<PAGE>
Form 6-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Report of Foreign Issuer
Pursuant to Rule 13a-16 or 15d-16
of the Securities Exchange Act of 1934
For the quarterly period ended March 31, 2000
.......... Paging Network do Brasil S.A. ..........
(Translation of registrant's name into English)
..........Rua Alexandre Dumas, 1,711..........
......Chacara Santo Antonio......
..........Sao Paulo, 04717-004, Brazil...........
(Address of principal executive offices)
<PAGE>
PAGING NETWORK DO BRASIL S.A.
INDEX
Page
----
PART I. FINANCIAL INFORMATION
-----------------------------
Item 1. Financial Statements
a) Balance Sheet at December 31, 1999 (audited) and March 31, 2000
(unaudited).......................................................3
b) Statement of Operations for the three months ended March 31, 1999
and 2000 (unaudited)..............................................4
c) Statement of Cash Flows for the three months ended March 31, 1999
and 2000 (unaudited)..............................................5
d) Statement of Shareholders' (Deficit) for the three months ended
March 31, 2000 (unaudited)........................................6
e) Notes to Financial Statements (unaudited).........................7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................12
PART II. OTHER INFORMATION
--------------------------
Item 1. Legal Proceedings................................................17
Item 2. Changes in Securities............................................17
Item 3. Defaults Upon Senior Securities..................................17
Item 4. Submission of Matters to a Vote of Security Holders..............17
Item 5. Other Information................................................17
Item 6. Exhibits.........................................................17
Signatures...............................................................18
2
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Item 1 (a)
<TABLE>
PAGING NETWORK DO BRASIL S.A.
BALANCE SHEET
At December 31, 1999 and March 31, 2000
(Amounts in U.S. dollars)
<CAPTION>
December 31, March 31,
1999 2000
-----------------------------------------
(Note 2) (Unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents.....................................$ 67,026 $ 30,863
Trading securities............................................ 27,580,015 27,168,884
Accounts receivable, net...................................... 206,868 113,969
Refundable taxes.............................................. 959,978 750,656
Pager inventories............................................. 1,868,006 1,810,507
Prepaid expenses and other current assets..................... 582,016 849,262
Pledged securities held-to-maturity - current................. 8,249,664 8,376,803
-----------------------------------------
Total current assets..................................... 39,513,573 39,100,944
Fixed assets, net.................................................. 13,519,247 13,182,104
Debt issuance costs, net........................................... 5,792,864 5,653,481
Other assets....................................................... 3,884,829 3,439,646
-----------------------------------------
Total assets.............................................$ 62,710,513 $ 61,376,175
=========================================
Liabilities and shareholders' (deficit) Current liabilities:
Accounts payable..............................................$ 211,977 $ 264,858
Accrued expenses.............................................. 7,887,336 11,974,873
Payable to related parties.................................... 1,217,914 1,217,914
-----------------------------------------
Total current liabilities................................ 9,317,227 13,457,645
Senior notes....................................................... 125,000,000 125,000,000
Redeemable preferred stock, without par value
Authorized shares - 63,000 shares
Issued and outstanding, 30,000 shares......................... 43,969,430 45,462,007
Shareholders' (deficit)
Common stock, without par value
Authorized - 2,037,387 shares
Issued and outstanding 1,378,401 shares....................... 30,760 30,760
Accumulated deficit................................................ (144,897,253) (149,361,595)
-----------------------------------------
Accumulated other comprehensive income............................. 29,290,349 26,787,358
-----------------------------------------
Total shareholders' (deficit)........................... (115,576,144) (122,543,477)
-----------------------------------------
Total liabilities and shareholders' (deficit)............$ 62,710,513 $ 61,376,175
=========================================
See accompanying notes to financial statements.
</TABLE>
3
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Item 1 (b)
<TABLE>
PAGING NETWORK DO BRASIL S.A.
STATEMENT OF OPERATIONS
For the three months ended March 31, 1999 and 2000
(Amounts in U.S. dollars)
(Unaudited)
<CAPTION>
Three Months Ended
March 31,
-------------------------------
1999 2000
-------------------------------
<S> <C> <C>
Revenues:
Services, rent and maintenance revenue... $ 5,730,156 $ 4,281,106
Product revenue.......................... 624,804 28,772
-------------------------------
Gross revenues............................. 6,354,960 4,309,878
Sales taxes.............................. (604,616) (385,310)
-------------------------------
Total revenue.............................. 5,750,344 3,924,568
Cost of products sold...................... (1,367,971) (53,693)
Operating costs and expenses:
Services, rent and maintenance........... 1,697,325 1,312,818
Selling, general and administrative...... 5,445,869 2,810,635
Depreciation and amortization............ 996,396 1,742,995
-------------------------------
Total operating costs and expenses... 8,139,590 5,866,448
-------------------------------
Operating loss....................... (3,757,217) (1,995,573)
Other income (expense):....................
Interest expense....................... (4,334,576) (4,358,133)
Interest income........................ 15,781,161 (29,702)
Other expense.......................... (138,523) (88,795)
Foreign currency exchange (loss) gain.. (35,715,478) 2,784,416
-------------------------------
Total other (expense) net.............. (24,407,416) (1,692,214)
-------------------------------
Net loss................................... $ (28,164,633) $ (3,687,787)
===============================
</TABLE>
4
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Item 1 (c)
<TABLE>
PAGING NETWORK DO BRASIL S.A.
STATEMENT OF CASH FLOWS
For the three months ended March 31, 1999 and 2000
(Amounts in U.S. dollars)
(Unaudited)
<CAPTION>
Three Months Ended
March 31,
----------------------------------
1999 2000
---------------- ---------------
<S> <C> <C>
Operating activities:
Net loss................................................................$ (28,164,634) $ (3,687,787)
Adjustments to reconcile net loss to net cash (used in) provided by
operating activities:
Depreciation and amortization........................................ 996,396 1,091,395
Amortization of subscribers list..................................... - 651,476
Provision for losses on accounts receivable.......................... 726,894 217,190
Amortization of debt issuance costs.................................. 122,665 139,384
Currency exchange loss............................................... 35,715,478 (2,784,416)
Loss on sale of equipment............................................ 43,277 141,482
Changes in operating assets and liabilities:
Increase in trading securities.................................. (393,741) (127,152)
Increase in accounts receivable................................. (1,034,484) (124,290)
(Increase) decrease in refundable taxes......................... (3,149,802) 228,917
Increase in pager inventories................................... (154,077) (111,515)
Increase in prepaid expenses and other current assets........... (415,506) (241,847)
Increase in other assets........................................ (14,299) (128,355)
(Decrease) increase in accounts payable........................ (282,684) 41,525
Increase in accrued expenses.................................... 6,799,530 4,020,273
---------------- ---------------
Net cash (used in) provided by operating activities........ 10,795,013 (673,720)
Investing activities:
(Increase) decrease pledged securities held-to-maturity................. (6,367,783) 1,054,076
Purchase of fixed assets........................................ (1,464,563) (377,688)
Proceeds from sale of equipment................................. 11,930 14,712
---------------- ---------------
Net cash (used in) provided by investing activities................. (7,820,416) 691,100
Effect of exchange rate changes on cash.................................... (3,001,139) (53,543)
---------------- ---------------
Net decrease in cash and cash equivalents.................................. (26,542) (36,163)
Cash and cash equivalents at beginning of period........................... 219,787 67,026
----------------------------------
Cash and cash equivalents at end of period.................................$ 193,245 $ 30,863
==================================
See accompanying notes to financial statements
</TABLE>
5
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Item 1 (d)
<TABLE>
PAGING NETWORK DO BRASIL S.A.
STATEMENT OF SHAREHOLDERS' DEFICIT
For the three months ended March 31, 2000
(Amounts in U.S. dollars)
(Unaudited)
<CAPTION>
Accumulated
Accumulated Other
Common Retained Comprehensive
Stock Deficit Income Total
----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at December 31, 1999.......... 30,760 $ (144,897,253) $ 29,290,349 $ (115,576,144)
Net loss for the period............... (3,687,787) (3,687,787)
Translation adjustment................ (2,502,991) (2,502,991)
---------------
Comprehensive loss for the period..... (6,190,778)
|Monetary adjustment on redeemable
preferred stock....................... 716,022 716,022
Accrued dividends on redeemable
preferred stock....................... (1,492,577) (1,492,577)
----------------------------------------------------------------------
Balance at March 31, 2000 30,760 $ (149,361,595) $ 26,787,358 $(122,543,477)
======================================================================
See accompanying notes to financial statements.
</TABLE>
6
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Item 1 (e)
PAGING NETWORK DO BRASIL S.A.
NOTES TO FINANCIAL STATEMENTS
March 31, 2000
(Unaudited)
(Amounts in U.S. dollars)
1. Organization
Paging Network do Brasil S.A. (formerly Warburg Paging do Brasil Ltda., the
"Company") was formed on April 7, 1996 through an investment by Warburg, Pincus
Ventures, L.P.
In October 1996, the Company increased its capital to approximately
$5,500,000 and in December 1996, through the addition of three new shareholders,
received approximately $15,000,000 of additional capital. In December 1996, the
Company changed its name from Warburg Paging do Brasil Ltda. to Paging Network
do Brasil Ltda. and then to Paging Network do Brasil S.A. following a change in
its legal formation from a limited liability company (Ltda.) to a closed
corporation (S.A.), at which time common stock in the limited liability company
was exchanged for common and redeemable preferred stock in the Company. In June
1997, the Company issued $125,000,000 principal amount of 13-1/2% Senior Notes
due June 6, 2005 (the "Senior Notes"). Prior to consummation of the Senior Note
offering, the Company received from shareholders approximately $9,500,000 in
exchange for additional shares of redeemable preferred stock, and effected a
stock split of 40.74774 for each issued and outstanding share of common stock.
Under the terms of the Technical Services Agreement executed in December
1996, the Company granted to PageNet N.V. the right to purchase up to 325,982
shares of Common Stock of the Company at $.025 per share. Under the terms of the
Operating Agreement executed in December 1996, the Company granted Multiponto
Telecomunicacoes Ltda and TVA Sistema de Televisao S.A. the right to purchase up
to 40,748 shares each of Common Stock of the Company at $.025 per share.
2. Summary of Significant Accounting Policies
The unaudited consolidated financial statements of the Company have been
prepared in accordance with generally accepted accounting principles in the
United States ("U.S. GAAP") for interim financial information. The Company's
reporting currency is the U.S. dollar. In the opinion of management, all
adjustments considered necessary for a fair presentation of the unaudited
interim consolidated financial statements have been included and are of a normal
recurring nature. These statements, however, do not include all information and
footnotes necessary for a complete presentation of financial position, results
of operations and cash flows in conformity with generally accepted accounting
principles. These statements should be read in conjunction with the Company's
consolidated financial statements for the year ended December 31, 1999 set forth
in the Company's Annual Report on Form 20-F filed with the Securities and
7
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Exchange Commission. The results of operations for the interim periods presented
herein are not necessarily indicative of the results to be expected for the full
year.
The balance sheet at December 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 U.S. GAAP for complete financial statements.
The Company's significant accounting policies are as follows:
Foreign Currency Translation
Until December 31, 1997, the financial statements were translated from
Brazilian reais to U.S. dollars in accordance with the provisions of Statement
of Financial Accounting Standards No. 52 (SFAS 52) as it applies to entities
operating in highly inflationary economies. Pager inventories, fixed assets and
intangibles and related income statement accounts were remeasured at exchange
rates in effect when the assets were acquired or the liabilities were incurred.
All other assets and liabilities were remeasured at period end exchange rates,
and all other income and expense items were remeasured at average exchange rates
prevailing during the period. Remeasurement adjustments were included in
exchange and translation gains (losses).
Effective January 1, 1998, the Company determined that Brazil ceased to be
a high inflationary economy under SFAS 52. Accordingly, as of January 1, 1998,
the Company began using the real as its functional currency. As a result, all
assets and liabilities are translated into dollars at period end exchange rates
and all income and expense items are translated into U.S. dollars at the average
exchange rate prevailing during the period. Translation adjustments are not
included in determining net income (loss) but reported as the only component of
accumulated other comprehensive income. Transaction gain and losses associated
with the Company's net U.S. dollar liability position are reported in foreign
exchange (loss) gain in the statement of operations.
Foreign Currency Hedge Transactions
During 1999 and the three months ended March 31, 2000, the Company entered
into various foreign currency transactions including swap agreements, with
maturities of one to 12 months, to hedge its foreign currency exposure. At
December 31, 1999 and March 31, 2000, the Company had an investment which was
the equivalent of a U.S. dollar-denominated investment of $27.5 million and
$27.2 million respectively. Currency gains on investment transactions designated
as hedges are yield adjustments and included in interest income.
The counterparties to the Company's swap agreements consist of a number of
major international financial institutions. The credit ratings and concentration
of risk of these financial institutions are monitored on a continuing basis and
present no significant credit risk to the Company.
8
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Revenue Recognition
The Company recognizes revenue under service, rental and maintenance
agreements with customers as the related services are performed. Sales of pagers
are recognized upon delivery. Sales commissions are included in selling, general
and administrative expenses. The Company will rent certain pagers under
month-to-month arrangements.
Advertising Cost
The Company expenses the costs of advertising as incurred. Advertising
expenses were $557,240 and $63,112 during the three months ended March 31, 1999
and 2000, respectively.
Cash equivalents and trading securities
The Company considers all investments with a maturity of three months or
less when purchased to be cash equivalents. Trading securities are liquid
investments with a maturity of greater than three months which are recorded at
fair value.
Allowance for Doubtful Accounts
The Company had an allowance for doubtful accounts of $822,017 at December
31, 1999, and $536,903 at March 31, 2000. Charges to the allowance during the
three months ended March 31, 1999 and 2000 were $1,045,000 and $502,304,
respectively.
Inventories
Inventories consist of certain types and brands of pagers (the subscriber
devices) which are held primarily for resale. Inventories are recorded at the
lower of average cost or market.
Pledged securities held-to-maturity
Pledged securities held-to-maturity consist of U.S. government securities,
recorded at amortized cost which approximates market.
Impairment of long-lived assets
Long-lived assets and certain identifiable intangible assets held and used
by the Company are reviewed for impairment whenever events or changes in
circumstances warrant such a review. The carrying value of a long-lived or
intangible asset is considered impaired when the anticipated undiscounted cash
flow from such asset is separately identifiable and is less than its carrying
value. In that event, a loss is recognized based on the amount by which the
carrying value exceeds the fair value of the asset. Fair value is determined
primarily using the anticipated cash flows discounted at a rate commensurate
with the risk involved. Losses on long-lived assets to be disposed of are
determined in a similar manner, except that fair values are reduced for the
costs to dispose.
9
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Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
3. Related Party Transactions
The Company has agreed to reimburse its shareholders for certain
transaction costs associated with the formation of the Company and the
$125,000,000 Senior Notes offering consummated on June 6, 1997. As of March 31,
2000, the Company had a payable of approximately $968,000 to Warburg, Pincus and
approximately $250,000 to Paging Network, International and had a receivable of
approximately $395,000 from Warburg Pincus.
4. Senior Notes
On June 6, 1997, the Company issued $125,000,000 principal amount of
13-1/2% Senior Notes due June 6, 2005. Interest is payable semi-annually in
arrears on June 6 and December 6 of each year. Of the $125,000,000 proceeds
approximately $45,600,000 was used to purchase U.S. government securities,
scheduled interest and principal payments from which are in amounts sufficient
to provide for payment in full when due of the first six scheduled interest
payments on the Senior Notes through June 6, 2000. Debt issuance costs are
capitalized and amortized over the term of the debt using the effective yield
method.
The Senior Notes are redeemable on or after June 6, 2001 at the option of
the Company, in whole or in part from time to time, at specified redemption
prices declining annually to 100% of the principal amount on or after June 6,
2004, plus accrued interest. The Senior Notes contain certain covenants that,
among other things, limit the ability of the Company to incur additional
indebtedness or issue preferred stock, pay dividends or make certain other
restricted payments. Upon a change of control, the Company is required to make
an offer to purchase the Senior Notes at a purchase price equal to 101% of the
aggregate principal amount thereof, plus accrued and unpaid interest, if any. In
accordance with the covenants of the Senior Notes and the Company's current
level of leverage, at March 31, 2000, the Company is unable to make any dividend
payments.
10
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5. Accrued Expenses
Accrued expenses at December 31, 1999 and March 31, 2000 are comprised of
the following:
1999 2000
---- ----
Excise taxes payable $ 207,506 $ 235,585
Withholding taxes payable 231,853 231,853
Payroll and other benefits payable 1,014,403 917,778
Accrued interest payable from Senior Notes 1,125,000 5,343,750
Tax contingency accrual 3,380,720 3,768,040
Other 1,927,854 1,477,867
--------- ---------
$ 7,887,336 $11,974,873
============ ===========
Accrued interest payable from Senior Notes was increased to $5,343,750 due
to appropriation of interest incurred during the three months ended on March 31,
2000.
Tax contingency accrual is for certain taxes relating to interest income
and exchange gains that are being disputed in good faith by the Company.
6. Redeemable Preferred Stock
The redeemable preferred stock has an accruing dividend with an effective
annual rate of 12% compounding quarterly for the first five years from its
issuance on December 11, 1996. On the fifth anniversary of its issuance, the
dividend increases to an effective rate of 14% compounding quarterly. On the
sixth anniversary all previously accrued dividends are to be paid in kind. The
annual dividend rate will increase to 16% in the seventh year, 18% in the eighth
year, and 20% in the ninth and tenth years. After the sixth anniversary, subject
to the terms of the Indenture, all dividends are payable in cash. The Company is
required to redeem, in U.S. dollars, the redeemable preferred stock at $1,000
per share plus accrued and unpaid dividends on the tenth anniversary of its
issuance.
The holders of the redeemable preferred stock are entitled to voting rights
limited to specific matters included in the Company's by-laws.
The amounts of accrued and unpaid dividends on the redeemable preferred
stock at December 31, 1999 and at March 31, 2000 were $13,969,430 and
$15,462,007, respectively.
7. Fixed Assets
Fixed assets at December 31, 1999 and March 31, 2000 are comprised of the
following:
Period
1999 2000 of Depreciation
------------ ------------- ---------------
Furniture and Fixtures $ 1,328,163 $ 1,359,860 10 years
Equipment 10,321,054 10,851,437 5-10 years
Pagers 6,513,073 6,782,098 2.5 years
11
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Leasehold improvements 2,828,009 2,908,690 5 years
------------ -------------
20,990,299 21,902,085
Less - Accumulated depreciation (7,471,052) (8,719,981)
------------ -------------
$ 13,519,247 $ 13,182,104
12
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8. Comprehensive Loss
The calculation of comprehensive loss for the three months ended March 31,
1999 and 2000 is as follows:
Three Months Ended
March 31,
-----------------------------------
1999 2000
------------------ ---------------
Net loss $ (28,164,634) $ (3,687,787)
Foreign currency 23,533,377 (2,502,991)
translation adjustments
------------------ ---------------
Comprehensive loss $ (4,631,257) $ (6,190,778)
================== ===============
Accumulated comprehensive income, consisting entirely of foreign currency
translation adjustment is $26,787,358 at March 31, 2000 and $29,290,349 at
December 31, 1999.
9. Other assets
Other assets includes $ 2,366,396 at December 31, 1999 and $1,762,088 at
March 31, 2000 relating to the net intangible cost of acquisition paging
subscribers from Powernet Ltda.
10. Commitments
The Company has entered into various office space and transmission antenna
rental agreements. These agreements are readjusted periodically for inflation.
Rental expense commitments at March 31, 2000 calculated in reais and translated
into U.S. dollars at March 31, 2000 closing rate are as follows.
2000 $ 960,000
2001 $ 1,316,000
2002 $ 255,000
2003 $ 116,000
2004 $ 39,000
Total rental expense was $560,252 and $462,980 for the three months ended
March 31, 1999 and 2000, respectively.
11. Income Taxes
The Company has not recognized any future income tax benefit for its net
operating loss carryforwards as it is more likely than not that it will not be
able to realize a benefit from such losses in the future. The net operating loss
carryforwards amounted to $14.9 million, $27.3
13
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million, $73,4 million and $79.8 at December 31, 1997, 1998, 1999 and at March
31, 2000, respectively, Under Brazilian law, net operating losses may be carried
forward for an unlimited period of time. Use of these losses, however, is
restricted to 30% of taxable income in a tax period. For reporting purpose, a
valuation allowance of 100% has been recognized.
14
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Item 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Form 6-K contains forward-looking statements, which involve risks and
uncertainties. The Company's actual results may differ significantly from the
results discussed in the forward-looking statements. The following discussion
should be read in conjunction with the financial statements, including the notes
thereto, included in this report.
Results of Operations
Three months ended March 31, 2000 compared with three months ended March
31, 1999.
Although the Company's financial statements are presented pursuant to U.S.
GAAP in U.S. dollars, the Company's transactions are consummated in both
Brazilian reais and U.S. dollars. Inflation and devaluation in Brazil have had,
and may continue to have, substantial effects on the Company's results of
operations and financial condition.
For the purpose of management's discussion and analysis, net revenue is
defined as total revenue less sales tax and cost of product sold.
Three Months ended
March 31,
------------------
1999 2000
---- ----
Total revenue........................ 5,750,344 3,924,568
Cost of products sold................ (1,367,971) (53,693)
----------- ------------
Net revenue.......................... 4,382,373 100% 3,870,875 100%
Operating costs and expenses:
Services rent and maintenance........ 1,697,325 39% 1,312,818 34%
Selling, general and administrative.. 5,445,869 124% 2,810,635 73%
Depreciation and amortization........ 996,396 23% 1,742,995 45%
----------- -----------
Total operating costs and expenses 8,139,590 186% 5,866,448 151%
----------- ------------
Operating loss....................... (3,757,217) 86% (1,995,573) 52%
Other income (expenses).............. (24,407,416) N/A (1,692,214) 44%
----------- ------------
Net loss............................. (28,164,633) N/A (3,687,787) 95%
----------- ------------
Other data:
EBITDA(1)............................ $(2,760,821) $ (252,578)
Number of subscribers at end of period 102,194 71,993
----------
(1) EBITDA is defined as operating income (loss) plus depreciation, amortization
and non-cash charges. EBITDA is a commonly used measure of performance in
the paging industry. While EBITDA should not be construed as a substitute
for operating income (loss) or a better measure of liquidity than cash flow
from operating activities, each of which is determined in accordance with
U.S. GAAP, it is included herein to provide additional information regarding
the ability of the Company to meet its capital expenditures and any future
debt service. EBITDA, however, is not necessarily a measure of the Company's
ability to fund its cash needs because it does not include capital
expenditures, which the Company expects to continue to be significant. The
Company's EBITIDA might not be comparable to EBITIDA of other companies.
15
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Net revenue. The Company's total revenues primarily consist of monthly fees
paid by subscribers for the paging service, as well as product sales to both
individuals and retailers, net of sales taxes. For three months ended March 31,
2000, the Company's net revenue was $3,870,875 and $4,281,106 (before taxes) in
services revenues, $28,772 (before taxes) in product sales to customers, cost of
sales $53,693 and sales taxes of $385,310. During three months ended March 31,
1999, the Company's net revenue was $4,382,373 and $5,730,156 (before taxes) in
services revenues and $624,804 in product sales to customers, cost of sales
$1,367,971 and sales taxes $604,616. The cost of products sold in 2000 decrease
in line with the decrease in the volume of products sold. Average monthly
revenue per subscribers was approximately R$28.12 (US$15.86) and R$31.87
(US$17.91), respectively, for the period ended March 31, 2000 and 1999.
Service, Rent and Maintenance Expenses. Service, rent and maintenance
expenses include a portion of costs of compensation and benefits for the
Company's dispatch and technical employees, transmitter site rentals, telephone
line costs, transmission costs, vehicle rental costs, repair and maintenance
expenditures and service call costs. During the three months ended March 31,
2000, the Company incurred $1,312,818 of expenses in connection with the
operations in Sao Paulo, Rio de Janeiro and Brasilia. During the three months
ended March 31, 1999, the Company incurred service, rent and maintenance
expenses of $1,697,325.
Selling and Marketing Expenses. Selling and marketing expenses include
commissions to salesmen and retailers, advertising and promotion. During the
three months ended March 31, 2000 the Company incurred $594,525 of selling and
marketing expenses. During the three months ended March 31, 1999, the Company
incurred $2,352,728 of selling and marketing expenses. The selling and marketing
expenses in 2000 have decreased as our volume of sales has decreased.
General and Administrative Expenses. General and administrative expenses
include compensation benefits, rent, bank fees, outside services and the
provision for losses on accounts receivable. During the three months ended March
31, 2000 and 1999 the Company incurred $2,216,110 and $3,093,141 respectively,
of general and administrative expenses. Our general and administrative expenses
decreased as a result of cost and expense cutting actions taken by us during the
three months ended March 31, 2000. For the three months ended March 31, 2000 and
1999, included in such amounts is approximately $217,190 and $726,894,
respectively, of costs associated with the provision for losses on accounts
receivable .
Depreciation and Amortization. Depreciation and amortization expenses
consist primarily of depreciation of leased pagers, transmitters, paging
terminals, leasehold improvements, telephone lines, cost of network installation
and cost of acquisition paging subscribers from Powernet. Depreciation and
amortization expenses were approximately $1,742,995 for the three months ended
March 31, 2000, which includes a $651,476 amortization
16
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charge for the Powernet subscriber list, and $996,396 for the three months ended
March 31, 1999.
Operating Loss. For the three months ended March 31, 2000 the Company
generated operating loss of $1,995,573 and for the three months ended March 31,
1999 $3,757,217.
Other income (expense). The other income (expense) line breaks down as
follows:
Interest Expense -- Interest expense was $4,358,133 for the three months
ended March 31, 2000, and $4,334,576 for the three months ended March 31, 1999,
primarily as a result of interest associated with the Notes.
Interest Income -- The interest for the three months ended at March 31,
1999 was $15,781,161 as a result of investing the available local cash of
$34,557,137 and for the three months ended at March 31, 2000, investment of
$27,168,884 local cash, generated negative interest of $29,702. Once the
investment yield was lower than the Real appreciation in the period - $1.7890 at
December31, 1999 to $1,7473 at March 31, 2000.
Currency Exchange gain (loss) -- Gain or loss from the valuation or
depreciation of the REAL against the U.S. dollar resulted in gain of $2,784,416
for the three months ended March 31, 2000 and resulted in loss of $35,715,478
for the three months ended March 31, 1999.
Other expense -- Bank charges, CPMF (tax over financial transactions),
losses with sale of fixed assets and other were $88,795 for the three months
ended March 31, 2000 and $138,523 for the three months ended March 31, 1999.
Net Loss. As shown above, net loss in the period ended March 31, 1999 was
primarily attributable to currency exchange losses, whereas in the period ended
March 31, 2000 was operating losses and the net result of the other income
(expense).
Liquidity and Capital Resources
For the three months ended March 31, 1999 and March 31, 2000 the Company
made capital expenditures of $1,464,563 and $377,688 respectively, and had
negative cash flow of $447,294 and $5,327,038 for the three months ended March
31, 2000 and March 31, 1999 respectively.
The Company will also be required to make two interest payments on the
Senior Notes in an aggregate amount equal to $16,875,000 in 2000, half of which
will be funded from pledged securities and the other half from available cash.
Given the Company's cash position as of March 31, 2000, the ability of the
Company to continue as a going concern and to meet its obligations as they come
due will, in the short term, be depend upon the Company's ability to implement
cost-cutting strategies that will substantially reduce operating losses and
result in break even cash flow in 2000. Although the Company is hopeful that
this can be achieved, it should be noted that the Company has generated negative
cash flows since its inception.
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Inflation and Exchange Rates
Inflation and exchange rate variations have had, and may continue to have,
substantial effects on the Company's results of operations and financial
condition. In periods of inflation, many of the Company's expenses will tend to
increase. Generally, in periods of inflation, a Company is able to raise its
prices to offset the rise in its expenses and may set its prices without
government regulation. However, under Brazilian law designed to reduce
inflation, the rates that the Company may charge to a particular subscriber may
not be increased until the next anniversary of the subscriber's initial
subscription date. Thus, the Company is less able to offset expense increases
with revenue increases. Therefore, inflation may have a material adverse effect
on the Company's results of operations and financial condition.
Devaluation of the real has an adverse effect on the Company. The Company
collects all of its revenues in reais, but pays certain expenses, (including
pagers, a significant portion of its transmission equipment costs and all
interest expense) in U.S. dollars. To the extent the real depreciates at a rate
greater than the rate at which the Company is able to raise prices, the value of
the Company's revenues (as expressed in U.S. dollars) will be adversely
affected. This effect on the Company's revenues negatively impacts the Company's
ability to fund U.S. dollar-based expenditures. Accordingly, devaluation of the
real has a material adverse effect on the Company's results of operations and
financial condition. Further, beginning January 1, 1998, the Company's financial
statements reflect foreign currency gains and losses associated with monetary
assets and liabilities denominated in currencies other than the real. See
footnote "Foreign Currency Translation" contained in the Notes to Consolidated
Financial Statements. As a result, the devaluation of the real against the U.S.
dollar will cause the Company to record a loss associated with its U.S. dollar
monetary liabilities and a gain associated with its U.S. dollar monetary assets.
Given that the Company has a net U.S. dollar monetary liability position, the
net effect of the devaluation of the real against the U.S. dollar is to generate
transaction losses in the Company's financial statements.
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PART II
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits
3.1* -- By laws of Paging Network do Brasil S.A. (English Translation).
4.1* -- Indenture dated as of June 1, 1997 between Paging Network do
Brasil S.A. and The Chase Manhattan Bank, as Trustee (including
exhibits).
4.2* -- Form of Senior Note (included in Exhibit 4.1).
---------
* Incorporated herein by reference to the Exhibit to the Company's
Registration Statement on Form F-4, Registration No. 333-29865.
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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.
PAGING NETWORK DO BRASIL S.A.
(Registrant)
By: /s/ Thomas C. Trynin
------------------------------
Thomas C. Trynin
President and
Chief Executive Officer
Date: May 30, 2000
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