<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 March 31, 1997
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 (I.R.S. Employer
of 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.
54,457,855 shares of Common Stock,
par value $.01 per share, as of
April 30, 1997
<PAGE>
MOBILE TELECOMMUNICATION TECHNOLOGIES CORP.
QUARTERLY REPORT ON FORM 10-Q
INDEX
PART I. FINANCIAL INFORMATION
---------------------
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets--March 31, 1997 and December 31, 1996.
Consolidated Statements of Operations--Three Months Ended March 31,
1997 and 1996.
Consolidated Statements of Cash Flows--Three Months Ended March 31,
1997 and 1996.
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
SIGNATURES
----------
2
<PAGE>
MOBILE TELECOMMUNICATION TECHNOLOGIES CORP.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
------------- -------------
<S> <C> <C>
ASSETS:
CURRENT ASSETS
Cash and cash equivalents $ 22,153,959 $ 25,744,724
Accounts receivable, net of allowance for losses 56,480,488 64,797,525
Assets held for sale 7,957,073 8,000,000
Other current assets 13,006,774 3,725,376
------------- -------------
TOTAL CURRENT ASSETS 99,598,294 102,267,625
------------- -------------
MESSAGING NETWORKS
Property and equipment, net 288,538,474 288,870,518
Certificates of authority and license cost, net 152,551,807 153,070,879
Network construction and development costs, net 77,200,152 80,173,364
------------- -------------
TOTAL MESSAGING NETWORKS 518,290,433 522,114,761
------------- -------------
GOODWILL, net 83,570,303 83,949,489
INVESTMENT IN UNCONSOLIDATED INTERNATIONAL
VENTURES 22,802,985 29,641,441
OTHER ASSETS
Securities restricted for debt service 24,250,821 32,546,458
Other 31,654,151 32,740,100
------------- -------------
TOTAL OTHER ASSETS 55,904,972 65,286,558
------------- -------------
$ 780,166,987 $ 803,259,874
============= =============
LIABILITIES AND STOCKHOLDERS' INVESTMENT:
CURRENT LIABILITIES
Current maturities of long-term debt $ 28,653 $ 31,263
Accounts payable and accrued liabilities 85,207,013 78,351,642
------------- -------------
TOTAL CURRENT LIABILITIES 85,235,666 78,382,905
------------- -------------
LONG-TERM DEBT 397,342,713 402,491,222
MINORITY INTEREST 21,700,568 20,990,363
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 1997 and 1996; 57,500 shares of 7.5%
Cumulative Convertible Accruing PIK Preferred
Stock outstanding in 1997 and 1996 38,075 38,075
Common stock, par value $.01 per share;
75,000,000 shares authorized; shares issued:
54,457,855 in 1997 and 54,404,188 in 1996 544,579 544,042
Additional paid-in capital 618,474,194 618,212,220
Accumulated deficit (341,497,459) (316,800,646)
Cumulative translation adjustment (1,671,349) (598,307)
------------- -------------
TOTAL STOCKHOLDERS' INVESTMENT 275,888,040 301,395,384
------------- -------------
$ 780,166,987 $ 803,259,874
============= =============
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
MOBILE TELECOMMUNICATION TECHNOLOGIES CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-----------------------------
1997 1996
------------- -------------
<S> <C> <C>
Revenues $ 94,621,666 $ 80,584,096
Expenses:
Operating 30,683,986 28,881,557
Selling, general and administrative 54,040,138 56,087,543
Depreciation and amortization 20,586,724 21,751,243
------------- -------------
105,310,848 106,720,343
------------- -------------
Operating income (loss) (10,689,182) (26,136,247)
Interest income 1,173,177 1,436,310
Interest expense (15,598,202) (9,989,762)
Gain on sale of assets 7,158,559 6,649,408
Other income (loss) (2,176,945) 30,148
------------- -------------
Income (loss) before income taxes
and equity income (losses) (20,132,593) (28,010,143)
Provision for income taxes 1,234,917 620,823
Equity in income (losses) from
investments (69,134) 57,208
------------- -------------
Net income (loss) ($21,436,644) ($28,573,758)
Preferred dividend requirement 3,260,176 2,109,375
------------- -------------
Net income (loss) available to common
stockholders ($24,696,820) ($30,683,133)
============= =============
Net income (loss) per common share ($0.45) ($0.57)
============= =============
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
MOBILE TELECOMMUNICATION TECHNOLOGIES CORP.
CONSOLIDATED STATEMENTS OF CASHFLOWS
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-----------------------------
1997 1996
------------ -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ($21,436,644) ($28,573,758)
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 20,586,724 21,751,243
Provision for losses on accounts receivable and
inventory 6,676,749 4,453,909
Amortization of debt issuance costs 590,495 560,041
Foreign currency transaction (gain) (284,212) (23,907)
(Gain) on sale of assets (7,158,559) (6,649,408)
Income (losses) attributable to minority
interests 2,461,157 (6,241)
Equity in (income) losses from investments 69,134 (57,208)
Change in assets and liabilities:
(Increase) in accounts receivable (2,186,417) (15,124,686)
Decrease in assets held for sale 42,927 -
(Increase) in other current assets (985,761) (11,144,309)
Increase in accounts payable and accrued
liabilities 4,403,608 31,805,206
------------- -------------
Net Cash Provided By (Used In) Operating
Activities 2,779,201 (3,009,118)
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of assets 19,652,569 8,981,877
Capital expenditures, net (18,379,357) (41,087,146)
(Increase) in investment in unconsolidated
international ventures (603,472) (2,106,733)
(Increase) decrease in other assets (41,730) 6,744,499
------------- -------------
Net Cash Provided By (Used In) Investing
Activities 628,010 (27,467,503)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term borrowings - 30,000,000
Principal payments on long-term debt (5,151,119) (133,447)
Payment of dividends on preferred stock (2,109,375) (2,109,375)
Sale of stock and exercise of options 262,518 171,541
------------- -------------
Net Cash Provided By (Used In) Financing
Activities (6,997,976) 27,928,719
------------- -------------
Net (decrease) in cash and cash equivalents (3,590,765) (2,547,902)
Cash and cash equivalents - beginning of period 25,744,724 9,612,734
------------ -------------
Cash and cash equivalents - end of period $22,153,959 $ 7,064,832
============= =============
</TABLE>
See notes to consolidated financial statements.
5
<PAGE>
MOBILE TELECOMMUNICATION TECHNOLOGIES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION
Mobile Telecommunication Technologies Corp. ("Mtel" or the "Company") is a
leading provider of nationwide messaging services in the United States. Mtel's
principal operations include one-way messaging services in the United States,
advanced messaging services on the narrowband personal communication services
("PCS") network and international one-way messaging operations. Mtel's wholly-
owned subsidiary, SkyTel Corp. ("SkyTel"), operates a one-way nationwide
messaging system whereby subscribers can be reached in thousands of towns and
cities in the United States by means of two dedicated 931 MHz frequencies
licensed by the Federal Communications Commission ("FCC"), a ground-based
transmitter system, leased satellite facilities and proprietary network
software.
In September 1995, the Company launched commercial operation of the first
nationwide wireless messaging network in the United States that utilizes
frequency licensed by the FCC for narrowband PCS. This network enables
subscribers to send and receive messages without the need to know the location
of the sender or receiver at the time of transmission, and utilizes a
proprietary system architecture designed and developed by Mtel.
Mtel, through its 100%-owned subsidiary Mtel International, Inc. ("Mtel
International"), operates or has investments in entities that operate one-way
wireless messaging systems in various countries, primarily in the Latin America
region. Mtel also provides its subscribers with access to an international
messaging network that utilizes Mtel's proprietary technology and interconnects
the systems operated by Mtel International and its joint ventures with systems
in the United States, Canada, Singapore and other countries.
6
<PAGE>
For the first quarter of 1997, one-way messaging operations, the Company's
principal operating segment, reported revenues of $82.2 million, operating
income of $21.2 million and net income of $19.9 million. Advanced messaging
operations reported revenues of $3.0 million, an operating loss of $26.9 million
and a net loss of $40.4 million for the first quarter of 1997. Mtel's
international operations reported revenues of $6.7 million, an operating loss of
$5.0 million and a net loss of $1.2 million for the quarter ended March 31,
1997. For purposes of reporting operating income (loss) for the Company's
business segments, certain indirect operating and selling, general and
administrative costs are allocated among the business segments based on various
financial and operational allocation factors which reflect prorata usage of
services.
See Note 2 of Notes to Consolidated Financial Statements in Mtel's Annual
Report on Form 10-K for the year ended December 31, 1996 for a discussion of
certain risks and uncertainties involving the Company's ability to generate
future positive operating cash flows and operating income.
2. 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.
The Company's consolidated financial statements for the three months ended
March 31, 1997 and 1996 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, 1997.
7
<PAGE>
3. EARNINGS (LOSS) PER SHARE
Loss per share for the first quarter of 1997 and 1996 is calculated by
dividing the net loss (after deducting preferred stock dividends) by the
weighted average number of shares of common stock outstanding during the period
with no effect given to common stock equivalents arising from stock options,
convertible subordinated debt and convertible preferred stock because such
effect would be antidilutive. The weighted average number of shares of common
stock outstanding in the first quarter of 1997 and 1996 was 54,444,728 and
54,146,216, respectively.
4. 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. Foreign currency
translation adjustments are charged to a separate component of stockholders'
investment. Financial results of international subsidiaries and equity
investments in joint ventures in countries with highly inflationary economies
are translated using a combination of current and historical exchange rates and
any adjustments are included in net earnings for the period.
5. AMENDMENT TO BANK CREDIT FACILITY
In December 1995, SkyTel established a $250.0 million secured revolving
credit facility with a syndicate of financial institutions. As part of the bank
credit facility, SkyTel is also provided with access to letters of credit in an
amount up to $20.0 million. Borrowings under the credit facility may be used
for capital expenditures, working capital and other general corporate purposes.
8
<PAGE>
On March 27, 1997, SkyTel and the bank group completed an amendment to the
bank credit facility designed to align certain financial and operational
covenants contained in the bank loan agreement to the Company's business plan.
The bank credit facility, as amended in March 1997, limits the amount of
borrowings available thereunder to $175 million, increasing to $190 million upon
receipt of confirmation by the bank group that the Company is in compliance with
all covenants as of June 30, 1997, and increasing to $200 million upon receipt
of confirmation of such compliance as of September 30, 1997. Additional
availability thereafter will be subject to the approval of the Company's 1998
business plan by the banks holding at least 66 2/3% of the total outstanding
borrowings under this facility. The Company's borrowing availability will
remain at $200 million until December 31, 1998 at which time borrowing
availability will decrease to $175 million if the bank group has not approved
additional availability in accordance with the preceding sentence.
Borrowings under the bank credit facility, as amended in March 1997, bear
interest at the option of SkyTel at (i) the alternate base rate (as defined in
the credit facility) plus 2% or (ii) the London Interbank Offering Rate
("LIBOR") plus 3% through December 31, 1997. Borrowings thereafter bear
interest at the option of SkyTel at the alternate base rate plus an additional
margin of 1% to 2% or the LIBOR plus an additional margin of 2% to 3%, in each
case with the applicable margin being based upon the ratio of the Company's
consolidated total debt to the annualized cash flows of SkyTel for the two
preceding quarters.
6. SALE OF BRAZILIAN OPERATIONS
On February 5, 1997, Mtel Latin America, Inc. ("Mtel Latam"), the holding
company for the Company's Latin American operations and investments, completed
the sale of its 19% equity interest in a
9
<PAGE>
Brazilian paging operation for a purchase price of $14.3 million. Mtel Latam
received $7.15 million of the proceeds, less certain taxes, fees and expenses,
in February 1997 and the remaining $7.15 million, plus interest at a rate of 12%
per annum, is due on or before February 5, 1998. Mtel Latam has received a bank
letter of credit securing the $7.15 million payment due February 5, 1998. Mtel
recorded a gain on the sale of its equity interest in the Brazilian paging
operation of approximately $7.4 million in the first quarter of 1997.
7. SHAREHOLDER LITIGATION
On February 20, 1997, certain litigation was filed in the United States
District Court for the District of Columbia against the Company, its wholly-
owned subsidiary SkyTel, and seven current and former officers and directors.
The litigation alleges certain violations of the Securities Exchange Act of
1934, as amended, during the period January 19, 1995 through February 22, 1996.
The plaintiffs are seeking unspecified damages and to have the case certified as
a class action. The Company is reviewing the allegations in the complaint and
intends to vigorously defend in this litigation.
8. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid by Mtel was $6,058,000 and $1,359,000 during the three months
ended March 31, 1997 and 1996, 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 quarters ended March 31, 1997 and 1996 and
certain factors that will affect Mtel's financial condition. See Note 2 of
Notes to Consolidated Financial Statements in Mtel's Annual Report on Form 10-K
for the year ended December 31, 1996 for a discussion of certain risks and
uncertainties involving the Company's ability to generate future positive
operating cash flows and operating income.
Certain statements set forth in this Management's Discussion and Analysis of
Financial Condition and Results of Operations, which are not historical facts,
are forward-looking statements under the Private Securities Litigation Reform
Act of 1995 that are subject to risks and uncertainties that could cause actual
results to differ materially from those set forth in the forward-looking
statements. Among the factors that could cause actual future results to differ
materially are competitive pressures, the timing and techniques used in
marketing by third-party distributors and the market acceptance of certain
services.
RESULTS OF OPERATIONS
REVENUES
Revenues on a consolidated basis increased 17% in the first three months of
1997 as compared to the first three months of 1996, primarily due to the 14%
increase in one-way messaging revenues in the first three months of 1997 as
compared to the first three months of 1996. As of March 31, 1997, Mtel had
1,106,200 one-way messaging units in service, an increase of 14% over the
967,700 one-way messaging units in service as of March 31, 1996. In addition,
Mtel had 36,700 advanced messaging units in service as of March 31, 1997, an
increase of 75% over the 21,000 advanced messaging units in service as of March
11
<PAGE>
31, 1996. Average revenue per one-way unit in service decreased slightly in the
first quarter of 1997 ($25.03) as compared to the first quarter of 1996
($25.87); however, average revenue per one-way unit in service increased in the
first quarter of 1997 ($25.03) as compared to the fourth quarter of 1996
($24.44). Average revenue per one-way messaging unit was favorably impacted by
the product mix of units placed in service through SkyTel's direct distribution
channel which generated higher average revenue per unit than other distribution
channels and constituted a significant portion of net unit additions in the
first quarter of 1997.
Net unit additions in the first quarter of 1997 continued to be adversely
impacted by disconnect rates in the reseller channel, including MCI
Telecommunications Corp. ("MCI"). The Company restructured its distribution
arrangement with MCI in the fourth quarter of 1996 and entered into new
agreements with certain other major resellers in the first quarter of 1997. The
Company believes that the revised terms of these reseller arrangements, which
provide for separate charges for airtime and the unbundling of certain support
services that were previously included as components of the reseller product
offering, together with the availability of new product offerings on the
narrowband PCS network in the second quarter of 1997, will result in increased
net unit additions from this distribution channel in 1997.
In 1997, the Company intends to emphasize the distribution of an advanced
text messaging service that utilizes the narrowband PCS network which is
marketed under the name SkyWord Plus(TM) and which became commercially available
in April 1997. The Company also intends to continue to market two-way
interactive messaging and fixed location services in 1997, on the narrowband PCS
network, although the Company's efforts relating to fixed location services are
expected to be primarily developmental during 1997. The narrowband PCS network
provides the Company with significantly increased network capacity due to higher
transmission speed and spectrum reuse. If the Company is successful in utilizing
this increased capacity, the Company believes that it should
12
<PAGE>
achieve improved cash flow from operations on an incremental basis at such time
as the Company places a sufficient number of advanced messaging units in service
to cover the fixed costs of the narrowband PCS network and operating costs
decline as a percentage of revenues. The ability of the Company to achieve
adequate levels of net unit additions will depend upon the success of the
direct, reseller and other distribution channels, the commercial acceptability
of the advanced messaging services that will be available on the narrowband PCS
network and the competitive environment, including pricing, for such services.
Mtel's consolidated revenues include revenues recorded by the Company's
operations in Argentina, Colombia, Uruguay and Hong Kong, as well as its
operations in Puerto Rico which commenced commercial operation in the fourth
quarter of 1996 and its operations in Costa Rica which commenced commercial
operation in the first quarter of 1997. During the first three months of 1997,
revenues recorded by the Company's consolidated international operations
provided approximately 7% of Mtel's revenues as compared to 5% in the first
quarter of 1996.
During the first three months of 1997, one-way messaging operations provided
approximately 87% of Mtel's revenues as compared to 90% in the first three
months of 1996. Advanced messaging operations provided approximately 3% of
consolidated revenues during the first quarter of 1997 as compared to
approximately 2% in the first three months of 1996. Other Mtel operations
provided approximately 3% of revenues in both the first three months of 1997 and
the first three months of 1996.
EXPENSES
Expenses include operating, selling, general and administrative, and
depreciation and amortization.
13
<PAGE>
Operating expenses primarily consist of salaries, telephone costs and
transmitter and receiver site rentals associated with the Company's one-way and
advanced messaging operations in the United States and one-way international
messaging operations, as well as expenses associated with the maintenance of the
Company's operating equipment and facilities. These expenses on a consolidated
basis increased 6% in the first three months of 1997 as compared to the first
three months of 1996. This increase primarily reflects operating expenses
attributable to the narrowband PCS network, which because of system design and
functionality has significantly higher fixed operating costs than the Company's
one-way operations, the inclusion of operating expenses related to the Company's
international operations and increased telephone and system costs associated
with the increasing one-way messaging subscriber base in the United States. As
a percentage of consolidated revenues, operating expenses decreased to 32% in
the first three months of 1997 as compared to 36% in the first three months of
1996. Mtel expects to continue to incur increased operating expenses during
1997 and future periods, primarily as a result of an increase in the number of
units in service on its one-way and narrowband PCS networks in the United States
and the expansion of coverage of the narrowband PCS network.
Selling, general and administrative expenses include marketing and
advertising costs related to domestic and international messaging operations,
personnel costs associated with SkyTel's direct sales and marketing staff, costs
associated with customer support operations in the United States and corporate
overhead costs, primarily salaries and administrative expenses. On a
consolidated basis, these expenses decreased 4% in the first three months of
1997 as compared to the first three months of 1996. This decrease primarily
reflects reduced selling expenses in the first quarter of 1997 which the Company
anticipates will increase in the second quarter of 1997 as a result of the
introduction of the advanced text messaging services. As a percentage of
consolidated revenues, selling, general and administrative expenses
14
<PAGE>
decreased to 57% in the first three months of 1997 as compared to 70% in the
first three months of 1996. In 1997, selling, general and administrative
expenses on a consolidated basis are expected to increase as a result of the
Company's plans to expand its direct sales force in the United States and
additional marketing expenses which the Company expects to incur in connection
with the promotion of advanced messaging products on its narrowband PCS network.
Depreciation and amortization on a consolidated basis decreased 5% in the
first three months of 1997 as compared to the first three months of 1996,
primarily due to the write-down of the book value of paging equipment, the
cessation of the Company's international operations in Europe and the Company's
decision to restructure or divest its operations and investments in the Asia
Pacific region, which resulted in an impairment loss that was recorded in the
fourth quarter of 1996. As a percentage of revenues, depreciation and
amortization expenses on a consolidated basis decreased to 22% in the first
three months of 1997 as compared to 27% in the first three months of 1996. The
Company expects depreciation and amortization expenses to increase during 1997,
primarily as a result of the expansion of coverage of the narrowband PCS network
and the purchase of pagers and advanced messaging units to support the projected
increase in the Company's subscriber base.
OPERATING INCOME (LOSS)
Mtel reported a consolidated operating loss of approximately $10.7 million
for the first three months of 1997 as compared to an operating loss of
approximately $26.1 million for the first three months of 1996. For the three-
month period ended March 31, 1997, one-way messaging operations recorded
operating income of $21.2 million, which was offset by an operating loss of
$26.9 million from advanced messaging operations and an operating loss of $5.0
million from international operations.
15
<PAGE>
The Company expects to report operating losses on a consolidated basis in
1997 and 1998 as a result of continuing operating losses related to its advanced
messaging operations in the United States and international messaging
operations. However, the Company expects its one-way messaging business in the
United States to continue to report operating income in 1997 and future periods
as a result of continued growth in profitable units in service, although the
level of growth will be dependent on the success of its direct, reseller and
other distribution channels, the competitive environment, including pricing, for
messaging services and the extent to which subscribers for the Company's one-way
messaging services elect to use the advanced messaging services available on the
Company's narrowband PCS network.
INTEREST EXPENSE AND INTEREST INCOME
Interest expense increased 56% in the first three months of 1997 as compared
to the first three months of 1996 primarily due to interest accrued on
borrowings made in 1996 under the Company's bank credit facility and the
incurrence of approximately $2.9 million of fees in connection with the
amendment of the bank credit facility in March 1997 which were recorded as
interest expense in the first quarter of 1997. In addition, the increase in
interest expense reflects the fact that the Company did not capitalize any
interest expense in the first quarter of 1997, although approximately $2.5
million in interest costs were capitalized in the first quarter of 1996.
Interest income totaled $1.2 million in the first three months of 1997 as
compared to $1.4 million in the first three months of 1996. This decrease is
primarily attributable to a reduction in the aggregate amount of securities
restricted for debt service related to the Senior Notes.
16
<PAGE>
PROVISION FOR INCOME TAXES
Mtel recorded a provision for income taxes of $1.2 million and $0.6 million
in the first three months of 1997 and 1996, respectively, relating to state and
local income taxes. The Company reported net losses for federal income tax
purposes during the three month periods ended March 31, 1997 and 1996 and,
accordingly, no provision for federal income taxes has been made for such
periods.
PREFERRED STOCK DIVIDENDS
The Company accrued and paid dividends of approximately $2.1 million in each
of the quarters ended March 31, 1997 and 1996 on the Company's $2.25 Cumulative
Convertible Exchangeable Preferred Stock (the "$2.25 Preferred Stock"). In
addition, the Company accrued approximately $1.2 million in the first quarter of
1997, which represents dividends accrued on the Company's 7.5% Cumulative
Convertible Accruing Pay-in-Kind Preferred Stock (the "PIK Preferred Stock")
issued in April and May of 1996. Although dividends on the $2.25 Preferred
Stock and the PIK Preferred Stock are not treated as an expense on the Company's
consolidated statements of operations and, therefore, do not affect reported net
income, the amount of such dividends is deducted from net income for the purpose
of determining net income (loss) per common share.
NET INCOME (LOSS)
Mtel recorded a consolidated net loss of approximately $21.4 million in the
three month period ended March 31, 1997 which, combined with the effect of the
preferred stock dividends, resulted in a consolidated net loss per common share
of $0.45 for such period. This compares to a consolidated net loss of
approximately $28.6 million, or $0.57 per common share, in the first three
months of 1996. The
17
<PAGE>
consolidated net loss in the first quarter of 1997 was offset by a gain of
approximately $7.4 million from the sale of the Company's 19% equity interest in
a joint venture that conducts paging operations in Brazil. The net loss in the
first quarter of 1996 was offset by a gain of approximately $6.6 million from
the sale of a portion of the Company's investment in American Mobile Satellite
Corp. For the first quarter of 1997, the Company's one-way messaging operations
recorded net income of $19.9 million, which was offset by a net loss of $40.4
million from advanced messaging operations and a net loss of $1.2 million from
international operations. The Company expects to incur a net loss on a
consolidated basis in 1997 and 1998 as a result of continuing losses from its
advanced messaging and international operations, although one-way messaging
operations are expected to generate net income during these periods.
LIQUIDITY AND CAPITAL RESOURCES
The Company invested $6.3 million in the first quarter of 1997 to procure
messaging units to support its one-way messaging subscriber base and, to a
lesser extent, in connection with the expansion of its one-way messaging system.
In addition, in the first quarter of 1997, Mtel incurred capital expenditures of
$9.3 million for infrastructure equipment, development and construction costs
and messaging units related to the advanced messaging network. Capital
expenditures in the first quarter of 1997 were funded with cash generated from
one-way messaging operations and proceeds from the sale of certain non-strategic
assets.
On March 27, 1997, SkyTel and the bank group completed an amendment to
its bank credit facility. The bank credit facility, as amended, limits the
amount of borrowings available thereunder to $175 million, increasing to $190
million upon receipt of confirmation by the bank group that the Company is in
compliance with all covenants as of June 30, 1997, and increasing to $200
million upon
18
<PAGE>
receipt of confirmation of such compliance as of September 30, 1997. Additional
availability thereafter will be subject to the approval of the Company's 1998
business plan by the banks holding at least 66 2/3% of the total outstanding
borrowings under this facility. The Company's borrowing availability will remain
at $200 million until December 31, 1998 at which time borrowing availability
will decrease to $175 million if the bank group has not approved additional
availability in accordance with the preceding sentence.
Borrowings under the bank credit facility, as amended in March 1997, bear
interest at the option of SkyTel at (i) the alternate base rate (as defined in
the credit facility) plus 2% or (ii) the London Interbank Offering Rate
("LIBOR") plus 3% through December 31, 1997. Borrowings thereafter bear
interest at the option of SkyTel at the alternate base rate plus an additional
margin of 1% to 2% or the LIBOR plus an additional margin of 2% to 3%, in each
case with the applicable margin being based upon the ratio of the Company's
consolidated total debt to the annualized cash flows of SkyTel for the two
preceding quarters.
The March 1997 amendment to the bank credit facility also amended certain
financial and operating covenants contained in the original bank loan agreement
to align these covenants with the Company's 1997 business plan which was
approved by the bank group. In addition, the March 1997 amendment requires the
Company to comply with a ratio of total sources of funds on a consolidated basis
(which is defined as the sum of consolidated cashflows, unrestricted cash and
cash equivalents, unused availability under the bank credit facility, any net
reduction in consolidated net working capital and the net cash proceeds received
from permitted asset sales or the issuance of equity securities or subordinated
debt permitted under the bank loan agreement) to total uses of funds on a
consolidated basis (which is defined as the sum of consolidated capital
expenditures, interest expense, net principal
19
<PAGE>
repayments, cash taxes actually paid and any other cash expense) on a quarterly
basis commencing with the quarter ending March 31, 1997. If the Company fails to
comply with this covenant for any quarterly period, the Company will have the
opportunity to correct such failure by consummating certain sales of non-
strategic assets or capital markets transactions within 90 days following the
end of such period.
During the first quarter of 1997, SkyTel repaid $5.0 million of outstanding
borrowings under its bank credit facility, resulting in a balance of $130.5
million in borrowings outstanding under the bank credit facility as of March 31,
1997. Letters of credit in the amount of $13.0 million had been issued under the
credit facility as of March 31, 1997, and the credit available under the
facility has been reduced by a corresponding amount. As of March 31, 1997, the
Company had borrowing availability under the bank credit facility of
approximately $31.5 million.
On February 5, 1997, Mtel Latin America, Inc. ("Mtel Latam"), the holding
company for the Company's Latin American operations and investments, completed
the sale of its 19% equity interest in a Brazilian paging operation for a
purchase price of $14.3 million. Mtel Latam received $7.15 million of the
proceeds, less fees and expenses, in February 1997 and the remaining $7.15
million plus interest, at a rate of 12% per annum, is due on or before February
5, 1998. Mtel Latam has received a bank letter of credit securing the $7.15
million payment due February 5, 1998. Mtel Latam recorded a gain on the sale of
its equity interest in the Brazilian paging operation of approximately $7.4
million in the first quarter of 1997. Proceeds from the sale will be used for
Mtel Latam's working capital requirements and possible future acquisitions in
Latin America, including possible acquisitions in Brazil.
20
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
On February 20, 1997, a civil complaint was filed in the United States
District Court for the District of Columbia. Kris Lindblom and Jack Fefer v.
Mobile Telecommunication Technologies Corporation, SkyTel Corporation, J. Robert
Fugate, Leonard G. Kriss, M. Bernard Puckett, Thomas G. Barksdale, Calvin C.
LaRoche, Jai Bhagat and John N. Palmer, Civil Action No. 1:97CV00337. The
Complaint has two counts, one alleging violations of Section 10(b) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), against all
defendants, and one alleging violations of Section 20(a) of the Exchange Act
against the Company and defendants Palmer and Puckett. The plaintiffs seek
unspecified damages and to certify the case as a class action. The Company
intends to vigorously defend the case.
Except as set forth above and except for certain proceedings involving the
narrowband PCS license awarded to the Company by the Federal Communications
Commission in July 1994 pursuant to a Pioneer's Preference which is described in
"Item 1. Business - Advanced Messaging - PCS Licenses" in the Company's Annual
Report on Form 10-K for the year ended December 31, 1996, there are no material
legal or regulatory proceedings involving the Company 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
--------------------------------
(a) Exhibits
None.
(b) Reports on Form 8-K
None.
21
<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: May 14, 1997 By /s/ John T. Stupka
-------------------------------------------
John T. Stupka
President and Chief Executive Officer
Dated: May 14, 1997 By /s/ Robert Kaiser
--------------------------------------------
Robert Kaiser
Senior Vice President - Finance and
Chief Financial Officer
22
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM MOBILE
TELECOMMUNICATION TECHNOLOGIES CORP. CONSOLIDATED BALANCE SHEET AS OF MARCH 31,
1997 AND CONSOLIDATED STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH
31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 22,153,959
<SECURITIES> 0
<RECEIVABLES> 77,439,944
<ALLOWANCES> 20,959,456
<INVENTORY> 0
<CURRENT-ASSETS> 99,598,294
<PP&E> 407,185,372
<DEPRECIATION> 118,646,898
<TOTAL-ASSETS> 780,166,987
<CURRENT-LIABILITIES> 85,235,666
<BONDS> 397,342,713
38,075
0
<COMMON> 544,579
<OTHER-SE> 275,305,386
<TOTAL-LIABILITY-AND-EQUITY> 780,166,987
<SALES> 94,621,666
<TOTAL-REVENUES> 94,621,666
<CGS> 0
<TOTAL-COSTS> 105,310,848
<OTHER-EXPENSES> 2,246,079
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 15,598,202
<INCOME-PRETAX> (20,201,727)
<INCOME-TAX> 1,234,917
<INCOME-CONTINUING> (21,436,644)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (21,436,644)
<EPS-PRIMARY> (0.45)
<EPS-DILUTED> (0.45)
</TABLE>
