<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended August 31, 1999
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 1-13436
TELETOUCH COMMUNICATIONS, INC.
(Name of registrant in its charter)
DELAWARE 75-2556090
(State or other jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
110 N. College, Suite 200, Tyler, Texas 75702 (903) 595-8800
(Address and telephone number of principal executive offices)
----------------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, $.001 par value - 4,235,465 shares outstanding
as of October 8, 1999
1
<PAGE>
TELETOUCH COMMUNICATIONS, INC.
FORM 10-Q
QUARTER ENDED AUGUST 31, 1999
Page No.
--------
Part I. Financial Information
Item 1. Financial Statements - Teletouch Communications, Inc. (Unaudited)
Condensed Consolidated Balance Sheets at
August 31, 1999 and May 31, 1999 4
Condensed Consolidated Statements of Operations -
Three Months Ended August 31, 1999 and
August 31, 1998 5
Condensed Consolidated Statements of Cash Flows -
Three Months Ended August 31, 1999 and
August 31, 1998 6
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis 10
Item 3. Quantitative and Qualitative Disclosures About Market Risk 14
Part II. Other Information
Item 1. Legal Proceedings 15
Item 6. Exhibits and Reports on Form 8-K 15
Signatures 16
2
<PAGE>
Part 1. Financial Information
3
<PAGE>
TELETOUCH COMMUNICATIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands, except share data)
<TABLE>
<CAPTION>
August 31, 1999 May 31, 1999
-------------------------------------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents......................................................... $ 5,094 $ 5,787
Accounts receivable, net of allowance............................................. 2,093 1,788
Inventory......................................................................... 7,714 4,936
Deferred income tax assets........................................................ 56 56
Note receivable................................................................... 500 500
Certificates of deposit, restricted as to use..................................... 725 725
Prepaid expenses and other current assets......................................... 820 1,099
--------------- ------------
17,002 14,891
PROPERTY, PLANT AND EQUIPMENT, net of accumulated
depreciation of $11,244 in 2000 and $10,671 in 1999............................... 18,485 18,733
GOODWILL, INTANGIBLES AND OTHER ASSETS:
Goodwill.......................................................................... 24,786 24,786
Subscriber bases.................................................................. 28,255 28,225
FCC licenses...................................................................... 21,744 21,741
Non-compete agreements............................................................ 700 700
Debt issue costs.................................................................. 4,100 4,100
Other............................................................................. 267 150
Accumulated amortization.......................................................... (34,100) (32,070)
--------------- ------------
45,752 47,632
--------------- ------------
$ 81,239 $ 81,256
=============== ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses............................................. $ 5,380 $ 4,711
Current portion of unearned sale/leaseback profit................................. 405 405
Deferred revenue.................................................................. 1,847 1,514
--------------- ------------
7,632 6,630
LONG-TERM LIABILITIES:
Long-term debt.................................................................... 76,359 75,944
Unearned sale/leaseback profit.................................................... 3,001 3,102
--------------- ------------
79,360 79,046
COMMITMENTS AND CONTINGENCIES........................................................ -- --
DEFERRED INCOME TAXES................................................................ 1,042 1,042
SHAREHOLDERS' EQUITY:
Series A cumulative convertible preferred stock, $.001 par
value, 15,000 shares authorized, issued, and outstanding........................ -- --
Series B convertible preferred stock, $.001 par value, 411,457
shares authorized, 87,286 shares issued and outstanding......................... -- --
Common stock, $.001 par value, 25,000,000 shares authorized,
4,235,465 shares issued and outstanding in 2000 and 4,235,527
in 1999......................................................................... 4 4
Additional paid-in capital........................................................ 24,816 24,816
Accumulated deficit............................................................... (31,615) (30,282)
--------------- ------------
(6,795) (5,462)
--------------- ------------
$ 81,239 $ 81,256
=============== ============
</TABLE>
See Accompanying Notes to Condensed Consolidated Financial Statements
4
<PAGE>
TELETOUCH COMMUNICATIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, except shares and per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
August 31,
----------------------------------
1999 1998
------------ -------------
<S> <C> <C>
Service, rent, and maintenance revenue.......................... $ 11,123 $ 10,230
Product sales revenue........................................... 2,307 1,976
------------ -------------
Total revenues............................................... 13,430 12,206
Net book value of products sold................................. (2,121) (1,872)
------------ -------------
11,309 10,334
Costs and expenses:
Operating.................................................. 3,218 2,928
Selling.................................................... 1,721 1,230
General and administrative................................. 2,366 2,294
Depreciation and amortization.............................. 3,646 3,329
------------ -------------
Total costs and expenses........................................ 10,951 9,781
------------ -------------
Operating income................................................ 358 553
Gain/(loss) on sale of assets................................... 233 (1)
Interest expense, net........................................... (1,924) (2,034)
------------ -------------
Loss before income taxes........................................ (1,333) (1,482)
Income tax expense/(benefit).................................... -- --
------------ -------------
Net loss........................................................ (1,333) (1,482)
Preferred stock dividends....................................... (914) (775)
------------ -------------
Loss applicable to common stock................................. $ (2,247) $ (2,257)
============ =============
Loss per share.................................................. $ (0.53) $ (0.53)
============ =============
Weighted Average Shares Outstanding - Basic
and Diluted.................................................... 4,235,465 4,235,611
============ =============
</TABLE>
See Accompanying Notes to Condensed Consolidated Financial Statements
5
<PAGE>
TELETOUCH COMMUNICATIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
August 31,
----------------------------------
1999 1998
------------ -------------
<S> <C> <C>
Operating Activities:
Net loss.................................................................. $ (1,333) $ (1,482)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization............................................. 3,646 3,329
Non cash consulting expense............................................... -- 55
Non cash interest expense................................................. 789 749
Provision for losses on accounts receivable............................... 293 138
Gain on sale of assets.................................................... (233) 1
Amortization of unearned sale/leaseback profit............................ (101) (101)
Changes in operating assets and liabilities:
Accounts receivable, net.............................................. (598) (154)
Inventories........................................................... (2,448) (167)
Prepaid expenses and other assets..................................... 144 886
Accounts payable and accrued expenses................................. 669 (1,236)
Deferred revenue..................................................... 333 408
------------ -------------
Net cash provided by operating activities.................................... 1,161 2,426
Investing Activities:
Capital expenditures, including pagers.................................... (1,835) (1,512)
Deferred costs associated with acquisitions............................... (15) --
Net proceeds from sale of assets.......................................... 246 3
------------ -------------
Net cash used for investing activities....................................... (1,604) (1,509)
Financing Activities:
Payments on long-term debt................................................ (250) (1,000)
------------ -------------
Net decrease in cash and cash equivalents.................................... (693) (83)
Cash and cash equivalents at beginning of period............................. 5,787 4,567
------------ -------------
Cash and cash equivalents at end of period................................... $ 5,094 $ 4,484
============ =============
</TABLE>
See Accompanying Notes to Condensed Consolidated Financial Statements
6
<PAGE>
TELETOUCH COMMUNICATIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE A - SIGNIFICANT ACCOUNTING POLICIES
The unaudited condensed consolidated financial statements of Teletouch
Communications, Inc., and its subsidiaries (the "Company") for the periods ended
August 31, 1999 and 1998 have been prepared in accordance with generally
accepted accounting principles applied on a consistent basis. Significant
accounting policies followed by the Company were disclosed in the notes to the
financial statements included in the Company's Annual Report on Form 10-K for
the year ended May 31, 1999. The balance sheet at May 31, 1999 has been derived
from the audited financial statements at that date but does not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of the Company's
management, the accompanying condensed consolidated financial statements contain
the material adjustments necessary to present fairly the financial position of
the Company at August 31, 1999 and May 31, 1999 and the results of its
operations and cash flows for the periods ended August 31, 1999 and 1998. All
such adjustments are of a normal recurring nature. Interim period results are
not necessarily indicative of the results to be achieved for the full year.
Reclassification: Certain reclassifications have been made in the prior years'
financial statements to conform to the fiscal year 2000 presentation.
New Accounting Announcements: In June 1998, the Financial Accounting Standards
Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities." This statement establishes accounting and reporting guidelines for
derivatives and requires an establishment to record all derivatives as assets or
liabilities on the balance sheet at fair value. Additionally, this statement
establishes accounting treatment for three types of hedges: hedges of changes in
the fair value of assets, liabilities or firm commitments; hedges of the
variable cash flows of forecasted transactions; and hedges of foreign currency
exposures of net investments in foreign operations. Any derivative that
qualifies as a hedge, depending upon the nature of that hedge, will either be
offset against the change in fair value of the hedged assets, liabilities or
firm commitments through earnings or recognized in other comprehensive income
until the hedged item is recognized in earnings. SFAS No. 133 is effective for
years beginning after June 15, 2000. Teletouch is currently analyzing the
implementation requirements and does not anticipate that the adoption of this
statement will have a material impact on its consolidated balance sheets,
statements of operations, or cash flows.
NOTE B - INTANGIBLES
Except for debt issue costs, Teletouch's intangible assets are recorded at
cost and are amortized, using the straight-line method, over the following
periods:
Goodwill 25 years
Subscriber bases 5 years
FCC licenses 25 years
Non-compete agreements 2-5 years
7
<PAGE>
TELETOUCH COMMUNICATIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The Company defers costs incurred in obtaining debt and amortizes these costs
as additional interest expense over the term of the related debt using the
effective interest method. The carrying value of intangible assets is reviewed
if the facts and circumstances suggest that they may be permanently impaired.
If the review indicates that intangible assets will not be recoverable, as
determined by the undiscounted cash flow method, the assets will be reduced to
their estimated recoverable value.
NOTE C - LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
August 31, May 31,
1999 1999
----------- -----------
(Unaudited)
<S> <C> <C>
Notes payable............................................. $ 59,750 $ 60,000
Junior subordinated notes, including accrued interest..... 16,609 15,944
----------- -----------
$ 76,359 $ 75,944
=========== ===========
</TABLE>
Notes Payable: In January 1998, Teletouch amended its original agreement (the
"Credit Facility") with a group of lenders, led by Chase Manhattan Bank. The
new agreement (the "Credit Agreement") provides for loans in an amount not to
exceed $70 million, as opposed to the $95 million provided for in the original
Credit Facility. As of August 31, 1999, $59,750,000 of the Credit Agreement was
funded, and $10,000,000 is available for future funding. To complete the Credit
Agreement, the Company paid approximately $0.5 million in amendment fees. These
fees have been deferred and are being amortized, using the effective interest
method, over the term of the existing loans.
The Credit Agreement bears interest, at the Company's designation, at a
floating rate of the prime rate plus 1% to 2% or LIBOR plus 2% to 3%. These
rates vary depending on the leverage ratio of the Company. The Credit Agreement
is secured by substantially all of the assets of Teletouch and its subsidiaries.
Borrowings under the Credit Agreement require the principal be repaid in
escalating quarterly installments beginning in August 2000 and ending in
November 2005. In conjunction with the funding from the original Credit
Facility and the Credit Agreement, the Company entered into an interest rate
protection agreement that protected $47.5 million of the commitments against
future prime rate or LIBOR rate increases above 9.5% for the period August 1998
through July 1999. Costs related to this agreement were deferred and included
with debt issuance costs and have been amortized as additional interest expense
over the term of the agreement. The Credit Agreement also requires the
maintenance of specified financial and operating covenants, with which the
Company is in compliance, and prohibits any payments on the Junior Subordinated
Notes and the payment of dividends.
8
<PAGE>
TELETOUCH COMMUNICATIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE D - SHAREHOLDERS' EQUITY
On June 25, 1998, the Company effected a two-for-three reverse stock split of
its common shares distributable to shareholders of record as of May 11, 1998.
The Company's shareholders received two shares of stock and cash resulting from
any fractional shares in exchange for each three previously outstanding shares.
All outstanding shares have been adjusted and per share amounts have been
adjusted for all periods presented as a result of the two-for-three reverse
split.
NOTE E - SEGMENT INFORMATION
Teletouch operates in the wireless telecommunications industry, providing
paging and messaging, cellular, and two-way radio services to a diversified
customer base. As of and for the three months ending August 31, 1999 and 1998,
the Company had no foreign operations.
Teletouch's cellular and two-way radio operations represent less than 10%
individually and in the aggregate of revenue, operating income, and assets of
the Company.
9
<PAGE>
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition
Certain statements contained herein are not based on historical facts, but
are forward-looking statements that are based upon numerous assumptions about
future conditions that could prove not to be accurate. Actual events,
transactions and results may materially differ from the anticipated events,
transactions or results described in such statements. The Company's ability to
consummate such transactions and achieve such events or results is subject to
certain risks and uncertainties. Such risks and uncertainties include, but are
not limited to, the existence of demand for and acceptance of the Company's
products and services, regulatory approvals and developments, economic
conditions, the impact of competition and pricing, results of financing efforts
and other factors affecting the Company's business that are beyond the Company's
control. The Company undertakes no obligation and does not intend to update,
revise, or otherwise publicly release the results of any revisions to these
forward-looking statements that may be made to reflect future events or
circumstances.
OVERVIEW
The following discussion and analysis of the results of operations and
financial condition of the Company should be read in conjunction with the
condensed consolidated financial statements and notes thereto included elsewhere
in this report.
Teletouch is a leading provider of wireless telecommunications services,
primarily paging services, in non-major metropolitan areas and communities in
the southeast United States. As of August 31, 1999 the Company had
approximately 400,500 pagers in service. The Company derives the majority of its
revenues from fixed periodic fees, not dependent on usage, charged to
subscribers for paging services. As long as a subscriber remains on service,
operating results benefit from the recurring payments of the fixed periodic fees
without incurring additional selling expenses or other fixed costs. While there
can be no assurance, Teletouch expects that net subscriber additions will
continue to grow as the Company continues to open new retail stores and to focus
on its other sales channels.
The Company is also expanding its existing product lines. In December 1998,
Teletouch began offering prepaid cellular service and Sprint PCS cellular
service. To enhance its primary wireless services, the Company is also expanding
its offering of other value-added services such as voice mail and Smartpager(R),
a service whereby individuals can send an alphanumeric page to a subscriber
without any special software or equipment. The Company is closely monitoring new
product offerings and the expansion of existing products and services to ensure
those products and services are meeting its customers' needs.
10
<PAGE>
RESULTS OF OPERATIONS
The following table presents certain items from the Company's condensed
consolidated statements of operations and certain other information for the
periods indicated.
<TABLE>
<CAPTION>
Three Months ended
August 31,
--------------------------
1999 1998
---- ----
(in thousands, except pagers, ARPU and per share amounts)
<S> <C> <C>
Service, rent and maintenance revenue $ 11,123 $ 10,230
Product sales revenue 2,307 1,976
-------- --------
Total revenues 13,430 12,206
Net book value of products sold (2,121) (1,872)
-------- --------
$ 11,309 $ 10,334
Operating expenses $ 10,951 $ 9,781
Operating income $ 358 $ 553
Net loss before preferred stock dividends $ (1,333) $ (1,482)
Net loss after preferred stock dividends $ (2,247) $ (2,257)
Loss per share after preferred stock dividends $ (0.53) $ (0.53)
EBITDA (1) $ 4,004 $ 3,882
Pagers in service at end of period 400,500 362,200
Average revenue per unit ("ARPU") $ 9.08 $ 9.31
</TABLE>
___________________________
(1) EBITDA represents earnings before interest, taxes, depreciation and
amortization (and certain non-recurring income and expenses). EBITDA is a
standard measure of financial performance in the paging industry. However,
EBITDA is not a measure defined in generally accepted accounting principles
("GAAP") and should not be construed as an alternative to operating income
or cash flows from operating activities as determined in accordance with
GAAP. EBITDA is, however, one of the primary financial measures by which
the Company's covenants are calculated under its debt agreements. The
EBITDA shown above does not include gain/(loss) on the sale of assets.
Results of Operations for the three months ended August 31, 1999 and 1998
- -------------------------------------------------------------------------
Total revenue: Teletouch's total revenue increased to $13.4 million for the
-------------
three months ended August 31, 1999 from $12.2 million for the three months ended
August 31, 1998. This increase is due primarily to the additional revenues from
new cellular products and from an increase in pagers in service resulting from
internal growth. Pagers in service increased to approximately 400,500 at August
31, 1999 as compared to 362,200 at August 31, 1998.
11
<PAGE>
The positive impact on total revenue of the increase in pagers in service is
partially offset by the decline in average revenue per unit ("ARPU"). ARPU for
the three months ended August 31, 1999 was $9.08 as compared to $9.12 for the
three months ended May 31, 1999 and $9.31 for the three months ended August 31,
1998. The decrease in ARPU is primarily due to an increase in the percentage of
the Company's subscriber base represented by resellers as well as increased
competition in the Company's markets. Resellers are businesses that buy airtime
at wholesale prices from Teletouch and sell the service to end users. While the
wholesale price to a reseller is lower than the price the Company charges to its
other customers, a reseller bears the cost of acquiring, billing, collecting and
servicing its subscribers. At August 31, 1999 approximately 39% of the
Company's subscriber base was represented by resellers as opposed to 36% at
August 31, 1998. In fiscal 1999, Teletouch implemented a minor price increase
for its basic paging service. The price increase will have a positive impact on
the Company's future ARPU, but as competitors continue to pursue its customers
in the marketplace and as the percentage of its subscriber base represented by
resellers increases, ARPU will continue to decline. Nevertheless, Teletouch
expects that the growth of paging units in service and the introduction of new
products and services will increase sufficiently to offset any decline in ARPU
and not result in a decrease in total revenue.
Operating expenses, excluding depreciation and amortization: Operating
-----------------------------------------------------------
expenses, excluding depreciation and amortization, were $7.3 million, 54% of
total revenue, for the first three months of fiscal year 2000 as compared to
$6.5 million, 53% of total revenue, for the first three months of fiscal year
1999. Costs have increased primarily because of new retail store openings,
particularly in the area of advertising expenses.
Depreciation and amortization: Depreciation and amortization expense
------------------------------
increased to $3.6 million for the three months ended August 31, 1999, from $3.3
million for the three months ended August 31, 1998. The increase is due
primarily to the additional depreciation recorded on returned leased pagers.
Teletouch's emphasis on selling rather than leasing pagers should stabilize this
expense in the future.
Interest expense: Net interest expense decreased to $1.9 million for the
----------------
three months ended August 31, 1999 from $2.0 million for the three months ended
August 31, 1998. The decrease in long-term debt under the Credit Agreement at
August 31, 1999 versus the long-term debt owed at August 31, 1998 combined with
lower interest rates are the primary factors contributing to the lower interest
costs. These factors, however, were partially offset by the increased
amortization of financing costs associated with the Credit Agreement.
Income tax benefit: For fiscal year 2000, the Company estimates the effective
------------------
tax benefit rate will be 0%. A valuation allowance has been recorded against
deferred tax assets which are not likely to be realized. Specifically,
Teletouch's carryforwards expire at specific future dates and utilization of
certain carryforwards is limited to specific amounts each year. However, due to
the uncertain nature of their ultimate realization, the Company has established
a valuation allowance against these carryforward benefits and will recognize
benefits only as reassessment demonstrates they are realizable. Realization is
entirely dependent upon future earnings in specific tax jurisdictions. While the
need for this valuation allowance is subject to periodic review, if the
allowance is reduced, the tax benefits of the carryforwards will be recorded in
future operations as a reduction of the Company's income tax expense.
12
<PAGE>
EBITDA: EBITDA increased to $4.0 million, 30% of total revenue, for the three
------
months ended August 31, 1999 from $3.9 million, 32% of total revenue, for the
three months ended August 31, 1998. The decrease in EBITDA as a percentage of
total revenue is primarily due to new retail store openings.
FINANCIAL CONDITION
In January 1998, Teletouch amended its original agreement (the "Credit
Facility") with a group of lenders, led by Chase Manhattan Bank. The new
agreement (the "Credit Agreement") provides for loans in an amount not to exceed
$70 million, as opposed to the $95 million provided for in the original Credit
Facility. As of August 31, 1999, $59,750,000 of the Credit Agreement was
funded, and $10,000,000 is available for future funding. To complete the Credit
Agreement, the Company paid approximately $0.5 million in amendment fees. These
fees have been deferred and are being amortized, using the effective interest
method, over the term of the existing loans.
The Credit Agreement bears interest, at the Company's designation, at a
floating rate of the prime rate plus 1% to 2% or LIBOR plus 2% to 3%. These
rates vary depending on the leverage ratio of the Company. The Credit Agreement
is secured by substantially all of the assets of Teletouch and its subsidiaries.
Borrowings under the Credit Agreement require the principal be repaid in
escalating quarterly installments beginning in August 2000 and ending in
November 2005. In conjunction with the funding from the original Credit
Facility and the Credit Agreement, the Company entered into an interest rate
protection agreement that protected $47.5 million of the commitments against
future prime rate or LIBOR rate increases above 9.5% for the period August 1998
through July 1999. Costs related to this agreement were deferred and included
with debt issuance costs and have been amortized as additional interest expense
over the term of the agreement. The Credit Agreement also requires the
maintenance of specified financial and operating covenants, with which the
Company is in compliance, and prohibits any payments on the Junior Subordinated
Notes and the payment of dividends.
Teletouch's operations require capital investment to purchase inventory for
lease to customers and to acquire paging infrastructure equipment to support the
Company's growth. Net capital expenditures, including pagers, amounted to $1.8
million and $1.5 million for the first three months of fiscal years 2000 and
1999, respectively. Teletouch anticipates capital expenditures will be flat in
fiscal 2000 as compared to fiscal 1999 as the Company continues to open new
stores, improve its infrastructure, and meet its subscribers' pager needs.
Teletouch will pay for these expenditures with cash generated from operations
and, if necessary, borrowings under the unused portion of the Credit Agreement
(discussed above).
NEW ACCOUNTING ANNOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." This statement
establishes accounting and reporting guidelines for derivatives and requires an
establishment to record all derivatives as assets or liabilities on the balance
sheet at fair value. Additionally, this statement establishes accounting
treatment for three types of hedges: hedges of changes in the fair value of
assets, liabilities or firm commitments; hedges of the variable cash flows of
forecasted transactions; and
13
<PAGE>
hedges of foreign currency exposures of net investments in foreign operations.
Any derivative that qualifies as a hedge, depending upon the nature of that
hedge, will either be offset against the change in fair value of the hedged
assets, liabilities or firm commitments through earnings or recognized in other
comprehensive income until the hedged item is recognized in earnings. SFAS No.
133 is effective for years beginning after June 15, 2000. Teletouch is currently
analyzing the implementation requirements and does not anticipate that the
adoption of this statement will have a material impact on its consolidated
balance sheets, statements of operations, or cash flows.
IMPACT OF YEAR 2000
Teletouch has developed a Year 2000 compliance plan to address the issue of
software currently in use that may have time or date sensitivity that requires
correction. If not addressed, system failures or miscalculations could cause
disruptions of operations, including, among other things, a temporary inability
to process transactions, prepare invoices, or engage in similar normal business
activities.
Teletouch has contacted its major vendors and received written confirmation
of Year 2000 compliance from them. These vendors provide the Company with
software programs that cover the transmission of paging signals, invoicing and
retention of customer activity, and the reporting of the Company's financial and
accounting transactions.
All of these programs are covered under existing maintenance agreements, and
no significant costs have been incurred with respect to Year 2000 compliance
issues.
Although Teletouch has received assurances that it will be Year 2000
compliant and expects no significant issues or expenses with respect to Year
2000, the Company is continuing to review its product offering for potential
problems. Teletouch is also in the process of developing Year 2000 contingency
plans in the event of unforeseen circumstances.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The risk inherent in Teletouch's market risk sensitive instruments is the
potential loss arising from adverse changes in interest rates. The Company's
earnings are affected by changes in interest rates due to the impact those
changes have on its variable-rate debt obligations, which represented
approximately 78% of its total long-term obligations as of August 31, 1999. If
interest rates average one percent more in fiscal 2000 than they did during
fiscal 1999, the Company's interest expense would increase by approximately $0.6
million. The impact of an increase in interest rates was determined based on
the impact of the hypothetical change in interest rates on the Company's
variable-rate long-term obligations as of May 31, 1999. The preceding
sensitivity analysis does not, however, consider the effects that such changes
in interest rates may have on overall economic activity, nor does it consider
additional actions the Company may take to mitigate its exposure to such
changes. Actual results may differ from the above analysis.
14
<PAGE>
Part II. Other Information
Item 1. Legal Proceedings
Teletouch is party to various legal proceedings arising in the ordinary
course of business. The Company believes there is no proceeding, either
threatened or pending, against it that could result in a material adverse effect
on its results of operations or financial condition.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
---------
Exhibit Page
Number Title of Exhibit Number
------ ---------------- ------
27 Financial Data Schedule 17
(b) Reports on Form 8-K.
--------------------
None.
15
<PAGE>
Signatures
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TELETOUCH COMMUNICATIONS, INC.
---------------------------------
(Registrant)
Date: October 15, 1999
/s/J. Richard Carlson
---------------------
J. Richard Carlson
President
Chief Operating Officer
Date: October 15, 1999
/s/J. Kernan Crotty
--------------------
J. Kernan Crotty
Executive Vice President
Chief Financial Officer
(Principal Accounting Officer)
16
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED AUGUST 31, 1999 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAY-31-2000
<PERIOD-START> JUN-01-1999
<PERIOD-END> AUG-31-1999
<CASH> 5,094
<SECURITIES> 0
<RECEIVABLES> 2,215
<ALLOWANCES> 122
<INVENTORY> 7,714
<CURRENT-ASSETS> 17,002
<PP&E> 29,729
<DEPRECIATION> 11,244
<TOTAL-ASSETS> 81,239
<CURRENT-LIABILITIES> 7,632
<BONDS> 76,359
0
0
<COMMON> 4
<OTHER-SE> (6,799)
<TOTAL-LIABILITY-AND-EQUITY> 81,239
<SALES> 13,430
<TOTAL-REVENUES> 13,430
<CGS> 2,121
<TOTAL-COSTS> 10,951
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,924
<INCOME-PRETAX> (1,333)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,333)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,333)
<EPS-BASIC> (0.53)
<EPS-DILUTED> (0.53)
</TABLE>
