<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For Quarter Ended June 30,1999
Commission File No. 0-17316
SKYTEL COMMUNICATIONS, INC.
---------------------------
(Exact name of Registrant as specified in its charter)
Delaware 64-051820
- ------------------------------- -----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
200 South Lamar Street, SkyTel 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.
60,272,018 shares of Common Stock,
par value $.01 per share, as of
July 31, 1999
<PAGE>
SKYTEL COMMUNICATIONS, INC.
QUARTERLY REPORT ON FORM 10-Q
INDEX
PART I. FINANCIAL INFORMATION
---------------------
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets - June 30, 1999 and December 31, 1998.
Consolidated Statements of Operations - Six Months Ended June 30, 1999
and 1998, and Three Months Ended June 30, 1999 and 1998.
Consolidated Statements of Cash Flows -- Six Months Ended June 30,
1999 and 1998, and Three Months Ended June 30, 1999 and 1998.
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
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SKYTEL COMMUNICATIONS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
-------------- ----------------
<S> <C> <C>
ASSETS:
CURRENT ASSETS
Cash and cash equivalents $ 17,983,024 $ 17,000,752
Accounts receivable, net of allowances for losses 61,743,149 49,553,165
Assets held for sale 2,050,233 2,050,233
Other current assets 10,074,705 5,395,254
-------------- ---------------
TOTAL CURRENT ASSETS 91,851,111 73,999,404
-------------- ---------------
MESSAGING NETWORKS
Property and equipment, net 245,411,062 260,702,952
Certificates of authority and license costs, net 141,913,617 142,741,719
Network construction and development costs, net 17,834,724 21,644,749
-------------- ---------------
TOTAL MESSAGING NETWORKS 405,159,403 425,089,420
-------------- ---------------
GOODWILL, net 100,076,504 102,089,718
INVESTMENT IN UNCONSOLIDATED INTERNATIONAL VENTURES 16,536,807 11,797,993
OTHER ASSETS 12,309,340 20,220,290
-------------- ---------------
$ 625,933,165 $ 633,196,825
============== ===============
LIABILITIES AND STOCKHOLDERS' INVESTMENT:
CURRENT LIABILITIES
Current maturities of long-term debt $ 500,000 $ 1,000,900
Accounts payable and accrued liabilities 109,453,272 99,189,149
Notes payable 15,000,000 20,000,000
-------------- ---------------
TOTAL CURRENT LIABILITIES 124,953,272 120,190,049
-------------- ---------------
LONG-TERM DEBT, net of current maturities 326,924,000 364,662,400
MINORITY INTEREST 37,138,117 24,399,687
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' INVESTMENT
PreferredStock, par value $.01 per share; 25,000,000 shares
authorized; 3,750,000 shares of $2.25 Cumulative Convertible
Exchangeable Preferred Stock outstanding in 1999 and 1998 37,500 37,500
Common Stock, par value $.01 per share;
100,000,000 shares authorized; shares outstanding:
60,217,229 in 1999 and 60,024,227 in 1998 602,172 600,242
Additional paid-in-capital 641,007,253 638,583,669
Accumulated deficit (499,120,263) (509,859,814)
Cumulative translation adjustment (5,608,886) (5,416,908)
-------------- ---------------
TOTAL STOCKHOLDERS' INVESTMENT 136,917,776 123,944,689
-------------- ---------------
$ 625,933,165 $ 633,196,825
============== ===============
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
SKYTEL COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
June 30, June 30,
-------------------------------- --------------------------------
1999 1998 1999 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues $ 280,723,622 $ 247,634,733 $ 140,855,010 $ 126,120,432
Expenses:
Operating 78,122,115 70,176,716 38,783,105 36,704,173
Selling, general and administrative 124,941,792 124,787,445 61,841,369 61,651,155
Depreciation and amortization 44,313,489 43,804,688 22,050,558 22,090,003
------------- ------------- ------------- -------------
247,377,396 238,768,849 122,675,032 120,445,331
------------- ------------- ------------- -------------
Operating income 33,346,226 8,865,884 18,179,978 5,675,101
Interest income 728,452 573,894 389,515 218,922
Interest expense (24,128,757) (25,838,076) (12,225,024) (12,732,751)
Gain (loss) on sale of assets 2,749,796 (662,118) (139,100) (549,642)
Other income (expense) 768,540 (2,527,234) 306,183 (2,594,564)
------------- ------------- ------------- -------------
Income (loss) before income taxes
and equity income 13,464,257 (19,587,650) 6,511,552 (9,982,934)
Provision for income taxes 433,710 2,022,208 116,225 969,977
Equity in income of investments 1,927,752 1,996,993 311,430 1,279,518
------------- ------------- ------------- -------------
Net income (loss) before cumulative effect
of a change in accounting principle 14,958,299 (19,612,865) 6,706,757 (9,673,393)
Cumulative effect of a change in accounting
principle 0 (58,128,849) 0 0
------------- ------------- ------------- -------------
Net income (loss) 14,958,299 (77,741,714) 6,706,757 (9,673,393)
Preferred dividend requirement 4,218,750 6,292,356 2,109,375 3,057,680
------------- ------------- ------------- -------------
Net income (loss) available to common
stockholders $ 10,739,549 ($ 84,034,070) $ 4,597,382 ($ 12,731,073)
============= ============= ============= =============
Net income (loss) per common share:
Basic $ 0.18 ($ 1.51) $ 0.08 ($ 0.22)
============= ============== ============= ==============
Diluted $ 0.18 ($ 1.51) $ 0.08 ($ 0.22)
============= ============== ============= ==============
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
SKYTEL COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
June 30, June 30,
-------------------------------- --------------------------------
1999 1998 1999 1998
---------------- ------------- ---------------- ------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 14,958,299 ($77,741,714) $ 6,706,757 ($ 9,673,393)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization 44,313,489 43,804,688 22,050,558 22,090,003
Provision for losses on accounts receivable and
paging inventory 10,885,645 9,448,430 4,459,025 4,446,354
Amortization of debt issuance costs 1,264,231 1,264,231 632,116 632,116
Write-off of start-up costs 0 58,128,849 0 0
Foreign currency transaction (gain) loss (9,152) 75,977 62,497 14,098
(Gain) loss on sale of assets (2,749,796) 662,118 139,100 549,642
Minority interest loss (759,387) (303,639) (368,679) (174,430)
Equity in income from investments (1,927,752) (1,996,993) (311,430) (1,279,518)
Change in assets and liabilities:
Increase in accounts receivable (17,020,176) (1,259,234) (7,162,277) (2,660,729)
Decrease in assets held for sale 0 21,690 0 0
Increase in other current assets (4,538,703) (2,836,757) (5,334,840) (2,887,930)
Increase in accounts payable and
accrued liabilities 7,983,258 5,932,003 6,298,118 9,888,632
------------- ----------- ----------- -----------
Net Cash Provided By Operating Activities 52,399,956 35,199,649 27,170,945 20,944,845
------------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of assets 3,033,249 565,406 0 287,241
Capital expenditures, net (28,299,856) (27,311,540) (18,654,915) (10,746,164)
(Increase) decrease in investment in unconsolidated
international ventures 845,349 (522,174) (148,126) (24,161)
Decrease in other assets 3,036,110 1,971,916 1,912,674 1,960,833
------------- ----------- ----------- -----------
Net Cash Used In Investing Activities (21,385,148) (25,296,392) (16,890,367) (8,522,251)
------------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term debt (38,006,300) (10,018,296) (17,485,402) (4,523)
Payment of dividends on preferred stock (4,218,750) (4,218,750) (2,109,375) (2,109,375)
Sale of stock and exercise of options 2,192,514 6,516,780 993,597 3,616,224
Sale of Mtel Latam PIK preferred stock 10,000,000 0 0 0
------------- ----------- ----------- -----------
Net Cash Provided By (Used In) Financing Activities (30,032,536) (7,720,266) (18,601,180) 1,502,326
------------- ----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents 982,272 2,182,991 (8,320,602) 13,924,920
Cash and cash equivalents-beginning of period 17,000,752 19,812,116 26,303,626 8,070,187
------------- ----------- ----------- -----------
Cash and cash equivalents-end of period $ 17,983,024 $ 21,995,107 $ 17,983,024 $ 21,995,107
============= =========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
5
<PAGE>
SKYTEL COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION
SkyTel Communications, Inc. ("SkyTel" or the "Company") is a leading
provider of nationwide messaging services in the United States. SkyTel's
principal operations include one-way messaging services in the United States,
advanced messaging services on the narrowband personal communication services
("PCS") network (the "Advanced Messaging Network") in the United States and
international one-way messaging operations.
The Company's wholly-owned subsidiary, SkyTel Corp., 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.
SkyTel also currently operates its Advanced Messaging Network in the United
States that utilizes spectrum allocated by the FCC for narrowband PCS. The
Advanced Messaging Network is a location independent network that utilizes a
proprietary system architecture designed and developed by SkyTel. Services on
the Advanced Messaging Network currently include advanced text messaging
services with guaranteed delivery, interactive two-way services and fixed
location services.
SkyTel, through its subsidiaries and joint ventures, operates one-way
wireless messaging systems in various countries outside the United States,
primarily in Latin America. In addition, SkyTel provides its subscribers with
access to an international
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<PAGE>
messaging network that utilizes SkyTel's proprietary technology and
interconnects the systems operated by its international subsidiaries and joint
ventures with systems in the United States, Canada, Singapore and other
countries.
2. BASIS OF PRESENTATION
The consolidated financial statements include the accounts of SkyTel 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 and six month
periods ending June 30, 1999 and 1998 have not been audited by independent
public accountants. However, in the opinion of management, these financial
statements include all adjustments necessary for a fair presentation. The
results for these periods are not necessarily indicative of the results for the
year ending December 31, 1999.
3. EARNINGS (LOSS) PER SHARE
Net income per share for the three and six month periods ending June 30,
1999 is calculated by dividing the net income (after deducting preferred stock
dividends) by the weighted average number of shares of common stock outstanding
during those periods, with effect given to common stock equivalents where such
effect was not considered antidilutive. Net loss per share for the three and six
month periods ending June 30, 1998 was calculated by dividing the net loss
(after deducting preferred stock dividends) by the weighted average number of
shares of common stock outstanding during those periods, with no effect given to
common stock equivalents because such effect would have been antidilutive. The
weighted average number of shares of common stock outstanding in the second
quarter of 1999 and 1998 was 60,153,628 and 56,858,962, respectively, and
7
<PAGE>
the weighted average number of shares of common stock outstanding in the first
six months of 1999 and 1998 was 60,112,213 and 55,995,576, respectively. The
weighted average number of equivalent shares of common stock outstanding for the
purpose of calculating diluted earnings per share in the second quarter of 1999
and the first six months of 1999 was 61,338,729 and 61,395,225, 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 Statement of Financial Accounting
Standards ("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
comprehensive income, which included the consolidated net income and foreign
currency translation gains and losses, of $6.5 million and $14.8 million for the
second quarter and first six months of 1999, respectively, and a comprehensive
loss, which included the consolidated net loss and foreign currency translation
gains and losses, of $9.7 million and $77.9 million for the second quarter and
first six months of 1998, respectively.
5. INTEREST RATE SWAP AGREEMENTS
In April 1998, the Company entered into certain interest rate swap
agreements with respect to the $265 million outstanding principal amount of its
13.5% Senior Notes due 2002 (the "Senior Notes"). These agreements involve the
exchange of interest obligations on fixed and floating interest
8
<PAGE>
rate debt without the exchange of the underlying principal amounts. The
agreements have varying maturities but in no instance exceed the maturity date
of the Senior Notes. The interest rate swap agreements establish an effective
interest rate of 10.75% on the Senior Notes through December 15, 2000. During
the period from 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 sum of the principal amount of the Senior Notes and the 6.75%
redemption premium on the Senior Notes. During this period, the Company will
receive an amount equal to the 3-month London Interbank Offered Rate ("LIBOR")
plus 1% (currently 6.0%) multiplied by the sum of the principal amount of the
Senior Notes and the 6.75% redemption premium on the Senior Notes. The Company
is continuing to record an amount equal to 13.5% of the principal amount of the
Senior Notes as interest expense in its consolidated statements of operations.
6. PIK PREFERRED STOCK CONVERSION
The preferred dividend requirement in the second quarter and first six
months of 1998 included dividends of $0.9 million and $2.1 million,
respectively, accrued on the Company's 7.5% Cumulative Convertible Accruing
Pay-In-Kind Preferred Stock (the "PIK Preferred Stock"). In May 1998, the
Company made an offer to the holders of the PIK Preferred Stock in order to
encourage the voluntary conversion of the PIK Preferred Stock into common stock,
par value $.01 per share (the "Common Stock"), of the Company. The Company
agreed to reduce the conversion price of the PIK Preferred Stock by 0.81% for
any holder who converted shares of PIK Preferred Stock into Common Stock of the
Company on or before May 15, 1998. The holders of the PIK Preferred Stock
converted all the outstanding shares of PIK Preferred Stock, together with all
shares of PIK Preferred Stock accrued as dividends as of the date of conversion,
into an aggregate of 3.4 million shares of Common Stock of the
9
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Company. As a result of the conversion, no dividends were accrued during the
second quarter or first six months of 1999 on the PIK Preferred Stock. Although
dividends on the PIK Preferred Stock were not treated as an expense on the
Company's consolidated statements of operations and, therefore, did not affect
reported net income in the second quarter and first six months of 1998, such
dividends were deducted from net income for the purpose of determining net
income (loss) per common share.
7. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid by SkyTel was $17.0 million and $17.7 million during the
three months ended June 30, 1999 and 1998, respectively, and was $19.3 million
and $22.3 million during the six months ended June 30, 1999 and 1998,
respectively. No federal income taxes were paid during these periods.
8. STATEMENT OF POSITION 98-5
In April 1998, the Accounting Standards Executive Committee issued
Statement of Position 98-5 ("SOP"), "Reporting on the Costs of Start-Up
Activities." The SOP required all companies to expense, on or before March 31,
1999, all start-up costs previously capitalized, and thereafter to expense all
costs of start-up activities as incurred. Prior to the issuance of the SOP, all
companies had the option of capitalizing or expensing costs associated with
start-up activities in accordance with generally accepted accounting principles.
The SOP broadly defines start-up activities as one-time activities related to
the opening of 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
10
<PAGE>
operation. The Company elected to adopt the SOP in the quarter ended September
30, 1998 and recorded a one-time, non-cash write-off of $58.1 million,
representing start-up costs primarily incurred in conjunction with the
development and construction of the Company's Advanced Messaging Network. The
adoption of the SOP was effective as of January 1, 1998 and was recorded as a
cumulative effect of a change in accounting principle. As a result of the
adoption of the SOP, the net loss in the quarter ended June 30, 1998 decreased
by $2.5 million, or $0.05 per common share, which represents a decrease in
depreciation and amortization expense . Also, the net loss for the six months
ended June 30, 1998 increased by $53.1 million, or $0.96 per common share, which
represents the cumulative effect of a change in accounting principle of $58.1
million net of a decrease in depreciation and amortization expense of $5.0
million.
9. SEGMENT INFORMATION
SkyTel has adopted SFAS No. 131-"Disclosures About Segments of an
Enterprise and Related Information." The Company is organized based on the
services that it offers and geographically for all international units. Under
this organizational structure, the Company operates in three principal areas:
domestic one-way messaging operations, domestic advanced messaging operations
and international one-way messaging operations. In 1999 and 1998, the Company's
"other" category is primarily composed of air-to-ground telecommunications
operations.
For purposes of reporting net income (loss) for the Company's business
segments, certain indirect operating and selling, general and administrative
costs must be allocated among the business segments. Such costs are generally
allocated among the one-way messaging, advanced messaging and
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international messaging segments based on various financial and operational
factors which reflect usage of services.
The accounting policies of the segments are the same as those described in
the summary of significant accounting policies in Note 1 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1998.
SEGMENT PROFIT AND LOSS AND SEGMENT ASSETS
THREE MONTHS ENDED JUNE 30, 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
One-Way Advanced International
Messaging Messaging Messaging Other Consolidated
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues $ 83,332 $ 50,457 $ 6,502 $ 564 $ 140,855
Operating cash flow 31,244 9,526 317 (856) 40,231
Depreciation and amortization 10,676 9,986 1,361 28 22,051
Interest income -- -- 48 342 390
Interest expense -- 9,012 2,562 651 12,225
Equity in income from
investments -- -- 311 -- 311
Provision for income taxes -- -- 116 -- 116
Net income (loss) 20,522 (9,500) (3,121) (1,195) 6,706
Capital expenditures 1,650 14,458 946 1,749 18,803
<CAPTION>
THREE MONTHS ENDED JUNE 30, 1998
(IN THOUSANDS)
One-Way Advanced International
Messaging Messaging Messaging Other Consolidated
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues $ 84,341 $ 32,245 $ 8,821 $ 714 $ 126,121
Operating cashflow 32,583 (1,328) (3,265) (224) 27,766
Depreciation and amortization 11,119 9,211 1,785 (25) 22,090
Interest income -- -- 59 160 219
Interest expense 2 10,049 2,027 655 12,733
Equity in income from
investments -- -- 1,279 -- 1,279
Provision for income taxes 834 -- 136 -- 970
Cumulative effect of a change
in accounting principle -- -- -- -- --
Net income (loss) 20,618 (20,613) (6,136) (3,542) (9,673)
Capital expenditures 3,874 5,560 129 1,207 10,770
</TABLE>
12
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<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1999
(IN THOUSANDS)
One-Way Advanced International
Messaging Messaging Messaging Other Consolidated
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues $ 169,960 $ 96,043 $ 13,587 $ 1,134 $ 280,724
Operating cash flow 64,186 15,659 (820) (1,365) 77,660
Depreciation and amortization 21,390 19,890 2,978 56 44,314
Interest income -- -- 129 600 729
Interest expense 6 18,322 4,498 1,302 24,128
Equity in income from
investments -- -- 1,927 -- 1,927
Provision for income taxes 209 -- 249 (25) 433
Net income (loss) 42,498 (22,645) (5,792) 897 14,958
Total assets 180,787 319,392 70,672 55,082 625,933
Capital expenditures 2,100 21,683 1,560 3,106 28,449
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1998
(IN THOUSANDS)
One-Way Advanced International
Messaging Messaging Messaging Other Consolidated
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues $ 172,514 $ 55,914 $ 17,799 $ 1,408 $ 247,635
Operating cashflow 67,373 (7,469) (5,666) (1,567) 52,671
Depreciation and amortization 22,110 17,957 3,669 69 43,805
Interest income -- -- 250 324 574
Interest expense 10 10,473 4,037 1,318 25,838
Equity in income from
investments -- -- 1,997 -- 1,997
Provision for income taxes 1,751 -- 271 -- 2,022
Cumulative effect of a change
in accounting principle -- (52,791) (5,338) -- (58,129)
Net income (loss) 43,436 (98,732) (16,926) (5,519) (77,741)
Total assets 200,066 323,287 72,488 60,303 656,144
Capital expenditures 5,585 16,963 1,660 3,625 27,833
</TABLE>
<TABLE>
<CAPTION>
GEOGRAPHIC INFORMATION
(IN THOUSANDS)
1999 1998
----------------------- -------------------------
Long-Lived Long-Lived
Revenues Assets Revenues Assets
<S> <C> <C> <C> <C>
Domestic $267,137 $480,499 $229,836 $516,468
International 13,587 53,583 17,799 61,937
-------- -------- -------- --------
Consolidated $280,724 $534,082 $247,635 $578,405
======== ======== ======== ========
</TABLE>
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Effective July 1, 1998, the results of Mtel Puerto Rico, Inc. ("Mtel
Puerto Rico") were included in the results of operations for the Company's
domestic one-way messaging segment. Prior to July 1, 1998, the results of
operations of Mtel Puerto Rico were included in the Company's international
messaging segment.
A summary of operations for Mtel Puerto Rico is as follows:
Mtel Puerto Rico, Inc.
Summary of Operations
(All amounts in thousands of dollars)
<TABLE>
<CAPTION>
Condensed Statements of Operations: Six Months Ended Three Months Ended
June 30, June 30,
1999 1998 1999 1998
--------------------- ---------------------
<S> <C> <C> <C> <C>
Revenues $ 1,393 $ 1,890 $ 728 $ 1,013
Expenses:
Operating 502 998 269 528
Selling, general and administrative 1,080 2,131 412 1,031
Depreciation and amortization 363 249 182 127
-------- -------- -------- --------
1,945 3,379 863 1,686
-------- -------- -------- --------
Operating income (loss)
(552) (1,488) (135) (673)
Interest income (expense) -- 36 -- 3
-------- -------- -------- --------
Income (loss) before taxes (552) (1,452) (135) (670)
Provision for taxes -- -- -- --
-------- -------- -------- --------
Net income (loss) before cumulative effect
of a change in accounting principle (552) (1,452) (135) (670)
Cumulative effect of a change in
accounting principle -- (391) -- --
-------- -------- -------- --------
Net income (loss) $ (552) $ (1,843) $ (135) $ (670)
======== ======== ======== ========
</TABLE>
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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 SkyTel for the quarters and six month periods ended
June 30, 1999 and 1998 and certain factors that will affect SkyTel'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. Such forward-looking statements 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 performance of the Company's existing distribution channels, the
successful implementation of new distribution channels and the market acceptance
of new 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 13% in the first half of 1999
as compared to the first half of 1998 and increased 12% in the three months
ended June 30, 1999 as compared to the three months ended June 30, 1998,
primarily due to a 72% and a 56% increase in revenues from advanced messaging
services in the first six months and second quarter of 1999, respectively.
Revenues from one-way messaging operations in the United States decreased 1% in
the first six months of 1999 as
15
<PAGE>
compared to the first six months of 1998 and decreased approximately 1% in the
first three months of 1999 as compared to the first three months of 1998.
During the first quarter of 1999, management adjusted the Company's
methodology for recognizing usage-based revenues and expenses. As a result,
during the first quarter of 1999 the Company recognized $2.4 million of such
revenues and $2.5 million of such expenses.
As of June 30, 1999, the Company had 999,000 one-way messaging units in
service in the United States, which included approximately 70,400 prepaid paging
units, as compared to 954,000 one-way messaging units in service as of June 30,
1998, of which approximately 28,700 were prepaid paging units. SkyTel also had
490,900 advanced messaging units in service as of June 30, 1999, an increase of
65.9% over the 295,900 advanced messaging units in service as of June 30, 1998.
Approximately 5,400 of the net unit additions placed in service on the Advanced
Messaging Network in the second quarter of 1999 represented conversions of units
from one-way to advanced messaging services, as compared to approximately 12,400
of net unit additions on the Advanced Messaging Network in the second quarter of
1998.
In the second quarter of 1999, the Company reported 40,300 advanced
messaging net unit additions and 5,500 one-way net unit additions. Advanced
messaging net unit additions in the second quarter were favorably impacted by
the introduction of the nickel rate pricing plan and the introduction of the
SkyWord Plus(TM) service with SkyReply(R) which allows subscribers to respond
with pre-programmed messages. The Company also believes that net unit additions
in the second quarter of 1999 continued to be impacted by changing wireless
industry trends resulting from the extensive promotion of national one-rate
wireless telephone plans. The ability of the Company to achieve improved unit
growth and operating results in 1999 and future periods will be dependent on the
performance of the Company's existing distribution channels, the successful
implementation of new distribution channels and the
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market acceptance of new services. In addition, the Company cannot predict the
extent to which competitive advanced messaging services or other competitive
telecommunication services will impact the Company's future operating results.
Average revenue per domestic unit in service was $31.78 in the second
quarter of 1999 as compared to $32.61 in the second quarter of 1998 and $31.83
in the first quarter of 1999. Average revenue per one-way unit in service was
$29.79 in the second quarter of 1999 as compared to $30.18 in the second quarter
of 1998 and $30.48 in the first quarter of 1999, and average revenue per
advanced messaging unit was $35.72 in the second quarter of 1999 as compared to
$41.28 in the second quarter of 1998 and $34.74 in the first quarter of 1999.
The decline in average monthly revenue per domestic unit in service in the
second quarter of 1999 as compared to the second quarter of 1998 is attributable
to lower usage charges resulting from pricing plans for advanced messaging
services that include increased character allotments, the implementation of
usage related billing arrangements for certain major customers, and the
reduction of equipment rental revenues resulting from the Company's strategy to
encourage customer-owned advanced messaging devices. The Company cannot predict
the extent to which average monthly revenue per domestic unit in service will
decline in future periods or the extent to which such average monthly revenue
will be offset by revenues from value-added features. In addition, the Company
plans to introduce new lower priced advanced messaging service offerings in
1999, such as "local only" service and campus applications, which could also
impact average monthly revenue per domestic unit in service.
During the first half of 1999, one-way messaging operations provided
approximately 61% of SkyTel's consolidated revenues as compared to 70% in the
first half of 1998. Advanced messaging operations provided approximately 34% of
consolidated revenues during the first half of 1999 as compared to 23% in the
first half of 1998. Other SkyTel operations provided less than 1% of revenues
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in the first half of both 1999 and 1998. During the second quarter of 1999, one-
way messaging operations provided approximately 59% of SkyTel's consolidated
revenues as compared to 67% in the second quarter of 1998. Advanced messaging
operations provided approximately 36% of consolidated revenues during the second
quarter of 1999 as compared to 26% in the second quarter of 1998. Other SkyTel
operations provided less than 1% of revenues in the second quarter of both 1999
and 1998.
For the first six months of 1999, SkyTel's consolidated revenues include
revenues recorded by the Company's international operations in Argentina,
Colombia, Costa Rica, Uruguay and Venezuela. Revenues recorded by the Company's
consolidated international operations provided approximately 5% of SkyTel's
consolidated revenues in both the three month and six month periods ended June
30, 1999, as compared to 7% of consolidated revenues during the same periods of
1998. Revenues from international operations during the first six months of 1999
decreased 23.7% as compared to the first six months of 1998 and decreased 26.3%
during the second quarter of 1999 as compared to the second quarter of 1998.
This decrease resulted, in part, from the transfer of the Company's Puerto Rican
operations from Mtel Latin America, Inc. ("Mtel Latam"), the holding company for
the Company's Latin American operations, to a wholly-owned domestic operating
subsidiary and the inclusion of the operating results of the Puerto Rican
operations as part of the Company's domestic one-way messaging business segment
as of June 30, 1998. In addition, the Company's operating results in Latin
America in the second quarter of 1999 continued to be impacted by the general
economic conditions prevailing throughout the region and increased competition
from cellular telephone and other telecommunication services. The Company cannot
predict the extent to which such competitive services will affect the future
operating results of the Company's Latin American operations.
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EXPENSES
Expenses include operating, selling, general and administrative, and
depreciation and amortization.
Operating expenses primarily consist of 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 11% in the first half of 1999 as compared to the first half of 1998
and increased 6% in the second quarter of 1999 as compared to the second quarter
of 1998. This increase primarily reflects increased telephone and system costs
associated with the one-way and advanced messaging subscriber base in the United
States and increased transmitter and receiver site rentals resulting from the
continued expansion of coverage of the Company's Advanced Messaging Network in
the United States. As a percentage of consolidated revenues, operating expenses
remained level at 28% for the first six months of 1999 as compared to the first
six months of 1998, and 28% in the second quarter of 1999 as compared to 29% in
the second quarter of 1998. SkyTel expects to incur increased operating expenses
during the remainder of 1999 and in future periods, primarily as a result of the
continued 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 9% in the first half of 1999 as compared to the first half of
1998 and increased 5% in the second quarter of 1999 as compared to the second
quarter of 1998. Operating expenses related to advanced messaging
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operations in the United States increased 19% in the first six months of 1999 as
compared to the first six months of 1998 and increased 10% in the second quarter
of 1999 as compared to the second quarter of 1998. Operating expenses of the
Company's international subsidiaries decreased 15% in the first half of 1999 as
compared to the first half of 1998 and decreased 13% in the second quarter of
1999 as compared to the second quarter of 1998; however, operating expenses for
the Company's international subsidiaries increased as a percentage of revenues
to 32% in the first half of 1999 as compared to 29% in the first half of 1998
and increased as a percentage of revenues to 34% in the second quarter of 1999
as compared to 29% in the second quarter of 1998.
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 remained constant in both the first half
and second quarter of 1999 as compared to the first half and second quarter of
1998 primarily as a result of decreased selling expenses and shipping costs
resulting from the slower growth in net unit additions during the first half and
second quarter of 1999. As a percentage of consolidated revenues, selling,
general and administrative expenses decreased to 45% in the first six months of
1999 as compared to 50% in the first six months of 1998 and decreased to 44% in
the second quarter of 1999 as compared to 49% in the second quarter of 1998. The
Company anticipates that selling, general and administrative expenses will
increase during the remainder of 1999 as a result of the continued expansion of
the Company's direct sales force and advertising and marketing expenses that
will be incurred in connection with the promotion of products and services on
the Advanced Messaging Network.
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Selling, general and administrative expenses related to the one-way
messaging system in the United States decreased 4% in the first half of 1999 as
compared to the first half of 1998 and decreased 2% in the second quarter of
1999 as compared to the second quarter of 1998. Selling, general and
administrative expenses related to advanced messaging operations in the United
States increased 33% in the first six months and 32% in the second quarter of
1999 as compared to the same periods in 1998. Selling, general and
administrative expenses of the Company's international subsidiaries decreased
45% in the first half of 1999 as compared to the first half of 1998 and
decreased 59% in the second quarter of 1999 as compared to the second quarter of
1998.
Depreciation and amortization on a consolidated basis increased 1% in
the first six months of 1999 as compared to the first six months of 1998 and
remained flat in the second quarter of 1999 as compared to the second quarter of
1998. The adoption of the SOP, which was effective as of January 1, 1998,
resulted in a one-time, non-cash charge of $58.1 million of previously
capitalized start-up costs relating primarily to the development and
construction of the Advanced Messaging Network and reduced depreciation and
amortization expenses by approximately $2.5 million in each of the first and
second quarters of 1998. See Note 8 of Notes to Consolidated Financial
Statements. As a percentage of revenues, depreciation and amortization
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expenses on a consolidated basis decreased to 16% in both the first half and
second quarter of 1999 as compared to 18% in both the first half and second
quarter of 1998.
OPERATING INCOME (LOSS)
SkyTel reported consolidated operating income of approximately $33.3
million for the first half of 1999 as compared to consolidated operating income
of approximately $8.9 million for the first half of 1998, and consolidated
operating income of approximately $18.2 million for the second quarter of 1999
as compared to consolidated operating income of approximately $5.7 million for
the second quarter of 1998. For the six-month period ended June 30, 1999,
one-way messaging operations recorded operating income of $42.8 million as
compared to $45.3 million in the first half of 1998 and for the three-month
period ended June 30, 1999, one-way messaging operations recorded operating
income of $20.5 million as compared to $21.5 million in the second quarter of
1998. Advanced messaging operations during the first six months of 1999 recorded
an operating loss of $4.2 million as compared to an operating loss of $25.4
million in the first half of 1998, and during the second quarter of 1999
recorded an operating loss of $0.5 million as compared to an operating loss of
$10.5 million in the second quarter of 1998. The Company's international
operations recorded an operating loss of $3.8 million during the first six
months of 1999 as compared to an operating loss of $9.3 million in the first six
months of 1998, and an operating loss of 1.0 million during the second quarter
of 1999 as compared to an operating loss of $5.0 million in the second quarter
of 1998.
Future levels of operating income will be dependent on the performance
of the Company's existing distribution channels, the successful implementation
of new distribution channels and the timely availability and market acceptance
of new services on its Advanced Messaging Network. In addition, the Company
cannot predict the extent to which competitive advanced messaging services or
other competitive telecommunication services will impact the Company's future
operating results.
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INTEREST EXPENSE AND INTEREST INCOME
Interest expense decreased 7% in the first half of 1999 as compared to the
first half of 1998 and decreased 4% in the second quarter of 1999 as compared to
the second quarter of 1998. The decrease in interest expense in the first half
and second quarter of 1999 resulted from a decrease in the Company's outstanding
bank debt, which was $55.5 million as of June 30, 1999 as compared to $115.5
million as of June 30, 1998.
Interest income totaled $0.7 million in the first six months of 1999 as
compared to $0.6 million in the first six months of 1998 and $0.4 million in the
second quarter of 1999 as compared to $0.2 million in the second quarter of
1998.
PROVISION FOR INCOME TAXES
SkyTel recorded a provision for state and local income taxes of $0.4
million and $2.0 million in the first six months of 1999 and 1998, respectively,
and 0.1 million and $1.0 million in the second quarter of 1999 and 1998,
respectively. The Company reported net losses for federal income tax purposes
during the six and three month periods ended June 30, 1999 and 1998, 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 June 30, 1999 and 1998 on the Company's $2.25
Cumulative Convertible Exchangeable Preferred Stock (the "$2.25 Preferred
Stock"). As a result of the conversion of all of the outstanding shares of PIK
Preferred Stock into Common Stock in May 1998, no amounts were accrued for stock
dividends on the PIK Preferred Stock in the first six months and second quarter
of 1999, as compared to approximately $2.1 million and $0.9 million of accrued
dividends in the first half and second quarter of
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1998, respectively. See Note 6 of Notes to Consolidated Financial Statements.
Although dividends on the $2.25 Preferred Stock and the PIK Preferred Stock were
not treated as an expense on the Company's consolidated statements of operations
and, therefore, did not affect reported net income, such dividends were deducted
from net income for the purpose of determining net income (loss) per common
share.
NET INCOME (LOSS)
SkyTel recorded consolidated net income of $6.7 million in the quarter
ended June 30, 1999, and $15.0 million in the six months ended June 30, 1999,
which included a $3 million one-time gain on the sale of assets. Combined with
the effect of preferred stock dividends, consolidated net income per common
share (on both a basic and diluted basis) in the quarter ended June 30, 1999 was
$.08 and for the six month period ended June 30, 1999 was $.18. Not including
the one-time gain, consolidated net income in the six month period ended June
30, 1999 was $12.0 million, which, combined with the effect of preferred stock
dividends, resulted in consolidated net income per common share (on both a basic
and diluted basis) of $.13. This compares to a consolidated net loss of
approximately $9.7 million, or $.22 per common share in the second quarter of
1998, and a consolidated net loss of approximately $19.6 million, or $.46 per
common share for the six month period ended June 30, 1998, before the cumulative
effect of the change in accounting principle related to the adoption of the SOP.
See Note 8 of Notes to Consolidated Financial Statements. For the first six
months of 1999, the Company's one-way messaging operations recorded net income
of $42.5 million, which was offset by a net loss of $22.6 million from advanced
messaging operations and a net loss of $5.8 million from international
operations. For the second quarter of 1999, the Company's one-way messaging
operations
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recorded net income of $20.5 million, which was offset by a net loss of $9.5
million from advanced messaging operations and a net loss of $3.1 million from
international operations.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company is exposed to market risk from changes in foreign currency
exchange rates and interest rates, which could impact its results of operations
and financial condition. SkyTel manages its exposure to these market risks
through its regular operating and financing activities and, when deemed
appropriate, through the use of derivative financial instruments. The Company
uses derivative financial instruments as risk management tools and not for
speculative or trading purposes.
The Company's policy is to manage interest rates through use of a
combination of fixed and variable rate debt. To manage this risk, the Company
has entered into certain interest rate swap agreements with respect to the
Senior Notes. See Note 5 of Notes to Consolidated Financial Statements. During
the quarter ended June 30, 1999, the Company repaid $17.0 million of variable
rate debt outstanding under its bank credit facility. Except as set forth above,
there has been no material change in the market risk associated with interest
rates during the second quarter of 1999.
Management periodically reviews its exposure resulting from adverse trends
in exchange rates and may take certain actions to reduce such risks. The
Company has not previously used derivative financial instruments to hedge its
foreign currency exchange rate risks due, in part, to the lack of availability
of appropriate hedging instruments in many of the countries in which the Company
has investments. There has been no material change in market risk associated
with foreign currency exchange rates during the second quarter of 1999.
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LIQUIDITY AND CAPITAL RESOURCES
DOMESTIC
The Company invested a total of $2.1 million in the first half of 1999,
including $1.7 million in the second quarter of 1999, to fund the expansion of
its one-way messaging system and the procurement of messaging devices to support
its one-way messaging subscriber base. In addition, in the first half of 1999,
the Company incurred capital expenditures of $21.7 million, including $14.5
million in the second quarter of 1999, for advanced messaging devices and
infrastructure equipment related to the continued expansion of the Advanced
Messaging Network. Capital expenditures in the second quarter of 1999 were
funded with cash generated from one-way messaging operations and cash on-hand at
the beginning of the quarter.
During the second quarter of 1999, the Company repaid $17.0 million of
indebtedness outstanding under its bank credit facility, and had a balance of
$55.5 million of borrowings outstanding as of June 30, 1999, as compared to a
balance of $115.5 million as of June 30, 1998. Letters of credit in the amount
of $4.4 million had been issued under the credit facility as of June 30, 1999,
and the credit available under the facility has been reduced by a corresponding
amount. As of June 30, 1999, the Company had borrowing availability under the
bank credit facility of approximately $115.1 million. The Company may be
required to incur additional borrowings under the bank credit facility during
the remainder of 1999 and in 2000 to fund capital expenditures and working
capital requirements, including the payment of interest on the Senior Notes, to
the extent that cash flows from operations do not satisfy these requirements.
INTERNATIONAL
During the first half of 1999, Mtel Latam required approximately $1.6
million to fund capital expenditures and working capital requirements of its
subsidiaries and joint ventures in Latin America.
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This amount was funded by a portion of the proceeds received by Mtel Latam from
the sale of Cumulative Accruing Pay-In-Kind Preferred Stock in January 1999.
Mtel Latam maintains a secured revolving line of credit with Credit
Lyonnais New York Branch (the "Latam Line of Credit"). Under the Latam Line of
Credit, as amended, Mtel Latam may borrow up to $20.0 million to fund capital
expenditures and working capital requirements (other than acquisitions).
Borrowings under the Latam Line of Credit bear interest at the "alternate base
rate" or LIBOR (as such terms are defined in the agreement relating to the Latam
Line of Credit, as amended) and are secured by the capital stock of Mtel Latam's
subsidiaries in Argentina, Colombia and Venezuela and its equity interest in the
Mexican joint venture. Borrowings under the Latam Line of Credit are evidenced
by a demand note and mature on December 31, 1999 or earlier at the discretion of
Credit Lyonnais New York Branch. As of June 30, 1999, Mtel Latam had borrowings
of $15.0 million outstanding under the Latam Line of Credit.
YEAR 2000 READINESS
Overview. The Year 2000 ("Y2K") issue exists because many computer systems
and applications, including those embedded in equipment and facilities, use
two-digit rather than four-digit date fields to designate an applicable year. As
a result, the systems and applications utilized by certain companies may not
properly recognize the Year 2000, or certain dates prior or subsequent thereto,
or process data which includes a reference to the Year 2000, potentially causing
data miscalculations or inaccuracies, or operational malfunctions or failures.
Since late 1997, the Company has devoted significant efforts to address
Y2K issues. The Company has developed a comprehensive, company-wide plan to
identify, evaluate and remediate Y2K issues (the "Y2K Project Plan") and has
established a Y2K Project Office to coordinate the implementation of the
Company's Y2K Project Plan. The Company has also established a cross-
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functional steering committee, which is comprised of management personnel from
key departments in the Company, that is responsible for oversight of Y2K
readiness activities. The Y2K Project Office and steering committee report to
the Company's Senior Vice President-Finance and Chief Financial Officer.
The Company's Y2K Project Plan is focused on those areas which are critical
to maintaining uninterrupted service to the Company's customers and includes
network systems, applications and infrastructure for the provision of one-way
and advanced messaging services and business information systems and
applications. In addition, the Y2K Project Plan includes a review of the Y2K
readiness of the Company's vendors, resellers, suppliers and other third parties
who have material relationships with the Company and its subsidiaries
(collectively, "External Parties"). The major phases of the Company's Y2K
Project Plan with respect to each of these categories include an inventory of
all hardware and software components with possible date implications, an
assessment of the Y2K readiness status of all inventory items, the remediation
of all Y2K issues which have been identified in the assessment phase, and
validation-testing and certification as to Y2K readiness of any items requiring
remediation.
Status. The Company has substantially completed the inventory, assessment,
remediation and validation-testing/certification phases of its Y2K Project Plan
relating to the Company's network operations in the United States, which
includes hardware and software components of the one-way and advanced messaging
network operation centers, as well as transmitters, receivers and other
equipment comprising the radio frequency ("RF") infrastructure of the Company's
messaging networks which are located at more than 4,400 sites throughout the
United States. The Company has also worked with the manufacturers of its RF
infrastructure equipment to conduct
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additional testing procedures to ensure the synchronization of certain
mission-critical infrastructure components with the network operation centers.
The Company has worked with the manufacturers of its one-way and advanced
messaging subscriber devices in order to confirm the Y2K readiness of such
devices. Based upon validation-testing conducted directly by the Company as well
as testing conducted in conjunction with the device manufacturers, the Company
has confirmed that all subscriber devices utilized on its networks are Y2K
compliant in all material respects, with the exception of approximately 100,000
older models of subscriber devices currently in use on the Company's networks.
Certain of these models will require manual reordering of message files on
January 1, 2000 and others will require manual resetting of the calendar
function on March 1, 2000, but the ability of these devices to receive messages
transmitted through the Company's network will not be impacted. The Company has
included information regarding the date issues involving such models of
subscriber devices on the SkyTel Y2K Web site.
The Company's Y2K Project Plan for its business information systems and
applications involves all hardware and software components which relate to major
internal business and administrative functions, such as customer service,
billing, inventory, and credit and collections. In early 1998, the Company
retained a software engineering consulting firm to assist the Company in the
assessment and remediation phases related to the Company's business information
systems, software and applications. The Company has substantially completed the
inventory, assessment, remediation and validation-testing/certification phases
for the mission-critical hardware and software comprising its business
information systems.
The Company in the ordinary course of business implements new software
applications and system upgrades in both its network operations centers and its
business information systems in
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connection with the development of new products and services and the enhancement
of existing systems and services. The Company intends to test and certify the
Y2K readiness of any new software or system upgrades as well as the Y2K
compatibility of such software or system upgrades with the Company's operating
systems. The Company's management has adopted procedures designed to restrict
the implementation of new software applications and system upgrades in its
network operations centers and business information systems in the fourth
quarter of 1999, and intends to conduct additional periodic Y2K testing of its
network operations centers and business information systems thereafter.
The Company has completed the inventory and assessment phases of the Y2K
Project Plan with respect to the operations conducted by its subsidiaries in
Latin America. Since the Company licenses its one-way messaging network
operations software to such subsidiaries and the one-way messaging networks in
Latin America generally use equipment, including subscriber devices, and
software of the type utilized by the Company's one-way messaging network in the
United States, the Company intends to apply the experience obtained in
remediating and testing its domestic one-way network operations center, RF
infrastructure and subscriber devices in Latin America. As a result, the
schedule for the remediation and validation-testing/certification phases of the
Y2K Project Plan related to the Latin American operations was structured to take
advantage of the Company's domestic experience. The Company estimates that Mtel
Latam has completed approximately 90% of the remediation and
validation-testing/certification phases for the mission-critical components of
the network operation centers, RF infrastructure and subscriber devices of its
Latin American subsidiaries. The Company expects to complete such phases during
the third quarter of 1999.
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The Company participated with a third-party vendor in the development of
the business information software which is used by the Company's Latin American
subsidiaries. The Company has completed the inventory and assessment phases and
estimates that it has completed approximately 90% of the remediation and
validation-testing/certification phases with respect to the business systems and
applications used by its Latin American operations. Mtel Latam expects to
complete these phases during the third quarter of 1999.
Mtel Latam has minority investments in joint ventures in certain countries
in Latin America which interconnect with the Company's international network.
Although Mtel Latam does not control or designate the management of these joint
ventures, Mtel Latam is assisting the management teams of these joint ventures
in their Y2K readiness efforts and is encouraging such management teams to adopt
a methodology similar to the Y2K Plan adopted by the Company. These joint
ventures also license the Company's one-way messaging network operations and
business information systems software and use equipment similar to that used by
the Company's subsidiaries in Latin America, and processes utilized by Mtel
Latam in completing the Y2K Project Plan for its subsidiaries will be made
available to these joint ventures.
External Parties. The Company is working directly with various
mission-critical External Parties such as its major equipment vendors,
telecommunications service providers, local radio common carriers and resellers
to assess and certify Y2K readiness, and has conducted or intends to conduct
testing procedures with certain of these External Parties in order to confirm
Y2K readiness. In addition, the Company has identified and prioritized other
External Parties that provide equipment and services to the Company for purposes
of assessing their Y2K readiness and has forwarded inquiries to more than 6,000
other External Parties in order to obtain reasonable assurance of their Y2K
readiness. The Company intends to assess all the responses it receives from
External
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Parties to evaluate Y2K readiness and to forward follow-up communications when
appropriate. The Company is also using the Internet as a resource for
determining the Y2K readiness of External Parties.
Contingency Plans. Contingency planning to maintain and restore service in
the event of natural disasters or technical problems has been part of the
Company's standard operating procedures, and the Company has leveraged this
experience in the development of contingency plans developed as part of the
Company's overall Y2K readiness activities. The Company retained a nationally
recognized contingency planning consulting firm to perform a business risk
assessment and impact analysis and to assist the Company in preparing the
contingency plans for its critical business functions and processes. The
contingency plans include: (i) a business impact analysis designed to identify
and quantify the potential impact on the Company in the event of an interruption
of normal business operations; (ii) an incident management plan to be used by
senior management and support personnel when responding to incidents that might
interrupt or impact the Company's ability to maintain normal business
operations; and (iii) business resumption plans and procedures to address
interruptions or failures of the Company's essential functions and services,
such as network operations and infrastructure, business systems and applications
or those provided by mission-critical External Parties. The Company completed
its initial Y2K contingency plans for its critical business functions and
processes in July 1999. The initial plan is currently being reviewed and
implemented by each of the Company's mission critical functional areas.
Costs. The Company estimates that the total cost of its Y2K readiness
efforts will not exceed $10.0 million. The Company has incurred or committed
approximately $4.1 million in connection with its Y2K readiness efforts through
June 30, 1999. The estimated Y2K costs have not been
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independently verified and may vary in the event of unforeseen Y2K remediation
costs or costs related to the implementation of the Company's contingency plans.
Certain costs budgeted for the procurement of upgrades or replacements of the
Company's network and business information systems have not been included in
this amount since these upgrades or replacements were being made by the Company
independent of Y2K readiness. In addition, the estimated Y2K costs do not
include the Company's internal costs, such as compensation and benefits of
employees delegated Y2K responsibilities, since such costs are not internally
allocated by the Company. The Company expects to fund its Y2K compliance efforts
with cash flows from operations.
The failure by the Company or certain External Parties to achieve Y2K
readiness with respect to any mission-critical aspect of the Company's business
could result in an interruption in, or a failure of, certain normal operations
or business activities of the Company. Such failures could materially and
adversely affect the Company's results of operations, financial condition or
liquidity. For example, the Company's networks are interconnected with, or
dependent upon, systems operated by third parties, including telecommunications
service providers and public utilities, and the ability of the Company's
networks to operate is dependent on these External Parties. Since External
Parties are responsible for addressing their own Y2K readiness, the Company is
unable to determine at this time whether any Y2K-related interruptions or
failures will occur or the extent to which any such interruptions or failures
might have a material impact on the Company's results of operations, financial
condition or liquidity. The Company's Y2K Project Plan has been designed to
reduce the level of uncertainty regarding the Company's Y2K readiness and the
Y2K readiness of External Parties. The Company believes that its Y2K Project
Plan will serve to substantially reduce the possibility of significant
interruptions or failures of the Company's operations as a result of Y2K issues.
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Certain information regarding the Company's Y2K readiness activities
constitutes forward-looking statements under the Private Securities Litigation
Reform Act of 1995. Such forward-looking statements are based upon certain
assumptions, and there can be no assurance that the Company's expectations will
be achieved, that there will not be delays or increased costs associated with
the Company's Y2K readiness activities or that the Company will be successful in
remediating all Y2K issues. Factors that could impact the success of the
Company's Y2K Project Plan include the availability of personnel trained in
specified technical areas involved in the Company's businesses, the ability to
locate and correct all relevant software code in its network and business
systems that could be affected by the Year 2000 and the successful remediation
of Y2K issues by mission-critical External Parties such as telecommunications
service providers or public utilities.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." This statement,
which applies to all entities, establishes accounting and reporting standards
for derivative instruments and for hedging activities. It requires that an
entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value.
SFAS No. 133 is effective for financial statements for fiscal years beginning
after June 15, 1999. SkyTel intends to comply with this statement and has not
yet determined the impact of SFAS No. 133 on its consolidated financial
statements.
34
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
The Company is not aware of any material legal or regulatory proceedings
involving the Company or its subsidiaries other than applications for approval
of the transfer of control of the licenses held by the Company and its
subsidiaries to MCI WorldCom, Inc. ("MCI WorldCom") pending before the FCC and
other license applications, renewals and 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
---------------------------------------------------
The Company's 1999 Annual Meeting of Stockholders was held on May 20,
1999 (the "1999 Annual Meeting"). At the 1999 Annual Meeting, Thomas G.
Barksdale, John T. Stupka and E. Lee Walker were elected directors of the
Company for a three year term expiring at the 2002 Annual Meeting of
Stockholders and until their respective successors are elected and qualified.
The holders of 50,845,871, 51,049,590 and 51,059,938 shares of Common Stock
present in person or by proxy at the 1999 Annual Meeting voted in favor of the
election of Messrs. Barksdale, Stupka and Walker, respectively, and the holders
of 578,461, 374,742 and 364,394 shares of Common Stock, respectively, withheld
their vote for such nominees. In accordance with the Bylaws of the Company,
Messrs. John N. Palmer, Gregory B. Maffei and John E. Welsh III. will continue
to serve as directors of the Company until the 2000 Annual Meeting of
Stockholders, and Messrs. Haley Barbour, and Jai P. Bhagat, and Drs. R. Faser
Triplett, and R. Gerald Turner will continue to serve as directors of the
Company until the 2001 Annual Meeting of Stockholders, in each case until their
respective
35
<PAGE>
successors are elected and qualified. The Company has entered into an Agreement
and Plan of Merger, dated as of May 28, 1999 (the "Merger Agreement"), that
contemplates the merger of the Company into a wholly owned subsidiary of MCI
WorldCom (the "Merger"). See Item 6(b) below. The Merger Agreement provides that
the directors of the Company will resign their positions as directors at the
effective time of the Merger. The Merger is expected to be completed in the
fourth quarter of 1999.
Item 5. Other Information
-----------------
None.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
The following Exhibits are filed as part of this Quarterly Report
on Form 10-Q:
Exhibit No. Description
2.1 Agreement and Plan of Merger, dated as of May 28,
1999, by and among MCI WorldCom, Inc., Empire
Merger, Inc. and SkyTel Communications, Inc. (the
"Merger Agreement") (Incorporated by reference at
Exhibit 2.1 to the Company's Report on Form 8-K
filed on June 3, 1999). The Merger Agreement does
not include the schedules thereto. The Company
hereby agrees to furnish supplementally a copy of
such omitted schedules to the Commission upon
request.
3.1 Amendment to Bylaws of SkyTel Communications, Inc.
dated July 23, 1999 (filed herewith).
4.1 Amendment No. 1, dated as of May 28, 1999, to the
Rights Agreement, dated as of July 26, 1989, between
SkyTel Communications, Inc. and The Chase Manhattan
Bank. (Incorporated by reference at Exhibit 4.1 to
the Company's Report on Form 8-K filed on June 3,
1999).
36
<PAGE>
4.2 Amendment No. 2, dated as of August 5, 1999, to the
Rights Agreement, dated as of July 26, 1989, between
SkyTel Communications, Inc. and NCNB Texas National
Bank, as amended May 28,1999. (Incorporated by
referenceat Exhibit 4.2 to the Company's Amendment No.
2 to Form 8-A filed on August 6, 1999).
4.3 Form of Indenture and Exchange Debenture relating to
the 4.5% Convertible Subordinated Debentures due 2003.
(Incorporated by reference at Exhibit 4.2 to the
Company's Form 8-A filed on August 5, 1999).
10.1 Stock Option Agreement, dated as of May 28, 1999, by
and between SkyTel Communications, Inc. and MCI
WorldCom, Inc. (Incorporated by reference at Exhibit
10.1 to the Company's Report on Form 8-K filed on June
3, 1999).
10.2 Revised form of SkyTel Communications, Inc. Change of
Control Severance Benefits Agreement (filed herewith).
10.3 Form of Retention Agreement (filed herewith).
27.1 Financial Data Schedule.
(b) Reports on Form 8-K
The Company filed a Current Report on Form 8-K dated June 3, 1999
reporting that the Company entered the Merger Agreement with MCI WorldCom.
The Merger Agreement provides that the Company will be merged with and into a
wholly owned subsidiary of MCI WorldCom.
37
<PAGE>
Under the terms of the Merger Agreement, holders of Company common
stock will be entitled to receive shares of MCI WorldCom common stock for each
share of Company common stock. The common stock exchange ratio will be fixed at
0.25 shares of MCI WorldCom common stock for each share of Company common stock,
so long as the average trading price for MCI WorldCom common stock is greater
than $80.00 per share during the 20 trading days ending three trading days prior
to the closing of the merger. If MCI WorldCom's average trading price is between
$72.00 and $80.00 per share, the exchange ratio will be increased to a number of
MCI WorldCom shares equal to $20.00 divided by the average price. If the average
trading price for MCI WorldCom common shares is less than $72.00 per share, the
exchange ratio will be fixed at 0.2778 shares of MCI WorldCom common stock for
each share of Company common stock.
Holders of the Company's $2.25 Cumulative Convertible Exchangeable
Preferred Stock (the "$2.25 Preferred Stock") will be entitled to receive one
share of a new class of MCI WorldCom preferred stock for each share of Company
preferred stock that they own. The MCI WorldCom preferred stock will be
convertible into MCI WorldCom common stock on a basis that gives effect to the
exchange ratio in the merger and will otherwise have the same terms as the
Company's $2.25 Preferred Stock.
The completion of the merger is subject to the satisfaction of certain
conditions, including the receipt of certain regulatory approvals and the
approval of the stockholders of the Company.
38
<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.
SKYTEL COMMUNICATIONS, INC.
Dated: August 13, 1999 By /s/ John T. Stupka
-----------------------------------
John T. Stupka
President and Chief Executive Officer
Dated: August 13, 1999 By /s/ Robert Kaiser
-----------------------------------
Robert Kaiser
Senior Vice President-Finance and
Chief Financial Officer
39
<PAGE>
SKYTEL COMMUNICATIONS, INC.
Effective July 23, 1999 the directors of SkyTel Communications, Inc., a
Delaware corporation (the "Corporation"), adopted the following resolution::
By-law Amendment
----------------
WHEREAS, Section 212 of the DGCL provides greater flexibility in the voting
process for stockholders of the Corporation than does Section 8 of the
Corporation's by-laws;
WHEREAS, the Board of Directors of the Corporation has determined that it
is in the best interest of the Corporation and its stockholders to permit
voting by telephone and electronic transmission as permitted under Section
212 of the DGCL.
NOW, THEREFORE BE IT RESOLVED, that Section 8 of the Corporation's By-laws
be and hereby is amended and restated in its entirety to read as follows:
"Section 8. Voting. Except as otherwise provided by law or by the
Certificate of Incorporation, each stockholder shall be entitled at every
meeting of the stockholders to one vote for each share of stock having
voting power standing in the name of such stockholder on the books of the
Corporation on the record date for the meeting. Each stockholder entitled
to vote at a meeting of stockholders may vote in person or by a proxy. A
stockholder may authorize another person or persons to act for him as proxy
by (i) executing a writing authorizing another person or persons to act for
him as proxy (such execution may be accomplished by the stockholder or his
authorized officer, director, employee or agent signing such writing or
causing his or her signature to be affixed to such writing by any
reasonable means including, but not limited to, by facsimile signature), or
(ii) transmitting or authorizing the transmission of a telegram, cablegram,
internet, interactive voice response system or other means of electronic
transmission (including by telephone) to the person who will be the holder
of the proxy or to a proxy solicitation firm, proxy support service
organization or like agent duly authorized by the person who will be the
holder of the proxy to receive such transmission, provided that any such
telegram, cablegram, internet, interactive voice response system or other
means of electronic transmission must either set forth or be submitted with
information from which it can be determined that the telegram, cablegram,
internet transmission, interactive voice response system or other
electronic transmission was authorized by the stockholder. No proxy shall
be voted or acted upon after three years from its date, unless the proxy
provides for a longer period. If no date is stated in a proxy, such proxy
shall be presumed to have been executed on the date of the meeting at which
it is to be voted. Each proxy shall be revocable unless expressly provided
therein to be irrevocable and coupled with an interest sufficient in law to
support an irrevocable power or unless otherwise made irrevocable by law.
When a quorum is present at any meeting, the vote of the holders of a
majority of the stock which has voting power present in person or
represented by proxy and which has actually voted shall decide any question
properly brought before such meeting, except the election or removal of
Directors or as otherwise provided in these By-Laws, the Certificate of
Incorporation or a Preferred Stock Designation. With respect to any
election or questions required to be decided by any class of stock voting
as a class,
<PAGE>
the vote of the holders of a majority of such class of stock present in
person or by proxy and which actually voted shall decide any such election
or question;"
<PAGE>
SKYTEL COMMUNICATIONS, INC.
CHANGE OF CONTROL SEVERANCE BENEFITS AGREEMENT
This AGREEMENT is made and entered into as of the ___ day of _________,
_____ ("Effective Date") by and between __________ (the "Executive") and SkyTel
Communications, Inc., a Delaware corporation (the "Company").
WITNESSETH:
WHEREAS, the Company desires to continue to employ the Executive and to
enter into an agreement to provide for severance benefits to the Executive upon
a Change of Control (as hereinafter defined) of the Company, subject to the
terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
1. DEFINITIONS.
Unless the context otherwise requires, the following terms shall have the
meaning ascribed to them below:
(a) "Cause" means the occurrence of any of the following:
-----
(i) the commission by the Executive of any act of fraud or
embezzlement against the Company of any affiliate;
(ii) the conviction of the Executive of a felony;
(iii) the breach by the Executive of any restrictive covenant or non-
competition/non-solicitation provision applicable to Executive;
or
(iv) the willful and continual failure by the Executive to perform
any of his duties or responsibilities and the failure of the
Executive to cure the same within thirty (30) days after written
notice thereof from the Company.
(b) "Change of Control" means the occurrence of any of the following
------------------
events:
(i) any "person" or "group," as such terms are used under Sections
13(d) and 14(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), other than the Company, any
trustee or any other fiduciary holding securities under an
employee benefit plan of the Company, or any corporation owned,
directly or indirectly, by the stockholders of the Company in
substantially the same proportions as their ownership of Common
Stock of the Company, is or becomes the "beneficial owner" (as
defined in Rule 13d-3
<PAGE>
under the Exchange Act), of securities of the Company
representing thirty percent (30%) or more of the combined voting
power of the Company's voting securities then outstanding;
(ii) during any period of two consecutive years, individuals who at
the beginning of such period constituted the Board of Directors
of the Company, cease for any reason to constitute a majority
thereof (unless the election, or nomination for election by the
Company's stockholders, of such director was approved by a vote
of at least two-thirds (2/3) of the directors then still in
office who either were directors at the beginning of such period
or whose election or nomination for election was previously so
approved).
(iii) the stockholders of the Company approve a merger or
consolidation of the Company with another corporation, other
than (A) a merger or consolidation which would result in the
voting securities of the Company outstanding immediately prior
thereto continuing to represent (either by remaining outstanding
or by being converted into voting securities of the surviving
entity) more than eighty percent (80%) of the combined voting
power of the voting securities of the Company or such surviving
entity outstanding immediately after such merger or
consolidation, or (B) a merger or consolidation affected to
implement a recapitalization of the Company (or similar
transaction) in which no "person" (as hereinabove defined)
acquires more than thirty percent (30%) of the combined voting
power of the Company's voting securities then outstanding voting
securities; or
(iv) the stockholders of the Company approve a plan of complete
liquidation of the Company or any agreement for the sale or
disposition by the Company of all or substantially all of the
Company's assets.
(c) "Confidential Information" means data and information relating to the
------------------------
business of the Company which is or has been disclosed to the
Executive during the term of his or her employment with the Company
or any of its subsidiaries or of which the Executive became aware as
a consequence of or through his or her relationship to the Company or
any of its subsidiaries. Confidential Information shall not include
any data or information that has been voluntarily disclosed to the
public by the Company (except where such public disclosure has been
made by the Executive without authorization), or that has been
independently developed and disclosed by others, or that otherwise
enters the public domain through lawful means.
2
<PAGE>
(d) "Good Reason" means the occurrence of any of the following events:
-----------
(i) the modification of the Executive's job title, position or
responsibilities without the Executive's prior written
consent;
(ii) the change of the location where the Executive is based to a
location which is more than thirty-five (35) miles from his
present location without the Executive's prior written
consent; or
(iii) the reduction of the Executive's actual or projected annual
salary and bonus by more than ten percent (10%) from the sum
of the highest rate of the Executive's actual annual salary
and bonus in effect within two years immediately preceding the
Change of Control.
2. BENEFITS UPON A CHANGE OF CONTROL
(a) Severance Benefits. If the Executive's employment with the Company
------------------
is terminated (i) by the Company (or by the acquiring or successor
business entity following a Change of Control) other than for Cause,
death or disability, or (ii) by the Executive for Good Reason, in
either event within a period beginning 180 days before, and ending
one year after, the date of a Change of Control, the Executive shall
receive a severance benefit in an amount equal to two times the sum
of:
(x) the Executive's highest annual cash base salary in effect
within two years immediately preceding the Change of Control;
plus
(y) the average of the Executive's annual bonuses paid for the
two calendar years immediately preceding the Change of
Control.
(b) Form of Payment. The amount of the severance benefit provided in
---------------
Section 2(a) hereof shall be paid to Executive in two installments,
the first installment payable as soon as practicable after the
occurrence of the event giving rise to the payment of the severance
benefit by the Company hereunder, but in no event more than thirty
(30) days thereafter, and the second installment payable one year
following the occurrence of such event provided, however, that the
severance benefit payable by the Company pursuant to Section 2(a)
hereof will be reduced by any other cash payments made to the
Executive pursuant to any other written agreement between the
Executive and the Company as a result of the occurrence of a Change
of Control.
(c) Parachute Payment Offset. Notwithstanding the provisions of Section
------------------------
2(a) hereof, if payments and benefits under this Agreement when
combined with all other "payments in the nature of compensation"
(within the meaning of Section 280G of the Internal Revenue Code of
1986, as amended (the "Code") payable in the event of a Change of
Control would result in a "parachute payment" within the meaning of
Code Section 280G of the Code, as determined by the Company, then
the aggregate payments and benefits hereunder shall not exceed the
largest amount (when combined
3
<PAGE>
with all other "payments in the nature of compensation"), as
determined by the Company, that can be paid to the Executive by the
Company without resulting in a "parachute payment." In the event the
aggregate payments and benefits hereunder are required to be
reduced, Executive shall be entitled to choose which payments and
benefits hereunder will be reduced.
3. MITIGATION. The Executive shall not be required to mitigate the amount of
any payment provided for in this Agreement by seeking other employment or
otherwise, and the amount of any payment or benefit provided for in this
Agreement shall not be reduced by any compensation earned by the Executive
as a result of employment by another employee or by retirement benefits
except as provided in Sections 2(b) and 2(c) hereof.
4. NON-COMPETITION, NON-SOLICITATION AND NON-DISCLOSURE OF PROPRIETARY
INFORMATION.
(a) Agreement Not to Compete. The Executive agrees that for a period of
------------------------
one(1) year after the termination of his employment with the Company
(the "Applicable Period"), the Executive will not (except with the
prior written consent of the Company) engage in or assist
indirectly, whether as an officer, director, partner, owner,
employee, consultant, agent or otherwise, or have a controlling
interest in any business or enterprise that competes in the United
States with the business of providing one-way or two-way messaging
businesses in which the Company and its subsidiaries are engaged.
(b) Agreement Not to Solicit Customers. The Executive agrees that during
----------------------------------
the Applicable Period he will not, either directly or indirectly, on
the Executive's own behalf or in the service of or on behalf of
others, solicit or divert, or attempt to solicit or divert any
individual or entity (i) which was a customer of the Company or any
of its subsidiaries affiliates or joint ventures, or (ii) with whom
the Executive had direct or indirect contact as part of his
employment during the Executive's last year of employment with the
Company or any of its subsidiaries, affiliates or joint ventures.
(c) Agreement Not to Solicit Employees. The Executive agrees that during
----------------------------------
the Applicable Period he will not, either directly or indirectly, on
the Executive's own behalf or in the service of or on behalf of
others, solicit, divert or hire away, or attempt to solicit, divert
or hire away, any person employed by the Company or any of its
subsidiaries, affiliates or joint ventures.
(d) Agreement Not to Disclose Confidential Information.
--------------------------------------------------
(i) Confidentiality. All Confidential Information and all
---------------
physical embodiments thereof received or developed by the
Executive while employed by the Company are confidential
and will remain the sole and exclusive property of the
Company. The Executive will hold such Confidential
Information in trust and strictest confidence and will not
use, reproduce, distribute, publicly disclose or otherwise
disseminate to any third party any Confidential
4
<PAGE>
Information or any physical embodiments thereof for a
period of two (2) years following the termination of
Executive's employment with the Company.
(ii) Return of Company Property. Upon termination of the
--------------------------
Executive's employment with the Company, the Executive will
promptly deliver to the Company all property belonging to
the Company including, without limitation, all Confidential
Information then in the Executive's custody, control or
possession.
(e) Terms of This Section Not to Supersede Other Restrictive Provisions.
-------------------------------------------------------------------
The terms and conditions contained in this Section shall not supersede
the terms and conditions of any other agreements applicable to the
Executive, but are in addition thereto.
5. TERM. This Agreement shall remain in effect until earlier of (a) one year
after the occurrence of a Change of Control; or (b) three years from the
Effective Date of this Agreement; provided that if a Change of Control
occurs between the second and third years following the Effective Date,
this Agreement will terminate one year after the Change of Control.
6. NO GUARANTEE OF EMPLOYMENT. Notwithstanding any other provision of this
Agreement to the contrary, nothing in this Agreement shall entitle the
Executive to be employed for any certain period of time by the Company or
its subsidiaries or affiliates, and the Company or the Executive shall have
the right to terminate the employment relationship at any time.
7. REPRESENTATIONS AND WARRANTIES. The Company hereby represents and warrants
to the Executive that: (a) this Agreement has been duly authorized,
executed and delivered to the Company and constitutes the valid and binding
obligation of the Company enforceable in accordance with its terms; (b) the
execution and delivery of this Agreement by the Company does not violate
any provision of applicable law, rule or regulation, or the certificate of
incorporation or bylaws of the Company.
8. WAIVER OF BREACH. It is agreed that failure on the part of one party to
this Agreement to seek to enforce this Agreement as to a specific breach
will not constitute a waiver by that party of its or his right to enforce
the Agreement as to similar or other breaches of the Agreement thereafter.
9. AMENDMENTS; FURTHER ACTIONS. This Agreement may not be altered, modified
or amended except by a written instrument signed by each of the parties
hereto. The Company shall take whatever additional actions may be necessary
or appropriate to carry out its obligations under this Agreement and to
permit the Executive to enforce his other rights and benefits hereunder.
10. ASSIGNMENT; SURVIVAL OF RIGHTS.
5
<PAGE>
(a) Neither this Agreement nor any of the rights or obligations hereunder
may be assigned or delegated by the Executive, provided, however, that
this Agreement and all the benefits to which the Executive is entitled
hereunder shall inure to the benefit of and be enforceable by the
estate of the Executive and the Executive's personal or legal
representatives, executors, administrators, heirs and beneficiaries.
(b) This Agreement shall be binding upon the Company and its successors
and assigns. Upon the occurrence of a Change of Control, the Company
shall assign this Agreement to the acquiring or successor business
entity effective as of the date of such Change of Control, and such
acquiring or successor business entity shall assume and perform all of
the obligations, terms and provisions imposed by this Agreement upon
the Company. The Company shall take whatever actions are necessary or
appropriate to assure that such acquiring or successor entity
expressly assumes the obligations of the Company to Executive under
this Agreement and shall cause such successor business entity to
evidence the assumption of such obligations in an agreement
satisfactory to the Executive.
11. SEVERABILITY. In the event that any one or more of the provisions of this
Agreement shall be or become invalid, illegal or unenforceable in any
respect, the validity, legality and enforceability of the remaining
provisions contained herein shall not be affected thereby.
12. ENTIRE AGREEMENT. This agreement contains the entire understanding of the
parties with respect to the subject matter hereof.
13. NOTICES. Notices and all other communications provided for in this
Agreement shall be in writing and shall be deemed to have been duly given
when personally delivered or when mailed by United State registered mail,
return receipt requested, postage prepaid, addressed as follows:
If to the Executive to:
__________________
__________________
If to the Company to:
SkyTel Communications, Inc.
200 South Lamar Street
Skytel Centre, South Building
Jackson, Mississippi 39201
Attn: Senior Vice President and General Counsel
or to such other address as the Executive or the Company shall designate in
writing in accordance with this Section 13, except that notices regarding
changes in address shall be effective only upon receipt.
6
<PAGE>
14. HEADINGS. Heading to sections in this Agreement are for the convenience of
parties only and are not intended to be a part of or to affect the meaning
or interpretation of this Agreement.
15. GOVERNING LAW. This Agreement shall be governed by the laws of the State of
Mississippi without reference to the principles of conflict of laws. The
parties hereto consent to the jurisdiction of the federal and state courts
of the State of Mississippi in connection with any claim of controversy
arising out of or in connection with this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date and year first written.
SKYTEL COMMUNICATIONS, INC.
----------------------------------------
Name:
Title:
EXECUTIVE
----------------------------------------
Name:
Title:
7
<PAGE>
June 11, 1999
VIA HAND DELIVERY
- -----------------
[NAME]
200 South Lamar Street
North Tower
Jackson, MS 39201
Re: Retention Bonus
---------------
Dear [NAME]:
As you know, SkyTel Communications, Inc. (the "Company") recently entered
into a merger agreement with MCI WORLDCOM, Inc. In order to protect and enhance
the Company's value during the process of completing such transaction, the
Company has determined that it would be appropriate to adopt special retention
arrangements for certain key employees. You are one of those employees.
Accordingly, the Company has decided to offer you a retention bonus equal to
100% of your current base annual salary, or $XXXXXX. Subject to the terms of
this letter, you will be entitled to the retention bonus if you continue as a
full-time employee through the dates specified below.
You will receive an amount equal to 50% of the retention bonus if you
continue as a full-time employee of the Company from the date of this letter
through July 31, 1999, regardless of whether the merger transaction is then
pending or completed. If you thereafter continue as a full-time employee of the
Company through the date that is six months after the closing date of the merger
transaction, you will receive the remaining 50% of the retention bonus (the
"Second 50%"). In the event the Company terminates your employment for any
reason other than cause (as defined below) before you have received the entire
bonus, the Company will pay any unpaid portion of the bonus to you within ten
days following your termination. The termination of the merger agreement will
not affect your rights hereunder, except that, if the merger agreement is
terminated, the Second 50% will be payable on the earlier of January 31, 2000
and the closing of any other merger in which the Company is a constituent
corporation. No retention bonus will be paid if, prior to the date the
applicable portion of the bonus is earned, you voluntarily terminate from the
Company for any reason, you terminate from the Company due to death or
disability, or you are terminated by the Company for cause. As used in this
letter, "cause" is limited to (i) any intentional act of fraud or embezzlement
by you, (ii) your conviction of a felony, (iii) your intentional and material
breach of any nondisclosure or non-competition/non-solicitation provision of any
agreement to which you and the Company or a subsidiary are parties, or (iv) your
intentional and continual failure to perform in all material respects your
duties with the
<PAGE>
Company (other than as a result of death or disability) and your failure to cure
the same in all material respects within 30 days after written notice thereof
from the Company, if any such act is demonstrably and materially harmful to the
Company.
The retention bonus is in addition to any other compensation due to you
from the Company. Any payment will be made to you in a lump sum within ten
business days after becoming due, and will be treated as ordinary income subject
to normal federal, state and local tax withholding.
The Company is offering this retention bonus as an incentive for you to
assist the Company during the closing of the merger transaction involving the
Company and MCI WORLDCOM, Inc. Your availability to help our performance and
the Company's efforts in connection with a merger can make a big difference to
the Company, and ultimately to you as well. We hope this retention bonus will
cause you to stay at the Company during this important time in its history.
Only a few selected employees will be participating in this program, and we
therefore ask you to keep this matter confidential.
This letter is not a promise of continued employment. You further
understand that the Company is under no obligation, express or implied, to
complete any particular transaction.
Thanks for your continued assistance and support. Please indicate your
agreement with the foregoing by signing both copies of this letter where
indicated and return one fully executed copy to Leonard G. Kriss at the Company.
Sincerely,
SkyTel Communications, Inc.
By:
-----------------------------------
John T. Stupka
President & Chief Executive Officer
AGREED TO AND ACCEPTED:
- -----------------------
[NAME]
2
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
BALANCE SHEET AS OF JUNE 30, 1999 AND CONSOLIDATED STATEMENT OF OPERATIONS FOR
THE SIX MONTHS ENDED JUNE 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 17,983,024
<SECURITIES> 0
<RECEIVABLES> 86,819,709
<ALLOWANCES> 25,076,560
<INVENTORY> 0
<CURRENT-ASSETS> 91,851,111
<PP&E> 477,624,690
<DEPRECIATION> 232,213,628
<TOTAL-ASSETS> 625,933,165
<CURRENT-LIABILITIES> 124,953,272
<BONDS> 326,924,000
37,500
0
<COMMON> 602,172
<OTHER-SE> 136,278,104
<TOTAL-LIABILITY-AND-EQUITY> 625,933,165
<SALES> 280,723,622
<TOTAL-REVENUES> 280,723,622
<CGS> 0
<TOTAL-COSTS> 247,377,396
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<INCOME-TAX> 433,710
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</TABLE>
