facility costs as a result of increased space rental, and (iii) an increase in
regulatory costs, associated principally with our appeal of the FCC's decision
to grant applications to competitors to provide mobile satellite services in the
United States. See "Regulation" below.
General and administrative expenses for XM Radio increased as XM Radio prepares
for the launch of service. Increases in costs are associated with research and
development efforts, additional facility charges, and headcount related
expenses. Additionally, in the third quarter of 2000, XM Radio incurred non-cash
compensation charges of approximately $8.3 million for performance-based stock
options and as a result of adopting the provisions of Financial Accounting
Standards Board ("FASB") Interpretation No. 44, Accounting for Certain
Transactions Involving Stock Compensation ("FIN 44"). XM Radio will continue to
recognize quarterly non-cash compensation charges in accordance with FIN 44
depending on the market value of XM Radio's Class A common stock at the end each
quarter.
Depreciation and amortization for the core wireless business was approximately
34% and 36% of total revenue for the three and nine months ended September 30,
2000, respectively, compared to 62% and 63% during the same periods in 1999. The
decrease in depreciation and amortization expense for the nine months ended
September 30, 2000 was primarily attributable to the $97.4 million asset
impairment charge related to our satellite and satellite related ground segment
assets taken in the fourth quarter of 1999. This resulted in a reduction in
depreciation expense of approximately $12.2 million for the nine months ended
September 30, 2000. Further reductions in depreciation expense are a result of
older assets, particularly those associated with the mobile messaging business,
being fully depreciated by the end of 1999.
Interest and other income was $9.0 million (of which $8.0 million was earned by
XM Radio) for the third quarter of 2000 and $24.2 million (of which $21.0
million was earned by XM Radio) for the nine months ended September 30, 2000, as
compared to $1.0 million and $4.6 million for the same periods in 1999, of which
$1.0 million was earned by XM Radio. Excluding interest earned by XM Radio on
its restricted investments, interest earned by the core wireless business was
essentially flat and reflected interest earned on overnight investments. The
reduction in interest earned on our escrow established for the Senior Notes as a
result of lower escrow balances, was essentially offset by interest earned in
1999 on our note receivable from XM Radio, as XM Radio was accounted for under
the equity method of accounting during the first six months of 1999.
We incurred $15.3 million of interest expense in the third quarter of 2000 and
$46.3 million for the nine months ended September 30, 2000, compared to $18.1
million and $51.0 million during the same periods in 1999, of which $8.2 million
was incurred by XM Radio. The net increase, excluding XM Radio, of $3.5 million
for the nine months ended September 30, 2000 was a result of a $6.2 million
decrease in amortization of warrants, prepaid interest and debt offering costs
due to the debt discount costs that were written off in 1999 when we
extinguished $59 million of debt on the Term Loan Facility, offset by higher
debt balances as well as an approximate 1% increase in interest rates on our
bank facility. We expect that interest costs will continue to be significant as
we continue to draw down on our bank revolver.
In January 1999, we issued a note payable in the amount of $21.5 million to
Baron Asset Fund, a stockholder and a guarantor of our bank facility. The note
was secured and exchangeable for a portion of our shares of XM Radio. Since the
note was indexed to XM Radio stock, which decreased in value from December 1999
to January 2000, we recorded an unrealized gain of $3.9 million before the note
was exchanged. The note payable was exchanged for XM Radio stock in January
2000, and we recorded a non-recurring gain of $32.9 million 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, for the nine months ended
September 30, 2000 for property and equipment were $15.0 million compared to
$9.7 million in the same period of 1999. Expenditures consisted primarily of
assets necessary to continue the build out of our terrestrial network. In
addition, XM Radio expended $36.7 million in the first nine months of 2000 for
leasehold improvements on their new office building, as well as for other
expenditures 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 first nine months of 2000,
XM Radio expended $347.1 million for property under construction.
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.
As noted above, we have signed a binding letter agreement to sell our retail
transportation business to Aether. In addition, Aether will enter into
long-term, prepaid network airtime agreements with a total value of $25 million,
pursuant to which Aether will purchase airtime on the Company's satellite and
terrestrial networks. Aether will also become an authorized reseller of our
eLink and BlackBerry by Motient wireless email service offering. These
transactions are described below. Aether will acquire all of the assets used or
useful in the retail transportation business, and will assume the related
liabilities. Aether will also purchase the existing inventory in the business,
and will be granted a perpetual license to use and modify any intellectual
property owned by or licensed to the Company in connection with the business.
The purchase price for these assets will be $45 million, plus the then-current
book value of the inventory for the business. All of this amount will be paid at
closing, except for $10 million which will be deposited in an escrow account and
will be released to Motient upon satisfaction of certain criteria with respect
to MobileMAX2. In addition, the Company has the opportunity to receive up to an
additional $22.5 million as an "earn-out" payment, subject to the satisfaction
of certain operating results for the business during 2001. Of the proceeds, $20
million will be used to immediately repay and permanently reduce the Revolving
Credit Facility. Proceeds, if any, from the $10 million escrow and the Aether
earn-out will also be used to repay and permanently reduce the Revolving Credit
Facility.
To enable Aether to continue to operate the retail transportation business after
the transaction closes, the Company and Aether will sign two long-term network
airtime agreements, under which Aether will purchase airtime on the satellite
and terrestrial networks. These agreements have a total value of $25 million,
and Aether will prepay a significant portion of such amount upon closing. As
part of these agreements, Aether will also become an authorized reseller of
Motient's eLink wireless email service, as well as BlackBerry (TM) by Motient.
The Company and Aether will also enter into certain transition arrangements with
respect to certain facilities and functions. Aether intends to hire all of
Motient's employees in the business.
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 anticipates that
capital expenditures, operating losses, working capital and debt service
requirements through 2000 can be met by (i) proceeds from the Aether
transaction, which is expected to close in the fourth quarter, or a combination
of the following: (ii) cash on hand, (iii) the borrowings available under the
bank financing and the vendor financing, (iv) proceeds realized through the sale
of inventory relating to eLink and MobileMAX2 and (v) additional debt or equity
financing transactions. Additionally, Motient Parent Company has the ability to
monetize its investment in XM Radio, via direct quarterly sales or other
arrangements, and transfer a portion of the proceeds to its subsidiaries. Our
ability to meet our projections is subject to numerous uncertainties and there
can be no assurance that our current projections regarding the timing of our
ability to achieve positive operating cash flow will be accurate. If our cash
requirements are more than projected, we may require additional financing in
amounts which may be material. The type, timing and terms of financing that the
we select will be dependent upon our cash needs, the availability of other
financing sources and the prevailing conditions in the financial markets. We
cannot guarantee that additional financing sources will be available at any
given time or available on favorable terms.
Our current financing arrangements are summarized below:
o A $137.3 million bank financing facility, consisting of (i) a $97.3
million unsecured five-year reducing revolving credit facility and
(ii) a $40 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 October 31, 2000, we had outstanding borrowings
of $40 million under the term loan facility at 7.6875%, and $91.0
million under the revolving credit facility at rates ranging from
7.625% to 8.0%. 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 September 30,
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.
As noted above, upon the closing of the Aether transaction, $20
million will be used to immediately repay and permanently reduce the
Revolving Credit Facility. Proceeds, if any, from the Aether escrow
and earn-out will also be used to repay and permanently reduce the
Revolving Credit Facility.
o A vendor financing commitment from Motorola, Inc., a stockholder, to
provide up to $15 million of vendor financing to finance up to 75% of
the purchase price of additional terrestrial network base stations.
Loans under this facility bear interest at a rate equal to LIBOR plus
7.0% and are guaranteed by Motient and each of its wholly-owned
subsidiaries. The terms of the facility require that amounts borrowed
be secured by the equipment purchased therewith. As of October 31,
2000 there was $2.9 million available for borrowing under this
facility.
o An $8.4 million capital lease for network equipment acquired in July
2000. The lease has a term of three years and an effective interest
rate of 14.4%.
o $335 million of senior notes issued at the time of the Motient
Communications 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 was 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
Motient, and are fully guaranteed by Motient.
o We have also arranged the financing of certain trade payables, and as
of September 30, 2000, $3.6 million of deferred trade payables were
outstanding at rates ranging from 5.93% to 7.24% and are generally
payable by the end of 2000.
Commitments
At September 30, 2000, we had remaining contractual commitments to purchase
subscriber equipment inventory, primarily related to eLink and MobileMAX2, in
the amount of $29.3 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 September 30, 2000
the cancellation penalty would have been approximately $4.1 million.
We have also contracted for the purchase of $800,000 of base stations to expand
our coverage and complete certain necessary site build-outs, and have certain
other operating expense contract commitments that total approximately $1.2
million over the next year.
The aggregate fixed and determinable portion of all inventory commitments and
obligations for other fixed contracts is $31.2 million, of which $6.5 million is
due in 2000 and $23.9 million is due in 2001.
XM Radio
XM Radio is operated, managed, and funded separately from our core wireless
business. While we do not have any obligation or commitments to provide
additional funding to XM Radio, and do not expect to provide any additional
funding, we may choose to do so in the future. XM Radio will require significant
additional funding in the future. If XM Radio is not successful in obtaining the
additional required financing, our investment in XM Radio could be negatively
impacted.
In the first quarter of 2000, XM Radio raised an additional $228.6 million in
net proceeds through a follow-on offering of 4.4 million shares of its Class A
common stock and 2.0 million shares of Series B 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 $191.3 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. In August 2000, XM Radio closed a private offering of
235,000 shares for $1,000 per share of its 8.25% Series C convertible redeemable
preferred stock and raised additional net proceeds of approximately $206.4
million and a stock sbuscription of $20.0 million. XM Radio recorded a $123.0
million beneficial conversion charge that reduced earnings available to common
stockholders. The issuance of the Series C preferred stock caused the exercise
price of the warrants sold in March 2000 to be adjusted to $47.94.
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 Boeing Satellite
Systems International, Inc. ("BSS", formerly Hughes Space and Communications,
Inc.), XM Radio will incur payment obligations of approximately $541.3 million
of which $461.1 million had been paid, and $1.5 million had been accrued, as of
September 30, 2000. XM Radio has signed a contract with LCC International, Inc.
(a related party to XM Radio), for the engineering of its terrestrial repeater
network with total contract payments expected to be approximately $115 million
through 2001. As of September 30, 2000, XM Radio has paid $30.8 million, and
accrued an additional $12.9 million, under this contract. Effective October
1999, XM Radio signed a contract with Hughes Electronics Corporation for the
design, development, and purchase of terrestrial repeater equipment. The total
value of this contract is $128.0 million and XM Radio has paid $12.9 million
under this contract as of September 30, 2000. 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.
Satellite Ventures
As noted above, we formed a new joint venture subsidiary, Satellite Ventures, in
which we own 80% of the membership interests. The remaining 20% interest in
Satellite Ventures is owned by the Investors. The Investors paid $50 million to
Satellite Ventures (in the aggregate), in exchange for their 20% interest. Of
the $50 million payment received by Satellite Ventures, $6.0 million is being
retained by Satellite Ventures and will be used to fund certain research and
development activities, with the remaining $44 million paid to Motient Services
Inc. ("Motient Services") (which owns our satellite and related assets). Of the
$44 million paid to Motient Services, $20 million was for a Research and
Development, Marketing and Service Agreement, and $24 million was a deposit
under the Asset Sale Agreement. Motient is not required to provide additional
financing to Satellite Ventures.
At any time during the next two years, the Investors have the right to elect to
purchase up to an additional 40% stake in Satellite Ventures, for an extra
payment of $120 million (which amount will increase by a specified daily amount,
after one year). Upon such exercise, Satellite Ventures will consummate the
purchase of all of the assets owned by Motient Services that relate to the
satellite business. The purchase price for such assets will be $144 million,
comprised of the $24 million described above as the deposit, and additional cash
of $120.0 million at closing.
In connection with the Aether transaction, we and the other members of Satellite
Ventures agreed to reduce the purchase price in the asset sale agreement between
Satellite Ventures and Motient Services, to account for the fact that Motient
Services will receive certain consideration in the Aether transaction in
exchange for the assets to be acquired by Aether, which assets otherwise would
have been available to be acquired by Satellite Ventures. Upon closing of the
Aether transaction, the purchase price to be paid by Satellite Ventures for the
remaining assets of Motient Services will be reduced from $120 million to $80.5
million, and will be further reduced by an amount equal to one-half of any
earn-out consideration received by the Company.
Also at any time during the next two years, if the Investors decide that they do
not wish to acquire control of Satellite Ventures and acquire the satellite
assets of Motient Services as described above, they may convert their existing
minority position in Satellite Ventures into shares of our common stock, at a
conversion price which will be set at the time of exercise, between $12 and $20
per share, as specified in the Investment Agreement. The Investors may not
exercise this right, however, until after December 29, 2000, except under
certain limited circumstances.
We received partial waivers from the banks and the guarantors for the
requirement in the bank facility that 50% of certain proceeds received by us be
used to repay and permanently reduce the Revolving Credit Facility. Under the
terms of the bank facility waivers received, only $2.75 million of the initial
$44 million payment received was used to repay outstanding amounts, and
permanently reduce commitments, under our bank facility, with the remainder of
the initial $44 million payment retained by us. If the Investors elect to
acquire control of Satellite Ventures and the Additional Payment is made as
described above, then the Company will be required to use 50% of such proceeds
to pay down outstanding balances and/or reduce commitments, under our bank
facility.
Other
<PAGE>
<TABLE>
<CAPTION>
Nine Months Ended September 30, 2000 Nine Months Ended September 30, 1999
------------------------------------ ------------------------------------
Core Core
Business XM Radio Consolidated Business XM Radio (1) Consolidated
----------- ------------ -------------- ------------ -------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Cash Used In Operating ($66,026) ($14,474) ($80,500) ($60,896) ($37,540) ($98,436)
Cash Provided by (Used in) Investing 11,351 (474,072) (462,721) (15,210) (75,614) (90,824)
Cash Provided by Financing:
Common stock/warrant issuances 23,995 436,026 460,021 121,974 --- 121,974
Debt payments on capital leases,
vendor financing (5,599) -- (5,599) (5,282) (73) (5,355)
Net funding from (repayment of) notes 37,000 -- 37,000 (32,491) 175,000 142,509
High yield financing --- 322,898 322,898 --- --- ---
Other (1,126) (8,365) (9,491) (3,305) (7,417) (10,722)
------- ------- ------- ------- ------- --------
Total Provided by Financing 54,270 750,559 804,829 80,896 167,510 248,406
------ ------- ------- ------ ------- -------
Total Net Cash Flow ($405) $262,013 $261,608 $4,790 $54,356 $59,146
====== ======== ======== ====== ======= =======
Cash and Cash Equivalents $371 $312,711 $313,082 $7,075 $54,356 $61,431
Working Capital 40,401 351,675 392,076 50,936 41,970 92,906
Restricted Investments included in
working capital (41,038) (93,403) (134,441) (41,038) --- (41,038)
</TABLE>
(1) As noted above, the nine month period ended September 30, 1999 includes the
results of XM Radio from July 7, 1999. Results prior to that were not
consolidated.
The $5.1 million increase in cash used in operating activities for the core
business was primarily attributable to (i) increased operating losses as we
incurred additional expenses to operate the network and increase our market
awareness, (ii) inventory purchases for our new products, without a
corresponding amount of sales, and (ii) the timing of payments on accounts
payable, offset by proceeds from Satellite Services for the prepaid research and
development agreement.
Excluding $10.8 million representing the amount of the proceeds received in the
Motient Ventures transaction allocated to the Asset Sale Agreement, the $15.7
million decrease in cash used in investing activities of the core business was
primarily attributable to the purchase of the XM Radio Note Receivable in 1999,
offset by higher payments in 2000 for property and equipment.
The $26.6 million decrease in cash provided by financing activities in the core
business was a result of (i) $116.6 million reduction in proceeds from stock
issuances and warrant exercises, offset by (ii) $48.0 million in net bank
financings, (iii) proceeds of $18.6 million representing the portion of the
proceeds received in the Motient Ventures transaction allocated to the
investors' option to convert to Motient Common Stock, (ii) the proceeds received
from a related party in 1999 of $21.5 million, and (iii) higher payments in 2000
for debt obligations. None of the cash and working capital held by XM Radio is
available for our use.
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 Motient 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.
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.
The United States Court of Appeals affirmed the FCC's decision and we are
seeking a rehearing. Additional assignments of spectrum for such uses may occur
in the future and could make it easier for new competitors to enter the market.
In addition, increased competition has resulted in downward pressure on pricing
for certain of the Company's products.
Accounting Standards
In September 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. This
statement was originally effective for the year ended December 31, 2000. In
September 1999, FASB issued Statement No. 137, which deferred the effective date
of Statement No. 133 until fiscal years beginning after September 15, 2000. In
June 2000, the FASB issued Statement No. 138, "Accounting for Certain Derivative
Instruments and Certain Hedging Activities", which amends FASB Statement No.
133. This Statement limits the scope to certain derivatives and hedging
activities. The effective date of Statement No. 138 is for fiscal years
beginning after September 15, 2000. We do not believe that the adoption of
Statement No. 138 will have a material impact on our financial position, results
of operations and cash flows.
In December 1999, the SEC issued Staff Accounting Bulletin No. 101, "Revenue
Recognition" ("SAB 101"). SAB 101 provides guidance on the recognition,
presentation, and disclosure of revenue in financial statements. We are
currently evaluating the impact of SAB 101 on our consolidated results of
operations and financial condition. On June 26, 2000, the SEC delayed
implementation of SAB 101 until the fourth quarter of fiscal years beginning
after December 15, 1999. Any change in accounting principle required from
adoption of SAB 101 will be reported as a cumulative effect of a change in
accounting principle as of January 1, 2000.
In March 2000, the Financial Accounting Standards Board issued FASB
Interpretation No. 44, Accounting for Certain Transactions Involving Stock
Compensation ("FIN 44"). FIN 44 further defines the accounting consequence of
various modifications to the terms of a previously fixed stock option or award
under APB Opinion No. 25, Accounting for Stock Issued to Employees. FIN 44
became effective on July 1, 2000, but certain conclusions in FIN 44 cover
specific events that occurred after either December 15, 1998 or January 12,
2000. In July 1999, XM Radio repriced certain options. FIN 44 requires that
these options be accounted for as variable awards from July 1, 2000 until the
date the award is exercised, forfeited, or expires unexercised. For those
options that have vested as of July 1, 2000, compensation cost is recognized
only to the extent that the exercise price exceeds the stock price on July 1,
2000. For those options that have not vested as of July 1, 2000, the portion of
the award's intrinsic value measured at July 1, 2000 is recognized over the
remaining vesting period. Additional compensation cost is measured for the full
amount of any increases in stock price after the effective date and is
recognized over the remaining vesting period. Any adjustment to compensation
cost for further changes in the stock price after the award vests is recognized
immediately. The effects of implementing FIN 44 required XM Radio to recognize
additional non-cash compensation of approximately $6.0 million in the third
quarter of 2000.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Quantitative and Qualitative Disclosures about Market Risk
We are exposed to the impact of interest rate changes related to our credit
facilities. We manage interest rate risk through the use of a combination of
fixed and variable rate debt. Currently, except for the interest rate cap
described below, we do not use derivative financial instruments to manage our
interest rate risk. We have minimal cash flow exposure due to general interest
rate changes for our fixed rate, long-term debt obligations. We invest our cash
in short-term commercial paper, investment-grade corporate and government
obligations and money market funds.
Under our Term Loan and Revolving Credit Facility, interest is paid generally at
100 basis points above LIBOR. The exposure to interest rate fluctuations is
limited because the interest rate paid on a monthly basis is variable and based
on current market conditions. We have also entered into an interest rate swap
agreement which reduces the impact of interest rate increases on the Term Loan
Facility. Under this agreement, we receive an amount equal to LIBOR plus 50
basis points paid directly to the banks on a quarterly basis until the swap
agreement terminates on September 30, 2001. Our Senior Notes bear interest at a
fixed rate of 12 1/4%. We run the risk that market rates will decline and the
required payments will exceed those based on current market rates.
<PAGE>
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
(c)
On July 24, 2000, Motient Corporation issued a warrant (the
"Warrant") to purchase up to 457,122 shares (the "Shares") of its
common stock, par value $0.01 per share (the "Common Stock"), to
Yahoo! Inc. ("Yahoo!"). The Warrant entitles Yahoo! to purchase
the Shares at an exercise price of $14.7375 per share. The
Warrant is exercisable until the earlier of: (i) July 24, 2004,
and (ii) the effective date of the termination of the Promotion
and Distribution Agreement, dated July 24, 2000, between Yahoo!
and Motient (the "Promotion Agreement").
The Warrant was not registered under the Securities Act of 1933,
as amended (the "Securities Act"). The Warrant was issued to
Yahoo! pursuant to the terms of the Promotion Agreement. No
underwriters were engaged in connection with the issuance of the
Warrant. Such issuance was made in reliance upon Section 4(2) of
the Securities Act as a transaction not involving a public
offering, Yahoo! having acquired the Warrant for its account
without a view to the distribution thereof.
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.22a - Amendment No. 2, dated September 1, 2000, to the Credit
Agreement, dated as of June 17, 1998, by and between Motorola
Inc. and Motient Communications Company (formerly known as ARDIS
Company) (filed herewith).
10.39a - Amended and Restated Shareholders' Agreement, dated as of August
8, 2000, by and among XM Satellite Radio Holdings Inc., Motient
Corporation, Baron Asset Fund, Baron iOpportunity Fund, Baron
Capital Asset Fund, Clear Channel Investments, Inc., Columbia XM
Radio Partners, LLC, Columbia Capital Equity Partners III (QP),
L.P., Columbia XM Satellite Partners III, LLC, DIRECTV
Enterprises, Inc., General Motors Corporation, Madison Dearborn
Capital Partners III, L.P., Special Advisors Fund I, LLC, Madison
Dearborn Special Equity III, L.P., American Honda Motor Co., Inc.
and Telcom-XM Investors, L.L.C. (incorporated by reference to
Exhibit 10.1 to Amendment No. 1 to XM Radio's Registration
Statement on Form S-1 (File No. 333-39176)).
27.0 - Financial Data Schedule (filed herewith)
(b) Current Reports on Form 8-K
On September 19, 2000, the Company filed a Current Report on Form
8-K, in response to Item 5-Other Events, reporting that the
Company had entered into a transaction to sell its retail
transportation business to Aether Systems, Inc.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MOTIENT CORPORATION
(Registrant)
November 14, 2000 /s/W. Bartlett Snell
--------------------
W. Bartlett Snell
Senior Vice President and
Chief Financial Officer
(principal financial and accounting
officer and duly authorized officer
to sign on behalf of the registrant)
<PAGE>
EXHIBIT INDEX
Number Description
10.22a - Amendment No. 2, dated September 1, 2000, to the Credit
Agreement, dated as of June 17, 1998, by and between Motorola
Inc. and Motient Communications Company (formerly known as ARDIS
Company) (filed herewith).
10.39a - Amended and Restated Shareholders' Agreement, dated as of August
8, 2000, by and among XM Satellite Radio Holdings Inc., Motient
Corporation, Baron Asset Fund, Baron iOpportunity Fund, Baron
Capital Asset Fund, Clear Channel Investments, Inc., Columbia XM
Radio Partners, LLC, Columbia Capital Equity Partners III (QP),
L.P., Columbia XM Satellite Partners III, LLC, DIRECTV
Enterprises, Inc., General Motors Corporation, Madison Dearborn
Capital Partners III, L.P., Special Advisors Fund I, LLC, Madison
Dearborn Special Equity III, L.P., American Honda Motor Co., Inc.
and Telcom-XM Investors, L.L.C. (incorporated by reference to
Exhibit 10.1 to Amendment No. 1 to XM Radio's Registration
Statement on Form S-1 (File No. 333-39176)).
27.0 - Financial Data Schedule (filed herewith)
<PAGE>
Exhibit 10.22a
EXECUTION COPY
AMENDMENT NO. 2 TO CREDIT AGREEMENT
This Amendment No. 2 to Credit Agreement (this "Amendment") is entered
into as of September 1, 2000 by and between Motorola, Inc., a Delaware
corporation ("Motorola") and Motient Communications Company (formerly known as
ARDIS Company), a New York general partnership ("you" or the "Borrower"), to
amend the Credit Agreement dated as of June 17, 1998, by and between Motorola
and Borrower as amended by Amendment No. 1 to Credit Agreement dated as of
October 15, 1998 (the Credit Agreement, as so amended the "Original Credit
Agreement"; and the Original Credit Agreement as further amended by this
Amendment, the "Agreement" or the "Credit Agreement"). Capitalized terms used
herein without definition have the meanings ascribed to them in the Credit
Agreement.
1. Amendment to Section 1. The first two sentences of Section 1 of
-----------------------
the Credit Agreement are hereby deleted, and replaced in their entirety by the
following language:
The aggregate maximum principal amount of Credit that may be
drawn under this Credit Agreement shall be $15,000,000. You may obtain Advances
under this Credit Agreement until December 31, 2001, if, at the time of
requesting an Advance, you have complied with all Requirements for Advances.
2. Certain Definitions.
-------------------
(a) All references to ARDIS Company in the Original Credit Agreement are
amended to be deemed to be references to Motient Communications
Company.
(b) All references to American Mobile Satellite Corporation in the
Original Credit Agreement are amended to be deemed to be references to
Motient Corporation.
(c) All references to AMSC Acquisition Company, Inc. in the Original
Credit Agreement are amended to be deemed to be references to Motient
Holdings Inc.
(d) Capitalized terms used in this Amendment without definition have the
meanings assigned to them or incorporated into the Original Credit
Agreement unless the context otherwise clearly requires.
3. Representations and Warranties. In order to induce Motorola to enter
------------------------------
into this Amendment and to provide you with the Credit, you hereby represent and
warrant to Motorola the following, except as otherwise disclosed to Motorola in
writing concurrently with the execution of this Amendment:
3.1. Status. You are duly incorporated or formed, and validly existing
------
under the laws of the state of incorporation or formation. You (a) have the
power and authority and the legal right to own and operate your property, to
lease the property you operate, and to conduct the business in which you are
currently engaged and in which you propose to engage, (b) are in compliance with
all Requirements of Law except to the extent that the failure to comply
therewith could not, in the aggregate, have a material adverse effect on your
business, operations, assets (taken in the aggregate) or financial condition,
and could not materially adversely affect your ability to perform your
obligations under the Agreement, and (c) have qualified to do business in all
jurisdictions where your ownership, lease or operation of property or the
conduct of your business requires such qualification or recording, except to the
extent that the failure to so qualify could not, in the aggregate, have a
material adverse effect on your business, operations, assets (taken in the
aggregate) or financial condition, and could not materially adversely affect
your ability to perform your obligations under the Agreement.
3.2. Power and Authority. You have the power, authority and legal right
-------------------
to execute, deliver and perform the Amendment and the Agreement and to borrow
thereunder, and have taken all necessary action to authorize the Credit on the
terms and conditions of this Amendment and the Agreement, and to authorize the
execution, delivery and performance of this Amendment and the Agreement and the
related documents described herein and therein. Where any Governmental
Authority, including without limitation any PUC, requires consents, filings or
authorizations prior to the Credit, you shall have obtained all such consents,
filings or authorizations. Other than such consents, filings or authorizations,
no consent or authorization or filing with, or other act by or with respect to
any Governmental Authority, is required in connection with the Credit under the
Agreement or with the execution, delivery, performance, validity or
enforceability of the Amendment or the Agreement. The Amendment has been duly
executed and delivered and the Agreement constitutes your legal, valid and
binding obligation, which obligation shall be enforceable against you in
accordance with the terms of the Agreement, except as enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting the enforcement of creditors' rights generally and
general equitable principles.
3.3. No Violations. The execution, delivery and performance of the
--------------
Amendment and the Agreement and the use of the proceeds of the Credit (i) will
not violate, be in conflict with, result in a breach of or constitute a default
under, any Requirement of Law or any of your contractual obligations, except to
the extent such violations, in the aggregate, could not have a material adverse
effect on (a) your business, operations, assets (taken in the aggregate) or
financial condition, or (b) your ability to perform your obligations under the
Agreement, and (ii) will not result in, or require, the creation or imposition
of any Lien on any of your properties or revenues pursuant to any Requirement of
Law or contractual obligation, other than pursuant to the Agreement. You are in
compliance with the Employee Retirement Income Security Act of 1974 as amended
from time to time (ERISA), and neither the execution nor the performance of the
Agreement by you will result in any violation of ERISA. Any benefit plan that is
subject to ERISA has been properly accounted for in your Financial Statements
attached to the Credit Agreement.
3.4. No Pending Actions. No litigation, investigation or proceedings of
------------------
or before any arbitrator or Governmental Authority is pending, or, to your
knowledge is threatened, against you or, against any of your properties or
revenues (a) with respect to the Agreement or any of the transactions
contemplated thereby, or (b) which is reasonably expected to be adversely
determined, and which, if adversely determined, could, individually or in the
aggregate, have a material adverse effect on your business, operations, assets
(taken in the aggregate) or financial condition.
3.5. No Defaults. You are not in default under or with respect to any
-----------
contractual obligation where such default could be materially adverse to your
business, operations, assets (taken in the aggregate) or financial condition, or
which could materially and adversely affect your ability to perform your
obligations under the Agreement. No Default or Event of Default has occurred and
is continuing.
3.6. Good Title. Any of your leases are in full force and effect, and
----------
you enjoy peaceful and undisturbed possession thereunder; you have a recorded
title in fee simple to all your owned real property, and good and marketable
title to all your other personal property.
3.7. Taxes. You have filed or caused to be filed all material tax
-----
returns which are required by law to be filed, and have paid all taxes shown to
be due and payable on said returns or on any assessment made by any Governmental
Authority (other than those the amount or validity of which is currently being
contested in good faith by appropriate proceedings and with respect to which
reserves in conformity with GAAP have been provided on your books); and no tax
Liens have been filed and, to your knowledge, no claims are being asserted with
respect to any such taxes, fees or other charges other than inchoate Liens for
taxes not yet due.
3.8. No Extending of Credit. Neither you nor any guarantor is engaged
----------------------
or will generally engage in the business of purchasing or selling Margin Stock
(as defined in Regulation G, T, U or X of the Board of Governors or of the
Federal Reserve System) extending credit for the purpose of purchasing Margin
Stock.
3.9. No Subsidiaries. Except as disclosed on Exhibit "D" to the Credit
---------------
Agreement, you have no subsidiaries and do not control, directly or indirectly,
any other business entity.
3.10. Patents, Trademarks, etc. You own or have the right to use all of
------------------------
the patents, trademarks, permits, service marks, trade names, copyrights,
licenses and franchises or rights with respect to the foregoing (collectively
"patents"), necessary for the conduct of your business as presently
contemplated, without any known conflict with the rights of others.
3.11. Information, Reports, etc. All information, reports and other
---------------------------
papers and data furnished to Motorola by you on or at any time after the date
hereof are or will be, at the time the same are so furnished, complete and
correct in all material respects; and all projections concerning your business
furnished by you, as supplemented, will be prepared or presented in good faith
by you and have a reasonable basis. No fact is known to you which materially and
adversely affects or in the future may (so far as you can reasonably foresee)
materially and adversely affect the business, operations, assets (taken as a
whole) or your financial condition which has not been set forth in the Financial
Statements or in such information, reports, papers and data.
3.12. Security Documents. The provisions of the Agreement are effective
------------------
to create in favor of Motorola a legal, valid and enforceable security interest
in all your right, title and interest in the Collateral in which a security
interest may be created under Article 9 of the Uniform Commercial Code; and when
(i) financing statements have been filed in the offices in the jurisdictions
listed in Exhibit "E" to the Agreement, and (ii) except for any further filing
or taking of possession which may be required under Section 9-306 of the UCC in
order to perfect a security interest in proceeds of the Collateral and any
taking of possession which may be required under the UCC in order to perfect a
security interest in instruments, the Agreement will create and grant a fully
perfected first Lien on, and security interest in the Collateral (including
proceeds) in which a security interest may be perfected under Article 9 of the
UCC.
3.13. Governmental Regulation. You hold sufficient FCC licenses for the
-----------------------
conduct of your business in each area in which you currently conduct your
business. All of such licenses are valid, uncontested and in full force and
effect.
3.14. Assumed Names. You are not doing business under any fictitious or
-------------
assumed names, except as disclosed in Exhibit "F" to the Agreement.
3.15. Principal Place of Business. Your chief executive office and
----------------------------
principal place of business are located at the notice address shown next to your
signature block on the Credit Agreement. Your books and records with respect to
the Collateral are kept at this address.
3.16. Environmental and Safety Matters. You are in compliance in all
---------------------------------
material respects with all federal, state, local and other statutes,
ordinances, orders, judgments, rulings and regulations relating to the
environment, environmental regulation or control, employee health and safety,
or the generation, use, storage, disposal or transportation of toxic or
hazardous materials, substances or wastes (collectively, "Environmental
Laws").
3.17 Collateral. You represent that each of the items of Collateral
----------
delivered prior to the date of this Amendment is identified by serial number
in Exhibit B to this Amendment, and is located as of the date of this
Amendment in the jurisdiction listed in Exhibit B.
4. Conditions to Effectiveness.
---------------------------
This Amendment shall become effective, and Motorola's commitment to
provide the Credit to you as set forth herein shall be conditioned upon, your
satisfaction of each of the following conditions precedent:
(a) No Default or Event of Default shall have occurred and be
continuing, and you shall have delivered to Motorola a
certificate of Randy S. Segal, Senior Vice President and General
Counsel, to such effect.
(b) You shall have delivered to Motorola executed counterparts of
this Amendment, and an executed original of the Amended and
Restated Promissory Note in the form attached hereto as Exhibit A
(the "Note").
(c) You shall have delivered to Motorola a certificate of the
Secretary or other authorized officer of the Borrower as to
resolutions of the Board of Directors of the Borrower authorizing
the execution, delivery and performance by the Borrower of this
Amendment, the Note, and the other documents and instruments to
be delivered by the Borrower hereunder.
(d) You shall have delivered to Motorola an Amended and Restated
Guarantee Agreement of each of Motient Corporation (formerly
American Mobile Satellite Corporation) and Motient Holdings Inc.
(formerly AMSC Acquisition Company, Inc.), each in form and
substance satisfactory to Mototorola.
(e) You shall have delivered to Motorola a certificate of the
Secretary or other authorized officer of each of the Guarantors
as to resolutions of the Board of Directors of such Guarantor
authorizing the execution, delivery and performance by such
Guarantor of the Amended and Restated Guarantee Agreement to be
delivered by it hereunder and the other documents and instruments
to be delivered by the Borrower hereunder.
(f) You shall have delivered to Motorola a certificate or
certificates certifying the incumbency of the officer or officers
executing this Amendment, the Note, each Amended and Restated
Guarantee Agreement, and each other document and instrument
delivered hereunder.
(g) You shall have delivered to Motorola an opinion of counsel
satisfactory to Motorola as to (i) the due organization and valid
existence of each of the Borrower and each Guarantor, (ii) the
due authorization, execution, delivery and enforceability of the
Credit Agreement, as amended by the Amendment, the Note, the
Guarantees, and each other document and instrument delivered
hereunder, (iii) the absence of any violation or breach of other
agreements or applicable Laws, (iv) the absence of material
litigation pending or threatened against the Borrower and each
Guarantor, and (v) and as to such other matters as Motorola shall
reasonably request.
(h) You shall have delivered each other document and instrument as
Motorola shall have reasonably requested.
Motorola's obligation to fund Advances under the Credit Agreement shall
be subject to each of the conditions set forth in Section 8 of the Terms and
Conditions.
5. Release of Guarantee of Motient Services Inc. From and after the
-----------------------------------------------
effectiveness of this Amendment, Motorola hereby releases Motient Services Inc.
(formerly AMSC Subsidiary Corporation) from all obligations and liabilities
under its Guarantee Agreement dated as of June 17, 1998 with respect to
obligations of the Borrower under the Original Credit Agreement, and Motient
Services Inc. shall thereafter have no liability or obligations in respect of
the Borrower's obligations under the Credit Agreement.
6. Notices. The Notice address for Motorola set forth in the Credit
-------
Agreement is hereby amended as follows:
Notice Address:
Motorola, Inc.
1303 East Algonquin Road
Schaumburg, Illinois 60196
Telephone: (847) 725-4502
Telecopy: (847) 725-5097
With a copy to:
Motorola Credit Corporation
1301 East Algonquin Road
5th Floor
Schaumburg, Illinois 60196
Attention: Director, North America Customer Finance
6. Ratification of Credit Agreement. Except as amended hereby,
-----------------------------------
Motorola and the Borrower hereby ratify and confirm the Credit Agreement, and
all of the terms set forth or incorporated therein.
7. Governing Law. This Amendment will be governed by the law of
--------------
Illinois without regard to its conflicts of law rules.
8. Counterparts. This Amendment may be executed in one or more
------------
counterparts which, taken together, shall constitute one and the same
instrument.
[Signature page follows]
<PAGE>
Executed by the parties hereto as of the date first set forth
above.
MOTIENT COMMUNICATIONS COMPANY
By: /s/Richard J. Burnheimer
Its: Vice President and Treasurer
MOTOROLA, INC.
By: /s/Walter F. Keating III
Its: Vice President
