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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, 1998
Commission File No. 0-17316
MOBILE TELECOMMUNICATION TECHNOLOGIES CORP.
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(Exact name of Registrant as specified in its charter)
Delaware 64-0518209
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
200 South Lamar Street, Mtel Centre, Jackson, Mississippi 39201
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(Address of principal executive offices) (Zip Code)
(601) 944-1300
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(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.
55,276,040 shares of Common Stock,
par value $.01 per share, as of
April 30, 1998
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MOBILE TELECOMMUNICATION TECHNOLOGIES CORP.
QUARTERLY REPORT ON FORM 10-Q
INDEX
PART I. FINANCIAL INFORMATION
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Item 1. Consolidated Financial Statements
Consolidated Balance Sheets--March 31, 1998 and December 31, 1997.
Consolidated Statements of Operations--Three Months Ended
March 31, 1998 and 1997
Consolidated Statements of Cash Flows--Three Months Ended
March 31, 1998 and 1997.
Notes to Consolidated Financial Statements.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
PART II. OTHER INFORMATION
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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
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MOBILE TELECOMMUNICATION TECHNOLOGIES CORP.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
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<S> <C> <C>
ASSETS:
CURRENT ASSETS
Cash and cash equivalents $ 8,070,187 $ 19,812,116
Accounts receivable, net of allowance for losses 48,232,778 53,790,128
Assets held for sale 2,102,411 2,173,375
Other current assets 3,128,524 3,179,697
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TOTAL CURRENT ASSETS 61,533,900 78,955,316
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MESSAGING NETWORKS
Property and equipment, net 289,259,227 294,746,109
Certificates of authority and license costs, net 149,403,450 150,623,083
Network construction and development costs, net 66,846,180 70,383,491
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TOTAL MESSAGING NETWORKS 505,508,857 515,752,683
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GOODWILL, net 105,155,029 106,164,387
INVESTMENT IN UNCONSOLIDATED INTERNATIONAL VENTURES 17,079,800 16,786,882
OTHER ASSETS 23,224,390 24,085,628
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$712,501,976 $741,744,896
============ ============
LIABILITIES AND STOCKHOLDERS' INVESTMENT:
CURRENT LIABILITIES
Current maturities of long-term debt $ 1,021,533 $ 1,021,526
Accounts payable and accrued liabilities 90,095,364 90,090,298
Notes payable 15,500,000 22,000,000
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TOTAL CURRENT LIABILITIES 106,616,897 113,111,824
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LONG-TERM LIABILITIES 8,313,244 7,187,943
LONG-TERM DEBT, net of current liabilities 388,217,779 398,231,558
MINORITY INTEREST 25,926,513 26,879,386
COMMITMENTS AND CONTINGENCIES
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 1998 and 1997; 52,500 shares of 7.5%
Cumulative Convertible Accruing PIK Preferred Stock
outstanding in 1998 and 1997 38,025 38,025
Common stock, par value $.01 per share;
100,000,000 shares authorized; shares issued:
55,241,807 in 1998 and 55,032,602 in 1997 552,418 550,326
Additional paid-in capital 622,363,163 619,464,704
Accumulated deficit (434,386,111) (418,711,968)
Cumulative translation adjustment (5,139,952) (5,006,902)
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TOTAL STOCKHOLDERS' INVESTMENT 183,427,543 196,334,185
------------ ------------
$712,501,976 $741,744,896
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</TABLE>
See notes to consolidated financial statements.
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MOBILE TELECOMMUNICATION TECHNOLOGIES CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended
March 31,
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1998 1997
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<S> <C> <C>
Revenues $121,514,301 $94,621,666
Expenses:
Operating 33,472,543 30,683,986
Selling, general and administrative 63,136,290 54,040,138
Depreciation and amortization 24,214,685 20,586,724
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120,823,518 105,310,848
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Operating income (loss) 690,783 (10,689,182)
Interest income 354,972 1,173,177
Interest expense (13,105,325) (15,598,202)
Gain (loss) on sale of assets (112,476) 7,158,559
Other income (expense) 67,330 (2,176,945)
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Income (loss) before income taxes
and equity income (losses) (12,104,716) (20,132,593)
Provision for income taxes 1,052,231 1,234,917
Equity in income (losses) from
investments 717,475 (69,134)
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Net income (loss) ($12,439,472) ($21,436,644)
Preferred dividend requirement 3,234,676 3,260,176
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Net income (loss) available to common stockholders ($15,674,148) ($24,696,820)
============ ===========
Net income (loss) per common share:
Basic ($0.28) ($0.45)
============ ===========
Diluted ($0.28) ($0.45)
============ ===========
</TABLE>
See notes to consolidated financial statements.
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MOBILE TELECOMMUNICATION TECHNOLOGIES CORP.
CONSOLIDATED STATEMENTS OF CASHFLOWS
<TABLE>
<CAPTION>
Three Months Ended
March 31,
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1998 1997
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ($12,439,472) ($21,436,644)
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 24,214,685 20,586,724
Provision for losses on accounts receivable and paging inventory 5,002,076 6,676,749
Amortization of debt issuance costs 632,115 590,495
Foreign currency transaction (gain) loss 61,879 (284,212)
(Gain) loss on sale of assets 112,476 (7,158,559)
Minority interest (income) loss (129,209) 2,461,157
Equity in (income) losses from investments (717,475) 69,134
Change in assets and liabilities:
(Increase) decrease in accounts receivable 1,401,495 (2,186,417)
Decrease in assets held for sale 21,690 42,927
(Increase) decrease in other current assets 51,173 (985,761)
Increase (decrease) in accounts payable and accrued liabilities (3,956,629) 4,403,608
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Net Cash Provided By Operating Activities 14,254,804 2,779,201
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CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of assets 278,165 19,652,569
Capital expenditures (16,565,376) (18,379,357)
Increase in investment in unconsolidated international ventures (498,013) (603,472)
(Increase) decrease in other assets 11,083 (41,730)
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Net Cash Provided By (Used In) Investing Activities (16,774,141) 628,010
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CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term debt (10,013,773) (5,151,119)
Payment of dividends on preferred stock (2,109,375) (2,109,375)
Sale of stock and exercise of stock options 2,900,556 262,518
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Net Cash Used In Financing Activities (9,222,592) (6,997,976)
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Net decrease in cash and cash equivalents (11,741,929) (3,590,765)
Cash and cash equivalents - beginning of period 19,812,116 25,744,724
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Cash and cash equivalents - end of period $ 8,070,187 $22,153,959
============= =============
</TABLE>
See notes to consolidated financial statements.
5
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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
communications services ("PCS") network (the "Advanced Messaging 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 Advanced Messaging Network, currently the only nationwide network in the
United States that utilizes spectrum allocated 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's 100%-owned subsidiary, Destineer Corp., holds the FCC license utilized by
this network.
Mtel, through its subsidiaries and joint ventures, also operates one-
way wireless messaging systems in various countries outside the United States,
primarily in Latin America. In addition, Mtel provides its subscribers with
access to an international messaging network that utilizes Mtel's proprietary
technology and interconnects the systems operated by its international
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subsidiaries and joint ventures with the systems in the United States, Canada,
Singapore and other countries.
For the first quarter of 1998, one-way messaging operations, the
Company's principal operating segment, reported revenues of $88.2 million,
operating income of $23.8 million and net income of $22.8 million. Advanced
messaging operations reported revenues of $23.7 million, an operating loss of
$16.8 million and a net loss of $27.2 million for the first quarter of 1998.
Mtel's international operations reported revenues of $9.0 million, an operating
loss of $4.9 million and a net loss of $6.1 million for the quarter ended March
31, 1998. 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 usage of services.
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, 1998 and 1997 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, 1998.
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3. EARNINGS (LOSS) PER SHARE
Net loss per share for the first quarter of 1998 and 1997 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 because such effect
would be antidilutive. The weighted average number of shares of common stock
outstanding in the first quarter of 1998 and 1997 was 55,122,588 and 54,444,728,
respectively. Basic and diluted per share amounts were the same for each of the
periods presented.
4. COMPREHENSIVE INCOME (LOSS)
In January 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income", which establishes standards for reporting comprehensive
income and its components. Comprehensive income is defined as all changes in the
equity of a business enterprise from transactions and other events and
circumstances, except those resulting from investments by owners and
distributions to owners. The Company reported a comprehensive loss, which
included the consolidated net loss and foreign currency translation gains and
losses, of $12.6 million and $22.5 million for the quarters ended March 31, 1998
and 1997, respectively.
5. 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
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February 22, 1996. The plaintiffs are seeking unspecified damages and to have
the case certified as a class action. In December 1997, the United States
District Court for the District of Columbia granted SkyTel's motion to dismiss,
and in January 1998 transferred the case to the United States District Court for
the Southern District of Mississippi. On May 4, 1998, the Company reached an
agreement in principle to settle this litigation without any admission of
liability on the part of the Company or any of the individual defendants. Under
the terms of the agreement in principle, Mtel has agreed to make a cash payment
of approximately $1.9 million into the settlement fund. The settlement will not
have a material impact on the Company's operating results. In addition, Mtel's
directors' and officers' liability insurer will separately make a cash
contribution to the settlement fund. The final settlement is subject to the
execution of a definitive settlement agreement and the approval of the United
States District Court for the Southern District of Mississippi.
6. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid by Mtel was $4,549,000 and $6,058,000 during the
three months ended March 31, 1998 and 1997, respectively. No federal income
taxes were paid during these periods.
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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,
1998 and 1997 and certain factors that will affect Mtel's financial condition.
Certain statements set forth in this Management's Discussion and
Analysis of Financial Condition and Results of Operations which are not
historical facts constitute 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 results to differ materially are competitive pressures, the continuing
improved performance of the Company's distribution channels, and the timely
availability and market acceptance of new products and value-added services.
This Management's Discussion and Analysis of Financial Condition and Results of
Operations should be read in conjunction with the Company's Consolidated
Financial Statements and the notes thereto appearing elsewhere in this Quarterly
Report on Form 10-Q.
RESULTS OF OPERATIONS
REVENUES
Revenues on a consolidated basis increased 28% in the first three
months of 1998 as compared to the first three months of 1997, primarily due to a
685% increase in revenues from advanced messaging services resulting, in large
part, from sales of SkyWord(R) Plus units, an advanced text messaging service
with guaranteed delivery which was introduced by the Company
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in April 1997. The number of advanced messaging units in service increased 1025%
in the first quarter of 1998 as compared to the first quarter of 1997 and 42% in
the first quarter of 1998 as compared to the fourth quarter of 1997.
Revenues from one-way messaging operations in the United States
increased 7% in the first quarter of 1998 as compared to the first quarter of
1997. This increase in revenues was primarily attributable to an increase in the
number of one-way paging units in service in the United States, which increased
3% in the first quarter of 1998 as compared to the first quarter of 1997. Net
unit additions on the one-way messaging network decreased in the first quarter
of 1998 as compared to the first quarter of 1997, primarily as a result of the
emphasis by the Company's direct sales force on the sale of advanced messaging
services and the migration of nationwide alphanumeric one-way paging customers
to the more efficient Advanced Messaging Network.
In the first quarter of 1998, the Company adopted a new methodology
for reporting units in service. Under this new methodology, a unit in service
includes only recurring revenue generating radio devices. SkyTalk(R), a voice
mail service, and other features utilized by customers of the Company will be
reported separately. Accordingly, prior period units in service counts and other
units in service based calculations, such as average revenue per unit, have been
restated to reflect this new methodology. The Company will continue to calculate
units in service for purposes of determining compliance with debt covenants
using the original methodology employed by the Company.
As of March 31, 1998, the Company had 939,700 one-way messaging
units in service in the United States, an increase of 3% over the 908,800
one-way messaging units in service as of March 31, 1997. In addition, Mtel had
224,900 advanced messaging units in service as of March
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31, 1998, an increase of 1025% over the 20,000 advanced messaging units in
service as of March 31, 1997. Approximately 20% of net unit additions on the
Advanced Messaging Network in the first quarter of 1998 represented conversions
of units from one-way to advanced messaging services, as compared to
approximately 24% of net unit additions on the advanced messaging network in the
fourth quarter of 1997.
Overall average revenue per domestic unit in service increased to
$32.96 in the first quarter of 1998 as compared to $30.94 in the first quarter
of 1997 and $32.37 in the fourth quarter of 1997. Average revenue per one-way
messaging unit in service was $31.29 in the first quarter of 1998 as compared to
$30.43 in the first quarter of 1997 and $31.05 in the fourth quarter of 1997.
Average revenue per advanced messaging unit was $41.15 in the first quarter of
1998 as compared to $57.28 in the first quarter of 1997 and $41.92 in the fourth
quarter of 1997. The Company cannot predict future trends in average revenue per
unit because of limited experience with usage charges from advanced messaging
services and the planned introduction of value-added services in 1998.
The Company intends to continue to emphasize the distribution of
its family of advanced messaging services, including SkyWord Plus, two-way
interactive messaging and fixed location services. The Company also intends to
continue to feature its one-way services through the promotion of products and
services which more efficiently utilize the capacity of the FLEX(R) enabled
one-way messaging network, such as the Beepwear(TM) pager watch and prepaid
paging services, and the establishment of distribution channels which can
effectively market these products and services. The ability of the Company to
continue to achieve improved operating results will be dependent on the
continued improved performance of its direct and reseller distribution channels,
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the success of new distribution channels and the timely availability and market
acceptance of new products and value-added services which the Company expects to
introduce on the one-way messaging network and the Advanced Messaging Network in
1998. In addition, the Company cannot predict the extent to which competitive
advanced messaging services will be available in 1998.
Mtel's consolidated revenues include revenues recorded by the
Company's international operations in Argentina, Colombia, Puerto Rico, Costa
Rica, Uruguay and Venezuela. Revenues recorded by the Company's consolidated
international operations provided approximately 7% of Mtel's revenues in both
the first quarter of 1998 and the first quarter of 1997.
During the first three months of 1998, one-way messaging operations
provided approximately 73% of Mtel's revenues as compared to 87% in the first
three months of 1997. Advanced messaging operations provided approximately 19%
of consolidated revenues during the first quarter of 1998 as compared to
approximately 3% in the first three months of 1997. Other Mtel operations
provided approximately 1% of revenues in the first three months of 1998 as
compared to approximately 3 % in the first three months of 1997.
EXPENSES
Expenses include operating expenses, selling, general and
administrative expenses, and depreciation and amortization.
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
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with the maintenance of the Company's operating equipment and facilities. These
expenses on a consolidated basis increased 9% in the first three months of 1998
as compared to the first three months of 1997. This increase primarily reflects
monthly rental expenses incurred in connection with operating lease agreements
entered into with Motorola Inc. ("Motorola") in the third and fourth quarters of
1997 pursuant to which the Company leased a total of 50,000 SkyWord Plus units
valued at approximately $9.3 million, increased telephone and system costs
associated with the increasing one-way and advanced messaging subscriber base in
the United States, increased transmitter and receiver site rentals resulting
from the continued expansion of coverage of the Company's messaging networks in
the United States and increased message unit refurbishment costs. As a
percentage of consolidated revenues, operating expenses decreased to 28% in the
first three months of 1998 as compared to 32% in the first three months of 1997.
Mtel expects to continue to incur increased operating expenses during 1998 and
future periods, primarily as a result of an increase in the number of units in
service on its one-way and advanced messaging networks in the United States and
the continued expansion of coverage of the Advanced Messaging Network.
Operating expenses related to the one-way messaging system in the
United States increased 4% in the first quarter of 1998 as compared to the first
quarter of 1997, and as a percentage of revenues was 21% in the first quarter of
1998 as compared to 22% in the first quarter of 1997. Operating expenses related
to advanced messaging operations in the United States increased 27% in the first
quarter of 1998 as compared to the first quarter of 1997, but decreased as a
percentage of revenues to 50% in the first quarter of 1998 as compared to 310%
in the first quarter of 1997. Operating expenses of the Company's international
subsidiaries increased 14% in
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the first quarter of 1998 as compared to the first quarter of 1997, but
decreased as a percentage of revenues to 29% in the first quarter of 1998 as
compared to 34% in the first quarter of 1997.
Selling, general and administrative expenses include marketing and
advertising costs, personnel costs associated with the direct sales and
marketing staff, costs associated with customer support operations, and
corporate overhead costs, primarily salaries and administrative expenses. On a
consolidated basis, these expenses increased 17% in the first three months of
1998 as compared to the first three months of 1997. This increase primarily
reflects increased selling expenses related to the expansion of the Company's
direct sales force, increased advertising and marketing expenses incurred in
connection with the promotion of products and services on the Advanced Messaging
Network and the inclusion of selling, general and administrative expenses
attributable to RadioMensaje S.A.C. in Argentina which was acquired by Mtel
Latin America, Inc. ("Mtel Latam") in June 1997. As a percentage of consolidated
revenues, selling, general and administrative expenses decreased to 52% in the
first three months of 1998 as compared to 57% in the first three months of 1997.
In 1998, selling, general and administrative expenses on a consolidated basis
are expected to increase as a result of the Company's plans to continue to
expand its direct sales force in the United States and to incur additional
marketing expenses in connection with the promotion of products and services on
the Advanced Messaging Network.
Selling, general and administrative expenses related to the
one-way messaging system in the United States increased 3% in the first quarter
of 1998 as compared to the first quarter of 1997, and as a percentage of
revenues was 39% in the first quarter of 1998 as compared to 41% in the first
quarter of 1997. Selling, general and administrative expenses related to
advanced messaging operations in the United States increased 55% in the first
quarter of 1998 as compared to
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the first quarter of 1997, but decreased as a percentage of revenues to 76% in
the first quarter of 1998 as compared to 383% in the first quarter of 1997.
Selling, general and administrative expenses of the Company's international
subsidiaries increased 15% in the first quarter of 1998 as compared to the first
quarter of 1997, but decreased as a percentage of revenues to 98% in the first
quarter of 1998 as compared to 114% in the first quarter of 1997.
Depreciation and amortization on a consolidated basis increased
18% in the first three months of 1998 as compared to the first three months of
1997 primarily due to the continued expansion of coverage of the one-way and
advanced messaging networks and the purchase of pagers and advanced messaging
units to support the increase in subscribers. As a percentage of revenues,
depreciation and amortization expenses on a consolidated basis decreased to 20%
in the first three months of 1998 as compared to 22% in the first three months
of 1997. The Company expects depreciation and amortization expenses to increase
during 1998, primarily as a result of the continued expansion of coverage of the
Advanced Messaging 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 consolidated operating income of approximately $0.7
million for the first three months of 1998 as compared to a consolidated
operating loss of approximately $10.7 million for the first three months of
1997. For the three-month period ended March 31, 1998, one-way messaging
operations recorded operating income of $23.8 million, which was offset by an
operating loss of $16.8 million from advanced messaging operations and an
operating loss of $4.9 million from international operations.
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The Company expects to report operating income on a consolidated
basis in 1998 and future periods as a result of continued profitable operations
of the Company's one-way messaging business in the United States and declining
operating losses from its advanced messaging operations. However, future levels
of operating income will be dependent on the continued improved performance of
the Company's direct and reseller distribution channels, the success of new
distribution channels and the timely availability and market acceptance of new
products and value-added services which the Company expects to introduce in 1998
on its Advanced Messaging Network. In addition, the Company cannot predict the
extent to which future operating results will be impacted by the introduction of
services competitive with those available on the Advanced Messaging Network.
INTEREST EXPENSE AND INTEREST INCOME
Interest expense decreased 16% in the first three months of 1998
as compared to the first three months of 1997, primarily as a result of the
inclusion in the first quarter of 1997 of approximately $2.9 million of fees in
connection with the amendment of the bank credit facility and a decrease in the
Company's outstanding balance under its bank credit facility. See "Liquidity and
Capital Resources."
Interest income totaled $0.4 million in the first three months of
1998 as compared to $1.2 million in the first three months of 1997. This
decrease is primarily attributable to a reduction in the aggregate amount of
securities restricted for debt service related to the Company's 13.5% Senior
Notes (the "Senior Notes").
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PROVISION FOR INCOME TAXES
Mtel recorded a provision for income taxes of $1.1 million and $1.2
million in the first three months of 1998 and 1997, 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, 1998 and 1997 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, 1998 and 1997 on the Company's
$2.25 Cumulative Convertible Exchangeable Preferred Stock (the "$2.25 Preferred
Stock"). In addition, the Company accrued approximately $1.1 million in the
first quarter of 1998 and $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. See "Liquidity and Capital
Resources."
NET INCOME (LOSS)
Mtel recorded a consolidated net loss of approximately $12.4
million in the three month period ended March 31, 1998 which, combined with the
effect of the preferred stock dividends,
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resulted in a consolidated net loss per common share of $0.28 for such period.
This compares to a consolidated net loss of approximately $21.4 million, or
$0.45 per common share, in the first three months of 1997. The 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. For the first quarter of 1998, the
Company's one-way messaging operations recorded net income of $22.8 million,
which was offset by a net loss of $27.2 million from advanced messaging
operations and a net loss of $6.1 million from international operations. The
Company expects to incur a net loss on a consolidated basis in 1998 as a result
of continuing losses from its advanced messaging and international operations,
although its one-way messaging business is expected to generate net income
during this period.
LIQUIDITY AND CAPITAL RESOURCES
The Company invested a total of $1.7 million in the first quarter
of 1998 to fund the expansion of its one-way messaging system and, to a lesser
extent, the procurement of messaging units to support its one-way messaging
subscriber base. In addition, in the first quarter of 1998, Mtel incurred
capital expenditures of $11.4 million for messaging units and infrastructure
equipment related to the Advanced Messaging Network. Capital expenditures in the
first quarter of 1998 were funded with cash generated from one-way messaging
operations and cash on-hand at the beginning of the quarter.
During the first quarter of 1998, SkyTel repaid $10.0 million of
outstanding borrowings under its bank credit facility, resulting in a balance of
$115.5 million of borrowings outstanding under the bank credit facility as of
March 31, 1998. Letters of credit in the amount of $6.2 million
19
<PAGE>
had been issued under the credit facility as of March 31, 1998, and the credit
available under the facility has been reduced by a corresponding amount. As of
March 31, 1998, the Company had borrowing availability under the bank credit
facility of approximately $78.3 million. The Company may be required to incur
additional borrowings under the bank credit facility in 1998 to fund capital
expenditures and working capital requirements, including its interest payments
on the Senior Notes, to the extent that cash flows from operations do not
satisfy these requirements.
In April 1998, the Company completed a series of interest rate
swaps which effectively lower the cash interest payment on its 13.5% Senior
Notes to 10.75% from December 15, 1997 through December 15, 2000, the first date
that the Senior Notes may be called for redemption without payment of the
additional premium required under the indenture. During the period December 15,
2000 to December 15, 2002, the Company will be required to make payments to the
swap counterparty in an amount equal to 12.07% multiplied by the principal
amount of the Senior Notes plus a redemption premium of 6.75%.
During the first quarter of 1998 Mtel Latam required approximately
$1.5 million to fund capital expenditures of its subsidiaries and capital
contributions to its joint ventures in Latin America. Mtel Latam will be
required to engage in additional debt or equity financings in order to fund
capital requirements in 1998 and to repay certain borrowings under the Mtel
Latam line of credit which become due in September 1998, and there can be no
assurance that Mtel Latam will be able to complete any additional financings on
terms acceptable to Mtel Latam.
20
<PAGE>
YEAR 2000
The Company will be required to modify its internal computer systems and
its messaging networks in light of the date change that will occur in the year
2000. The Company is currently assessing the impact of year 2000 issues on its
operations and the extent of programming changes that will be required to
address this issue. Although final cost estimates have not yet been determined,
the Company does not believe that year 2000 compliance costs will have a
material impact on the Company's results of operations in 1998. The Company is
also working with various vendors whose products and services may materially
impact the Company's year 2000 compliance and is not aware that any such vendor
will be unable to effect timely compliance.
RECENTLY ISSUED ACCOUNTING STANDARDS
In April 1998, the Accounting Standards Executive Committee issued
Statement of Position ("SOP") 98-5, "Reporting on the Costs of Start-Up
Activities." This SOP, which is effective for fiscal years beginning after
December 15, 1998, requires the costs of start-up activities to be expensed as
incurred. The SOP broadly defines start-up activities as one-time activities
related to the opening a new facility, the introduction of a new product or
service, the commencement of business in a new territory, the establishment of
business with a new class of customer, the initiation of a new process in an
existing facility, or the commencement of a new operation. Initial application
of this SOP should be reported as the cumulative effect of a change in
accounting principle. The Company intends to comply with the provisions of this
SOP and has not yet determined the amount of start-up costs that will be
required to be expensed in connection with the adoption of this SOP nor the
period in which the SOP will be adopted.
21
<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. In December 1997,
the United States District Court for the District of Columbia granted SkyTel's
motion to dismiss, and in January 1998 transferred the case to the United States
District Court for the Southern District of Mississippi. On May 4, 1998, the
Company reached an agreement in principle to settle this litigation without any
admission of liability on the part of the Company or any of the individual
defendants. Under the terms of the agreement in principle, Mtel has agreed to
make a cash payment of approximately $1.9 million into the settlement fund. The
settlement will not have a material impact on the Company's operating results.
In addition, Mtel's directors' and officers' liability insurer will separately
make a cash contribution to the settlement fund. The final settlement is subject
to the execution of a definitive settlement agreement and the approval of the
United States District Court for the Southern District of Mississippi.
Subsequent to the filing of the complaint, the Company, as have other companies
involved in private securities litigation, received from the staff of the
Securities and Exchange Commission ("SEC") an informal inquiry letter seeking
documents pertaining to consultants and products used in the development and
operation of the Advanced Messaging Network. The Company is cooperating with the
SEC staff.
Except as set forth above and except for certain proceedings
involving the unpaired 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 - Regulation" in the
Company's Annual Report on Form 10-K for the year ended December 31, 1997, 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.
22
<PAGE>
Item 5. Other Information
-----------------
None.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
None.
(b) Reports on Form 8-K None.
None.
23
<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, 1998 By /s/ John T. Stupka
--------------------
John T. Stupka
President and Chief
Executive Officer
Dated: May 14, 1998 By /s/ Robert Kaiser
-------------------
Robert Kaiser
Senior Vice President - Finance and
Chief Financial Officer
24
<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,
1998 AND CONSOLIDATED STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH
31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 8,070,187
<SECURITIES> 0
<RECEIVABLES> 70,477,679
<ALLOWANCES> 22,244,901
<INVENTORY> 0
<CURRENT-ASSETS> 61,533,900
<PP&E> 460,782,908
<DEPRECIATION> 171,523,681
<TOTAL-ASSETS> 712,501,976
<CURRENT-LIABILITIES> 106,616,897
<BONDS> 388,217,779
38,025
0
<COMMON> 552,418
<OTHER-SE> 182,837,100
<TOTAL-LIABILITY-AND-EQUITY> 712,501,976
<SALES> 121,514,301
<TOTAL-REVENUES> 121,514,301
<CGS> 0
<TOTAL-COSTS> 120,823,518
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,105,325
<INCOME-PRETAX> (11,387,241)
<INCOME-TAX> 1,052,231
<INCOME-CONTINUING> (12,439,472)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (12,439,472)
<EPS-PRIMARY> (0.28)
<EPS-DILUTED> (0.28)
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