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 September 30, 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
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 October 31, 1996
----- -----------------------------------------
Class A Common Stock, $.001 par value 45,597,357
Class B Common Stock, $.001 par value 2,362,900
Page 1 of 20 sequentially numbered pages
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MOBILEMEDIA CORPORATION
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1996
TABLE OF CONTENTS
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Page
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets
as of September 30, 1996 and December 31,1995................................. 3
Consolidated Statements of Operations
for the Three Months Ended September 30, 1996 and September 30, 1995 and
for the Nine Months Ended September 30, 1996 and September 30, 1995........... 4
Consolidated Statement of Changes in Stockholders' Equity
for the Nine Months Ended September 30, 1996 and September 30, 1995........... 5
Consolidated Statements of Cash Flows
for the Nine Months Ended September 30, 1996 and September 30, 1995........... 6
Notes to Consolidated Financial Statements...................................... 7
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations........................ 12
PART II - OTHER INFORMATION
Item 1. Legal Proceedings......................................................... 19
Item 3. Default upon Senior Securities ........................................... 19
Item 6. Exhibits and Reports on Form8-K........................................... 19
</TABLE>
2
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
MOBILEMEDIA CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollar amounts in thousands)
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
----------- -----------
(Unaudited)
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents .............................................................. $ 19,079 $ 21,461
Accounts receivable (less allowance for uncollectible accounts
of $15,170 and $5,214 at September 30, 1996 and December 31,
1995, respectively) ................................................................. 88,498 32,757
Inventories ............................................................................ 22,226 9,623
Prepaid expenses ....................................................................... 3,041 1,665
Other .................................................................................. 2,643 345
----------- -----------
Total current assets ..................................................................... 135,487 65,851
Cash designated for the MobileComm Acquisition ........................................... -- 402,341
Investment in net assets of equity affiliate ............................................. 1,983 2,018
Property and equipment, net .............................................................. 379,797 194,543
Intangible assets, net ................................................................... 1,180,647 398,075
Other assets ............................................................................. 30,067 80,468
----------- -----------
Total assets ............................................................................. $ 1,727,981 $ 1,143,296
=========== ===========
Liabilities and stockholders' equity
Current liabilities
Accounts payable ....................................................................... $ 78,049 $ 41,798
Accrued expenses ...................................................................... 66,643 17,623
Advance billings and customer deposits ................................................. 38,557 12,986
Current portion of long-term debt ...................................................... 649,000 --
----------- -----------
Total current liabilities ................................................................ 832,249 72,407
Deferred tax liability ................................................................... 72,097 --
Long-term debt ........................................................................... 420,876 476,156
Other .................................................................................... 3,637 1,539
Assets and liabilities of discontinued operations, net ................................... 2,224 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 ($.001 par, authorized 105,000,000 shares,
49,972,357 shares issued and outstanding at September 30, 1996 and
49,882,409 issued and outstanding at December 31, 1995) .............................. 50 50
Class B common stock ($.001 par, authorized 14,000,000 shares, 2,362,900
shares issued and outstanding at September 30, 1996 and
December 31, 1995) ................................................................... 2 2
Additional paid-in-capital ............................................................. 689,148 688,256
Accumulated deficit ................................................................... (286,179) (98,081)
----------- -----------
403,021 590,227
Less treasury stock (4,375,000 Class A shares at September 30, 1996
and December 31, 1995) .............................................................. (6,123) (6,123)
----------- -----------
Total stockholders' equity ............................................................... 396,898 584,104
----------- -----------
Total liabilities and stockholders' equity ............................................... $ 1,727,981 $ 1,143,296
=========== ===========
</TABLE>
See accompanying notes.
3
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MOBILEMEDIA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(dollar amounts in thousands, except per share amounts)
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
-------------------------------- --------------------------------
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues
Services, rents and maintenance ................ $ 142,708 $ 56,483 $ 431,046 $ 150,791
Equipment sales and activation fees ............ 21,422 7,620 56,781 22,761
------------ ------------ ------------ ------------
Total revenues ..................................... 164,130 64,103 487,827 173,552
Cost of products sold ............................. (22,626) (6,205) (56,423) (18,361)
------------ ------------ ------------ ------------
141,504 57,898 431,404 155,191
Operating expenses
Services,rents and maintenance ................. 35,181 15,521 101,802 40,903
Selling ........................................ 23,102 11,597 72,658 31,032
General and administrative ..................... 47,908 14,346 135,025 41,098
Depreciation ................................... 26,626 12,633 83,185 37,052
Amortization ................................... 53,277 5,224 159,811 13,876
------------ ------------ ------------ ------------
Total operating expenses ........................... 186,094 59,321 552,481 163,961
------------ ------------ ------------ ------------
Operating (loss) ................................... (44,590) (1,423) (121,077) (8,770)
Other income (expense)
Interest expense, net .......................... (24,250) (4,994) (67,087) (17,617)
Other .......................................... (77) (6) 66 (6)
------------ ------------ ------------ ------------
Total other income (expense) ....................... (24,327) (5,000) (67,021) (17,623)
------------ ------------ ------------ ------------
Loss from continuing operations
before income tax expense ...................... (68,917) (6,423) (188,098) (26,393)
Income tax expense ................................. (6,048) -- -- --
------------ ------------ ------------ ------------
Loss from continuing operations ................... (74,965) (6,423) (188,098) (26,393)
Loss from discontinued operations .................. -- -- -- --
------------ ------------ ------------ ------------
Net loss ........................................... $ (74,965) $ (6,423) $ (188,098) $ (26,393)
============ ============ ============ ============
Net loss per common share and
common share equivalent
Continuing operations .......................... $ (1.56) $ (0.20) $ (3.92) $ (1.03)
Discontinued operations ........................ 0.00 0.00 0.00 0.00
------------ ------------ ------------ ------------
Net loss per share ................................. $ (1.56) $ (0.20) $ (3.92) $ (1.03)
============ ============ ============ ============
Average common shares and common
share equivalents outstanding .................. 47,960,257 31,950,179 47,945,072 25,695,897
</TABLE>
See accompanying notes.
4
<PAGE>
MOBILEMEDIA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(dollar amounts in thousands)
<TABLE>
<CAPTION>
Common Stock Additional
--------------------- 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 89,948 shares of class A common
stock upon exercise of stock options ................ -- -- 892 -- -- 892
Net loss (unaudited) ................................. -- -- -- (188,098) -- (188,098)
--------- --------- --------- --------- --------- ---------
Balance at September 30, 1996 (unaudited) ............ $ 50 $ 2 $ 689,148 $(286,179) $ (6,123) $ 396,898
========= ========= ========= ========= ========= =========
</TABLE>
See accompanying notes.
5
<PAGE>
MOBILEMEDIA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollar amounts in thousands)
(UNAUDITED)
Nine Months ended
September 30,
---------------------------
1996 1995
----------- -----------
Operating activities
Net loss ........................................ $ (188,098) $ (26,393)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization ................... 242,996 50,928
Accretion of note payable discount .............. 12,449 11,238
Provision for uncollectible accounts ............ 18,641 3,114
Write-off of unamortized debt issue costs ....... -- 1,591
Undistributed earnings of affiliate ............. 35 (139)
Change in operating assets and liabilities:
Accounts receivable ............................. (39,776) (7,292)
Inventories ..................................... (6,411) 704
Prepaid expenses and other assets ............... (1,044) (755)
Accounts payable, accrued expenses and other
liabilities .................................... 3,852 4,270
----------- -----------
Net cash provided by operating activities ........ 42,644 37,266
----------- -----------
Investing activities:
Construction and capital expenditures, including
net changes in pager assets .................... (155,453) (52,126)
Investment in net assets of equity affiliate .... -- (1,625)
Cash paid to FCC for PCS license ................ -- (42,935)
Acquisition of businesses ....................... (866,460) (166,272)
Other ........................................... -- (166)
----------- -----------
Net cash used in investing activities ............ (1,021,913) (263,124)
----------- -----------
Financing activities:
Proceeds from exercise of call .................. -- 25,000
Proceeds from sale of common stock .............. -- 151,885
Proceeds from exercise of stock options ......... 892 272
Payment of debt issue costs ..................... (6,556) (5,396)
Borrowings from revolving credit facilities ..... 580,250 214,000
Repayments of debt .............................. (40) (77,000)
Repayment of Dial Page Notes .................... -- (83,430)
----------- -----------
Net cash provided by financing activities ........ 574,546 225,331
----------- -----------
Net decrease in cash, cash equivalents and cash
designated for the MobileComm Acquisition ....... (404,723) (527)
Cash and cash equivalents at beginning of period . 423,802 5,231
----------- -----------
Cash and cash equivalents at end of period ....... $ 19,079 $ 4,704
=========== ===========
See accompanying notes.
6
<PAGE>
MOBILEMEDIA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD ENDED SEPTEMBER 30, 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 4.5 million units in service at
September 30, 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. The Company markets its services under the "MobileComm" brand
name. All significant intercompany accounts and transactions have been
eliminated.
2. Acquisitions
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 "MobileComm Acquisition"). The aggregate consideration paid for the
MobileComm Acquisition (excluding fees and expenses and related financing costs)
was approximately $928.7 million.
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............................. $ 55,301
Property and equipment.................... 112,986
Intangible assets.......................... 940,770
Otherassets................................ 143
Liabilities assumed....................... (149,662)
---------
$ 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 nine months ended September 30,
1995 as if the Dial Page Acquisition and MobileComm Acquisition had occurred on
January 1, 1995:
Nine Months Ended
September 30, 1995
-----------------
(Unaudited)
Net revenue............................ $ 414,157
Net loss................................ $ (163,277)
Net loss per share................... $ (3.47)
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 and $1,000 to record
executive separation expenses and the hiring of a new Chief Executive Officer
the third quarter of 1996, 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 certain
employee benefits from general and administrative expense into services, rents
and maintenance and selling expense, the reclassification of customer service
expenses from service, rents and maintenance expense into general and
administrative expense and the reclassification of income from equity affiliate
into service, rents and maintenance expense.
5. Supplemental Cash Flow Information
Cash payments made for interest during the nine months ended September 30,
1996 and 1995 were approximately $43,577 and $4,675, respectively. There were no
income taxes paid for the nine months ended September 30, 1996 or 1995.
6. Income Taxes
In connection with the accounting for the MobileComm Acquisition, the
Company recorded deferred tax credits of $72,097 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.
No benefit for income taxes has been recorded for the nine months ended
September 30, 1996, and the deferred benefit from operating losses was offset by
the increase in the valuation allowance because realization of such benefits
cannot be assessed as more likely than not.
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 nine
months ended September 30, 1996 and 1995 was $330 and $139, respectively.
8. Long-Term Debt
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 "Credit
Facility").
Loans under the Credit Facility have been made available pursuant to three
tranches of loan commitments. The 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 in full on January 4, 1996, the date of
closing of the MobileComm Acquisition. The Tranche A Loans must be repaid in
installments beginning March 31, 1998 and ending June 30, 2002. As of September
30, 1996, $137,500 of Tranche B Loans were outstanding. Substantially all of the
principal of the Tranche B Loans must be repaid in installments beginning
September 30, 2002 and ending June 30, 2003.
Subject to the terms and conditions of the Credit Agreement, the Revolving
Credit Loans may be 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 was 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. At
September 30, 1996, the outstanding principal amount of the Revolving Credit
Loans was $99,000, leaving the balance available under the line, subject to the
terms and conditions of the Credit Agreement, at $101,000.
On June 26, 1996, the Banks agreed to amend and waive certain provisions of
the Credit Agreement to allow dividend payments by MobileMedia Communications to
the Company for required interest or dividend payments on certain permitted
future issuances of debt securities and/or preferred stock and to revise certain
debt covenant ratios based on the Company's intention, at that time, to issue
and sell a minimum of $100 million of debt securities and/or preferred stock of
the Company (either, as further defined in the Credit Agreement, a "Parent
Issuance"). The Company currently does not anticipate effecting the Parent
Issuance by December 31, 1996. If the Parent Issuance does not occur by such
time and a waiver is not obtained an Event of Default will occur under the
Credit Agreement. See Note 10, Subsequent Events.
As of September 30, 1996, MobileMedia Communications was not in compliance
with financial covenants under the Credit Agreement governing its leverage ratio
(i.e., the ratio of Net Indebtedness to Annualized EBITDA, each such term as
defined in the Credit Agreement), Capital Expenditures (as defined in the Credit
Agreement) and senior debt coverage ratio (i.e., the ratio of Senior Debt to
Annualized EBITDA, each such term as defined in the Credit Agreement), which
noncompliance has resulted in Events of Default under the Credit Agreement.
Because Events of Default have occurred, and are continuing under the Credit
Agreement, the Banks are not obligated to make available to MobileMedia
Communications further Revolving Credit Loans until such time as the Events of
Default are cured, or waived by a majority of the Banks. In addition, the Banks
may exercise remedies under the Credit Agreement and related documents and,
accordingly, indebtedness under the Credit Agreement has been reclassified as a
current liability. See Note 10, Subsequent Events.
9
<PAGE>
As of September 30, 1996, the accreted value of the 10 1/2% Senior
Subordinated Deferred Coupon Notes due December 1, 2003 ("10 1/2% Notes") was
$168,285.
9. Locate Sale
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
June 1996, Locate closed the sale of its switching operations to Teleport
Communications Group Inc. in exchange for the assumption of certain liabilities.
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 $17,500 in the form of a convertible note and the assumption of certain
liabilities. The sale was consummated on September 30, 1996.
10. Subsequent Events
As previously announced in its September 27, 1996 and October 21, 1996
releases, the Company has discovered misrepresentations and other violations
which occurred during the licensing process for as many as 400 or 500, or
approximately 6% to 7%, of its approximately 8,000 local transmission one-way
paging stations. The Company caused an investigation to be conducted by its
outside counsel, and a comprehensive report regarding these matters was provided
to the Federal Communications Commission (FCC) on Ocotber 16, 1996. In
cooperation with the FCC, outside counsel's investigation was expanded to
examine all of the Company's paging licenses, and the results of that
investigation were submitted to the FCC on November 8, 1996. The Company has
proposed to the FCC that a Consent Order be enterd which would result, among
other things, in the return of certain local paging stations and authorizations
presently held by the Company, the dismissal of certain pending applications for
paging authorizations, and the voluntary acceptance of a substantial monetary
forfeiture. The FCC is currently considering the Company's proposal. The Company
cannot be certain what action the FCC may take in regard to this matter, but
such actions could have a material adverse effect upon the financial condition
or operations of the Company.
On October 18, 1996, the Company was served with a class action lawsuit
filed in the United States District Court for the District of New Jersey on
behalf of purchasers of the Common Stock of MobileMedia Corporation during the
period between August 2, 1995 and September 27, 1996. The complaint alleges
violations of federal securities disclosure laws, and seeks damages in an
unspecified amount. The Company believes the Suit is without merit, has referred
the matter to outside counsel, and intends to defend its position vigorously.
Nevertheless, there can be no assurance that, if adversely determined, the suit
would not have an adverse effect upon the financial condition of the Company.
The Company is seeking to temporarily modify payment terms with certain of
its larger vendors, some of which have not been paid in accordance with
scheduled payment terms.
On November 1, 1996, the Company did not make its scheduled interest
payment on its 9 3/8% Senior Subordinated Notes due November 1, 2007 ("9 3/8%
Notes"). The amount of the interest payment which was due on November 1, 1996
was approximately $11,700. Failure to pay the interest on the 9 3/8% Notes when
due constitutes an Event of Default under the Credit Agreement. The Company is
continuing to review the situation, in light of its cash requirements, during
the thirty-day grace period, which ends on November 30, 1996. In the event the
Company were to fail to cure such payment default prior to November 30, 1996, it
would constitute an Event of Default which would permit the trustee or the
holders of not less than 25% in principal amount of the outstanding 9 3/8% Notes
to exercise remedies. An Event of Default under the 9 3/8% Notes would also
constitute an Event of Default under the Credit Agreement. Acceleration of the
9 3/8% Notes under the foregoing Procedure would also constitute an Event of
Default under the indenture governing the Deferred Coupon Notes and the Dial
Page, Inc. 12 1/4% Senior Notes due 2000 (the "Dial Page Notes")(the 9 3/8%
Notes, the Deferred Coupon Notes and the Dial Page Notes being referred to
collectively as the "Notes").
10
<PAGE>
The Events of Default under the Credit Agreement permit the Banks, and the
occurence of Events of Default under the Notes would permit the trustees under
the relevant Indentures or holder of no less than 25% in outstanding principal
amount of the respective Notes, to exercise various remedies, including
acceleration of the relevant debt obligations. The Company has commenced
discussions with representatives of the Banks regarding the Events of Default
under the Credit Agreement. The Company intends to seek a waiver of the covenant
defaults and the ability to obtain additional Revolving Credit Loans under the
Credit Agreement. While the Company intends to pursue such discussions with
representatives of the Banks in an effort to reach an accommodation, there can
be no assurance that the Company will be able to cure its defaults under the
Credit Agreement or the Notes or that the Company will be able to obtain waivers
or other forebearances from the Banks or holders of the Notes. Failure to reach
accommodations with the Company's creditors or the acceleration of the Company's
debt obligations could result in the Company seeking protection under Chapter 11
of the Bankruptcy Code or could result in the creditors of the Company filing an
involuntary petition against the Company under the Bankruptcy Code.
11
<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.
o 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.
o Net revenues: includes primarily paging revenues and sales of customer
owned and maintained ("COAM") pagers less cost of pagers sold.
o Services, rents and maintenance expenses: includes costs related to
the management, operation and maintenance of the Company's network
systems.
o Selling expenses: includes salaries, commissions and administrative
costs for the Company's sales force and related marketing and
advertising expenses.
o 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 providing superior paging and messaging services at
competitive prices. To reduce per unit costs, the Company emphasizes efficient
network loading, high sales productivity and benefiting from centralized back
office functions.
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.
12
<PAGE>
Results of Operations
Results of Operations for the Three and Nine Months Ended September 30,
1996 Compared to the Three and Nine Months Ended September 30, 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>
Three Months Ended September 30, Nine Months Ended September 30,
---------------------------------------- ------------------------------------------
1996 1995 1996 1995
------------------- ------------------- -------------------- --------------------
(UNAUDITED)
(in thousands, except percentage and unit data)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Consolidated Statement of Operations Data
Revenues
Services, rents and maintenance ......... $ 142,708 100.9 % $ 56,483 97.6 % $ 431,046 99.9 % $ 150,791 97.2 %
Equipment sales and activation fees ..... 21,422 15.1 % 7,620 13.2 % 56,781 13.2 % 22,761 14.7 %
--------- ----- ---------- ----- ---------- ----- ---------- -----
Total revenues ........................... 164,130 116.0 % 64,103 110.7 % 487,827 113.1 % 173,552 111.8 %
Costs of products sold ................... (22,626) (16.0)% (6,205) (10.7)% (56,423) (13.1)% (18,361) (11.8) %
--------- ----- ---------- ----- ---------- ----- ---------- -----
Net revenues ............................. 141,504 100.0 % 57,898 100.0 % 431,404 100.0 % 155,191 100.0 %
Operating expenses
Services, rents and maintenance ......... 35,181 24.9 % 15,521 26.8 % 101,802 23.6 % 40,903 26.4 %
Selling ................................. 23,102 16.3 % 11,597 20.0 % 72,658 16.8 % 31,032 20.0 %
General and administrative .............. 47,908 33.9 % 14,346 24.8 % 135,025 31.3 % 41,098 26.5 %
Depreciation and amortization ........... 79,903 56.5 % 17,857 30.8 % 242,996 56.3 % 50,928 32.8 %
--------- ----- ---------- ----- ---------- ----- ---------- -----
Total operating expenses ................. 186,094 131.5 % 59,321 102.5 % 552,481 128.1 % 163,961 105.7 %
--------- ----- ---------- ----- ---------- ----- ---------- -----
Operating loss ........................... (44,590) (31.5)% (1,423) (2.5)% (121,077) (28.1)% (8,770) (5.7) %
Total other expense ...................... (24,327) (17.2)% (5,000) (8.6)% (67,021) (15.5)% (17,623) (11.4) %
--------- ----- ---------- ----- ---------- ----- ---------- -----
Loss from continuing operations before
income tax expense ...................... $ (68,917) (48.7)% $ (6,423) (11.1)% $ (188,098) (43.6)% $ (26,393) (17.0) %
========= ===== ========== ===== ========== ===== ========== =====
Other Data
EBITDA ................................... $35,313 25.0 % $ 16,434 28.4 % $ 121,919 28.3 % $ 42,158 27.2 %
Average revenue per unit ("ARPU") ........ $10.66 $10.80 $11.11 $11.17
Average monthly operating expense per unit $7.93 $7.81 $7.98 $8.16
Units in service (at end of period) ...... 4,489,538 2,177,072 4,489,538 2,177,072
</TABLE>
Units in service increased by 2,312,466 to 4,489,538 as of September 30,
1996 when compared to September 30, 1995. The increase is attributable to
1,764,752 units acquired from the MobileComm Acquisition and 547,714 units
acquired from internal growth through the Company's various distribution
channels.
Services, rents and maintenance revenues increased 152.7% to $142.7 million
for the quarter ended September 30, 1996 and increased 185.9% to $431.0 million
for the nine months ended September 30, 1996 due to additional revenues
associated with the Acquisitions and continued growth in the number of units in
service added through the Company's distribution channels. ARPU decreased to
$10.66 for the quarter ended September 30, 1996 from $10.80 for the same quarter
of 1995 and decreased to $11.11 for the nine months ended September 30, 1996
from $11.17 for the nine months ended September 30, 1995 largely due to net
units added through internal growth which were primarily generated through the
the reseller distribution channel at a lower ARPU and increased cancellation of
units with higher ARPU which were replaced with units generating lower ARPU
primarily in the direct sales distribution channel.
Equipment sales and activation fees increased 181.1% to $21.4 million for
the quarter ended September 30, 1996 and 149.5% to $56.8 million for the nine
months ended September 30, 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 185.1% to $(1.2) million for the quarter ended
September 30, 1996 and decreased 91.9% to $0.4 million for the nine months ended
September 30, 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.
13
<PAGE>
Net revenues increased 144.4% to $141.5 million for the quarter ended
September 30, 1996 compared to $57.9 million for the quarter ended September 30,
1995 and increased 178.0% to $431.4 million for the nine months ended September
30, 1996 compared to $155.2 million for the nine months ended September 30, 1995
as a result of the above factors.
Services, rents and maintenance expenses increased 126.7% to $35.2 million
for the quarter ended September 30, 1996 compared to $15.5 million for the
quarter ended September 30, 1995 and increased 148.9% to $101.8 million for the
nine months ended September 30, 1996 compared to $40.9 million for the nine
months ended September 30, 1995 primarily due to increased expense levels
related to the Acquisitions and increased transmitter site lease expenses
related to the Company's new nationwide paging network which commenced service
on April 1, 1996. 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 and research and development
expenses related to the development of a two-way wireless network. New
nationwide customers added are being serviced by the nationwide paging network
acquired in the MobileComm Acquisition as well as the new nationwide paging
network referred to above.
Selling expenses for the quarter ended September 30, 1996 increased 99.2%
to $23.1 million from $11.6 million for the quarter ended September 30, 1995 and
for the nine months ended September 30, 1996 increased 134.1% to $72.7 million
from $31.0 million for the nine months ended September 30, 1995 primarily due to
the increased expense levels related to the Acquisitions. Selling expenses as a
percentage of net revenue decreased to 16.3% for the quarter ended September 30,
1996 from 20.0% for the quarter ended September 30, 1995 and to 16.8% for the
nine months ended September 30, 1996 from 20.0% for the nine months ended
September 30, 1995. The decrease resulted primarily from selling costs being
incurred at the time pagers are placed in service which are not incurred in
subsequent months as the unit continues to generate revenue. Therefore, the
Company's anticipated continued growth of units in service would be expected to
result in a decline in selling costs as a percentage of net revenues.
General and administrative expenses increased 233.9% to $47.9 million for
the quarter ended September 30, 1996 compared to $14.3 million for the quarter
ended September 30, 1995 and increased 228.5% to $135.0 million for the nine
months ended September 30, 1996 compared to $41.1 million for the nine months
ended September 30, 1995. General and administrative expenses increased as a
percentage of net revenues to 33.9% for the quarter ended September 30, 1996
from 24.8% for the quarter ended September 30, 1995 and increased to 31.3% for
the nine months ended September 30, 1996 from 26.5% for the nine months ended
September 30, 1995 primarily due to the increased expense levels related to the
Acquisitions. The balance of the increase resulted primarily from customer
service expenses related to the assimilation of MobileComm's customer service
functions which is planned to be completed during the second quarter of 1997,
increased bad debt expense incurred to increase the Company's allowance for
doubtful accounts, 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 and $1.0 million in separation expenses in the third quarter of
1996 due to the departure of the Chief Executive Officer, President and Chief
Operating Officer, and Senior Vice President of Operations and the hiring of a
new Chief Executive Officer.
Depreciation and amortization increased 347.5% to $79.9 million for the
quarter ended September 30, 1996 compared to $17.9 million for the quarter ended
September 30, 1995 and increased 377.1% to $243.0 million for the nine months
ended September 30, 1996 compared to $50.9 million for the nine months ended
September 30, 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
56.5% for the quarter ended September 30, 1996 from 30.8% for the quarter ended
September 30, 1995 and increased to 56.3% for the nine months ended September
30, 1996 from 32.8% for the nine months ended September 30, 1995.
14
<PAGE>
Operating loss increased to $44.6 million for the quarter ended September
30, 1996 from $1.4 million for the quarter ended September 30, 1995 and
increased to $121.1 million for the nine months ended September 30, 1996 from
$8.8 million for the nine months ended September 30, 1995. The increase was
primarily due to increased amortization expenses relating to the Acquisitions
offset by the increase in net revenues.
Other income (expense), principally interest expense, increased 385.6% to
$24.3 million for the quarter ended September 30, 1996 compared to $5.0 million
for the quarter ended September 30, 1995 and increased 280.3% to $67.0 million
for the nine months ended September 30, 1996 compared to $17.6 for the nine
months ended September 30, 1995. The increase was primarily due to additional
debt incurred to finance the Acquisitions and capital expenditures.
Losses from continuing operations before income tax expense, as a result of
the above factors, increased to $68.9 million for the quarter ended September
30, 1996 from $6.4 million for the quarter ended September 30, 1995 and
increased to $188.1 million for the nine months ended September 30, 1996 from
$26.4 million for the nine months ended September 30, 1995.
EBITDA increased to $35.3 million for the quarter ended September 30, 1996
compared to $16.4 million for the quarter ended September 30, 1995 and increased
to $121.9 million for the nine months ended September 30, 1996 compared to $42.2
million for the nine months ended September 30, 1995. As a percentage of net
revenues, EBITDA decreased to 25.0% for the quarter ended September 30, 1996
from 28.4% for the quarter ended September 30, 1995 and EBITDA increased to
28.3% for the nine months ended September 30, 1996 from 27.2% for the nine
months ended September 30, 1995. The increase in EBITDA was primarily due to the
Acquisitions.
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.
Recent Events. The financial results of the Company have been negatively
impacted by the continuing costs and increased subscriber churn associated with
the MobileComm integration and the incurrance of approximately $1 million of
non-recurring costs related to the separation of three senior executives in July
and the hiring of a new Chief Executive Officer.
On January 4, 1996, the Company completed its acquisition of MobileComm and
on August 31, 1995 MobileMedia Communications purchased the paging business of
Dial Page, Inc. Both acquisitions are being integrated into the Companys'
operations with considerable difficulty. The Company has incurred integration
related costs in excess of those originally anticipated to (i) transfer
units-in-service between paging networks to rationalize capacity, (ii)
temporarily operate duplicative functions, primarily customer service and (iii)
hire additional employees and consultants to focus on the integration.
Additionally, the Company has experienced increase subscriber churn related to
the integration difficulties. Accordingly, the Company's financial results have
been negatively impacted by the higher than anticipated integration costs and
increased subscriber churn. While the Company is working to address these
issues, they may continue to negatively impact the Company's financial results.
In response to the unanticipated incremental costs, the Company has
undertaken several measures to address its cash flow needs. The Company is
reviewing capital expenditures, which were previously projected in the amount of
$300,000 for the fiscal years ending December 31, 1996 and December 31, 1997,
with respect to certain projects under development such as the construction of
the two-way narrowband PCS wireless network. The Company is curtailing certain
capital expenditures, and may further curtail, postpone or reduce other capital
expenditures, with respect to such projects in an effort to fund the Company's
operations out of cash flow from operations. In addition, the Company has
commenced plans to increase collections of past due accounts receivable, improve
inventory management and restructure its pager purchasing program with a view to
utilizing existing pager inventory prior to making purchases of additional, new
pagers. The Company continues to explore other additional initiatives to
conserve existing cash resources including among others, the negotiation of
modified payment terms with certain vendors.
Notwithstanding these measures, there can be no assurance that cash flow
from operations will be sufficient to fully meet the Company's capital
requirements without additional financing or that additional financing would be
available to the Company on acceptable terms.
15
<PAGE>
As of September 30, 1996, MobileMedia Communications was not in compliance
with financial covenants under the Credit Agreement governing its leverage ratio
(i.e., the ratio of Net Indebtedness to Annualized EBITDA, each such term as
defined in the Credit Agreement), Capital Expenditures (as defined in the Credit
Agreement) and senior debt coverage ratio (i.e. the ratio of Senior Debt to
Annualized EBITDA, each such term as defined in the Credit Agreement), which
noncompliance has resulted in Events of Default under the Credit Agreement.
Because Events of Default have occurred and are continuing under the Credit
Agreement, the Banks are not obligated to make available to MobileMedia
Communications further Revolving Credit Loans until such time as the Events of
Default are cured, or waived by a majority of the Banks. In addition, the Banks
may exercise remedies under the Credit Agreement and related documents and,
accordingly, indebtedness under the Credit Agreement has been reclassified as a
current liability. See Note 10, Subsequent Events.
On November 1, 1996, the Company did not make its scheduled interest
payment on its 9 3/8% Senior Subordinated Notes due November 1, 2007 ("9 3/8%
Notes"). The amount of the interest paymnet which was due on Novmeber 1, 1996
was approximately $11,700. Failure to pay the interest on the 9 3/8% Notes when
due constitutes an Event of Default under the Credit Agreement. The Company is
continuing to review the situation, in light of its cash requirements, during
the thirty-day grace period, which ends on November 30, 1996. In the events the
Company were to fail to cure such payment default prior to November 30, 1996, it
would constitute an Event of Default which would permit the turstee or the
holders of not less than 25% in principal amount of the outstanding 9 3/8% Notes
to exercise remedies. An Event of Defualt under the 9 3/8% Notes would also
constitute an Event of Default under the Credit Agreement. Acceleration of the 9
3/8% Notes under the foregoing procedure would also constitute an Event of
Default under the indentures governing the Deferred Coupon Notes and the Dial
Page, Inc. 12 1/4% Senior Notes due 2000. (the "Dial Page Notes") (the 9 3/8%
Notes, the Deferred Coupon Notes and the Dial Page Notes being referred to
collectively as the "Notes").
The Events of Default under the Credit Agreement permit the Banks, and the
occurence of Events of Default under the Notes would permit the trustees under
the relevant Indentures or holder of no less than 25% in outstanding principal
amount of the respective Notes, to exercise various remedies, including
acceleration of the relevant debt obligations. The Company has commenced
discussions with representatives of the Banks regarding the Events of Default
under the Credit Agreement. The Company intends to seek a waiver of the covenant
defaults and the ability to obtain additional Revolving Credit Loans under the
Credit Agreement. While the Company intends to pursue such discussions with
representatives of the Banks in an effort to reach an accommodation, there can
be no assurance that the Company will be able to cure its defaults under the
Credit Agreement or the Notes or that the Company will be able to obtain waivers
or other forebearances from the Banks or holders of the Notes. Failure to reach
accommodations with the Company's creditors or the acceleration of the Company's
debt obligations could result in the Company seeking protection under Chapter 11
of the Bankruptcy Code or could result in the creditors of the Company filing an
involuntary petition against the Company under the Bankruptcy Code.
The Company is seeking to temporarily modify payment terms with certain of
its larger vendors, some of which have not been paid in accordance with
scheduled payment terms.
Capital expenditures and commitments. Capital expenditures were $155.5
million for the nine months ended September 30, 1996 compared to $52.1 million
for the nine months ended September 30, 1995. Capital expenditures increased
$103.4 million for the nine months ended September 30, 1996 over the
corresponding period in 1995 principally as a result of the Acquisitions,
increased pager purchases, the completion of the 929.5375 MHz nationwide one-way
wireless network, upgrades to paging networks acquired in the Acquisitions, and
the leasehold improvements of a new customer support center in Dallas, Texas.
Increased pager purchases were largely attributable to increased growth in the
subscriber base and capacity constraints on the nationwide network acquired in
the MobileComm Acquisition. The Company has increased pager purchases to permit
the conversion of some customers currently utilizing this network to the
Company's newly constructed nationwide network. The upgrades to the paging
networks were primarily for new paging terminals.
16
<PAGE>
The Company had previously estimated its capital expenditures for the
calendar years 1996 and 1997 to total approximately $300 million. These capital
expenditures were primarily for the procurement of pagers to support subscriber
growth, upgrade and expansion of the Company's paging and wireless networks,
upgrade of the Company's paging terminal infrastructure, construction of
leasehold improvements and consolidation of the Company's management information
and billing systems, and the procurement of pagers in connection with
downloading subscribers from the 931.8875 Mhz nationwide paging network to the
newly constructed 929.5375 Mhz nationwide paging network. The Company
anticipated additional capital expenditures for pager purchases under strategic
distribution arrangements. In view of current cash flow requirements, the
Company is reevaluating its capital expenditures to conserve existing cash
resources as there can be no assurance that cash flow from operations will be
sufficient to fully meet the Company's capital requirements without additional
financing or that additional financing would be available to the Company on
acceptable terms.
As of September 30, 1996, the Company's debt service commitments consisted
principally of periodic interest expense payments on the 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 MobileMedia Communications 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 $42.6 million for the nine months ended September 30, 1996 compared to $37.3
million for the nine months ended September 30, 1995. Inventories increased $6.4
million from December 31, 1995 to September 30, 1996 (excluding the inventory
acquired in the MobileComm Acquisition) to support growth in the reseller and
retail sales distribution channels. Accounts payable, accrued expenses and other
liabilities increased $3.9 million from December 31, 1995 to September 30, 1996
(excluding the liabilities assumed in the MobileComm Acquisition), reflecting
the increased investment in pagers in addition to expenditures for paging
network equipment under the Company's capital investment program. Net accounts
receivable increased $21.1 million from December 31, 1995 to September 30, 1996
(excluding the receivables acquired in the MobileComm Acquisition) due to an
increase in sales and slower collections related to the integration of the
Company's and MobileComm's collection functions and start-up of the Company's
new customer support 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 "Credit
Facility").
Loans under the Credit Facility have been made available pursuant to three
tranches of loan commitments. The 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 in full on January 4, 1996, the date of
closing of the MobileComm Acquisition. The Tranche A Loans must be repaid in
installments beginning March 31, 1998 and ending June 30, 2002. As of September
30, 1996, $137,500 of Tranche B Loans were outstanding. Substantially all of the
principal of the Tranche B Loans must be repaid in installments beginning
September 30, 2002 and ending June 30, 2003.
17
<PAGE>
Subject to the terms and conditions of the Credit Agreement, the Revolving
Credit Loans may be 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 was 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. At
September 30, 1996, the outstanding principal amount of the Revolving Credit
Loans was $99,000, leaving the balance available under the line, subject to the
terms and conditions of the Credit Agreement, at $101,000. See Liquidity and
Capital Resources-- Recent Events.
On June 26, 1996, the Banks agreed to amend and waive certain provisions of
the Credit Agreement to allow dividend payments by MobileMedia Communications to
the Company for required interest or dividend payments on certain permitted
future issuances of debt securities and/or preferred stock and to revise certain
debt covenant ratios based on the Company's intention, at that time, to issue
and sell a minimum of $100 million of debt securities and/or preferred stock of
the Company (either, as further defined in the Credit Agreement, a "Parent
Issuance"). The Company currently does not anticipate effecting the Parent
Issuance by December 31, 1996. If the Parent Issuance does not occur by such
time and a waiver is not obtained an Event of Default will occur under the
Credit Agreement. See Liquidity and Capital Resources - Recent Events.
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.
Other Matters
On October 18, 1996, the Company was served with a class action lawsuit
filed in the United States District Court for the District of New Jersey on
behalf of purchasers of the Common Stock of MobileMedia Corporation during the
period between August 2, 1995 and September 27, 1996. The complaint alleges
violations of federal securities disclosure laws, and seeks damages in an
unspecified amount. The Company believes the Suit is without merit, has referred
the matter to outside counsel, and intends to defend its position vigorously.
Nevertheless, there can be no assurance that, if adversely determined, the suit
would not have an adverse effect upon the financial condition of the Company.
As previously announced in its September 27, 1996 and October 21, 1996
releases, the Company has discovered misrepresentations and other violations
which occurred during the licensing process for as many as 400 or 500, or
approximately 6% to 7%, of its approximately 8,000 local transmission one-way
paging stations. The Company caused an investigation to be conducted by its
outside counsel, and a comprehensive report regarding these matters was provided
to the Federal Communications Commission (FCC) on Ocotber 16, 1996. In
cooperation with the FCC, outside counsel's investigation was expanded to
examine all of the Company's paging licenses, and the results of that
investigation were submitted to the FCC on November 8, 1996. The Company has
proposed to the FCC that a Consent Order be enterd which would result, among
other things, in the return of certain local paging stations and authorizations
presently held by the Company, the dismissal of certain pending applications for
paging authorizations, and the voluntary acceptance of a substantial monetary
forfeiture. The FCC is currently considering the Company's proposal. The Company
cannot be certain what action the FCC may take in regard to this matter, but
such actions could have a material adverse effect upon the financial condition
or operations of the Company.
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.
18
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
On October 18, 1996, the Company was served with a class action lawsuit
filed in the United States District Court for the District of New Jersey on
behalf of purchasers of the Common Stock of MobileMedia Corporation during the
period between August 2, 1995 and September 27, 1996. The complaint alleges
violations of federal securities disclosure laws, and seeks damages in an
unspecified amount. The Company believes the Suit is without merit, has referred
the matter to outside counsel, and intends to defend its position vigorously.
Nevertheless, there can be no assurance that, if adversely determined, the suit
would not have an adverse effect upon the financial condition of the Company.
As previously announced in its September 27, 1996 and October 21, 1996
releases, the Company has discovered misrepresentations and other violations
which occurred during the licensing process for as many as 400 or 500, or
approximately 6% to 7%, of its approximately 8,000 local transmission one-way
paging stations. The Company caused an investigation to be conducted by its
outside counsel, and a comprehensive report regarding these matters was provided
to the Federal Communications Commission (FCC) on Ocotber 16, 1996. In
cooperation with the FCC, outside counsel's investigation was expanded to
examine all of the Company's paging licenses, and the results of that
investigation were submitted to the FCC on November 8, 1996. The Company has
proposed to the FCC that a Consent Order be enterd which would result, among
other things, in the return of certain local paging stations and authorizations
presently held by the Company, the dismissal of certain pending applications for
paging authorizations, and the voluntary acceptance of a substantial monetary
forfeiture. The FCC is currently considering the Company's proposal. The Company
cannot be certain what action the FCC may take in regard to this matter, but
such actions could have a material adverse effect upon the financial condition
or operations of the Company.
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, including the litigation
described below, will not have a material adverse effect on its financial
position or results of operations.
Item 3. Defaults Upon Senior Securities.
None. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources -- Recent Events."
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 dated July 1, 1996
attaching press release.
19
<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
Senior Vice President and
Chief Financial Officer
Date: November 14, 1996
20
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM FORM 10-Q FOR THE PERIOD ENDED SEPTEMBER 30, 1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
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0
0
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</TABLE>
