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 33-68840
MOBILEMEDIA COMMUNICATIONS, INC.
(Exact name of registrant as specified in its charter)
Delaware 22-3379712
(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 _____
All of the common stock of the registrant is held by MobileMedia
Corporation, a Delaware corporation. The number of shares of the registrant's
common stock outstanding as of July 31, 1996 was one.
Page 1 of 18 sequentially numbered pages.
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MOBILEMEDIA COMMUNICATIONS, INC.
FORM 10-Q
FOR THE QUARTER ENDED JUNE 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 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 Stockholder's 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
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
MOBILEMEDIA COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollar amounts in thousands)
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June 30, December 31,
1996 1995
----------- -----------
(Unaudited)
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents .......................................................... $ 2,098 $ 5,835
Accounts receivable (less allowance for uncollectible accounts of
$12,571 and $5,214 at June 30, 1996 and December 31,
1995, respectively) ............................................................. 82,103 32,694
Inventories ........................................................................ 39,790 9,623
Prepaid expenses ................................................................... 2,711 1,665
Other .............................................................................. 1,269 345
----------- -----------
Total current assets ..................................................................... 127,971 50,162
Cash designated for the MobileComm Acquisition ........................................... -- 402,341
Investment in net assets of equity affiliate ............................................. 2,137 2,017
Property and equipment, net .............................................................. 365,211 194,543
Intangible assets, net ................................................................... 1,236,151 398,057
Other assets ............................................................................. 31,787 81,426
----------- -----------
Total assets ............................................................................. $ 1,763,257 $ 1,128,546
=========== ===========
Liabilities and stockholder's equity
Current liabilities
Accounts payable ................................................................... $ 87,239 $ 41,797
Accrued expenses ................................................................... 59,608 17,315
Advance billings and customer deposits ............................................. 37,269 12,986
----------- -----------
Total current liabilities ................................................................ 184,116 72,098
Deferred tax liability ................................................................... 83,558 --
Long-term debt ........................................................................... 1,013,613 476,156
Other .................................................................................... 3,785 1,539
Commitments and contingencies
Stockholder's equity
Common stock (1 share, no par value, issued and outstanding
at June 30, 1996 and December 31, 1995)
Additional paid-in-capital ......................................................... 672,629 659,829
Accumulated deficit ................................................................ (194,444) (81,076)
----------- -----------
Total stockholder's equity ............................................................... 478,185 578,753
----------- -----------
Total liabilities and stockholder's equity ............................................... $ 1,763,257 $ 1,128,546
=========== ===========
</TABLE>
See accompanying notes.
3
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MOBILEMEDIA COMMUNICATIONS, INC. 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 ......................... 43,727 12,978 87,026 26,677
Depreciation ....................................... 30,839 12,746 56,559 24,419
Amortization ....................................... 53,958 4,317 106,534 8,652
--------- --------- --------- ---------
Total operating expenses ............................... 186,238 53,236 366,416 104,608
--------- --------- --------- ---------
Operating (loss) ....................................... (41,898) (3,623) (76,516) (7,315)
Other income (expense)
Income from equity affiliate ....................... 5 43 120 43
Interest expense, net .............................. (22,005) (7,827) (43,178) (12,646)
Other .............................................. 143 -- 143 --
--------- --------- --------- ---------
Total other income (expense) .......................... (21,857) (7,784) (42,915) (12,603)
--------- --------- --------- ---------
Loss from operations
before income tax benefit .......................... (63,755) (11,407) (119,431) (19,918)
Income tax benefit ..................................... -- -- 6,063 --
--------- --------- --------- ---------
Net loss ............................................... $ (63,755) $ (11,407) $(113,368) $ (19,918)
========= ========= ========= =========
</TABLE>
See accompanying notes.
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MOBILEMEDIA COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDER'S EQUITY
(dollar amounts in thousands)
Additional
Common Paid in Accumulated
Stock Capital Deficit Total
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Balance at September 14, 1993 (date of inception) ............... $ 0 $ 0 $ 0 $ 0
Initial capital contribution .................................... 141,497 141,497
Net loss ........................................................ (2,930) (2,930)
--------- --------- --------- ---------
Balance at December 31, 1993 .................................... 0 141,497 (2,930) 138,567
Net loss ........................................................ (37,067) (37,067)
--------- --------- --------- ---------
Balance at December 31, 1994 .................................... 0 141,497 (39,997) 101,500
Capital contribution by MobileMedia Corporation ................. 518,332 518,332
Net loss ........................................................ (41,079) (41,079)
--------- --------- --------- ---------
Balance at December 31, 1995 .................................... 0 659,829 (81,076) 578,753
Capital contribution by MobileMedia Corporation ................. 12,800 12,800
Net loss (unaudited) ............................................ (113,368) (113,368)
--------- --------- --------- ---------
Balance at June 30, 1996 (unaudited) ............................ $ 0 $ 672,629 $(194,444) $ 478,185
========= ========= ========= =========
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See accompanying notes.
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MOBILEMEDIA COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollar amounts in thousands)
(UNAUDITED)
Six Months ended June 30,
-----------------------------------
1996 1995
--------- ---------
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Operating activities
Net loss ..................................................................... $(113,368) $ (19,918)
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 .................................................. (6,063) --
Write-off of unamortized debt issue costs .................................... -- 1,591
Undistributed earnings of affiliate .......................................... (120) (43)
Change in operating assets and liabilities:
Accounts receivable .......................................................... (26,868) (4,696)
Inventories .................................................................. (21,147) (737)
Prepaid expenses and other assets ............................................ 791 (1,071)
Accounts payable, accrued expenses and other
liabilities ............................................................... 10,578 (12,970)
--------- ---------
Net cash provided by operating activities ........................................ 28,168 4,413
--------- ---------
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:
Capital contribution from parent ............................................. 12,800 15,000
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 ........................................ 534,494 68,198
--------- ---------
Net decrease in cash, cash equivalents and cash
designated for the MobileComm Acquisition .................................... (406,078) (1,739)
Cash and cash equivalents at beginning of period ................................. 408,176 5,231
--------- ---------
Cash and cash equivalents at end of period ....................................... $ 2,098 $ 3,492
========= =========
</TABLE>
See accompanying notes.
6
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MOBILEMEDIA COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD ENDED JUNE 30, 1996
(dollars in thousands, except share data)
(UNAUDITED)
1. The Company
MobileMedia Communications, Inc. (the "Company"), a wholly-owned subsidiary
of MobileMedia Corporation ("MobileMedia"), 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 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, the Company 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 the Company of
the aggregate principal amount of and accrued interest on certain indebtedness
of Dial Page.
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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 ................................. $(109,936)
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 $26,573 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.
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7. Other Investments
On March 21, 1995, the Company 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 the
Company's 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 the Company's share of undistributed
earnings or losses of the purchased company. The Company's 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, the Company 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 the Company (the "New Credit Facility").
Loans under the New Credit Facility have been made available pursuant to
three tranches of loan commitments. The New Credit Facility provides for term
loans in the aggregate principal amounts of $412,500 (the "Tranche A Loans") and
$137,500 (the "Tranche B Loans") and revolving loans in the aggregate principal
amount of $200,000 (the "Revolving Credit Loans").
The Tranche A Loans were drawn on January 4, 1996, the date of closing of
the MobileComm Acquisition. The Tranche A Loans will be repaid in installments
beginning March 31, 1998 and ending June 30, 2002. As of December 31, 1995,
$68,750 of Tranche B Loans were outstanding. The remaining Tranche B funds were
drawn on January 4, 1996 and were used to fund a portion of the consideration
paid for the MobileComm Acquisition. Substantially all of the principal of the
Tranche B Loans will be repaid in installments beginning September 30, 2002 and
ending June 30, 2003.
The Revolving Credit Loans are made available through June 30, 2002 to
finance future working capital needs, capital expenditures and permitted
acquisitions, and for general corporate purposes. In addition, a portion of the
commitments under the Revolving Credit Loans were made available for the
issuance of letters of credit. The amount available for borrowing under the
revolving credit facility will be reduced quarterly beginning March 31, 1998 to
zero at June 30, 2002. 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 the Company to MobileMedia
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 MobileMedia's intention to issue and sell a minimum of $100
million of debt securities and/or preferred stock.
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.
10. Subsequent Events
On July 15, 1996, the MobileMedia 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 member of the Board of Directors. H. Stephen
Burdette, Vice President of Corporate Development, has been named to the
additional position of Acting Senior Vice President of Operations. These changes
followed the departure of Gregory M.
9
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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 MobileMedia Board of Directors appointed Michael K.
Lorelli to the position of Chief Executive Officer, effective September 1, 1996.
10
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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
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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>
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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 ............. 43,727 30.3% 12,978 26.2% 87,026 30.0% 26,677 27.4%
Depreciation and
amortization ............... 84,797 58.7% 17,063 34.4% 163,093 56.3% 33,071 34.0%
--------- --------- --------- --------- --------- ----- --------- ---------
Total operating
expenses ..................... 186,238 129.0% 53,236 107.3% 366,416 126.4% 104,608 107.5%
--------- --------- --------- --------- --------- ----- --------- ---------
Operating loss ................. (41,898) (29.0)% (3,623) (7.3)% (76,516) (26.4)% (7,315) (7.5)%
Total other expense ............ (21,857) (15.1)% (7,784) (15.7)% (42,915) (14.8)% (12,603) (13.0)%
--------- --------- --------- --------- --------- ----- --------- ---------
Loss from operations
before income
tax benefit .................. $ (63,755) (44.2)% $ (11,407) (23.0)% $(119,431) (41.2)% $ (19,918) (20.5)%
========= ========= ========= ========= ========= ===== ========= =========
Other Data
EBITDA ......................... $ 42,899 29.7% $ 13,440 27.1% $ 86,577 29.9% $ 25,756 26.5%
Average revenue per
unit ("ARPU") ................ $ 10.99 $ 9.78 $ 11.22 $ 9.96
Average monthly
operating expense
per unit ..................... $ 7.78 $ 7.35 $ 7.91 $ 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.
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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 236.9% to $43.7 million for
the quarter ended June 30, 1996 compared to $13.0 million for the quarter ended
June 30, 1995 and increased 226.2% to $87.0 million for the six months ended
June 30, 1996 compared to $26.7 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 30.0% for the six months ended June 30, 1996 from
27.4% 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 $41.9 million for the quarter ended
June 30, 1996 from $3.6 million for the quarter ended June 30, 1995 and
increased to $76.5 million for the six months ended June 30, 1996 from
$7.3 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 180.8% to
$21.9 million for the quarter ended June 30, 1996 compared to $7.8 million for
the quarter ended June 30, 1995 and increased 240.5% to $42.9 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 operations before income tax benefit, as a result of the above
factors, increased to $63.8 million for the quarter ended June 30, 1996
from $11.4 million for the quarter ended June 30, 1995 and increased to
$119.4 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
$86.6 million for the six months ended June 30, 1996 compared to $25.8 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 27.1% for the
quarter ended June 30, 1995 and EBITDA increased to 29.9% for the six months
ended June 30, 1996 from 26.5% 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 purchses 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 the Company to redeem the Deferred Coupon Notes or an acceleration of
the maturity of such Notes, there are no principal payments due on the Deferred
Coupon Notes until maturity in the year 2003.
MobileComm Acquisition. On January 4, 1996, the Company completed its
acquisition of MobileComm, BellSouth's paging and wireless messaging unit, and
an associated nationwide two-way narrowband 50/12.5 kHz PCS license, and
BellSouth agreed to enter into a two-year non-compete agreement and a five-year
reseller agreement with the Company. The aggregate consideration paid for the
MobileComm Acquisition (excluding fees and expenses and related financing costs)
was approximately $928.7 million.
Sources of Funds. The Company's net cash provided by operating activities
was $28.2 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 $14.8 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, the Company 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"). The Company
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. The Company 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 the Company to MobileMedia
for required interest or dividend payments on certain
15
<PAGE>
permitted future issuances of debt securities and/or preferred stock and to
revise certain debt covenant ratios based on MobileMedia's intention to issue
and sell $100 million of debt securities and/or preferred stock.
The $200 million revolving loan facility may be used to fund capital
expenditures and for working capital and general corporate purposes. Revolving
credit loans must be repaid in quarterly installments during the period
beginning March 1998 and ending June 2002. At June 30, 1996, $47.0 million was
outstanding under the revolving loan facility. The Company 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.
The Company's obligations under the Credit Agreement are secured by
substantially all of the assets of the Company and all of its subsidiaries,
including the capital stock of the subsidiaries, and MobileMedia and the
subsidiaries of the Company have guaranteed all of the Company's borrowings,
including principal and interest. Performance of the Company's obligations as a
guarantor is secured by a pledge of the capital stock 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.
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
None.
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 of Form 8-K. None.
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 Communications, Inc.
By /s/ Santo J. Pittsman
---------------------------------
Santo J. Pittsman
Senior Vice President and
Chief Financial Officer
Date: August 14, 1996
18
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
FOR THE PERIOD ENDED JUNE 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 2,098
<SECURITIES> 0
<RECEIVABLES> 94,674
<ALLOWANCES> (12,571)
<INVENTORY> 39,790
<CURRENT-ASSETS> 127,971
<PP&E> 505,197
<DEPRECIATION> (139,986)
<TOTAL-ASSETS> 1,763,257
<CURRENT-LIABILITIES> 184,116
<BONDS> 1,013,613
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<COMMON> 0
<OTHER-SE> 478,185
<TOTAL-LIABILITY-AND-EQUITY> 1,763,257
<SALES> 35,359
<TOTAL-REVENUES> 323,697
<CGS> (33,797)
<TOTAL-COSTS> 66,741
<OTHER-EXPENSES> 342,590
<LOSS-PROVISION> 12,065
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<INCOME-PRETAX> (119,431)
<INCOME-TAX> (6,063)
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