<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15(d) of
the Securities Exchange Act of 1934
For Quarter Ended September 30, 1995
Commission File No. 0-17316
MOBILE TELECOMMUNICATION TECHNOLOGIES CORP.
-------------------------------------------
(Exact name of Registrant as specified in its charter)
Delaware 64-0518209
------------------------------- -----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
200 South Lamar Street, Mtel Centre, Jackson, Mississippi 39201
--------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(601) 944-1300
----------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
----- -----
Indicate the number of shares outstanding of each of the Registrant's classes
of common stock, as of the latest practicable date.
54,050,156 shares of Common Stock,
par value $.01 per share, as of
November 1, 1995
<PAGE>
MOBILE TELECOMMUNICATION TECHNOLOGIES CORP.
QUARTERLY REPORT ON FORM 10 - Q
INDEX
<TABLE>
<C> <S>
PART I. FINANCIAL INFORMATION
---------------------
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets -- September 30, 1995 and December 31, 1994
Consolidated Statements of Operations -- Nine Months Ended September 30, 1995
and 1994, and Three Months Ended September 30, 1995 and 1994
Consolidated Statements of Cash Flows -- Nine Months Ended September 30, 1995
and 1994, and Three Months Ended September 30, 1995 and 1994
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
PART II. OTHER INFORMATION
-----------------
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
</TABLE>
SIGNATURES
----------
2
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MOBILE TELECOMMUNICATION TECHNOLOGIES CORP.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
---------------- ---------------
<S> <C> <C>
ASSETS:
CURRENT ASSETS
Cash and cash equivalents $14,295,177 $145,620,779
Short term investments 14,871,589 53,689,435
Accounts receivable, net 38,040,604 20,337,010
Other current assets 24,483,624 10,427,822
---------------- ---------------
TOTAL CURRENT ASSETS 91,690,994 230,075,046
---------------- ---------------
MESSAGING NETWORKS
Property and equipment, net 210,324,471 114,796,040
Certificates of authority and goodwill 133,039,924 23,054,615
PCS license cost 127,500,000 127,500,000
Network construction and development cost 120,749,387 46,459,928
---------------- ---------------
TOTAL MESSAGING NETWORKS 591,613,782 311,810,583
---------------- ----------------
UNCONSOLIDATED INTERNATIONAL INVESTMENTS 63,352,287 62,681,009
---------------- ----------------
OTHER ASSETS
Securities restricted for debt service 71,316,510 93,597,038
Other 18,272,520 17,307,256
---------------- ----------------
TOTAL OTHER ASSETS 89,589,030 110,904,294
---------------- ----------------
$836,246,093 $715,470,932
================ ================
LIABILITIES AND STOCKHOLDERS' INVESTMENT:
CURRENT LIABILITIES
Current maturities of long-term debt $524,833 $49,820
Accounts payable and accrued liabilities 75,916,033 44,474,340
---------------- ----------------
TOTAL CURRENT LIABILITIES 76,440,866 44,524,160
---------------- ----------------
LONG-TERM DEBT 269,052,193 273,628,967
MINORITY INTEREST -- 31,240,992
STOCKHOLDERS' INVESTMENT
Preferred Stock, par value $.01 per share;
25,000,000 shares authorized; 3,750,000
shares of $2.25 Cumulative Convertible
Exchangeable Preferred Stock outstanding
in 1995 and 1994 37,500 37,500
Common Stock, par value $.01 per share;
75,000,000 shares authorized; shares issued:
54,008,478 shares in 1995 and 45,646,719
shares in 1994 540,085 456,467
Additional paid-in-capital 582,170,485 439,038,067
Accumulated deficit (90,904,289) (72,919,024)
Cumulative translation adjustment (1,090,747) (536,197)
---------------- ----------------
TOTAL STOCKHOLDERS' INVESTMENT 490,753,034 366,076,813
---------------- ----------------
$836,246,093 $715,470,932
================ ================
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
MOBILE TELECOMMUNICATION TECHNOLOGIES CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
September 30, September 30,
-------------------------- -------------------------
1995 1994 1995 1994
------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>
Revenues $171,915,365 $118,142,487 $64,422,756 $39,668,032
Expenses:
Operating 43,549,763 31,636,886 17,817,252 11,530,045
Selling, general
and administrative 120,481,461 84,191,007 43,985,214 30,237,463
Depreciation and
amortization 24,462,692 16,167,256 9,953,060 5,694,633
------------ ------------ ----------- -----------
188,493,916 131,995,149 71,755,526 47,462,141
------------ ------------ ----------- -----------
Operating income
(loss) (16,578,551) (13,852,662) (7,332,770) (7,794,109)
Interest income 10,373,802 5,272,150 2,595,839 1,466,789
Interest expense (7,380,126) (3,428,088) (2,231,191) (928,774)
Gain on sale of assets 72,492 4,499,944 31,825 21,841
Other income 1,314,523 -- 406,607 --
------------ ------------ ----------- -----------
Income (loss) before
and equity income (12,197,860) (7,508,656) (6,529,690) (7,234,253)
Provision for income
taxes 504,864 1,313,866 190,093 438,115
Equity in income of
investments 1,061,105 3,478,716 80,021 1,338,443
------------ ------------ ----------- -----------
Net income (loss) ($11,641,619) ($5,343,806) ($6,639,762) ($6,333,925)
Preferred dividend
requirement 6,328,125 6,328,125 2,109,375 2,109,375
------------ ------------ ----------- -----------
Net income (loss)
available to common
stockholders ($17,969,744) ($11,671,931) ($8,749,137) ($8,443,300)
============ ============ =========== ===========
Net income (loss) per
common share ($0.36) ($0.32) ($0.17) ($0.23)
============ ============ =========== ===========
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
MOBILE TELECOMMUNICATION TECHNOLOGIES CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
September 30, September 30,
----------------------- -----------------------
1995 1994 1995 1994
-------- ------- -------- --------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) ($11,641,619) ($5,343,806) ($6,639,762) ($6,333,925)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 24,462,692 16,359,586 9,953,060 5,765,445
Provision for losses on accounts receivable 4,387,347 1,593,516 1,548,808 580,716
Amortization of debt issuance costs (451,397) 324,570 139,949 104,865
Foreign currency transaction (gain) loss (234) 4,875 869 4,875
(Gain) on sale of assets (72,492) (4,499,944) (31,825) (21,841)
Equity in income of investments (1,061,105) (3,478,716) (80,021) (1,338,443)
Change in assets and liabilities:
(Increase) in accounts receivable (22,090,941) (2,238,076) (7,787,446) (1,553,219)
(Increase) decrease in other current assets 8,224,726 (3,774,232) (5,856,135) 1,593,103
Increase in accounts payable and accrued liabilities 31,441,693 5,565,735 24,103,667 1,189,444
------------ ------------ ------------ ------------
Net Cash Provided By (Used In) Operating Activities 33,198,670 4,513,508 15,351,164 (8,980)
------------ ------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of assets 3,840,250 3,403,924 -- 108,140
Capital expenditures, net (112,561,339) (39,544,506) (43,749,392) (18,549,043)
(Increase) in other messaging networks (81,915,478) (36,030,312) (37,053,086) (30,032,327)
(Increase) in unconsolidated international investments (6,685,167) (28,840,188) (4,065,290) (14,166,655)
(Increase) decrease in other assets (1,909,508) 3,985,456 (217,291) 2,365,294
Decrease in short-term investments 38,817,846 89,358,232 42,116,524 6,171,448
------------ ------------ ------------ ------------
Net Cash (Used In) Investing Activities (160,413,396) (7,667,394) (42,968,535) (54,103,143)
------------ ------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term borrowings 1,657,881 713,146 1,616,593 458,791
Principal payments on long-term debt (5,759,642) (261,568) (72,067) (26,011)
Payment of dividends on preferred stock (6,328,125) (6,236,250) (2,109,375) (2,109,375)
Sale of stock and exercise of options 6,319,010 52,001,229 225,128 50,331,681
------------ ------------ ------------ ------------
Net Cash Provided By (Used In) Financing Activities (4,110,876) 46,216,557 (339,721) 48,655,086
------------ ------------ ------------ ------------
Effect of exchange rate changes on cash -- 114,182 -- 95,046
------------ ------------ ------------ ------------
Net increase (decrese) in cash and cash equivalents (131,325,602) 43,176,853 (27,957,092) (5,361,991)
Cash and cash equivalents-beginning of period 145,620,779 129,158,255 42,252,269 177,697,099
------------ ------------ ------------ ------------
Cash and cash equivalents-end of period $14,295,177 $172,335,108 $14,295,177 $172,335,108
============ ============ ============ ============
</TABLE>
See notes to consolidated financial statements.
5
<PAGE>
MOBILE TELECOMMUNICATION TECHNOLOGIES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. ORGANIZATION
Mobile Telecommunication Technologies Corp. ("Mtel" or the "Company") is
the leading provider of nationwide messaging services in the United States.
Mtel's principal subsidiary, SkyTel Corp. ("SkyTel"), operates the one-way
nationwide paging system in the United States, and markets and distributes
SkyTel 2-Way which is owned and operated by Mtel's wholly-owned subsidiary,
Destineer Corp. ("Destineer"), and which was launched on September 19, 1995.
SkyTel 2-Way is the first two-way nationwide wireless messaging network in
the United States and enables subscribers to send and receive two-way messages
through the use of a new class of small low-power, light-weight devices, as well
as lap-top and palm-top computers, without the need to know the location of the
sender or receiver at the time of transmission. SkyTel 2-Way utilizes a
proprietary system architecture designed and developed by Mtel and offers a
broad range of communications services, including acknowledgment paging,
wireless two-way messaging and information services.
Mtel is also expanding its international coverage by operating or
investing in entities that provide one-way wireless messaging services in
various countries outside the United States. Mtel, through its subsidiary Mtel
International, Inc., operates or has investments in nationwide messaging systems
in Mexico, the United Kingdom, Argentina, Brazil, Colombia, Hong Kong, Paraguay,
Peru, Malaysia, Indonesia, Uruguay and certain other countries. Mtel also
provides its subscribers with access to an international messaging network that
utilizes Mtel's proprietary
6
<PAGE>
technology and interconnects the systems operated by Mtel and its joint
ventures with systems in Canada, Singapore and other countries.
Mtel is also engaged in a variety of other telecommunications-related
businesses including air-to-ground telecommunications operations, telephone
answering services and other investments.
B. BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Mtel and its
majority-owned subsidiaries. All significant intercompany transactions and
balances have been eliminated in consolidation.
In February 1995, the Company acquired United States Paging Corporation
("USPC") in a transaction which has been accounted for as a pooling of
interests. Accordingly, the financial statements of Mtel have been restated to
include the results of USPC for all periods presented.
The Company's consolidated financial statements for the three and nine
month periods ended September 30, 1995 and 1994 have not been audited by
independent public accountants. However, in the opinion of management, these
financial statements include all adjustments (which include only normal
recurring adjustments) necessary for a fair presentation. The results for the
period are not necessarily indicative of the results for the year ending
December 31, 1995.
C. EARNINGS (LOSS) PER SHARE
Loss per share for the three and nine month periods ending September 30,
1995 and 1994 is calculated by dividing the net loss (after deducting preferred
stock dividends) by the weighted average number of shares of Common Stock of
Mtel outstanding (the "Mtel Common Stock") during the period with no effect
given to common
7
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stock equivalents arising from stock options and convertible subordinated debt
because such effect would be antidilutive. The weighted average common shares
outstanding in the third quarter of 1995 and the first nine months of 1995 were
50,623,748 and 49,710,560, respectively. The weighted average common shares
outstanding in the third quarter of 1994 and the first nine months of 1994 were
36,614,090 and 36,122,993, respectively.
D. FOREIGN CURRENCY
The assets and liabilities of international subsidiaries are translated
into U.S. dollars using the period-end exchange rates. Revenues and expenses are
translated at the average rates during the periods presented. Translation
adjustments are charged to a separate component of stockholders' investment.
E. ACQUISITION OF MINORITY INTERESTS
On January 13, 1995, Mtel acquired the 9.7% of the outstanding shares of
SkyTel common stock that it did not already own in a transaction in which the
minority stockholders of SkyTel received approximately 3.4 million shares of
Mtel Common Stock. The transaction was accounted for as a purchase. As a
result of this transaction, all of the issued and outstanding shares of SkyTel
common stock are owned by Mtel.
On September 15, 1995, Mtel acquired the 19.9% of the outstanding shares
of common stock of Destineer that it did not already own in a transaction in
which the minority stockholders of Destineer received approximately 4.0 million
shares of Mtel Common Stock. As a result of this transaction, all of the issued
and outstanding shares of Destineer common stock are owned by Mtel.
8
<PAGE>
The following summary presents the pro forma consolidated results of
operations as if each of the above transactions had occurred on January 1, 1994.
Amounts (unaudited) are in thousands, except per share data.
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
September 30, September 30,
------------------ ------------------
1994 1995 1994 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net income (loss) available
to common stockholders ($13,649) ($19,080) ($9,102) ($9,083)
Net income (loss) per
common share ($0.31) ($0.36) ($0.21) ($0.17)
</TABLE>
F. ACQUISITION OF USPC
On February 17, 1995, Mtel acquired USPC in a merger in which USPC
stockholders received 1.6 million shares of Mtel Common Stock having an
aggregate value of approximately $30.5 million. USPC provides local and regional
paging services with centralized and customized nationwide billing, computerized
maintenance and service reporting and computerized automatic messaging for
centralized dispatch. The merger has been accounted for as a pooling of
interests and, accordingly, the financial statements of Mtel have been restated
to include the results of USPC for all periods presented.
The following summary presents separate and combined results of operations
for the first nine months of 1994. Amounts (unaudited) are in thousands.
<TABLE>
<CAPTION>
Net Income
Available to
Revenue Common Stockholders
------- -------------------
<S> <C> <C>
Mtel $106,699 ($11,874)
USPC 12,609 202
Eliminations (1,166) -
-------- --------
Combined $118,142 ($11,672)
======== ========
</TABLE>
9
<PAGE>
G. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid by Mtel was $15,188,000 and $3,298,000 during the nine months
ended September 30, 1995 and 1994, respectively, and was $19,000 and $131,000
during the three months ended September 30, 1995 and 1994, respectively. No
federal income taxes were paid during these periods.
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following is a discussion of the consolidated financial condition and
results of operations of Mtel for the three and nine month periods ended
September 30, 1995 and 1994 and certain factors that will affect Mtel's
financial condition.
In 1994, the Company implemented a new strategic plan to accelerate
subscriber growth in its core SkyTel business through price reductions, the
expansion of SkyTel's marketing efforts and other operational initiatives. The
initiatives implemented by SkyTel in 1994 have resulted in a 114% increase in
SkyTel units in service, a 63% increase in SkyTel revenues and a 1,436% increase
in SkyTel cash flows from operations in the third quarter of 1995 as compared to
the third quarter of 1994. On a consolidated basis, revenues increased 62% in
the third quarter of 1995 as compared to the third quarter of 1994, and Mtel
recorded consolidated cash flows from operations of approximately $2.6 million
in the third quarter of 1995 as compared to consolidated negative cash flow from
operations of approximately $2.1 million in the third quarter of 1994.
On September 19, 1995, the Company launched commercial service on the
SkyTel 2-Way network. SkyTel 2-Way enables subscribers to send and receive two-
way messages through the use of a new class of small low-power, light-weight
devices, as well as lap-top and palm-top computers, without the need to know the
location of the sender or receiver at the time of transmission. SkyTel 2-Way
service is available in approximately 1,300 cities throughout the United States,
and the Company plans to expand coverage to additional cities by the end of
1995. Prior to September 19, 1995, substantially all of the costs of developing
and constructing the SkyTel 2-Way network were capitalized as pre-operating
expenditures. Subsequent to September 19, the Company will expense all costs
associated with the operations of the SkyTel 2-Way network and
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depreciation and amortization of the infrastructure, spectrum costs and other
capitalized costs will commence.
In the third quarter of 1995, Mtel announced the formation of joint
development and marketing alliances with several companies, including Hewlett
Packard Company, Microsoft Corporation, Prince Corp. and Sony Electronics, Inc.
These alliances will expand the capabilities and potential applications of
narrowband wireless communications in addition to expanding the distribution of
Mtel's one-way and two-way wireless messaging products and services.
RESULTS OF OPERATIONS
REVENUES
Revenues on a consolidated basis increased 46% in the nine months ended
September 30, 1995 as compared to the nine months ended September 30, 1994, and
increased 62% in the third quarter of 1995 as compared to the third quarter of
1994. The increase was primarily attributable to a 46% increase in SkyTel
revenues in the first nine months of 1995 as compared to the first nine months
of 1994 and a 63% increase in SkyTel revenues in the third quarter of 1995 as
compared to the third quarter of 1994. During the first nine months of 1995,
SkyTel recorded 295,600 net additions of paging and voice messaging units in
service on the SkyTel System as compared to 94,800 net additions during the
first nine months of 1994, and recorded 117,600 net unit additions in the third
quarter of 1995 as compared to 45,800 net unit additions in the third quarter of
1994. The Company believes that this increase in units in service on the SkyTel
System is attributable to the implementation of the new strategic plan announced
in January 1994, including the increased productivity of SkyTel's expanded
direct sales force and indirect distribution channels. Revenues from the
subscribers on the SkyTel 2-Way system were not material in the third quarter of
1995 as commercial operation began on September 19, 1995.
In the first quarter of 1995, MCI Telecommunications Corporation ("MCI")
began to sell SkyTel one-way paging and messaging services to its business
customers under its own brand name. During the third quarter of 1995, MCI sold
approximately 20% of total net paging units sold during such period.
12
<PAGE>
MCI also began to offer SkyTel 2-Way services to its business customers under
its own brand name in October 1995.
During the first nine months of 1995, SkyTel provided approximately 92% of
Mtel's revenues and international operations provided approximately 4% of Mtel's
revenues. Mtel's international revenues primarily consist of revenues recorded
by the Company's wholly-owned subsidiary in Argentina that commenced commercial
nationwide and international messaging operations on the 931 MHz frequency in
April 1994 and by the Company's 98%-owned subsidiary in Colombia which commenced
commercial nationwide and international messaging operations on the 931 MHz
frequency in June 1994. Other operations provided approximately 4% of Mtel's
revenues in the first nine months of 1995.
EXPENSES
Expenses include operating, selling, general and administrative, and
depreciation and amortization. The Company began incurring operating expenses,
selling expenses and depreciation and amortization expenses, as well as
increased levels of general and administrative expenses related to SkyTel 2-Way
upon the commencement of commercial operations on September 19, 1995.
Operating expenses consist of salaries and telephone costs associated with
domestic and international messaging operations and telephone answering service
operations, transmitter site rentals and expenses associated with the
maintenance of the Company's operating equipment and facilities. These expenses
on a consolidated basis increased 38% in the first nine months of 1995 as
compared to the first nine months of 1994 and increased 55% in the third quarter
of 1995 as
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compared to the third quarter of 1994. This increase primarily reflects
increased SkyTel System costs associated with SkyTel's expanding one-way paging
and messaging subscriber base, the operating expenses related to the SkyTel 2-
Way network and increased operating expenses from the Company's messaging
operations in Argentina and Colombia attributable to increasing subscriber
levels in these operations. In addition, the Company launched commercial
operation of a system in Hong Kong through a 100%-owned subsidiary in the second
quarter of 1995 and incurred initial operating expenses from these operations.
As a percentage of revenues, operating expenses decreased to 25% in the first
nine months of 1995 as compared to 27% in the first nine months of 1994 and
decreased to 28% in the third quarter of 1995 as compared to 29% in the third
quarter of 1994. Mtel expects to continue to incur increased operating expenses
in the fourth quarter of 1995 and in future periods as a result of the
continuing expansion of SkyTel's one-way messaging subscriber base, operating
expenses related to SkyTel 2-Way and increased operating expenses related to the
Company's messaging operations in Argentina, Colombia and Hong Kong.
Selling, general and administrative expenses include marketing and
advertising costs associated with domestic and international messaging
operations, personnel costs and related expenses associated with SkyTel's direct
sales and marketing staff and customer support operations, and corporate
overhead costs, primarily salaries and administrative expenses. These expenses
on a consolidated basis increased 43% in the first nine months of 1995 as
compared to the first nine months of 1994 and increased 45% in the third quarter
of 1995 as compared to the third quarter of 1994. This increase reflects
additional costs associated with customer support operations, such as customer
service, operator dispatch, billing and collections which are attributable to
the continuing increase in the level of units on the SkyTel System. This
increase also reflects selling expenses associated with SkyTel 2-Way and
selling, general and administrative
14
<PAGE>
expenses associated with the Company's messaging operations in Argentina,
Colombia and Hong Kong. As a percentage of revenues, selling, general and
administrative expenses decreased to 70% in the first nine months of 1995 as
compared to 71% in the first nine months of 1994 and decreased to 68% in the
third quarter of 1995 as compared to 76% in the third quarter of 1994. On a
consolidated basis, selling, general and administrative expenses are expected to
continue to increase during the remainder of 1995 and in future periods as a
result of continued SkyTel unit growth, increased selling, general and
administrative expenses related to the messaging operations in Argentina,
Colombia and Hong Kong and selling, general and administrative costs associated
with the introduction of SkyTel 2-Way service.
Depreciation and amortization increased 51% in the first nine months of
1995 as compared to the first nine months of 1994 and increased 75% in the third
quarter of 1995 as compared to the third quarter of 1994, primarily reflecting
depreciation and amortization of the Company's increased investments in property
and equipment. As a percentage of revenues, depreciation and amortization
expenses remained constant at 14% in the first nine months of 1995 as compared
to 14% in the first nine months of 1994 and increased to 15% in the third
quarter of 1995 as compared to 14% in the third quarter of 1994. Depreciation
and amortization expenses will increase significantly commencing in the fourth
quarter of 1995 as a result of the depreciation and amortization of the
infrastructure, spectrum costs, and other capitalized costs associated with the
SkyTel 2-Way network.
OPERATING INCOME (LOSS)
SkyTel reported operating income of approximately $4,907,000 for the third
quarter of 1995 and $11,169,000 for the first nine months of 1995. SkyTel's
operating income was offset
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<PAGE>
by operating losses from international operations of approximately $5,744,000
and $15,390,000 for the three-month and nine-month periods ended September 30,
1995, respectively, and SkyTel 2-Way operating losses of approximately $5.5
million and $10.2 million for the three month and nine month periods ended
September 30, 1995, respectively. Mtel reported a consolidated operating loss of
approximately $16,579,000 for the first nine months of 1995 as compared to an
operating loss of approximately $13,853,000 for the first nine months of 1994,
and reported an operating loss of approximately $7,333,000 for the third quarter
of 1995 as compared to an operating loss of approximately $7,794,000 for the
third quarter of 1994.
The Company expects SkyTel to report operating income during the remainder
of 1995 and in future periods as a result of continued growth in units in
service. However, the Company expects to report operating losses on a
consolidated basis as a result of losses from messaging operations in Argentina,
Colombia and Hong Kong and operating losses from the commercial operation of the
SkyTel 2-Way network.
INTEREST INCOME (EXPENSE)
Interest expense increased 115% in the first nine months of 1995 as
compared to the first nine months of 1994 and increased 140% in the third
quarter of 1995 as compared to the third quarter of 1994. This increase
primarily reflects interest accrued on $265 million principal amount of 13.5%
Senior Notes due 2002 (the "Senior Notes") issued in December 1994. In
accordance with Statement of Financial Accounting Standards ("SFAS") No. 34, the
Company capitalizes interest expense related to equity investments and the
purchase of certain assets which constitute activities preliminary to the
commencement of the investee's or purchaser's planned principal operations. The
Company capitalized $19,802,000 and $1,793,000 in interest costs in
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<PAGE>
the first nine months of 1995 and 1994, respectively, and capitalized $6,905,000
and $767,000 in interest costs in the third quarter of 1995 and 1994,
respectively, primarily related to the construction and development of the
SkyTel 2-Way network. On September 19, 1995, the SkyTel 2-Way system became
operational. As a result, interest expense will increase significantly in the
fourth quarter of 1995 and in future periods. In addition, in November 1995 the
Company established a revolving credit facility in the principal amount of $50
million and is currently involved in discussions to establish a long-term
secured revolving credit and term loan facility in the principal amount of $250
million and borrowings under these facilities will result in increased interest
expense. See "Liquidity and Capital Resources." The Company will continue to
capitalize interest expense related to equity investments which constitute
activities preliminary to the commencement of operations in accordance with SFAS
No. 34, primarily relating to certain international investments.
Interest income totaled $10,374,000 in the first nine-months of 1995 as
compared to $5,272,000 in the first nine months of 1994 and totaled $2,596,000
in the third quarter of 1995 as compared to $1,467,000 in the third quarter of
1994. This increase is primarily attributable to income generated by the
investment of the net proceeds from the sale of the Senior Notes not immediately
applied by the Company.
PROVISION FOR INCOME TAXES
Mtel recorded a provision for income taxes of $505,000 and $1,314,000 in
the first nine months of 1995 and 1994, respectively, and $190,000 and $438,000
in the third quarter of 1995 and 1994, respectively, relating to state and local
income taxes. The Company reported net losses for federal income tax purposes
during the three and nine month periods ended September 30, 1995 and 1994 and,
accordingly, no provision for federal income taxes has been made for such
periods.
17
<PAGE>
PREFERRED STOCK DIVIDENDS
The Company accrued approximately $2.1 million in each of the quarters
ended September 30, 1995 and 1994 which represents dividends on the Company's
$2.25 Cumulative Convertible Exchangeable Preferred Stock (the "Preferred
Stock"). Although dividends on the Preferred Stock are not treated as an
expense on the Company's consolidated statements of operations and, therefore,
do not affect reported net income, such dividends are deducted from net income
for the purpose of determining net income (loss) per common share.
NET INCOME (LOSS)
Mtel recorded a net loss of approximately $11.6 million in the nine-month
period ended September 30, 1995 which, combined with the effect of the preferred
stock dividends, resulted in a net loss per common share of $0.36 for such
period. This compares to a net loss of approximately $5.3 million, or $0.32 per
common share, in the first nine months of 1994. The Company recorded a net loss
of $6.6 million, or $0.17 per common share, in the third quarter of 1995, as
compared to a net loss of $6.3 million, or $0.23 per common share, in the third
quarter of 1994. The weighted average common shares outstanding in the third
quarter of 1995 and the first nine months of 1995 were 50,623,748 and
49,710,560, respectively. The weighted average common shares outstanding in the
third quarter of 1994 and the first nine months of 1994 were 36,614,090 and
36,122,993, respectively. The net loss in the nine months ended September 30,
1994 was partially offset by a nonrecurring gain of $2.3 million recorded by the
Company in connection with the sale of its digital point-to-point microwave
system that operated in the Los Angeles area.
18
<PAGE>
Net losses in the first nine months of 1995 included approximately $11.0
million of losses associated with the Company's messaging operations in
Argentina, Colombia and Hong Kong. The Company is continuing to pursue
opportunities to provide nationwide and international messaging services outside
of the United States, and decisions by the Company regarding the capital
structure of its international operations could affect the Company's
consolidated net income in the future.
LIQUIDITY AND CAPITAL RESOURCES
Mtel continued to make significant capital investments in the third quarter
and first nine months of 1995 in connection with the development of the SkyTel
2-Way network which commenced commercial operations on September 19, 1995. In
the first nine months of 1995, the Company invested approximately $132 million
in connection with the development and construction of the SkyTel 2-Way network
which was funded from a portion of the net proceeds from the sale of the Senior
Notes.
The Company also invested approximately $46 million in the first nine
months of 1995 to procure messaging units to support SkyTel's increasing one-way
messaging subscriber base and, to a lesser extent, in connection with the
development and expansion of the SkyTel System. This amount included funds used
to upgrade the SkyTel System to Flex(TM) technology, which increases the speed
and efficiency of the network, thereby augmenting the network's capacity to
accommodate greater volumes of subscriber units. These capital expenditures were
funded with cash generated from SkyTel's operations and with a portion of the
net proceeds from the sale of the Preferred Stock in October 1993 and from the
sale of the Senior Notes in December 1994. As a result of significant increases
in net unit additions and the expansion of SkyTel's distribution channels, the
Company anticipates that additional capital
19
<PAGE>
expenditures and related operating expenses will be necessary during the
remainder of 1995 and in future periods to increase capacity on the SkyTel
System. The Company also anticipates that additional capital expenditures will
be incurred as a result of the expansion of the coverage area of the SkyTel
2-Way network and the procurement of personal messaging units to be used on the
SkyTel 2-Way network.
In September 1995, the Company completed the acquisition of 90% of an
existing paging operation that operates on the 931 MHz frequency in Uruguay for
approximately $2.9 million. The Company will consolidate the revenues and
expenses associated with the Uruguay paging operations. These operations,
although profitable, were not material.
In November 1995, SkyTel entered into a six month revolving credit facility
with its commercial banks in the principal amount of $50.0 million to be used
for capital expenditures, working capital and other general corporate purposes.
Borrowings under this revolving credit facility will mature on May 8, 1996 and
bear interest at the current base rate of the lending banks plus a margin of
1.25% or, at the option of SkyTel, at the London Interbank Offered Rate plus a
margin of 2.25%. Borrowings are guaranteed by the Company and secured by all of
the outstanding capital stock of SkyTel. The loan agreement relating to this
credit facility contains customary negative covenants and requires SkyTel to
maintain certain financial ratios.
The Company is also involved in discussions with the lending banks to
establish a long-term secured revolving credit and term loan facility in the
principal amount of $250.0 million. The proceeds of this long-term facility
would be used to repay the outstanding balance under the revolving credit
facility described above and to fund additional capital expenditures, working
capital and
20
<PAGE>
other general corporate purposes. The Company anticipates that this new
facility will be completed by the end of 1995.
RECENT DEVELOPMENTS
On September 15, 1995, the Company completed the exchange of all the shares
of common stock of Destineer owned by Destineer's minority stockholders, which
include Microsoft Corporation ("Microsoft"), for an aggregate of approximately
4.0 million shares of Mtel Common Stock. In conjunction with the agreement to
exchange Destineer common stock for Mtel Common Stock, the Company and Microsoft
have agreed to amend the joint technology and marketing agreement entered into
in March 1994 to reflect developments at Microsoft and Mtel.
RECENTLY ISSUED ACCOUNTING STANDARDS
In March 1995, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-
Lived Assets to be Disposed of." SFAS No. 121 establishes accounting standards
for the impairment of long-lived assets, certain identifiable intangibles, and
goodwill related to those assets to be held and used and for long-lived assets
and certain identifiable intangibles to be disposed of. SFAS No. 121 is
effective for financial statements for fiscal years beginning after December 15,
1995. Mtel believes that SFAS No. 121 will not have a material impact on the
Company's consolidated results of operations or financial position.
21
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
Reference is made to "Item 3. Legal Proceedings" in the Company's
Annual Report on Form 10-K for the year ended December 31, 1994 for a
description of certain securities litigation involving the Company. These
actions were consolidated in May 1994 under the caption In Re Mobile
------------
Telecommunication Technologies Corp. Securities Litigation, Master file
- ----------------------------------------------------------
No. 3:94-CV-6. On November 8, 1995, the United States District Court for the
Southern District of Mississippi issued a Memorandum Opinion and Order
dismissing in its entirety the Consolidated Complaint alleging violations of the
Federal Securities laws which was filed in May 1994 by five individuals
purporting to represent a class of Mtel stockholders. Except as referenced
above, there are no other material legal or regulatory proceedings involving the
Company or its subsidiaries except license applications and renewals and other
regulatory proceedings incident to the Company's business.
Item 2. Changes in Securities
---------------------
None.
Item 3. Defaults upon Senior Securities
-------------------------------
None.
Item 4. Submission of Matters to a Vote of Security Holders
----------------------------------------------------
None.
Item 5. Other Information
-----------------
None.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
None.
22
<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.
MOBILE TELECOMMUNICATION
TECHNOLOGIES CORP.
Dated: November 14, 1995 By /s/ John N. Palmer
-----------------------
John N. Palmer
Chairman of the Board
Dated: November 14, 1995 By /s/ J. Robert Fugate
-------------------------
J. Robert Fugate
Senior Vice President - Finance,
and Chief Financial Officer
23
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Mobile
Telecommunication Technologies Corp. Consolidated Balance Sheet as of September
30, 1995 and Consolidated Statement of Operations for the nine months ended
September 30, 1995 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 14,295,177
<SECURITIES> 14,871,589
<RECEIVABLES> 44,651,304
<ALLOWANCES> 6,610,700
<INVENTORY> 0
<CURRENT-ASSETS> 91,690,994
<PP&E> 279,710,734
<DEPRECIATION> 69,386,263
<TOTAL-ASSETS> 836,246,093
<CURRENT-LIABILITIES> 76,440,866
<BONDS> 269,052,193
<COMMON> 540,085
0
37,500
<OTHER-SE> 490,175,449
<TOTAL-LIABILITY-AND-EQUITY> 836,246,093
<SALES> 171,915,365
<TOTAL-REVENUES> 171,915,365
<CGS> 43,549,763
<TOTAL-COSTS> 188,493,916
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,380,126
<INCOME-PRETAX> (11,136,755)
<INCOME-TAX> 504,864
<INCOME-CONTINUING> (11,641,619)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (11,641,619)
<EPS-PRIMARY> (0.36)
<EPS-DILUTED> (0.36)
</TABLE>
