<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, 2000
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
Incorporation or Organization) Identification No.)
110 N. College, Suite 200, Tyler, Texas 75702 (903) 595-8889
(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 - 4,898,192 shares outstanding as of
October 5, 2000
1
<PAGE>
TELETOUCH COMMUNICATIONS, INC.
FORM 10-Q
QUARTER ENDED AUGUST 31, 2000
Page No.
--------
Part I. Financial Information
Item 1. Financial Statements - Teletouch Communications, Inc. (Unaudited)
Condensed Consolidated Balance Sheets at
August 31, 2000 and May 31, 2000 4
Condensed Consolidated Statements of Operations -
Three Months Ended August 31, 2000 and
August 31, 1999 5
Condensed Consolidated Statements of Cash Flows -
Three Months Ended August 31, 2000 and
August 31, 1999 6
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
Part II. Other Information
Item 1. Legal Proceedings 16
Item 6. Exhibits and Reports on Form 8-K 16
Signatures 17
2
<PAGE>
Part I. Financial Information
3
<PAGE>
TELETOUCH COMMUNICATIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands, except share data)
<TABLE>
<CAPTION>
August 31, 2000 May 31, 2000
---------------------------------
ASSETS (Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents......................................... $ 6,766 $ 6,828
Accounts receivable, net of allowance............................. 2,061 2,083
Inventory......................................................... 5,946 5,337
Deferred income tax assets........................................ 56 56
Note receivable................................................... 515
Investment in securities.......................................... 516 --
Certificates of deposit, restricted as to use..................... 250 750
Prepaid expenses and other current assets......................... 1,542 1,842
----------- --------------
17,137 17,411
PROPERTY, PLANT AND EQUIPMENT, net of accumulated
depreciation of $14,300 in 2001 and $13,633 in 2000............... 18,691 19,117
GOODWILL, INTANGIBLES, AND OTHER ASSETS:
Goodwill.......................................................... 24,892 24,892
Subscriber bases.................................................. 28,421 28,421
FCC licenses...................................................... 22,039 22,036
Non-compete agreements............................................ 705 705
Debt issue costs.................................................. 4,100 4,100
Other............................................................. 380 304
Accumulated amortization.......................................... (40,222) (39,293)
----------- --------------
40,315 41,165
----------- --------------
$ 76,143 $ 77,693
=========== =============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses............................. $ 3,924 $ 4,796
Current portion of long-term debt................................. 6,578 6,608
Current portion of unearned sale/leaseback profit................. 418 418
Deferred revenue.................................................. 1,822 1,593
----------- --------------
12,742 13,415
LONG-TERM LIABILITIES:
Long-term debt, net of current portion............................ 72,676 71,927
Unearned sale/leaseback profit, net of current portion............ 2,642 2,747
----------- --------------
75,318 74,674
COMMITMENTS AND CONTINGENCIES.......................................... -- --
DEFERRED INCOME TAXES.................................................. 1,097 1,042
SHAREHOLDERS' EQUITY (DEFICIT):
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,
4,298,192 shares issued and outstanding........................... 4 4
Additional paid-in capital........................................ 25,213 24,863
Accumulated deficit............................................... (38,336) (36,305)
Other comprehensive income........................................ 105 --
----------- --------------
(13,014) (11,438)
----------- --------------
$ 76,143 $ 77,693
=========== ==============
</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,
--------------------------
2000 1999
----------- -----------
<S> <C> <C>
Service, rent, and maintenance revenue................... $ 11,223 $ 11,123
Product sales revenue.................................... 2,994 2,307
----------- -----------
Total revenues......................................... 14,217 13,430
Net book value of products sold.......................... (2,877) (2,121)
----------- -----------
11,340 11,309
Costs and expenses:
Operating............................................ 4,104 3,523
Selling.............................................. 2,391 1,721
General and administrative........................... 2,193 2,061
Depreciation and amortization........................ 2,466 3,646
----------- -----------
Total costs and expenses................................. 11,154 10,951
----------- -----------
Operating income......................................... 186 358
Gain on sale of assets................................... 5 233
Interest expense, net.................................... (2,222) (1,924)
----------- -----------
Net loss................................................. (2,031) (1,333)
Preferred stock dividends................................ (1,021) (914)
----------- -----------
Loss applicable to common stockholders................... $ (3,052) $ (2,247)
=========== ===========
Loss per share - basic and diluted....................... $ (0.71) $ (0.53)
=========== ===========
Weighted average shares outstanding - basic
and diluted.............................................. 4,298,192 4,235,465
=========== ===========
</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,
--------------------------
2000 1999
---- ----
<S> <C> <C>
Operating Activities:
Net loss..................................................................... $ (2,031) $ (1,333)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization................................................ 2,466 3,646
Non cash stock option compensation expense................................... 350 --
Non cash interest expense.................................................... 857 789
Provision for losses on accounts receivable.................................. 455 293
Gain on sale of assets....................................................... (5) (233)
Amortization of unearned sale/leaseback profit............................... (105) (101)
Changes in operating assets and liabilities:
Accounts receivable, net................................................... (433) (598)
Inventories................................................................ (113) (2,448)
Prepaid expenses and other assets.......................................... 232 144
Accounts payable and accrued expenses...................................... (872) 669
Deferred revenue........................................................... 229 333
---------- --------
Net cash provided by operating activities....................................... 1,030 1,161
Investing Activities:
Capital expenditures, including pagers....................................... (1,563) (1,835)
Redemption of certificates of deposit........................................ 500 --
Deferred costs associated with acquisitions.................................. (12) (15)
Net proceeds from sale of assets............................................. 8 246
---------- --------
Net cash used for investing activities.......................................... (1,067) (1,604)
Financing Activities:
Payments on long-term debt................................................... (25) (250)
Deferred revenue........................................................... 229 333
---------- --------
Net decrease in cash and cash equivalents....................................... (62) (693)
Cash and cash equivalents at beginning of period................................ 6,828 5,787
---------- --------
Cash and cash equivalents at end of period...................................... $ 6,766 $ 5,094
========== ========
</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 ("Teletouch" or the "Company") for
the periods ended August 31, 2000 and August 31, 1999 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, 2000. The balance sheet at May 31, 2000 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 and the results of its operations and cash
flows for the periods ended August 31, 2000 and August 31, 1999. 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.
Loss Per Share: Loss per share is computed using the weighted-average number of
common shares outstanding during the period.
Reclassification: Certain reclassifications have been made in the prior years'
financial statements to conform to the fiscal year 2001 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 companies 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.
In December 1999, the Securities and Exchange Commission released Staff
Accounting Bulletin (SAB) No. 101, "Revenue Recognition in Financial
Statements". This SAB provides additional guidance on the accounting for revenue
recognition, including both broad conceptual discussions as well as certain
industry-specific guidance. The guidance is effective for the Company in the
fourth quarter of fiscal 2001. While Teletouch does not expect SAB No. 101 to
have a material impact on its results of operations upon adoption, the SEC is
expected to issue further guidance regarding the implementation of SAB No. 101
which could affect the Company's estimates of its expected impact.
7
<PAGE>
TELETOUCH COMMUNICATIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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
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 (in thousands): August 31, May 31,
2000 2000
---- ----
Notes payable........................ $ 59,750 $ 59,750
Junior subordinated notes............ 19,333 18,589
Other................................ 171 196
-------- --------
79,254 78,535
Less current portion................. 6,578 6,608
-------- --------
$ 72,676 $ 71,927
======== ========
Notes Payable: The Company's credit agreement with a group of lenders, led by
Chase Manhattan Bank (the "Credit Agreement") provides for loans in an amount
not to exceed $70 million. As of August 31, 2000, $59,750,000 of the Credit
Agreement was funded, and approximately $10 million is available for future
funding with the consent of the lending parties. Direct costs incurred in
connection with obtaining the Credit Agreement of approximately $4.1 million
have been deferred and are being amortized, using the effective interest rate
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. The Company made its first installment in
September 2000, and these payments will end in November 2005. The Credit
Agreement also requires the maintenance of specified financial and operating
covenants and prohibits any payments on the Junior Subordinated Notes and the
payment of dividends. The Company is in compliance with these covenants as of
August 31, 2000.
8
<PAGE>
TELETOUCH COMMUNICATIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE D - STOCK OPTIONS
In December 1999, the Company reduced the exercise price of all
outstanding employee and director owned stock options to $0.87, which was equal
to the average of the closing price of the Company's common stock for the 20-
trading days prior to December 1, 1999. Compensation expense associated with
these repriced options of approximately $350,000 has been recognized in
accordance with the recently issued Financial Accounting Standards Board
Interpretation No. 44, "Accounting for Certain Transactions Involving Stock
Compensation", beginning July 1, 2000. Additional compensation expense and
income may be recorded in future periods based on fluctuations in the market
value of the Company's common stock.
NOTE E - NOTE RECEIVABLE
At May 31, 2000, the Company had a note receivable of $515,000 from a
supplier. In June 2000 the note was exchanged for 150,000 shares of common stock
of the supplier, which was recorded at fair market value on the date of
conversion and is restricted for six months after the exchange, and certain
other assets. There was no gain or loss associated with this transaction
NOTE F - COMPREHENSIVE INCOME
Total comprehensive income for the three months ended August 31, 2000 and
August 31, 1999 was a loss of $1,926,000 and $1,333,000, respectively. The
difference between comprehensive income and net loss at August 31, 2000 was
related to unrealized gains on marketable equity securities that are classified
as available for sale.
NOTE G - SUBSEQUENT EVENT
On September 1, 2000, Teletouch finalized its agreement to acquire the
assets of Snider Communications Corporation ("Snider"), a corporation
headquartered in Little Rock, Arkansas, which provides statewide wireless
messaging coverage in Arkansas. The purchase price was 600,000 shares of
Teletouch's common stock, which is valued at approximately $1.4 million as
determined by the market value of the shares of Teletouch's common stock issued
at the date of closing. This transaction will be accounted for as a purchase.
9
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
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, 2000 the Company had approximately
397,200 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 grow slightly in
future quarters as the Company continues to open new retail stores, improves its
advertising programs, and focuses on becoming the total solution for consumers'
wireless needs.
The Company is also expanding its existing product lines. In December 1998,
Teletouch launched its own brand of prepaid cellular service and began offering
PCS cellular service as an agent for other PCS carriers. At August 31, 2000, the
Company was offering some type of cellular service in most of its markets.
Teletouch also began offering prepaid long distance cards along with two-way
paging services and Internet-based messaging utilizing WebLink Wireless, Inc.'s
nationwide network in the last quarter of fiscal year 2000. The two-way paging
and Internet-based messaging services are offered to the Company's customers
pursuant to a five year agreement with WebLink Wireless, Inc. The Company
monitors 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,
-----------------
2000 1999
---- ----
<S> <C> <C>
(in thousands, except pagers, ARPU and per share amounts)
Service, rent and maintenance revenue $ 11,223 $ 11,123
Product sales revenue 2,994 2,307
-------- --------
Total revenues 14,217 13,430
Net book value of products sold (2,877) (2,121)
-------- --------
$ 11,340 $ 11,309
Operating expenses $ 11,154 $ 10,951
Operating income $ 186 $ 358
Net loss before preferred stock dividends $ (2,031) $ (1,333)
Net loss after preferred stock dividends $ (3,052) $ (2,247)
Loss per share after preferred stock dividends $ (0.71) $ (0.53)
EBITDA (1) $ 3,003 $ 4,004
Pagers in service at end of period 397,200 400,500
Average revenue per unit ("ARPU") $ 8.82 $ 9.08
</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 or
compensation expense associated with repriced stock options.
Results of Operations for the three months ended August 31, 2000 and 1999
-------------------------------------------------------------------------
Total revenue: Teletouch's total revenue increased to $14.2 million for the
-------------
three months ended August 31, 2000 from $13.4 million for the three months ended
August 31, 1999. This increase is due to increased cellular and two-way radio
revenues, partially offset by a decline in paging and messaging revenues. Pagers
in service decreased to approximately 397,200 at August 31, 2000 as compared to
400,500 at August 31, 1999, partially as a result of decreased advertising
spending in the last quarter of fiscal year 2000.
11
<PAGE>
The negative impact on total revenue of the decrease in pagers in service is
compounded by a decrease in average revenue per unit ("ARPU"). ARPU for the
three months ended August 31, 2000 was $8.82 as compared to $9.08 for the three
months ended August 31, 1999. 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 and a
decline in demand for paging services. 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, 2000 approximately 41% of the Company's
subscriber base was represented by resellers as opposed to 39% at August 31,
1999. As competitors continue to pursue its customers in the marketplace, the
percentage of its subscriber base represented by resellers increases, and the
paging industry fully matures, ARPU is expected to continue to decline.
Nevertheless, Teletouch expects that the introduction of new products and
services will increase sufficiently to offset any decline in ARPU or paging
subscribers and not result in a decrease in total revenue.
Operating expenses, excluding depreciation and amortization: Operating
-----------------------------------------------------------
expenses, excluding depreciation and amortization, were $8.3 million, 59% of
total revenue ($8.7 million, 61% of total revenue, including the $350,000
compensation expense associated with repriced stock options), for the first
three months of fiscal year 2001 as compared to $7.3 million, 54% of total
revenue, for the first three months of fiscal year 2000. Costs have increased
primarily because of new retail store openings, particularly in the areas of
advertising and payroll costs, and because of the $350,000 compensation expense
recorded in the first quarter of fiscal year 2001 associated with the repriced
stock options.
Depreciation and amortization: Depreciation and amortization expense
-----------------------------
decreased to $2.5 million for the three months ended August 31, 2000, from $3.6
million for the three months ended August 31, 1999. The decrease is due to the
expiration of amortization on certain intangible assets that occurred in fiscal
year 2000.
Interest expense: Net interest expense increased to $2.2 million for the
----------------
three months ended August 31, 2000 from $1.9 million for the three months ended
August 31, 1999. Higher interest rates on the Company's variable-rate debt
obligations along with increased interest costs associated with the Junior
Subordinated Notes accounted for the increase.
Income tax benefit: For fiscal year 2001, 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 income tax 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.
EBITDA: EBITDA decreased to $3.0 million (excluding the $350,000
------
compensation expense associated with the repriced stock options), 21% of total
revenue, for the three months ended August 31, 2000 from $4.0 million, 30% of
total revenue, for the three months ended August 31, 1999. The decrease in
EBITDA in total and as a percentage of total revenue is primarily due to new
retail store openings, particularly in the areas of advertising and payroll
costs. The decrease in EBITDA is partially due to the continuing decline in ARPU
and the decline in number of pagers in service.
12
<PAGE>
FINANCIAL CONDITION
The Company's credit agreement with a group of lenders, led by Chase
Manhattan Bank (the "Credit Agreement") provides for loans in an amount not to
exceed $70 million. As of August 31, 2000, $59,750,000 of the Credit Agreement
was funded, and approximately $10 million is available for future funding with
the consent of the lending parties. Direct costs incurred in connection with
obtaining the Credit Agreement of approximately $4.1 million have been deferred
and are being amortized, using the effective interest rate 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. The Company made its first installment in
September 2000, and these payments will end in November 2005. The Credit
Agreement also requires the maintenance of specified financial and operating
covenants and prohibits any payments on the Junior Subordinated Notes and the
payment of dividends. The Company is in compliance with these convenants, as of
August 31, 2000.
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 $1.6
million and $1.8 million for the first three months of fiscal years 2001 and
2000, respectively. Teletouch anticipates capital expenditures will be flat in
fiscal 2001 as compared to fiscal 2000 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
companies 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.
In December 1999, the Securities and Exchange Commission released Staff
Accounting Bulletin (SAB) No. 101, "Revenue Recognition in Financial
Statements". This SAB provides additional guidance on the accounting for revenue
recognition, including both broad conceptual discussions as well as certain
industry-specific guidance. The guidance is effective for the Company in the
fourth quarter of fiscal
13
<PAGE>
2001. While Teletouch does not expect SAB No. 101 to have a material impact on
its results of operations upon adoption, the SEC is expected to issue further
guidance regarding the implementation of SAB No. 101 which could affect the
Company's estimates of its expected impact.
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 18
(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 20, 2000
/s/J. Richard Carlson
---------------------
J. Richard Carlson
President
Chief Executive Officer
Chief Operating Officer
Date: October 20, 2000
/s/J. Kernan Crotty
-------------------
J. Kernan Crotty
Executive Vice President
Chief Financial Officer
(Principal Accounting Officer)
16
