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 June 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 (Zip Code)
executive offices)
(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 July 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 18 sequentially numbered pages
<PAGE>
MOBILEMEDIA CORPORATION
FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 1996
TABLE OF CONTENTS
Page
----
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets
as of June 30, 1996 and December 31, 1995 ....................... 3
Consolidated Statements of Operations
for the Three Months Ended June 30, 1996 and June 30, 1995 and
for the Six Months Ended June 30, 1996 and June 30, 1995 ........ 4
Consolidated Statement of Changes in Stockholders' Equity
for the Six Months Ended June 30, 1996 and June 30, 1995 ........ 5
Consolidated Statements of Cash Flows
for the Six Months Ended June 30, 1996 and June 30, 1995 ........ 6
Notes to Consolidated Financial Statements .......................... 7
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations ............... 11
PART II - OTHER INFORMATION
Item 3. Legal Proceedings .............................................. 17
Item 4. Submission of Matters to a Vote of Security Holders ............ 17
Item 5. Other Information .............................................. 17
Item 6. Exhibits and Reports on Form 8-K ............................... 17
2
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
MOBILEMEDIA CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollar amounts in thousands)
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
----------- -----------
(Unaudited)
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents .......................................................... $ 6,242 $ 21,461
Accounts receivable (less allowance for uncollectible accounts of
$12,571 and $5,214 at June 30, 1996 and December 31,
1995, respectively) ............................................................. 82,103 32,757
Inventories ........................................................................ 39,790 9,623
Prepaid expenses ................................................................... 2,711 1,665
Other .............................................................................. 1,269 345
----------- -----------
Total current assets ..................................................................... 132,115 65,851
Cash designated for the MobileComm Acquisition ........................................... -- 402,341
Investment in net assets of equity affiliate ............................................. 2,138 2,018
Property and equipment, net .............................................................. 365,211 194,543
Intangible assets, net ................................................................... 1,236,151 398,075
Other assets ............................................................................. 30,761 80,468
----------- -----------
Total assets ............................................................................. $ 1,766,376 $ 1,143,296
=========== ===========
Liabilities and stockholders' equity
Current liabilities
Accounts payable ................................................................... $ 87,245 $ 41,798
Accrued expenses ................................................................... 59,938 17,623
Advance billings and customer deposits ............................................. 37,269 12,986
----------- -----------
Total current liabilities ................................................................ 184,452 72,407
Deferred tax liability ................................................................... 83,573 --
Long-term debt ........................................................................... 1,013,613 476,156
Other .................................................................................... 3,785 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 ($.001 par, authorized 105,000,000
shares, 49,972,357 shares issued and outstanding at
June 30, 1996 and 49,882,409 issued and
outstanding at December 31, 1995) ................................................ 50 50
Class B common stock ($.001 par, authorized 14,000,000
shares, 2,362,900 shares issued and outstanding at
June 30, 1996 and December 31, 1995) ............................................. 2 2
Additional paid-in-capital ......................................................... 689,148 688,256
Accumulated deficit ................................................................ (211,214) (98,081)
----------- -----------
477,986 590,227
Less treasury stock (4,375,000 Class A shares at June 30,
1996 and December 31, 1995) ..................................................... (6,123) (6,123)
----------- -----------
Total stockholders' equity ............................................................... 471,863 584,104
----------- -----------
Total liabilities and stockholders' equity ............................................... $ 1,766,376 $ 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 June 30, Six months ended June 30,
-------------------------------- --------------------------------
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues
Services, rents and maintenance .................. $ 143,234 $ 48,108 $ 288,338 $ 94,308
Equipment sales and activation fees .............. 17,816 7,757 35,359 15,141
------------ ------------ ------------ ------------
Total revenues ..................................... 161,050 55,865 323,697 109,449
Cost of products sold .............................. (16,710) (6,252) (33,797) (12,156)
------------ ------------ ------------ ------------
144,340 49,613 289,900 97,293
Operating expenses
Services, rents and maintenance .................. 34,436 13,159 66,741 25,425
Selling .......................................... 23,278 10,036 49,556 19,435
General and administrative ....................... 43,774 13,007 87,117 26,752
Depreciation ..................................... 30,839 12,746 56,559 24,419
Amortization ..................................... 53,958 4,317 106,534 8,652
------------ ------------ ------------ ------------
Total operating expenses ........................... 186,285 53,265 366,507 104,683
------------ ------------ ------------ ------------
Operating (loss) ................................... (41,945) (3,652) (76,607) (7,390)
Other income (expense)
Income from equity affiliate ..................... 5 43 120 43
Interest expense, net ............................ (21,849) (7,804) (42,837) (12,623)
Other ............................................ 143 -- 143 --
------------ ------------ ------------ ------------
Total other income (expense) ....................... (21,701) (7,761) (42,574) (12,580)
------------ ------------ ------------ ------------
Loss from continuing operations
before income tax benefit ........................ (63,646) (11,413) (119,181) (19,970)
Income tax benefit ................................. -- -- 6,048 --
------------ ------------ ------------ ------------
Loss from continuing operations .................... (63,646) (11,413) (113,133) (19,970)
Loss from discontinued operations .................. -- -- -- --
------------ ------------ ------------ ------------
Net loss ........................................... $ (63,646) $ (11,413) $ (113,133) $ (19,970)
============ ============ ============ ============
Net loss per common share and
common share equivalent
Continuing operations ............................ $ (1.33) $ (0.53) $ (2.36) $ (0.89)
Discontinued operations .......................... 0.00 0.00 0.00 0.00
------------ ------------ ------------ ------------
Net loss per share ................................. $ (1.33) $ (0.53) $ (2.36) $ (0.89)
============ ============ ============ ============
Average common shares and common
share equivalents outstanding .................... 47,957,819 21,502,937 47,937,396 22,516,924
</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) ................................... (113,133) (113,133)
--------- --------- --------- --------- --------- ---------
Balance at June 30, 1996 (unaudited) ................... $ 50 $ 2 $ 689,148 $(211,214) $ (6,123) $ 471,863
========= ========= ========= ========= ========= =========
</TABLE>
See accompanying notes.
5
<PAGE>
MOBILEMEDIA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollar amounts in thousands)
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months ended June 30,
-----------------------------
1996 1995
--------- ---------
<S> <C> <C>
Operating activities
Net loss ............................................................................... $(113,133) $ (19,970)
Adjustments to reconcile net loss to net cash provided by operating
activities:
Depreciation and amortization .......................................................... 163,093 33,071
Accretion of note payable discount ..................................................... 9,207 7,385
Provision for uncollectible accounts ................................................... 12,065 1,801
Deferred income tax benefit ............................................................ (6,048) --
Write-off of unamortized debt issue costs .............................................. -- 1,591
Undistributed earnings of affiliate .................................................... (120) (43)
Change in operating assets and liabilities:
Accounts receivable .................................................................... (26,805) (4,696)
Inventories ............................................................................ (21,147) (737)
Prepaid expenses and other assets ...................................................... 878 (1,305)
Accounts payable, accrued expenses and other
liabilities ......................................................................... 10,604 (12,662)
--------- ---------
Net cash provided by operating activities .................................................. 28,594 4,435
--------- ---------
Investing activities:
Construction and capital expenditures, including
net changes in pager assets ......................................................... (102,280) (29,769)
Investment in net assets of equity affiliate ........................................... -- (1,646)
Cash paid to FCC for PCS license ....................................................... -- (42,935)
Acquisition of businesses .............................................................. (866,460) --
--------- ---------
Net cash used in investing activities ...................................................... (968,740) (74,350)
--------- ---------
Financing activities:
Proceeds from exercise of call ......................................................... -- 25,000
Proceeds from private placement of common stock ........................................ -- 13
Proceeds from exercise of stock options ................................................ 892 --
Payment of debt issue costs ............................................................ (6,556) (3,802)
Borrowings from revolving credit facilities ............................................ 528,250 82,000
Repayments on revolving credit facilities .............................................. -- (25,000)
--------- ---------
Net cash provided by financing activities .................................................. 522,586 78,211
--------- ---------
Net decrease in cash, cash equivalents and cash
designated for the MobileComm Acquisition .............................................. (417,560) 8,296
Cash and cash equivalents at beginning of period ........................................... 423,802 5,231
--------- ---------
Cash and cash equivalents at end of period ................................................. $ 6,242 $ 13,527
========= =========
</TABLE>
See accompanying notes.
6
<PAGE>
MOBILEMEDIA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD ENDED JUNE 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 4.4 million units in service at June 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 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 .................................. $ 58,129
Property and equipment .......................... 124,947
Intangible assets ............................... 943,505
Other assets .................................... 143
Liabilities assumed ............................. (167,186)
---------
$ 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 six months ended June 30, 1995 as
if the Dial Page Acquisition and MobileComm Acquisition had occurred on January
1, 1995:
Six Months
Ended
June 30, 1995
-------------
(Unaudited)
Net revenue .............................. $ 271,506
Net loss ................................. $(109,942)
Net loss per share ....................... $ (2.35)
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 certain
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 six months ended June 30, 1996
and 1995 were approximately $26,232 and $3,925, respectively. There were no
income taxes paid for the six months ended June 30, 1996 or 1995.
6. Income Taxes
In connection with the accounting for the MobileComm Acquisition, the
Company recorded deferred tax credits of $89,621 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 six months ended June 30,
1996 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
carryforward period.
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 six
months ended June 30, 1996 and 1995 was $120 and $43, 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 "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 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 June 30, 1996, the balance available under the Revolving
Credit Loans was $153,000.
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 to issue and sell a
minimum of $100 million of debt securities and/or preferred stock of the
Company.
As of June 30, 1996, the accreted value of the 10 1/2% Senior Subordinated
Deferred Coupon Notes due December 1, 2003 was $164,017.
9
<PAGE>
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 $17.5 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.
10. Subsequent Events
On July 15, 1996, the Board of Directors announced several senior
management changes. Board member David A. Bayer was named Chairman of the Board
of Directors and Acting Chief Executive Officer. F. Warren Hellman, a general
partner of Hellman & Friedman, an affiliate of the Company's largest
stockholder, has joined the Board, increasing Hellman & Friedman's
representation to four of the seven members of the Board of Directors. H.
Stephen Burdette, Vice President of Corporate Development, was named to the
additional position of Acting Senior Vice President of Operations. These changes
followed the departure of Gregory M. Rorke, Chief Executive Officer, John M.
Kealey, President and Chief Operating Officer, and Rodolfo O. Ploder, Senior
Vice President of Operations.
On July 29, 1996, the Board of Directors appointed Michael K. Lorelli to
the position of Chief Executive Officer, effective September 1, 1996.
As of August 1, 1996, the Board of Directors adjusted the exercise price of
all outstanding options under the 1993 MobileMedia Corporation Stock Option Plan
with a price greater than $10.00 to the new price of $10.00.
10
<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 continuing to provide superior paging and messaging
services at competitive prices. 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, focused on
the efficient utilization of the Company's two nationwide and its numerous
regional and multi-regional one-way wireless networks and the development of a
nationwide two-way narrowband PCS wireless network, (ii) Sales Force and
Services, focused on accelerating growth in the Company's subscriber base
through further expanding geographic sales coverage, increasing penetration of
multiple distribution channels, offering advanced messaging services such as
alphanumeric and nationwide messaging and providing superior levels of customer
support and account maintenance, (iii) Strategic Alliances, focused on building
partnerships with telecommunication companies, consumer marketing companies and
other businesses which provide ongoing services to consumers to extend the
Company's services to potential subscribers
11
<PAGE>
not targeted by traditional distribution channels, and (iv) Scale Economies,
focused on sustaining both long-term cost competitiveness and profitability by
maximizing the number of subscribers with minimal incremental infrastructure
investment.
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.
Results of Operations
Results of Operations for the Three and Six Months Ended June 30, 1996
Compared to the Three and Six Months Ended June 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 June 30, Six Months Ended June 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 ............ $ 143,234 99.2% $ 48,108 97.0% $ 288,338 99.5% $ 94,308 96.9%
Equipment sales
and activation fees ........ 17,816 12.3% 7,757 15.6% 35,359 12.2% 15,141 15.6%
----------- ----- ----------- ----- ----------- ----- ----------- -----
Total revenues ................. 161,050 111.6% 55,865 112.6% 323,697 111.7% 109,449 112.5%
Costs of products sold ......... (16,710) (11.6)% (6,252) (12.6)% (33,797) (11.7)% (12,156) (12.5)%
----------- ----- ----------- ----- ----------- ----- ----------- -----
Net revenues ................... 144,340 100.0% 49,613 100.0% 289,900 100.0% 97,293 100.0%
Operating expenses
Services, rents
and maintenance ............ 34,436 23.9% 13,159 26.5% 66,741 23.0% 25,425 26.1%
Selling ...................... 23,278 16.1% 10,036 20.2% 49,556 17.1% 19,435 20.0%
General and
administrative ............. 43,774 30.3% 13,007 26.2% 87,117 30.1% 26,752 27.5%
Depreciation
and amortization ........... 84,797 58.7% 17,063 34.4% 163,093 56.3% 33,071 34.0%
----------- ----- ----------- ----- ----------- ----- ----------- -----
Total operating expenses ....... 186,285 129.1% 53,265 107.4% 366,507 126.4% 104,683 107.6%
----------- ----- ----------- ----- ----------- ----- ----------- -----
Operating loss ................. (41,945) (29.1)% (3,652) (7.4)% (76,607) (26.4)% (7,390) (7.6)%
Total other expense ............ (21,701) (15.0)% (7,761) (15.6)% (42,574) (14.7)% (12,580) (12.9)%
----------- ----- ----------- ----- ----------- ----- ----------- -----
Loss from continuing
operations before
income tax benefit ........... $ (63,646) (44.1)% $ (11,413) (23.0)% $ (119,181) (41.1)% $ (19,970) (20.5)%
=========== ===== =========== ===== =========== ===== =========== =====
Other Data
EBITDA ......................... $ 42,852 29.7% $ 13,411 27.0% $ 86,486 29.8% $ 25,681 26.4%
Average revenue per
unit ("ARPU") ................ $ 10.99 $ 9.78 $ 11.22 $ 9.96
Average monthly operating
expense per unit ............. $ 7.78 $ 7.36 $ 7.92 $ 7.56
Units in service (at
end of period) ............... 4,432,358 1,708,872 4,432,358 1,708,872
</TABLE>
Units in service increased by 2,723,486 to 4,432,358 as of June 30, 1996
when compared to June 30, 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 588,861 units acquired from internal growth through the
Company's various distribution channels.
12
<PAGE>
Services, rents and maintenance revenues increased 197.7% to $143.2 million
for the quarter ended June 30, 1996 and increased 205.7% to $288.3 million for
the six months ended June 30, 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 $10.99 for the quarter ended June 30, 1996 from $9.78 for the same
quarter of 1995 and increased to $11.22 for the six months ended June 30, 1996
from $9.96 for the six months ended June 30, 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 129.7% to $17.8 million for
the quarter ended June 30, 1996 and 133.5% to $35.4 million for the six months
ended June 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 26.5% to $1.1 million for the quarter June 30, 1996 and
decreased 47.7% to $1.6 million for the six months ended June 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.
Net revenues increased 190.9% to $144.3 million for the quarter ended June
30, 1996 compared to $49.6 million for the quarter ended June 30, 1995 and
increased 198.0% to $289.9 million for the six months ended June 30, 1996
compared to $97.3 million for the six months ended June 30, 1995 as a result of
the above factors.
Services, rents and maintenance expenses increased 161.7% to $34.4 million
for the quarter ended June 30, 1996 compared to $13.2 million for the quarter
ended June 30, 1995 and increased 162.5% to $66.7 million for the six months
ended June 30, 1996 compared to $25.4 million for the six months ended June 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. 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 June 30, 1996 increased 131.9% to
$23.3 million from $10.0 million for the quarter ended June 30, 1995 and for the
six months ended June 30, 1996 increased 155.0% to $49.6 million from $19.4
million for the six months ended June 30, 1995 primarily due to the increased
expense levels related to the Acquisitions and increased commissions and
promotional expenses related to the growth in sales through the Company's
reseller and retail distribution channels. Reseller units in service increased
by 813,259 to 1,318,009 as of June 30, 1996 when compared to June 30, 1995 and
retail units in service increased by 408,165 to 476,998 as of June 30, 1996 when
compared to June 30, 1995. Of the increases, the Company acquired 403,796
reseller units and 369,757 retail units from Acquisitions while the remaining
409,463 reseller units and 38,408 retail units were added through internal
growth. Selling expenses as a percentage of net revenue decreased to 16.1% for
the quarter ended June 30, 1996 from 20.2% for the quarter ended June 30, 1995
and to 17.1% for the six months ended June 30, 1996 from 20.0% for the six
months ended June 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 236.5% to $43.8 million for
the quarter ended June 30, 1996 compared to $13.0 million for the quarter ended
June 30, 1995 and increased 225.6% to $87.1 million for the six months ended
June 30, 1996 compared to $26.8 million for the six months ended June 30, 1995.
General and administrative expenses increased as a percentage of net revenues to
30.3% for the quarter ended June 30, 1996 from 26.2% for the quarter ended June
30, 1995 and increased to 30.1% for the six months ended June 30, 1996 from
27.5% for the six months ended June 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 half of 1996, increased bad debt expense incurred to increase the
Company's allowance for doubtful accounts, and consulting fees related to the
integration of the Acquisitions.
13
<PAGE>
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 397.0% to $84.8 million for the
quarter ended June 30, 1996 compared to $17.1 million for the quarter ended June
30, 1995 and increased 393.2% to $163.1 million for the six months ended June
30, 1996 compared to $33.1 million for the six months ended June 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 58.7% for the
quarter ended June 30, 1996 from 34.4% for the quarter ended June 30, 1995 and
increased to 56.3% for the six months ended June 30, 1996 from 34.0% for the six
months ended June 30, 1995.
Operating loss increased to $41.1 million for the quarter ended
June 30, 1996 from $3.7 million for the quarter ended June 30, 1995 and
increased to $76.6 million for the six months ended June 30, 1996 from
$7.4 million for the six months ended June 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 179.6% to
$21.7 million for the quarter ended June 30, 1996 compared to $7.8 million for
the quarter ended June 30, 1995 and increased 238.4% to $42.6 million for the
six months ended June 30, 1996 compared to $12.6 for the six months ended June
30, 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 to $63.7 million for the quarter ended June
30, 1996 from $11.4 million for the quarter ended June 30, 1995 and increased
to $119.2 million for the six months ended June 30, 1996 from $20.0
million for the six months ended June 30, 1995.
EBITDA increased to $42.9 million for the quarter ended June 30, 1996
compared to $13.4 million for the quarter ended June 30, 1995 and increased to
$86.5 million for the six months ended June 30, 1996 compared to $25.7 million
for the six months ended June 30, 1995. As a percentage of net revenues, EBITDA
increased to 29.7% for the quarter ended June 30, 1996 from 27.0% for the
quarter ended June 30, 1995 and EBITDA increased to 29.8% for the six months
ended June 30, 1996 from 26.4% for the six months ended June 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.
Capital expenditures and commitments. Capital expenditures were $102.3
million for the six months ended June 30, 1996 compared to $29.8 million for the
six months ended June 30, 1995. Capital expenditures increased $72.5 million for
the six months ended June 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.
14
<PAGE>
The Company estimates its capital expenditures for the calendar years 1996
and 1997 to total approximately $450 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 make
leasehold improvements to a new customer service facility and to consolidate the
Company's management information and billing systems. Additional capital
expenditures may be required for paging unit procurement in connection with
downloading subscribers from the 931.8875 MHz nationwide paging network to the
newly constructed 929.5375 MHz nationwide paging network and for conversion of
SkyTel subscribers. Also, strategic distribution arrangements may require
capital expenditures for leased paging units and increased inventory levels. In
addition, the Company's working capital requirements could increase to the
extent the Company experiences increased levels of service credits and bad debt
expense as a result of the MobileComm integration. 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 June 30, 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 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 $28.6 million for the six months ended June 30, 1996 compared to $4.4
million for the six months ended June 30, 1995. Inventories increased $21.1
million from December 31, 1995 to June 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 $10.6 million from December 31, 1995 to June 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 $14.7 million from December 31, 1995 to June 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 the Credit Agreement. The
Credit Agreement provides for secured loan facilities aggregating $750 million,
consisting of $550 million of term and $200 million of revolving loan
facilities. The 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 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.
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
15
<PAGE>
ratios based on the Company's intention to issue and sell a minimum of $100
million of debt securities and/or preferred stock of the Company.
The $200 million revolving portion of the New Credit 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 June 30, 1996, $47.0
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.
16
<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.
Item 4. Submission of Matters to a Vote of Security Holders
At the Company's annual meeting held May 21, 1996 the Company's
stockholders approved (i) the reelection of the Company's board of eight
directors for the ensuing year, (ii) an amendment to the Company's 1993
Stock Option Plan, and (iii) the ratification of Ernst & Young LLP to serve
as independent auditors for the Company for the calendar year ending
December 31, 1996. The number of votes cast for each of the Company's
directors, Mssrs. Rorke, Bayer, Bean, Friedman and Mitchell, were 56,688,568
for and 109,736 abstentions, for Mssrs. Bunce and Cohen the votes cast were
56,678,468 for and 119,836 abstentions, and for Mssr. Kealey the votes cast
were 56,688,468 for and 109,836 abstentions. The number of votes cast for
the amendment to the Company's Stock Option Plan were 52,195,435 for, 4,445,397
against, 97,405 abstentions and 60,067 broker non-votes. The number of votes
cast for the ratification of Ernst & Young LLP to serve as independent auditors
for the Company for the calendar year ending December 31, 1996 were 56,771,025
for, 21,323 against, 2,905 abstentions and 3,051 broker non-votes.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
(1) First Amendment and Waiver, dated as of June 26, 1996
(incorporated by reference from MobileMedia Corporation Form 8-K
dated June 26, 1996).
(b) Reports on Form 8-K.
(1) MobileMedia Corporation Form 8-K dated June 6, 1996 attaching
press release.
(2) MobileMedia Corporation Form 8-K dated June 26, 1996 related to
the amendment and waiver to MobileMedia Communications, Inc.
Credit Facility.
7 (a) Exhibits.
17
<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: August 14, 1996
18
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