UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
---------
(Mark One)
- - -----------
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the Period Ended March 31, 1996
Or
[ ] Transition Report Pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934
For the Transition Period From __________ to ___________
Commission file number 0-26320
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MOBILEMEDIA CORPORATION
- - --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 22-3253006
- - ------------------------- --------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
65 Challenger Road
Ridgefield Park, NJ 07660
- - ------------------------------ ----------------
(Address of principal executive offices) (Zip Code)
(201) 440-8400
--------------
(Registrant's telephone number, including area code)
Not Applicable
-----------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
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 and 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 issuer's classes of
common stock, as of the latest practicable date.
Title Shares Outstanding as of April 30, 1996
----- ---------------------------------------
Class A Common Stock, $.001 par value 45,592,227
Class B Common Stock, $.001 par value 2,362,900
Page 1 of 16 sequentially numbered pages
<PAGE>
MOBILEMEDIA CORPORATION
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1996
TABLE OF CONTENTS
-----------------
Page
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets
as of March 31, 1996 and December 31, 1995.................... 3
Consolidated Statements of Operations
for the Three Months Ended March 31, 1996 and
March 31, 1995................................................ 4
Consolidated Statement of Changes in Stockholders' Equity
for the Three Months Ended March 31, 1996 and
March 31, 1995................................................ 5
Consolidated Statements of Cash Flows
for the Three Months Ended March 31, 1996 and March 31, 1995.. 6
Notes to Consolidated Financial Statements...................... 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.....................10
PART II - OTHER INFORMATION
Item 3. Legal Proceedings.......................................15
Item 4. Submission of Matters to a Vote of Security Holders.....15
Item 5. Other Information.......................................15
Item 6. Exhibits and Reports on Form 8-K........................15
2
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
MOBILEMEDIA CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollar amounts in thousands)
<TABLE><CAPTION>
March 31, December 31,
1996 1995
------------ ------------
Assets (Unaudited)
<S> <C> <C>
Current assets
Cash and cash equivalents . . . . . . . . . . . . . . . $ 18,673 $ 21,461
Accounts receivable (less allowance for
uncollectible accounts of $11,004 and
$5,214 at March 31, 1996 and
December 31, 1995, respectively) . . . . . . . . . . 65,978 32,757
Inventories . . . . . . . . . . . . . . . . . . . . . . 23,103 9,623
Prepaid expenses . . . . . . . . . . . . . . . . . . . . 3,770 1,665
Other . . . . . . . . . . . . . . . . . . . . . . . . . 1,190 345
------------ -------------
Total current assets . . . . . . . . . . . . . . . . . . . 112,714 65,851
Cash designated for the MobileComm Acquisition . . . . . . 402,341
Investment in net assets of equity affiliate . . . . . . . 2,133 2,018
Property and equipment, net . . . . . . . . . . . . . . . . 344,657 194,543
Intangible assets, net . . . . . . . . . . . . . . . . . . 1,298,230 398,075
Other assets . . . . . . . . . . . . . . . . . . . . . . . 30,772 80,468
------------ -------------
Total assets . . . . . . . . . . . . . . . . . . . . . . . $ 1,788,506 $ 1,143,296
============ =============
Liabilities and stockholders' equity
Current liabilities
Accounts payable . . . . . . . . . . . . . . . . . . . . $ 69,520 $ 41,798
Accrued expenses . . . . . . . . . . . . . . . . . . . . 67,957 17,623
Advance billings and customer deposits . . . . . . . . . 38,110 12,986
----------- -------------
Total current liabilities . . . . . . . . . . . . . . . . . 175,587 72,407
Deferred tax liability . . . . . . . . . . . . . . . . . . 93,210
Long-term debt . . . . . . . . . . . . . . . . . . . . . . 970,461 476,156
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,752 1,539
Assets and liabilities of discontinued operations, net . . 9,090 9,090
Commitments and contingencies
Stockholders' equity
Preferred stock (no par, authorized 5,000,000 shares, no
shares issued and outstanding) ......................
Class A common stock ($.001 par, authorized 105,000,000
shares, 49,962,370 shares issued and outstanding at
March 31, 1996 and 49,882,409 issued and
outstanding at December 31, 1995) . . . . . . . . . . 50 50
Class B common stock ($.001 par, authorized 14,000,000
shares, 2,362,900 shares issued and outstanding at
March 31, 1996 and December 31, 1995) . . . . . . . . 2 2
Additional paid-in-capital . . . . . . . . . . . . . . . 689,045 688,256
Accumulated deficit . . . . . . . . . . . . . . . . . . (147,568) (98,081)
------------ ------------
541,529 590,227
Less treasury stock (4,375,000 Class A shares at March 31,
1996 and December 31, 1995) . . . . . . . . . . . . . (6,123) (6,123)
------------ ------------
Total stockholders' equity . . . . . . . . . . . . . . . . 535,406 584,104
------------ ------------
Total liabilities and stockholders' equity . . . . . . . . $ 1,788,506 $ 1,143,296
============ ============
</TABLE>
See accompanying notes.
3
<PAGE>
<TABLE><CAPTION>
MOBILEMEDIA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(dollar amounts in thousands, except per share amounts)
(UNAUDITED)
Three months ended March 31,
----------------------------------
1996 1995
--------------- ----------------
<S> <C> <C>
Revenues
Services, rents and maintenance . . . . . . . . . . $ 145,104 $ 46,200
Equipment sales and activation fees . . . . . . . . 17,543 7,384
------------- --------------
Total revenues . . . . . . . . . . . . . . . . . . . 162,647 53,584
Cost of products sold . . . . . . . . . . . . . . . . (17,087) (5,904)
------------- --------------
145,560 47,680
Operating expenses
Services, rents and maintenance. . . . . . . . . . 32,305 12,266
Selling . . . . . . . . . . . . . . . . . . . . . 26,278 9,399
General and administrative . . . . . . . . . . . . 43,343 13,745
Depreciation . . . . . . . . . . . . . . . . . . . 25,720 11,673
Amortization . . . . . . . . . . . . . . . . . . . 52,576 4,335
------------- --------------
Total operating expenses . . . . . . . . . . . . . . 180,222 51,418
------------- --------------
Operating (loss) . . . . . . . . . . . . . . . . . . (34,662) (3,738)
Other income (expense)
Income from equity affiliate . . . . . . . . . . . . 115
Interest expense, net . . . . . . . . . . . . . . . (20,988) (4,819)
------------- --------------
Total other income (expense) . . . . . . . . . . . . (20,873) (4,819)
------------- -------------
Loss from continuing operations
before income tax benefit . . . . . . . . . . . . . (55,535) (8,557)
Income tax benefit . . . . . . . . . . . . . . . . . 6,048
------------- --------------
Loss from continuing operations . . . . . . . . . . . (49,487) (8,557)
Loss from discontinued operations . . . . . . . . . . -- --
------------- --------------
Net loss . . . . . . . . . . . . . . . . . . . . . . $ (49,487) $ (8,557)
============= ==============
Net loss per common share and
common share equivalent
Continuing operations . . . . . . . . . . . . . . . $ (1.03) $ (0.36)
Discontinued operations . . . . . . . . . . . . . . 0.00 0.00
------------- --------------
Net loss per share . . . . . . . . . . . . . . . . . $ (1.03) $ (0.36)
============= ==============
Average common shares and common
share equivalents outstanding . . . . . . . . . . . 47,916,973 23,542,162
</TABLE>
See accompanying notes.
4
<PAGE>
<TABLE>
<CAPTION>
MOBILEMEDIA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(dollar amounts in thousands)
Additional
Common Stock Paid in Accumulated Treasury
--------------------
Class A Class B Capital Deficit Stock Total
------- ------- ---------- ----------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance at September 14, 1993 (date of
inception) .................................. $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Issuance of 14,999,995 shares of class A
common stock................................ 15 141,482 141,497
Issuance of 4,375,000 shares of class B
common stock................................ 4 6,119 6,123
Net loss...................................... (3,682) (3,682)
------ ------ -------- ---------- ------- ---------
Balance at December 31, 1993 15 4 147,601 (3,682) 0 143,938
Conversion of 4,375,000 shares of class B
common stock to class A common stock........ 4 (4) 0
Exchange of 4,375,000 shares of class A
common stock for Locate stock............... (6,123) (6,123)
Net loss...................................... (50,707) (50,707)
------ ------ -------- ---------- ------- ---------
Balance at December 31, 1994.................. 19 0 147,601 (54,389) (6,123) 87,108
Issuance of 185,225 shares of class A common
stock upon exercise of stock options........ 272 272
Issuance of 137,095 shares of class A common
stock pursuant to the MobileMedia call...... 1,371 1,371
Issuance of 2,362,900 shares of class B
common stock pursuant to the
MobileMedia call........................... 2 23,627 23,629
Issuance of 8,800,000 shares of class A
common stock-net of fees and expenses
of $10,915................................. 9 151,876 151,885
Issuance of 5,858,661 shares of class A
common stock pursuant to the Locate
Merger..................................... 6 8,600 8,606
Issuance of 15,525,000 shares of class A
common stock-net of fees and expenses of
$13,794.................................... 16 354,909 354,925
Net loss..................................... (43,692) (43,692)
------ ------ -------- --------- -------- ---------
Balance at December 31, 1995................. 50 2 688,256 (98,081) (6,123) 584,104
Issuance of 79,961 shares of class A common
stock upon exercise of stock options....... 789 789
Net loss (unaudited)......................... (49,487) (49,487)
------ ------ -------- --------- -------- ---------
Balance at March 31, 1996 (unaudited)........ $ 50 $ 2 $689,045 $(147,568) $(6,123) $535,406
====== ====== ======== ========= ======== =========
</TABLE>
See accompanying notes.
5
<PAGE>
MOBILEMEDIA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollar amounts in thousands)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months ended March 31,
-----------------------------
1996 1995
------------- -------------
<S> <C> <C>
Operating activities
Net loss........................................... $ (49,487) $ (8,557)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization...................... 78,296 16,008
Accretion of note payable discount................. 4,055 3,660
Provision for uncollectible accounts............... 6,260 876
Deferred income tax benefit........................ (6,048)
Undistributed earnings of affiliate................ (115)
Change in operating assets and liabilities:
Accounts receivable................................ (4,875) (1,949)
Inventories......................................... (4,460) (1,844)
Prepaid expenses and other assets.................. (188) (46)
Accounts payable, accrued expenses and other
liabilities........................................ 2,951 (9,547)
-------------- ---------------
Net cash provided by operating activities............ 26,389 (1,399)
-------------- ---------------
Investing activities:
Construction and capital expenditures, including
net changes in pager assets........................ (51,132) (16,157)
Investment in net assets of equity affiliate ...... (1,571)
Acquisition of businesses.......................... (866,460)
--------------- ---------------
Net cash used in investing activities................ (917,592) (17,728)
--------------- ---------------
Financing activities:
Proceeds from exercise of stock options............ 789
Payment of debt issue costs........................ (4,965)
Borrowings from revolving credit facilities........ 490,250 22,000
Repayments on revolving credit facilities.......... (6,000)
--------------- ---------------
Net cash provided by financing activities............ 486,074 16,000
--------------- ---------------
Net decrease in cash, cash equivalents and cash
designated for the MobileComm Acquisition.......... (405,129) (3,127)
Cash and cash equivalents at beginning of period..... 423,802 5,231
--------------- ---------------
Cash and cash equivalents at end of period........... $ 18,673 $ 2,104
=============== ===============
</TABLE>
See accompanying notes.
6
<PAGE>
MOBILEMEDIA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD ENDED MARCH 31, 1996
(dollars in thousands, except share data)
(UNAUDITED)
1. The Company
MobileMedia Corporation (the "Company") is the second largest paging
company in the U.S., with approximately 4.3 million units in service at March
31, 1996, and offers local, regional and national paging services to its
subscribers. The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries. The Company's business is conducted
primarily through the Company's principal operating subsidiary, MobileMedia
Communications, Inc. ("MobileMedia Communications") and its subsidiaries. All
significant intercompany accounts and transactions have been eliminated.
2. Acquisitions
On September 13, 1995, MobileMedia Communications entered into a purchase
and license transfer agreement to acquire 100% of the stock of Mobile
Communications Corporation of America ("MobileComm"), BellSouth Corporation's
("BellSouth") paging and wireless messaging unit, and an associated nationwide
two-way narrowband 50/12.5 kHz PCS license, and BellSouth agreed to enter into a
two-year non-compete agreement and a five-year reseller agreement with the
Company (the "MobileComm Acquisition"). The aggregate cash consideration paid
for the MobileComm Acquisition was $928,708. The Company closed this acquisition
on January 4, 1996.
The MobileComm Acquisition has been accounted for as a purchase transaction
in accordance with Accounting Principles Board Opinion No. 16 and, accordingly,
the financial statements for the periods subsequent to January 4, 1996 reflect
the purchase price and transaction costs of $30,830, allocated to tangible and
intangible assets acquired and liabilities assumed based on their preliminary
estimated fair values as of January 4, 1996.
The preliminary allocation of the MobileComm Acquisition purchase price is
summarized as follows:
Current assets..................................$ 58,129
Property and equipment.......................... 124,947
Intangible assets............................... 953,142
Other assets.................................... 143
Liabilities assumed............................. (176,823)
----------
$ 959,538
=========
On August 31, 1995, MobileMedia Communications purchased the paging business
(the "Paging Business") of Dial Page, Inc. ("Dial Page"), including the capital
stock of two wholly-owned Dial Page subsidiaries, and assumed certain
liabilities of the Paging Business (the "Dial Page Acquisition"). The purchase
price for the Paging Business was $187,396, comprised of cash and the assumption
by MobileMedia Communications of the aggregate principal amount of and accrued
interest on certain indebtedness of Dial Page.
7
<PAGE>
The following unaudited pro forma financial data presents the unaudited
results of operations of the Company for the three months ended March 31, 1995
as if the Dial Page Acquisition and MobileComm Acquisition had occurred on
January 1, 1995:
Three Months
Ended
March 31, 1995
--------------
(Unaudited)
Net revenue.................... $ 133,209
Net loss....................... $ (50,574)
Net loss per share............. $ (1.07)
The pro forma results do not purport to present actual operating results that
would have occurred had the purchase been made on January 1, 1995 or the results
which may occur in the future.
3. Unaudited Interim Financial Statements
The interim consolidated financial information contained herein is
unaudited but, in the opinion of management, includes all adjustments of a
normal recurring nature and non-recurring adjustments of $691 to record
executive separation expenses in the first quarter of 1995, which are necessary
for a fair presentation of the financial position, results of operations and
cash flows for the periods presented. Results of operations for the periods
presented herein are not necessarily indicative of results of operations for the
entire year. These financial statements and related notes should be read in
conjunction with the financial statements and notes included in the Company's
Annual Report on Form 10-K for the year ended December 31, 1995.
4. Reclassifications
Certain 1995 financial statement items have been reclassified to conform to
the 1996 presentation. These items include the reclassification of employee
benefits from general and administrative expense into services, rents and
maintenance and selling expense and the reclassification of customer service
expenses from service, rents and maintenance expense into general and
administrative expense.
5. Supplemental Cash Flow Information
Cash payments made for interest during the three months ended March 31,
1996 and 1995 were approximately $5,462 and $1,755, respectively. There were no
income taxes paid for the three months ended March 31, 1996 and 1995.
6. Income Taxes
In connection with the accounting for the MobileComm Acquisition, the
Company recorded deferred tax credits of $99,258 related to the excess of the
financial reporting basis over the tax basis of the MobileComm net assets. The
deferred tax credits recorded on the acquisition are net of the $37,456 of
valuation allowances previously established by the Company.
The Company has recognized a tax benefit in the current quarter based upon
the projected loss for the year ended December 31, 1996 and the projected
turnaround of the Company's temporary differences in the loss carry forward
period.
The Company's tax loss carryforward at March 31, 1996 is approximately
$92,000.
8
<PAGE>
7. Other Investments
On March 21, 1995, MobileMedia Communications purchased a 33% interest in
Abacus Communications Partners, L.P., a Delaware limited partnership, from
Abacus Business Services, Inc. for $1,641. Abacus Communications Partners, L.P.
is MobileMedia Communications' exclusive alphanumeric dispatch services
provider. The investment has been accounted for under the equity method in
accordance with Accounting Principles Board Opinion No. 18. Under the equity
method, original investments are recorded at cost and adjusted by MobileMedia
Communications' share of undistributed earnings or losses of the purchased
company. MobileMedia Communications' share of income of affiliate for the three
months ended March 31, 1996 was $115 and for the period of March 21, 1995 to
March 31, 1995 was not material.
8. New Credit Facility
On December 4, 1995, in connection with the financing of the MobileComm
Acquisition, MobileMedia Communications entered into a credit agreement (the
"Credit Agreement") with Chemical Bank, The Chase Manhattan Bank (National
Association) and certain other financial institutions (collectively, the
"Banks") pursuant to which the Banks have provided secured term and revolving
loan facilities of up to $750,000 to MobileMedia Communications (the "New Credit
Facility").
Loans under the New Credit Facility have been made available pursuant to
three tranches of loan commitments. The New Credit Facility provides for term
loans in the aggregate principal amounts of $412,500 (the "Tranche A Loans") and
$137,500 (the "Tranche B Loans") and revolving loans in the aggregate principal
amount of $200,000 (the "Revolving Credit Loans").
The Tranche A Loans were drawn on January 4, 1996, the date of closing of the
MobileComm Acquisition. The Tranche A Loans will be repaid in installments
beginning March 31, 1998 and ending June 30, 2002. As of December 31, 1995,
$68,750 of Tranche B Loans were outstanding. The remaining Tranche B funds were
drawn on January 4, 1996 and were used to fund a portion of the consideration
paid for the MobileComm Acquisition. Substantially all of the principal of the
Tranche B Loans will be repaid in installments beginning September 30, 2002 and
ending June 30, 2003.
The Revolving Credit Loans are made available through June 30, 2002 to
finance future working capital needs, capital expenditures and permitted
acquisitions, and for general corporate purposes. In addition, a portion of the
commitments under the Revolving Credit Loans were made available for the
issuance of letters of credit. The amount available for borrowing under the
revolving credit facility will be reduced quarterly beginning March 31, 1998 to
zero at June 30, 2002.
9. Subsequent Events
In October 1994, the Board of Directors of Local Area Telecommunications,
Inc. ("Locate"), a wholly-owned subsidiary of the Company, developed a plan to
sell substantially all of the assets of Locate. Accordingly, Locate has been
treated as a discontinued operation in the accompanying financial statements.
In April 1996 Locate and the Company entered into an agreement to sell Locate's
remaining business to a subsidiary of WinStar Communications, Inc. in exchange
for $17.5 million in the form of a convertible note and the assumption of
certain liabilities. The obligation of the parties to consummate the sale is
subject to regulatory approval. The Company anticipates consummation of the
sale in the second half of 1996. There can be no assurance, however, that the
sale will be consummated or that, if consummated, it will be consummated on the
terms described above.
9
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Cautionary statement for purposes of the "Safe Harbor" provisions of the
Private Securities Litigation Reform Act of 1995. Statements contained in this
Quarterly Report that are not based on historical fact are "forward looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. The "Risk Factors" and cautionary statements identifying important
factors that could cause actual results to differ materially from those in the
forward looking statements are detailed in the Company's 1995 10-K filing with
the Securities and Exchange Commission.
Presentation of Financial Condition and Results of Operations
The following is a discussion and analysis of the consolidated financial
condition and results of operations of the Company and should be read in
conjunction with the consolidated financial statements of the Company, including
the related notes thereto, contained elsewhere herein. As a result of
acquisitions, the Company's operating results for prior periods may not be
indicative of future performance.
The following definitions are relevant to a review and discussion for the
Company's operating results.
- - -Services, rents and maintenance revenues ("paging revenue"): includes
primarily monthly, quarterly, semi-annually and annually billed recurring
revenue, not dependent on usage, charged to subscribers for paging and related
services such as voice mail and pager repair and replacement.
- - -Net revenues: includes primarily paging revenues and sales of customer owned
and maintained ("COAM") pagers less cost of pagers sold.
- - -Services, rents and maintenance expenses: includes costs related to the
management, operation and maintenance of the Company's network systems.
- - -Selling expenses: includes salaries, commissions and administrative costs for
the Company's sales force and related marketing and advertising expenses.
- - -General and administrative expenses: includes primarily customer service
expense, executive management, accounting, office telephone, rents and
maintenance and information services.
As used herein, "EBITDA" represents earnings before other income (expense),
taxes, depreciation and amortization. Other income (expense) consists primarily
of interest expense. EBITDA is a financial measure commonly used in the
Company's industry and should not be construed as an alternative to operating
income (as determined in accordance with GAAP), as an alternative to cash flows
from operating activities (as determined in accordance with GAAP) or as a
measure of liquidity. EBITDA is, however, the primary financial measure by
which the Company's covenants are calculated under the agreements governing the
Company's indebtedness.
As used herein, the term "Acquisitions" refers to both the MobileComm
Acquisition and the Dial Page Acquisition.
Overview
The Company builds and operates wireless messaging and communications systems,
and generates revenues from the provision of paging and other wireless
communications services. The Company's strategy is to strengthen its industry
leadership position by continuing to provide superior paging and messaging
services at prices generally below those of the competition.
The Company's revenues are derived primarily from fixed periodic recurring
fees, not dependent on usage, charged to the Company's subscribers for paging
services. While a subscriber remains in the Company's service, future operating
results benefit from this recurring revenue stream with minimal requirements for
incremental selling expenses or other fixed costs. To reduce per unit costs,
the Company's four strategic initiatives emphasize efficient network loading,
high sales productivity and benefiting from centralized back office functions.
The Company's four strategic initiatives are: (i) Spectrum and Systems, (ii)
Sales Force and Services, (iii) Strategic Alliances and (iv) Scale Economies.
10
<PAGE>
Results of Operations
Results of Operations for the Quarter Ended March 31, 1996 Compared to
Results of Operations for the Quarter Ended March 31, 1995.
The following table presents certain items from the Company's Consolidated
Statement of Operations and certain other information for the periods indicated.
<TABLE>
<CAPTION>
(UNAUDITED)
Quarter Ended March 31,
----------------------------------------------------
1996 1995
--------------------- ---------------------
(in thousands, except percentage and unit data)
<S> <C> <C> <C> <C>
Consolidated Statement of Operations Data
Revenues
Services, rents and maintenance.......... $145,104 99.7 % $ 46,200 96.9 %
Equipment sales and activation fees...... 17,543 12.1 % 7,384 15.5 %
--------- -------- ----------- --------
Total revenues............................. 162,647 111.7 % 53,584 112.4 %
Costs of products sold..................... (17,087) (11.7) % (5,904) (12.4) %
--------- -------- ----------- -------
Net revenues............................... 145,560 100.0 % 47,680 100.0 %
Operating expenses
Services, rents and maintenance.......... 32,305 22.2 % 12,266 25.7 %
Selling.................................. 26,278 18.1 % 9,399 19.7 %
General and administrative............... 43,343 29.8 % 13,745 28.8 %
Depreciation and amortization............ 78,296 53.8 % 16,008 33.6 %
---------- -------- ----------- --------
Total operating expenses................... 180,222 123.8 % 51,418 107.8 %
---------- -------- ----------- --------
Operating loss.............................. (34,662) (23.8) % (3,738) (7.8) %
Total other expense......................... (20,873) (14.3) % (4,819) (10.1) %
---------- -------- ----------- --------
Loss from continuing operations before
income tax benefit........................ $(55,535) (38.2) % $ (8,557) (17.9) %
========== ======== =========== ========
Other Data
EBITDA...................................... $ 43,634 30.0 % $ 12,270 25.7 %
Average revenue per unit ("ARPU")........... $ 11.53 $ 10.20
Average monthly operating expense per unit.. $ 8.10 $ 7.82
Units in service (at end of period)......... 4,258,876 1,571,938
</TABLE>
Units in service increased by 2,686,938 to 4,258,876 as of March 31, 1996
when compared to March 31, 1995. The increase is attributable to 1,764,752
units acquired from the MobileComm Acquisition, 369,873 units acquired from
the Dial Page Acquisition and 552,313 units acquired from internal growth
through the Company's various distribution channels.
Services, rents and maintenance revenues increased 214.1% to $145.1 million
for the quarter ended March 31, 1996 due to continued growth in the number of
units in service added through the Company's distribution channels and
additional revenues associated with the Acquisitions. Additionally, ARPU
increased to $11.53 for the quarter ended March 31, 1996 from $10.20 for the
same quarter of 1995 largely due to the impact of the acquired subscribers
from MobileComm and Dial Page. Both acquired subscriber bases were
proportionally more weighted with direct and retail subscribers when compared
to the Company's existing base. Accordingly, ARPU increased as direct and
retail subscribers generally carry a higher ARPU.
Equipment sales and activation fees increased 137.6% to $17.5 million for
the quarter ended March 31, 1996. The increase in equipment sales is
attributable to the Company's significant presence in retail distribution as a
result of the MobileComm Acquisition. Equipment sales and activation fees,
less cost of products sold, decreased 69.2% to $456 thousand for the quarter
March 31, 1996. The decrease is attributable to a lowering of equipment
selling prices to large retailers as a means of generating increased subscriber
additions through the retail distribution channel.
Net revenues increased 205.3% to $145.6 million for the quarter ended March
31, 1996 compared to $47.7 million for the quarter ended March 31, 1995 as a
result of the above factors.
11
<PAGE>
Services, rents and maintenance expenses increased 163.4% to $32.3 million
for the quarter ended March 31, 1996 compared to $12.3 million for the quarter
ended March 31, 1995 primarily due to increased expense levels related to the
Acquisitions. The balance of the increase resulted primarily from network
access charges associated with the increase in nationwide paging units serviced
by networks other than those owned by the Company. As a result of the
MobileComm Acquisition, new nationwide customers added are being serviced by the
nationwide paging network acquired in that Acquisition. This trend will
continue, thereby lowering the Company's usage of third party networks and the
associated network access charges.
Selling expenses for the quarter ended March 31, 1996 increased 179.6% to
$26.3 million from $9.4 million for the quarter ended March 31, 1995 primarily
due to the increased expense levels related to the Acquisitions and increased
expenses related to the growth in sales through the Company's reseller
distribution channel. Reseller units in service increased by 782,049 to
1,193,649 as of March 31, 1996 when compared to March 31, 1995. Of the
increase, the Company acquired 403,846 reseller units from Acquisitions and
378,203 from internal growth. Selling expenses as a percentage of net revenue
decreased to 18.1% for the quarter ended March 31, 1996 from 19.7% for the
quarter ended March 31, 1995.
General and administrative expenses increased 215.3% to $43.3 million for
the quarter ended March 31, 1996 compared to $13.7 million for the quarter ended
March 31, 1995 and increased as a percentage of net revenues to 29.8% for the
quarter ended March 31, 1996 from 28.8% for the quarter ended March 31, 1995
primarily due to the increased expense levels related to the Acquisitions. The
balance of the increase resulted primarily from bad debt expense incurred to
increase the Company's allowance for doubtful accounts, increased customer
service expenses related to the assimilation of MobileComm's customer service
functions which is planned to occur during the second and third quarter, and
consulting fees related to the integration of the Acquisitions. In addition,
the Company paid $0.7 million in separation expenses in the first quarter of
1995 due to the departure of the Chairman of the Board of the Company.
Depreciation and amortization increased 389.1% to $78.3 million for the
quarter ended March 31, 1996 compared to $16.0 million for the quarter ended
March 31, 1995. The increase was primarily due to additional amortization
expenses related to the Acquisitions and increased pager depreciation resulting
from an increase in Company owned units being rented to subscribers. As a
percentage of net revenues, depreciation and amortization expense increased to
53.8% for the quarter ended March 31, 1996 from 33.6% for the quarter ended
March 31, 1995.
Operating loss increased 827.3% to $34.7 million for the quarter ended
March 31, 1996 from $3.7 million for the quarter ended March 31, 1995. The
increase was primarily due to increased amortization expenses relating to the
Acquisitions.
Other income (expense), principally interest expense, increased 335.5% to
$20.9 million for the quarter ended March 31, 1996 compared to $4.8 million for
the quarter ended March 31, 1995. The increase was primarily due to additional
debt incurred to finance the Acquisitions.
Losses from continuing operations before income tax benefit, as a result of
the above factors, increased 549.0% to $55.5 million for the quarter ended March
31, 1996 from $8.6 million for the quarter ended March 31, 1995.
EBITDA increased 255.6% to $43.6 million for the quarter ended March 31,
1996 compared to $12.3 million for the quarter ended March 31, 1995. As a
percentage of net revenues, EBITDA increased to 30.0% for the quarter ended
March 31, 1996 from 25.7% for the quarter ended March 31, 1995. The increase in
EBITDA was primarily due to continued growth in units in service and the
increase in net revenues.
12
<PAGE>
Liquidity and Capital Resources
The Company's operations and strategy require the availability of
substantial funds to finance the development and installation of wireless
communications systems, to procure subscriber equipment and to service debt.
Historically, these requirements have been funded by net cash from operating
activities, additional borrowings and capital contributions.
Capital expenditures and commitments. Capital expenditures were $51.1
million for the quarter ended March 31, 1996 compared to $16.2 million for the
quarter ended March 31, 1995. Capital expenditures increased $34.9 million for
the quarter ended March 31, 1996 over the corresponding period in 1995
principally as a result of the Acquisitions, increased pager purchases and the
construction of a nationwide one-way wireless network. Increased pager purchases
were largely attributable to increased growth in the subscriber base and
purchases of pagers to be sold on the Company's new nationwide one-way wireless
network beginning in the second quarter of 1996.
The Company estimates its capital expenditures for the calendar years 1996
and 1997 to total approximately $370 million (including the PCS development
costs described below). Capital expenditures will be primarily for the
procurement of pagers to support subscriber growth, to upgrade and expand the
Company's paging and wireless networks, to construct a two-way narrowband PCS
wireless network at an estimated cost of between $75 to $100 million, to
continue the upgrade of the Company's paging terminal infrastructure, to
construct a new customer service facility and to consolidate the Company's
management information and billing systems. There can be no assurance that cash
flow from operations and available additional borrowings will be sufficient to
fully meet the Company's capital requirements or that additional financing would
be available to the Company on acceptable terms.
As of March 31, 1996, the Company's debt service commitments consisted
principally of periodic interest expense payments on the New Credit Facility and
the 9 3/8% Senior Subordinated Notes due 2007. Cash interest payments on the 10
1/2% Senior Subordinated Deferred Coupon Notes (the "Deferred Coupon Notes") are
deferred until December 1, 1998. Absent the occurrence of certain events
requiring the Company to redeem the Deferred Coupon Notes or an acceleration of
the maturity of such Notes, there are no principal payments due on the Deferred
Coupon Notes until maturity in the year 2003.
MobileComm Acquisition. On January 4, 1996, the Company completed its
acquisition of MobileComm, BellSouth's paging and wireless messaging unit, and
an associated nationwide two-way narrowband 50/12.5 kHz PCS license, and
BellSouth agreed to enter into a two-year non-compete agreement and a five-year
reseller agreement with the Company. The aggregate consideration paid for the
MobileComm Acquisition (excluding fees and expenses and related financing costs)
was approximately $928.7 million.
Sources of Funds. The Company's net cash provided by operating activities
was $26.4 million for the quarter ended March 31, 1996 compared to a use of cash
by operating activities in the amount of $1.4 million for the quarter ended
March 31, 1995. Inventories increased $4.5 million from December 31, 1995 to
March 31, 1996 (excluding the MobileComm Acquisition). Accounts payable and
accrued expenses increased $3.0 million from December 31, 1995 to March 31, 1996
(excluding the MobileComm Acquisition), reflecting significant increased
investment in pagers to support growth in the subscriber base and expansion into
the reseller distribution channel, in addition to expenditures for paging
network equipment under the Company's capital investment program. Net accounts
receivable decreased $1.4 million from December 31, 1995 to March 31, 1996
(excluding the MobileComm Acquisition) due to an increase in the allowance for
doubtful accounts. Advance billings and customer deposits increased $0.6 million
from December 31, 1995 to March 31, 1996 (excluding the MobileComm Acquisition)
due to increases in customers billed on a quarterly basis.
On December 4, 1995, in connection with the financing of the MobileComm
Acquisition, MobileMedia Communications entered into the Credit Agreement. The
Credit Agreement provides for loan facilities aggregating $750 million,
consisting of $550 million of secured term and $200 million of revolving loan
facilities. The secured term loans are available in the aggregate principal
amounts of $412.5 million (the "Tranche A Loans") and $137.5 million (the
"Tranche B Loans"). MobileMedia Communications borrowed the full amount of
13
<PAGE>
the Tranche A Loans on January 4, 1996 to fund a portion of the consideration
for the MobileComm Acquisition. The Tranche A Loans must be repaid in
installments during the period beginning March 1998 and ending June 2002.
MobileMedia Communications borrowed the full amount of the Tranche B Loans in
equal parts on each of December 4, 1995 and January 4, 1996 to repay its former
credit facility and to fund a portion of the consideration of the MobileComm
Acquisition, respectively. Substantially all of the Tranche B Loans must be
repaid in installments during the period beginning September 2002 and ending
June 2003.
The $200 million revolving loan facility may be used to fund capital
expenditures and for working capital and general corporate purposes. Revolving
credit loans must be repaid in quarterly installments during the period
beginning March 1998 and ending June 2002. At March 31, 1996, $9.0 million was
outstanding under the revolving loan facility. MobileMedia Communications is
required to make mandatory prepayments of outstanding borrowings under the
Credit Agreement in an amount equal to 50% of its excess cash flow (as defined
in the Credit Agreement) during each fiscal year beginning with the 1998 fiscal
year.
MobileMedia Communications' obligations under the Credit Agreement are
secured by substantially all of the assets of MobileMedia Communications and all
of its subsidiaries, including the capital stock of the subsidiaries, and the
Company and the subsidiaries of MobileMedia Communications have guaranteed all
of MobileMedia Communications' borrowings, including principal and interest.
Performance of the Company's obligations as a guarantor is secured by a pledge
of the capital stock of MobileMedia Communications.
Effect of Inflation and Seasonality
Inflation and seasonality are not material factors affecting the Company's
business. Paging systems equipment and transmission costs have remained stable
while pager costs have declined over time (approximately 65% since 1985). This
decrease in pager costs has been reflected in lower prices charged to the
Company's subscribers. General operating expenses such as salaries, employee
benefits and occupancy costs are, however, subject to normal inflationary
pressures.
14
<PAGE>
PART II - OTHER INFORMATION
Item 3. Legal Proceedings
The Company is involved in various lawsuits and other matters arising in
the normal course of business. Although the outcomes of these claims and suits
are uncertain, the Company believes that these matters will not have a material
adverse effect on its financial position or results of operations.
On June 1, 1995, one of the Company's competitors, PageMart, Inc.
("PageMart"), filed suit against the Company in the United States District Court
for the Northern District of Texas alleging that the Company was infringing a
1993 PageMart patent entitled Simulcast Satellite Paging System with Provision
for Signal Interruption. On March 29, 1996, PageMart and the Company filed a
Joint Motion For Entry Of Order Of Dismissal and Agreed Order Of Dismissal,
whereby the parties advised the Court that all matters in dispute between them
have been fully resolved. Accordingly, all claims in the action and all parties
to the action have been dismissed by the Court with prejudice. This resolution
has been reached without any agreement or payment by the Company. Litigation
counsel to PageMart has advised litigation counsel to the Company that Motorola,
Inc. has agreed to acquire PageMart's patents, including the patent in suit,
pursuant to an agreement which also included, as one condition, dismissal with
prejudice of PageMart's suit against the Company.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits. None.
(b) Reports on Form 8-K.
(1) MobileMedia Corporation Form 8-K/A Amendment No. 1 dated
January 4, 1996 related to the MobileComm Acquisition.
7(a) Financial Statements of Business Acquired.
7(b) Pro Forma Financial Information.
7(c) Exhibits.
(2) MobileMedia Corporation Form 8-K/A Amendment No. 2 dated
January 4, 1996 related to the MobileComm Acquisition.
7(a) Financial Statements of Business Acquired.
7(b) Pro Forma Financial Information.
15
<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.
MobileMedia Corporation
By /s/ Santo J. Pittsman
-----------------------------
Santo J. Pittsman
Vice President and
Chief Financial Officer
Date: May 13, 1996
16
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
MOBILEMEDIA CORPORATION
FINANCIAL DATA SCHEDULE
FOR THE PERIOD ENDED MARCH 31, 1996
(dollar amounts in thousands, except per share data)
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
FOR THE PERIOD ENDED MARCH 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 18,673
<SECURITIES> 0
<RECEIVABLES> 76,982
<ALLOWANCES> (11,004)
<INVENTORY> 23,103
<CURRENT-ASSETS> 112,714
<PP&E> 471,703
<DEPRECIATION> (127,046)
<TOTAL-ASSETS> 1,788,506
<CURRENT-LIABILITIES> 175,587
<BONDS> 970,461
0
0
<COMMON> 52
<OTHER-SE> 535,354
<TOTAL-LIABILITY-AND-EQUITY> 1,788,506
<SALES> 17,543
<TOTAL-REVENUES> 162,647
<CGS> (17,087)
<TOTAL-COSTS> 32,305
<OTHER-EXPENSES> 147,917
<LOSS-PROVISION> 6,260
<INTEREST-EXPENSE> 20,988
<INCOME-PRETAX> (55,535)
<INCOME-TAX> (6,048)
<INCOME-CONTINUING> (49,487)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (49,487)
<EPS-PRIMARY> (1.03)
<EPS-DILUTED> (1.03)
</TABLE>
