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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM 10-Q/A (Amendment Number 1)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO .
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COMMISSION FILE NO. 0-19494
PAGING NETWORK, INC.
(Exact name of the Registrant as specified in charter)
DELAWARE 04-2740516
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
4965 PRESTON PARK BOULEVARD, SUITE 800
PLANO, TEXAS 75093
(Address of principal executive offices, including zip code)
(972) 985-4100
(Registrant's telephone number, including area code)
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 Registrant's classes
of Common Stock, as of the latest practicable date.
Title Shares Outstanding as of April 30, 1997
- --------------------------------- ---------------------------------------
Common Stock, $ .01 par value 102,621,077
The Company's Common Stock is publicly traded under the symbol "PAGE" through
the National Association of Securities Dealers Automated Quotation National
Market System.
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
Index to Financial Statements
<TABLE>
<CAPTION>
Page
----
<S> <C>
Paging Network, Inc. Consolidated Balance Sheets as of
March 31, 1997 and December 31, 1996 (Unaudited).................................... 3
Paging Network, Inc. Consolidated Statements of Operations
for the Three Months Ended March 31, 1997 and 1996 (Unaudited)...................... 4
Paging Network, Inc. Consolidated Statements of Cash Flows
for the Three Months Ended March 31, 1997 and 1996 (Unaudited)...................... 5
Paging Network, Inc. Notes to Consolidated Financial Statements ......................... 6
</TABLE>
2
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PAGING NETWORK, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share information)
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
------------ ------------
(Restated) (Restated)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents .................................. $ 3,300 $ 3,777
Accounts receivable, less allowance
for doubtful accounts ................................... 63,293 60,089
Inventories ................................................ 62,808 57,690
Prepaid expenses and other assets........................... 15,846 8,872
------------ ------------
Total current assets .................................... 145,247 130,428
Property, equipment, and leasehold improvements, at cost ....... 1,217,100 1,137,729
Less accumulated depreciation .............................. (353,925) (319,194)
------------ ------------
Net property, equipment, and leasehold improvements ..... 863,175 818,535
Other non-current assets, at cost .............................. 610,473 547,067
Less accumulated amortization .............................. (63,906) (56,417)
------------ ------------
Net other non-current assets ............................ 546,567 490,650
------------ ------------
$ 1,554,989 $ 1,439,613
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable ........................................... $ 68,352 $ 59,857
Accrued interest ........................................... 44,807 41,853
Accrued expenses ........................................... 45,734 38,460
Customer deposits .......................................... 23,066 22,430
------------ ------------
Total current liabilities ............................... 181,959 162,600
Long-term obligations .......................................... 1,579,416 1,459,188
Other long-term liabilities .................................... 12,933 --
Commitments and contingencies .................................. -- --
Stockholders' deficit:
Common Stock: $.01 par, 250,000,000 shares
authorized, 102,621,077 shares issued and
outstanding in 1997 and 1996, respectively .............. 1,026 1,026
Paid-in capital ............................................ 124,522 124,522
Accumulated deficit ........................................ (345,141) (307,827)
Foreign currency translation adjustments ................... 274 104
------------ ------------
Total stockholders' deficit ............................. (219,319) (182,175)
------------ ------------
$ 1,554,989 $ 1,439,613
============ ============
</TABLE>
See accompanying notes
3
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PAGING NETWORK, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share information)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------------------------
1997 1996
------------ ------------
(Restated)
<S> <C> <C>
Services, rent and maintenance revenues .................. $ 188,880 $ 158,775
Product sales ............................................ 36,368 27,598
------------ ------------
Total revenues ....................................... 225,248 186,373
Cost of products sold .................................... (31,357) (23,352)
------------ ------------
193,891 163,021
Operating expenses:
Services, rent and maintenance ....................... 40,942 33,651
Selling .............................................. 28,271 18,511
General and administrative ........................... 60,398 49,796
Depreciation and amortization ........................ 64,468 45,338
------------ ------------
Total operating expenses .......................... 194,079 147,296
------------ ------------
Operating income (loss) .................................. (188) 15,725
Other income (expense):
Interest expense ..................................... (37,826) (29,735)
Interest income ...................................... 992 2,019
Equity in loss of an unconsolidated subsidiary ....... (292) (115)
------------ ------------
Total other income (expense) ...................... (37,126) (27,831)
------------ ------------
Net loss ................................................. $ (37,314) $ (12,106)
============ ============
Net loss per share ....................................... $ (0.36) $ (0.12)
============ ============
</TABLE>
See accompanying notes
4
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PAGING NETWORK, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months ended
March 31,
----------------------------
1997 1996
------------ ------------
(Restated)
<S> <C> <C>
Operating activities:
Net loss ................................................... $ (37,314) $ (12,106)
Adjustments to reconcile net loss to net cash provided
by operating activities:
Depreciation ........................................ 59,059 39,854
Amortization ........................................ 5,409 5,484
Provision for doubtful accounts ..................... 4,163 2,992
Equity in loss of an unconsolidated subsidiary ...... 292 115
Amortization of debt issuance costs ................. 2,471 1,285
Changes in operating assets and liabilities:
Accounts receivable ................................. (7,367) (4,636)
Inventories ......................................... (5,118) (4,134)
Prepaid expenses and other assets ................... (6,974) (6,030)
Accounts payable .................................... 8,495 (12,629)
Accrued interest .................................... 2,954 (11,898)
Accrued expenses .................................... 7,274 (2,241)
Customer deposits ................................... 636 156
------------ ------------
Net cash provided by (used in) operating activities ............ 33,980 (3,788)
------------ ------------
Investing activities:
Capital expenditures ....................................... (102,990) (99,633)
Payments for spectrum licenses ............................. (47,835) (41)
Business acquisitions and joint venture investments ........ (1,769) (5,392)
Restricted cash invested in money market instruments ....... (2,022) --
Other ...................................................... (251) (1,818)
------------ ------------
Net cash used in investing activities .......................... (154,867) (106,884)
------------ ------------
Financing activities:
Borrowings under credit agreements ......................... 120,228 --
Proceeds from exercise of Common Stock options ............. -- 1,343
Other ...................................................... 182 (58)
------------ ------------
Net cash provided by financing activities ...................... 120,410 1,285
------------ ------------
Net increase (decrease) in cash and cash equivalents ........... (477) (109,387)
Cash and cash equivalents at beginning of period ............... 3,777 198,182
------------ ------------
Cash and cash equivalents at end of period ..................... $ 3,300 $ 88,795
============ ============
</TABLE>
See accompanying notes
5
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PAGING NETWORK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997
(Unaudited)
1. RESTATEMENT OF FINANCIAL STATEMENTS
During the third quarter of 1997, management of Paging Network,
Inc. (the Company) reviewed agreements with a national marketing
affiliate entered into prior to the issuance of the December 31, 1996
financial statements. This review resulted in the determination that an
earlier judgment that the Company ultimately would recover or be
compensated for certain pagers distributed through that affiliate to
customers who later discontinued service was not correct. Accordingly,
the Company has restated its financial statements for 1996 to reflect
a provision of $22.5 million to write-off the pagers deemed to be
unrecoverable as of December 31, 1996.
The financial statements for the three months ended March 31,
1997, have also been restated as a result of the restatement of the
1996 financial statements discussed above to (i) write-off the pagers
that have been deemed to be unrecoverable, (ii) reduce depreciation
expense by $2.6 million to eliminate depreciation previously recorded
during the quarter ended March 31, 1997, on the pagers deemed
unrecoverable, and (iii) record assets and liabilities of the same
amount, $19.2 million as of March 31, 1997, related to the amounts
receivable and payable under the agreements discussed above and to
accrete the related interest expense and interest income.
The impact of the restatements on the consolidated statement
of operations for the three months ended March 31, 1997 is as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) As Previously Reported As Restated
---------------------- ------------------
Three months ended Three months ended
March 31, 1997 March 31, 1997
---------------------- ------------------
<S> <C> <C>
Depreciation and amortization $ 67,068 $ 64,468
Operating income (loss) (2,788) (188)
Interest expense (37,579) (37,826)
Interest income 745 992
Net loss (39,914) (37,314)
Net loss per share (0.39) (0.36)
</TABLE>
The impact of the restatements on the consolidated
balance sheets as of March 31, 1997, and December 31, 1996, is as
follows:
<TABLE>
<CAPTION>
As Previously Reported As Restated
---------------------------------- -------------------------------------
(IN THOUSANDS) March 31, December 31, March 31, December 31,
1997 1996 1997 1996
---------------------------------- -------------------------------------
<S> <C> <C> <C> <C>
Prepaid expense and other assets $ 9,611 $ 8,872 $ 15,846 $ 8,872
Net property, equipment,
and leasehold improvements 883,075 841,035 863,175 818,535
Net other non-current assets 533,634 490,650 546,567 490,650
Accounts payable 62,117 59,857 68,352 59,857
Other long-term liabilities -- -- 12,933 --
Accumulated deficit (325,241) (285,327) (345,141) (307,827)
</TABLE>
In addition, the impact of the restatement also resulted in changes to
the consolidated statement of cash flows for the three months ended
March 31, 1997.
2. THE COMPANY
The Company is a provider of paging and wireless messaging
services. The Company provides paging services in all 50 states, the
District of Columbia, the U.S. Virgin Islands, Puerto Rico, and Canada,
including local paging service in all of the largest 100 markets (in
population) in the United States, and owns a minority interest in
paging companies in Spain and Brazil. The consolidated financial
statements include the accounts of all of its wholly and majority-owned
subsidiaries. All intercompany transactions have been eliminated.
3. UNAUDITED INTERIM FINANCIAL STATEMENTS
The interim consolidated financial information contained
herein is unaudited but, in the opinion of management, includes all
adjustments, which are of a normal recurring nature, necessary for a
fair presentation of the financial position, results of operations,
and cash flows for the periods presented. These financial statements
have been prepared in accordance with generally accepted accounting
principles for interim financial information and the instructions to
Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not
include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. The
balance sheet as of December 31, 1996, has been derived from the
audited financial statements as of that date. Results of operations
for the periods presented herein are not necessarily indicative of
results of operations for the entire year. These financial statements
and related notes should be read in conjunction with the financial
statements and notes included in the Company's Annual Report on Form
10-K/A for the year ended December 31, 1996.
Certain 1996 amounts have been reclassified to conform with
the 1997 presentation.
4. LONG-TERM OBLIGATIONS
As of March 31, 1997, the Company had $148.0 million of
borrowings outstanding under its domestic $1.0 billion revolving
credit agreement (the Credit Agreement).
5. DEPRECIATION EXPENSE
Effective January 1, 1997, the Company shortened the
depreciable lives of its pagers from four to three years, and revised
the related residual values. The change had an effect of increasing
depreciation expense by approximately $8 million for the three months
ended March 31, 1997.
6
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6. INCOME TAX PROVISION
No provision or benefit for income taxes has been made for the
three months ended March 31, 1997 and 1996, as the deferred benefit
from operating losses was offset by the increase in the valuation
allowance.
7. COMMON STOCK AND NET LOSS PER SHARE
Net loss per share amounts are computed based on the weighted
average number of common shares outstanding. The number of shares used
to compute per share amounts for the three months ended March 31, 1997
and 1996 were 102.6 million and 102.4 million, respectively.
The Company has 275.0 million authorized shares, of which
250.0 million are Common Stock and 25.0 million are preferred stock.
As of March 31, 1997, there were no preferred shares issued or
outstanding.
In February 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 128, "Earnings
Per Share" (SFAS No. 128), which the Company will be required to
initially adopt in the fourth quarter of 1997. The Company
anticipates the adoption of SFAS No. 128 will have no impact on its
reporting of loss per share for 1997 or prior years.
8. STATEMENT OF CASH FLOWS INFORMATION
Cash and cash equivalents include highly liquid debt
instruments with an original maturity of three months or less. Cash
payments made for interest during the three months ended March 31,
1997 and 1996 were approximately $35.2 million and $40.3 million,
respectively. There were no significant federal or state income taxes
paid or refunded for the three months ended March 31, 1997 and 1996.
7
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995
The statements contained in this filing which are not historical
facts, such as future capital expenditures, future borrowings, international
investments expectations, and introduction of new products are forward-looking
statements that are subject to risks and uncertainties that could cause actual
results to differ materially from those set forth in the forward-looking
statements. Among the factors that could cause actual future results to differ
materially are competitive pressures, growth rates, new market opportunities,
supplier constraints, market conditions, timing and techniques used in
marketing by third-party distributors, and acceptance of the Company's services
in the marketplace.
RESULTS OF OPERATIONS
Throughout this section the Company makes reference to earnings before
interest, income taxes, depreciation, amortization, and equity in loss of an
unconsolidated subsidiary (EBITDA). EBITDA is a key performance measure used in
the paging industry and is one of the financial measures by which the Company's
covenants are calculated under the agreements governing its debt obligations.
EBITDA is not a measure defined in generally accepted accounting principles and
should not be considered in isolation or as a substitute for measures of
performance in accordance with generally accepted accounting principles.
The following table presents certain items in the Consolidated
Statements of Operations as a percentage of revenues from services, rent and
maintenance plus product sales less the cost of products sold (Net Revenues)
for the three months ended March 31, 1997 and 1996, respectively.
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-----------------------
1997 1996
-------- --------
(Restated)
<S> <C> <C>
Net Revenues ................................... 100.0% 100.0%
Operating expenses:
Services, rent and maintenance ........... 21.1(1) 20.6
Selling .................................. 14.6(1) 11.4
General and administrative ............... 31.1 30.5
Depreciation and amortization ............ 33.3 27.8
-------- --------
Operating income (loss) ........................ (0.1) 9.7
Net Loss ....................................... (19.2) (7.4)
EBITDA ......................................... 33.2 37.5
EBITDA for domestic operations ................. 34.4 37.5
EBITDA for core domestic paging operations ..... 37.8 37.5
</TABLE>
(1) Excluding expenses related to the launch of the Company's new VoiceNow(R)
service, which was introduced during the first quarter of 1997, services,
rent and maintenance expenses and selling expenses as a percentage of Net
Revenues were 20.6% and 11.7%, respectively.
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Net Revenues for the three-month period ended March 31, 1997 were $193.9
million, an increase of 18.9% from $163.0 million for the comparable period
ended March 31, 1996. Net Revenues for the Company's Canadian operations were
$1.2 million for the first quarter of 1997. Revenues from services, rent and
maintenance, which the Company considers its primary business, increased 19.0%
to $188.9 million for the three months ended March 31, 1997, compared to $158.8
million for the three months ended March 31, 1996. This increase was primarily
due to continued growth in the number of pagers in service with subscribers of
the Company. The number of pagers in service with subscribers at March 31, 1997
was 9,132,495 compared to 7,300,538 pagers in service with subscribers at March
31, 1996, an increase of 25.1%, and 8,587,772 pagers in service with
subscribers at December 31, 1996, an increase of 6.3%. Contributing to the
growth in the number of pagers in service with subscribers is the Company's
expanding local and national third-party reseller customer base, which includes
the impact of the Company's National Accounts Division. The Company's increased
reliance on distribution of pagers and paging services through resellers and
marketing affiliates could generate variability in quarterly and annual results
relating to the net addition of pagers.
Product sales, less cost of products sold, were relatively flat for the
three months ended March 31, 1997 compared to the same period in 1996. Product
sales, less cost of products sold, were $5.0 million (2.6% of Net Revenues) for
the first quarter of 1997 compared to $4.2 million (2.6% of Net Revenues) for
the first quarter of 1996.
Services, rent and maintenance expenses increased 21.7% to $40.9 million
(21.1% of Net Revenues) for the three months ended March 31, 1997, compared to
$33.7 million (20.6% of Net Revenues) for the three months ended March 31,
1996. The increase in services, rent and maintenance expenses and the increase
as a percentage of Net Revenues was a result of $0.7 million (0.4% of Net
Revenues) of costs incurred by the Company's Canadian operations, $1.0 million
(0.5% of Net Revenues) of costs associated with the Company's new VoiceNow
service, which was introduced on February 24, 1997, growth in the number of
pagers in service with subscribers of the Company, expenses associated with an
increase in transmitter sites in order to ensure reliable transmission of
enhanced messaging services, and expansion of the nationwide transmission
networks.
For the three months ended March 31, 1997, selling expenses increased
52.7% to $28.3 million (14.6% of Net Revenues) from $18.5 million (11.4% of Net
Revenues) for the three months ended March 31, 1996. The increase in selling
expenses and the increase as a percentage of Net Revenues resulted primarily
from $5.5 million (2.9% of Net Revenues) of certain VoiceNow marketing research
and development costs associated with the Company's new VoiceNow service, and
from the addition of sales personnel to support continued growth in both Net
Revenues and the number of pagers in service with subscribers.
General and administrative expenses increased 21.3% to $60.4 million
(31.1% of Net Revenues) for the first quarter of 1997, compared to $49.8
million (30.5% of Net Revenues) for the corresponding period of 1996. The
increase in general and administrative expenses occurred to support the growth
in the number of pagers in service with subscribers of the Company. The
increase in general and administrative expenses as a percentage of Net Revenues
for the three months ended March 31, 1997 was primarily attributable to $1.8
million (0.9% of Net Revenues) of costs incurred by the Company's Canadian
operations, which commenced in April 1996 with minimal initial revenues
available to offset their operating expenses, including staffing costs.
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Depreciation and amortization expenses increased for the first quarter of
1997 as compared to the corresponding period in the prior year by 42.2% from
$45.3 million (27.8% of Net Revenues) to $64.5 million (33.3% of Net Revenues).
The increase in depreciation and amortization expenses was primarily
attributable to the increase in the number of pagers owned by the Company and
leased to subscribers, the increase in computer and paging equipment, and the
changes in pager depreciation. Effective January 1, 1997, the Company shortened
the depreciable life of its pagers from four to three years, and revised the
related residual values, in order to better reflect the estimated periods
during which the pagers will remain in service. The change had an effect of
increasing depreciation expense by approximately $8 million in the first
quarter of 1997 and is expected to increase depreciation expense by
approximately $30 million for the full year of 1997. As previously reported,
depreciation and amortization expenses will increase significantly for the year
ended December 31, 1997 due to the shorter depreciable lives for pagers and the
commencement of amortization of the licenses for spectrum and certain other
costs associated with the introduction of the Company's VoiceNow service, which
occurred on February 24, 1997.
As a result of the above factors, EBITDA increased 5.3% to $64.3 million
(33.2% of Net Revenues) for the first quarter of 1997 compared to $61.1 million
(37.5% of Net Revenues) for the corresponding period in 1996. As expected, in
the first quarter of 1997 EBITDA and EBITDA as a percentage of Net Revenues was
negatively impacted by the Company's international operations and its
introduction of VoiceNow. The Company's international operations and its
start-up of the VoiceNow service resulted in a decrease to EBITDA of $2.1
million and $6.4 million, respectively, in the first quarter of 1997. EBITDA
for the Company's domestic operations increased 8.7% to $66.4 million (34.4%
of Net Revenues) for the first quarter of 1997 compared to $61.1 million (37.5%
of Net Revenues) for the first quarter of 1996. Excluding the Company's
VoiceNow operations, EBITDA for the Company's core domestic paging operations
increased 19.2% to $72.8 million (37.8% of Net Revenues) for the first quarter
of 1997 compared to $61.1 million (37.5% of Net Revenues) for the first quarter
of 1996. The Company anticipates that during 1997 its VoiceNow service will
have an incremental negative impact of $30 million to $40 million on
consolidated operating cash flow.
Interest expense, net of amounts capitalized, increased $8.1 million
from the three-month period ended March 31, 1996, to the corresponding period
in 1997, primarily due to a higher average level of indebtedness outstanding in
1997. The average level of indebtedness outstanding during the three months
ended March 31, 1997 was approximately $1.53 billion compared to approximately
$1.15 billion outstanding during the three months ended March 31, 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company's operations and expansion into new markets and product lines
require substantial capital investment for the development and installation of
wireless communications systems and for the procurement of pagers and paging
equipment. Capital expenditures (excluding payments for licenses) were $103.0
million for the three months ended March 31, 1997 and $99.6 million for the
same period in 1996. For the first three months of 1997, capital expenditures
were funded by net cash provided by operating activities ($34.0 million) and
borrowings.
During April 1996, the Company concluded its participation in a Federal
Communications Commission auction of specialized mobile radio (SMR) frequency
licenses, and ultimately acquired rights to two to four blocks of two-way
spectrum in markets across the United States for a purchase price of $45.6
million. The Company is in the process of purchasing exclusive rights to
certain of these SMR frequencies from incumbent operators. The total cost of
the investment will be approximately $250 million (including the $45.6 million
auction purchase price), of which $109 million was paid in 1996 and $47 million
was paid in the first quarter of 1997, and the remainder will be paid in last
nine months of 1997 and in 1998.
10
<PAGE> 11
The Company intends to employ its narrowband personal communications
services and SMR frequencies to build a two-way network over which it can
deploy new products such as its new voice paging service, VoiceNow. The Company
currently estimates that the capital expenditures to build the two-way network,
exclusive of the costs of acquiring SMR frequencies and of VoiceNow pagers, may
total approximately $200 million, of which $47 million was incurred during 1996
and $18 million was incurred during the three months ended March 31, 1997.
Through its wholly-owned subsidiary, Paging Network of Canada Inc., the
Company began offering paging services in Canada in April 1996. In July 1996,
the Company purchased a 25% interest in an existing Spanish paging company. In
December 1996, the Company signed agreements as the operational partner with a
20% interest in a joint venture to provide paging services in Brazil which
commenced operations during the first quarter of 1997. The Company is
considering other opportunities for international expansion, with the goal of
creating a portfolio of select international operations. Paging market
penetration in many international markets is relatively low, and many such
markets have only a small number of existing paging providers. The Company
believes that in these markets its strategy of low-cost, high quality service
is likely to be successful. Additional investments will depend on such factors
as growth rates, new market opportunities, and execution of financing plans
that maximize value for the Company's stockholders.
Under the Credit Agreement, the Company is able to borrow, provided it
meets certain financial covenants, the lesser of $1.0 billion or an amount
based upon a calculation which is reduced by total outstanding domestic
indebtedness for borrowed monies (as defined) and outstanding letters of
credit. The amount of total indebtedness allowed at the end of each quarter is
equal to 6.5 times annualized domestic EBITDA. As of April 30, 1997, the
Company had $228.0 million of borrowings outstanding under its Credit
Agreement. The Credit Agreement expires on December 31, 2004. The maximum
borrowings which may be outstanding under the Credit Agreement begin reducing
on June 30, 2001.
The credit agreements of the Company's Canadian subsidiaries provide for
total borrowings of approximately $65 million, of which approximately $36
million was initially available under fully collateralized borrowings. The
remaining amounts are available for borrowings provided they are either
collateralized or certain financial covenants are met. As of March 31, 1997,
approximately $31 million of borrowings were outstanding under the credit
facilities. The maximum borrowings which may be outstanding under the credit
facilities begin reducing on June 30, 1999, and both credit agreements expire
on June 30, 2003.
On February 19, 1997, the Board of Directors of the Company voted to
redeem all $200.0 million of the Company's outstanding 11.75% Senior
Subordinated Notes (11.75% Notes). The redemption will occur on May 14, 1997
utilizing funds to be borrowed under the Company's Credit Agreement. The
Company expects to record an extraordinary loss on the early retirement of the
11.75% Notes of approximately $15 million in the second quarter of 1997.
It is anticipated that 1997 net cash from operating activities will be
insufficient to fund 1997 capital expenditures (including the costs to build
the two-way network) and frequency purchases. These expenditures, which are
expected to exceed $600 million, primarily relate to the development of a new
nationwide digital transmission network for the Company's new VoiceNow service
and the Company's ongoing paging operations, including greater market share of
existing markets and expansion of the Company's operations into new markets.
These expenditures will be funded through the Company's operating cash flow and
from borrowings under its credit facility. The Company currently estimates 1997
incremental indebtedness may aggregate in excess of $500 million.
11
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
The Company is involved in various lawsuits arising in the
normal course of business. In management's opinion, the ultimate outcome
of these lawsuits will not have a material adverse effect on the
Company's financial position or results of operations.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
The exhibits listed on the accompanying index to exhibits are
filed as part of this quarterly report.
(b) Reports on Form 8-K
None.
12
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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, Inc.
Date: September 29 , 1997 /s/ JOHN P. FRAZEE, JR.
---------------------------------------
John P. Frazee, Jr.
Chairman of the Board of Directors,
President and Chief Executive Officer
(Principal Executive Officer)
Date: September 29 , 1997 /s/ G. ROBERT THOMPSON
---------------------------------------
G. Robert Thompson
Vice President - Finance and Acting
Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
13
<PAGE> 14
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
- ----------- -----------
4.1 Articles Sixth, Seventh, Eighth, Twelfth, and Thirteenth of the
Restated Certificate of Incorporation of the Registrant, as amended
(1)
4.2 Articles II, III, and VII and Section I of Article VIII of the
Registrant's By-laws, as amended (1)
4.3 Form of Indenture (2)
4.4 Article V, Sections I, VI, and VII of the Registrant's By-Laws, as
amended (4)
10.1 1982 Incentive Stock Option Plan, as amended and restated (1)
10.2 Form of Stock Option Agreement executed by recipients of options
granted under the 1982 Incentive Stock Option Plan (1)
10.3 Form of Management Agreement executed by recipients of options
granted under the 1982 Incentive Stock Option Plan (1)
10.4 Form of Vesting Agreement executed by recipients of options granted
under the 1982 Incentive Stock option Plan (1)
10.5 1991 Stock Option Plan (1)
10.6 Form of Stock Option Agreement executed by recipients of options
granted under the 1991 Stock Option Plan (1)
10.7 Form of Indemnification Agreement executed by directors and officers
of the Registrant (1)
10.8 Form of First Amendment to Vesting Agreement executed by recipients
of options granted under the 1982 Incentive Stock Option Plan (1)
10.9 Form of First Amendment to Management Agreement executed by
recipients of options granted under the 1982 Incentive Stock Option
Plan (1)
10.10 1992 Stock Option Plan for Directors (3)
10.11 Amended and Restated Credit Agreement dated as of May 2, 1995 among
the Registrant, NationsBank of Texas, N.A., Toronto Dominion (Texas),
Inc., The First National Bank of Boston, and certain other lenders
(4)
10.12 Amendment No. 1 dated as of December 12, 1995 to the Amended and
Restated Credit Agreement dated as of May 2, 1995 among the
Registrant, NationsBank of Texas, N.A., Toronto Dominion (Texas),
Inc., The First National Bank of Boston, and certain other lenders
(5)
14
<PAGE> 15
EXHIBIT NO. DESCRIPTION
- ----------- -----------
10.13 Employment Agreement dated as of December 1, 1995 among the
Registrant and Glenn W. Marschel (5)
10.14 Second Amended and Restated Credit Agreement dated as of June 5,
1996, among the Registrant, NationsBank of Texas, N.A., Toronto
Dominion (Texas), Inc., The First National Bank of Boston, Chase
Securities Inc., and certain other lenders (6)
10.15 Loan Agreement dated as of June 5, 1996 among Paging Network of
Canada Inc., The Toronto-Dominion Bank, and such other financial
institutions as become banks (6)
10.16 Loan Agreement dated as of June 5, 1996 among Madison
Telecommunications Holdings, Inc., The Toronto-Dominion Bank, and
such other financial institutions as become banks (6)
12 Ratio of Earnings to Fixed Charges for the three months ended March
31, 1997 and 1996 (restated) (7)
27 Financial Data Schedule (restated) (7)
---------------------------------------------------------------------
(1) Previously filed as an exhibit to Registration Statement No.
33-42253 on Form S-1 and incorporated herein by reference.
(2) Previously filed as an exhibit to Registration Statement No.
33-46803 on Form S-1 and incorporated herein by reference.
(3) Previously filed as an exhibit to the Registrant's Annual Report
on Form 10-K for the fiscal year ended December 31, 1991.
(4) Previously filed as an exhibit to the Registrant's Quarterly
Report on Form 10-Q for the quarterly period ended June 30,
1995.
(5) Previously filed as an exhibit to the Registrant's Annual Report
on Form 10-K for the fiscal year ended December 31, 1995.
(6) Previously filed as an exhibit to the Registrant's Quarterly
Report on Form 10-Q for the quarterly period ended June 30,
1996.
(7) Filed herewith.
15
<PAGE> 1
EXHIBIT 12
PAGING NETWORK, INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------------
1997 1996
---------- ----------
(Restated)
<S> <C> <C>
Earnings:
Net loss ..................................... $ (37,314) $ (12,106)
Fixed charges, less interest capitalized ..... 43,460 34,463
---------- ----------
Earnings ................................. $ 6,146 $ 22,357
========== ==========
Fixed charges:
Interest expense, including interest
capitalized .............................. $ 38,355 $ 28,452
Amortization of deferred financing costs ..... 2,471 1,283
Interest portion of rental expense ........... 5,634 4,728
---------- ----------
Fixed charges ............................ $ 46,460 $ 34,463
========== ==========
Ratio of earnings to fixed charges ............. -- --
========== ==========
Deficiency of earnings available to cover
fixed charges ................................ $ (40,314) $ (12,106)
========== ==========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 3,300
<SECURITIES> 0
<RECEIVABLES> 68,778
<ALLOWANCES> 5,485
<INVENTORY> 62,808
<CURRENT-ASSETS> 145,247
<PP&E> 1,217,100
<DEPRECIATION> 353,925
<TOTAL-ASSETS> 1,554,989
<CURRENT-LIABILITIES> 181,959
<BONDS> 1,579,416
0
0
<COMMON> 1,026
<OTHER-SE> (220,345)
<TOTAL-LIABILITY-AND-EQUITY> 1,554,989
<SALES> 5,011
<TOTAL-REVENUES> 225,248
<CGS> 31,357
<TOTAL-COSTS> 194,079
<OTHER-EXPENSES> 37,126
<LOSS-PROVISION> 4,163
<INTEREST-EXPENSE> 37,826
<INCOME-PRETAX> (37,314)
<INCOME-TAX> 0
<INCOME-CONTINUING> (37,314)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (37,314)
<EPS-PRIMARY> (0.36)
<EPS-DILUTED> (0.36)
</TABLE>
