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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 1-12786
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AMERICAN PAGING, INC.
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(Exact name of registrant as specified in its charter)
Delaware 36-3109408
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1300 Godward Street Northeast, Suite 3100, Minneapolis, Minnesota 55413-1767
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (612) 623-3100
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.
Class Outstanding at November 1, 1996
Common shares, $1 par value 7,552,213 Shares
Series A Common shares, $1 par value 12,500,000 Shares
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<PAGE>
AMERICAN PAGING, INC.
THIRD QUARTER REPORT ON FORM 10-Q
INDEX
Page No.
Part I. Financial Information
Management's Discussion and Analysis of
Results of Operations and Financial Condition 2-7
Consolidated Statements of Operations -
Three months and nine months ended
September 30, 1996 and 1995 8
Consolidated Statements of Cash Flows -
Nine months ended September 30, 1996 and 1995 9
Consolidated Balance Sheets -
September 30, 1996 and December 31, 1995 10-11
Notes to Consolidated Financial Statements 12
Part II. Other Information 13
Signatures 14
-1-
<PAGE>
PART I. FINANCIAL INFORMATION
AMERICAN PAGING, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
Nine months ended 9/30/96 compared to nine months ended 9/30/95
American Paging, Inc. [AMEX:APP or the "Company"] results of operations for the
nine months ended September 30, 1996 compared to the same period in 1995 reflect
slower customer unit and service revenue growth, continuing downward pressure on
prices, higher operating expenses, and substantially higher operating and net
losses. Service revenue increased 2.5% to $71.0 million on a 1.5% increase in
the number of pagers served since September 30, 1995. Customer units in service
totaled 788,300 at September 30, 1996 compared to 776,900 at September 30, 1995.
The rate of growth has declined over the past few quarters due to the effects of
the Company's restructuring efforts on the productivity of the field sales and
service offices as well as continued competitive pressures. The average monthly
disconnect rate ("churn") was 3.1% for the nine months ended September 30, 1996
compared to 2.5% for 1995, also reflecting disruptions within the customer
service functions that were consolidated as part of the restructuring.
During the third quarter of 1995, the Company launched a comprehensive
restructuring initiative related to its sales and customer service
organizations. The disruption caused by these actions has been even more severe
than anticipated. In order to substantially address these problems, several
changes in senior management were made. During the third quarter of 1996, the
Company appointed a new President and Chief Executive Officer and recently hired
a new Vice President of Sales and Field Operations. Over the next several
months, the senior management team intends to implement a plan to complete this
phase of the Company's development.
An integral part of the initial restructuring plan included the creation of a
centralized Customer Telecare Center ("CTC"). The CTC is now in full operation
and is meeting the expectations set for it; however, the process of transferring
back office operations from the field offices to the CTC created dysfunctions
throughout the organization. For example, in the management of inventory, all
field offices were directed to ship their broken or damaged inventory to the CTC
to be repaired through a centralized repair system. However, the volume of
pagers received created a severe backlog resulting in a shortage of user devices
in the field. In addition, it was discovered that many of the pagers received at
the CTC were obsolete in terms of today's marketplace. These problems resulted
in a write-down of obsolete inventory in the third quarter of $2.8 million and a
further decline in new sales.
Also in the third quarter of 1996, the Company recorded accelerated depreciation
charges of $2.2 million for the write-off of the customer management and billing
system and general and administrative expense of $2.0 million for other
restructuring costs. During the consolidation of customer information databases
at the CTC, it became apparent that the Company's customer management and
billing system did not provide the flexibility necessary to support future
customer growth and retention. The Company is looking for a new customer
management and billing system, and expects to make a final decision by the end
of the year with implementation occurring during the first half of 1997.
-2-
<PAGE>
Operating cash flow (operating loss plus depreciation and amortization) for the
first nine months of 1996 was $(360,000) compared to $11.5 million. During the
first nine months of 1996, the Company recorded expenses related to its
restructuring efforts, primarily for duplicate staffing, employee severance
costs, and consulting and legal fees which impacted operating cash flow by
approximately $4.0 million. Excluding these restructuring expenses, operating
cash flow would have been $3.7 million, or 5.2% of service revenue.
Service revenue increased 2.5% ($1.8 million) in the first nine months of 1996
compared to 1995 due to an increase in the average number of units in service
partially offset by a decrease in the average monthly service revenue per unit
("ARPU"). Customer units in service increased 1.5% between September 30, 1995
and September 30, 1996. Service revenue growth was slowed due to competitive
pricing declines and a shift in the distribution channel mix from an emphasis on
the direct channel to an emphasis on the indirect channel, which had an adverse
impact on ARPU. ARPU declined 7.3% to $9.92 for the first nine months of 1996
from $10.70 for the same period in 1995. Competitive pricing pressures accounted
for 5.9% of the change with the shift in the distribution channel mix
contributing the remaining 1.4%. As part of the restructuring effort, the
Company increased the number of direct sales representatives with the goal of
increasing growth in units in service, revenue and ARPU. Units sold through the
direct distribution channel typically provide higher revenue per unit than units
sold through indirect channels. The Company is also seeking to improve the churn
rate in the fourth quarter of 1996 through continued training of customer
service representatives at the CTC.
Service operating expenses increased 30.7% ($23.2 million) in the first nine
months of 1996 compared to 1995 principally due to restructuring charges, higher
selling costs, increased costs to serve the customer base, and higher
depreciation and amortization expense. Total restructuring charges recorded
during the first nine months of 1996 totaled $9.3 million compared to $2.2
million for the same period in 1995.
Cost of service increased 24.9% ($4.4 million) in the first nine months of
1996 primarily due to increasing costs of repairing pagers and increased
reseller costs. Reseller expense increased mainly due to an increase in
nationwide units in service, along with additional demand for alphanumeric
dispatch services. Telephone expense increased due to a need for greater
trunking capacity for the CTC. Site rental expense rose as transmitters in
service increased by 26 to 1,038 at September 30, 1996 compared to September 30,
1995.
Selling and advertising expense increased 63.6% ($7.6 million) in the first
nine months of 1996 primarily due to a significant increase in the number of
employees in the sales and marketing function. The Company committed additional
resources to sales and sales support with the intent to increase unit sales,
service revenue and productivity. Although anticipated, the Company has
experienced slower unit and revenue growth through the third quarter as a result
of continued work force disruptions caused by the refocusing of the sales force
on direct sales and reengineering of the customer service organization.
-3-
<PAGE>
General and administrative expense increased 7.6% ($2.1 million) in the first
nine months of 1996. During the period, the Company recorded restructuring
expenses of approximately $4.0 million related to duplicate staffing, employee
severance costs, and consulting and legal fees. During the third quarter, the
Company recorded additional expense of $1.3 million for information systems
consulting services in support of the conversion to the CTC. Bad debt expense
increased in the first nine months of 1996 as a result of temporarily suspending
credit and collection activities while these activities were consolidated from
the field offices to the CTC. However, partially offsetting these charges were
reductions in general and administrative expense primarily due to administrative
staff reductions also related to restructuring initiatives.
Depreciation and amortization expense increased 50.7% ($9.1 million) in the
first nine months of 1996 primarily due to increased depreciation totaling $5.3
million for obsolete inventory, write-off of the customer management and billing
system, and assets retired as a result of the Company's restructuring. The
remaining increase in depreciation and amortization expense reflects the
Company's increased investment in system infrastructure and pager devices.
Excluding the investment in narrowband Personal Communication Services ("PCS")
licenses (which is not yet being amortized), gross fixed assets grew 15.7% to
$147.0 million at September 30, 1996 from $127.0 million at September 30, 1995,
primarily due to increases in pagers, transmitters and terminals.
Equipment sales income was $418,000 in the first nine months of 1996 compared to
equipment sales loss of $23,000 in 1995. The Company generally plans to break
even or make a small profit on equipment sales. For marketing purposes, it may,
at times in selected locations, discount paging equipment below cost due to
competitive pressures or sales promotions.
Operating loss was $27.3 million in the first nine months of 1996 compared to
$6.4 million in 1995. Operating margin on service revenue decreased to (38.5)%
in 1996 from (9.1)% in 1995. The decrease in operating results reflects slower
service revenue growth as well as increased operating expenses resulting from
restructuring charges, higher selling costs, increased costs to serve the
customer base, and higher depreciation and amortization expense.
The Company anticipated slower unit and revenue growth during the first nine
months of 1996 as a result of work force disruptions caused by the reengineering
of the sales force and customer service organization. In addition, the Company
expects operating expenses to continue to increase in 1996 as the Company
reengineers its transmission systems, increases its direct sales force efforts
and addresses the dysfunctions surrounding the conversion to the CTC.
Investment and other income/(expense) was $(726,000) in the first nine months of
1996 compared to $(549,000) in 1995, primarily reflecting investment losses
during each period associated with the Company's joint venture with Nexus
Telecommunication Systems, Ltd. ("Nexus"), accounted for using the equity
method. The joint venture, American Messaging Services, LLC, was formed to
develop multiple applications and distribution channels worldwide for a patented
communications network that provides two-way paging, location and telemetry
services. Through royalty agreements, American Paging will receive revenue on
all worldwide sales and usage of Nexus messaging systems. Nexus two-way
messaging systems are currently under construction in Australia and Russia.
Revenue accruing to the Company as a result of such sales is not expected to be
material during 1996.
-4-
<PAGE>
Interest expense-affiliates decreased 6.8% ($309,000) in the first nine months
of 1996 compared to 1995. This decrease was due to the Company starting to
capitalize interest costs as of October 1, 1995 related to borrowings for the
acquisition of its narrowband PCS licenses. Such capitalized interest totaled
$4.2 million for the first nine months of 1996. At September 30, 1996, the
Company had $129.8 million outstanding under its Revolving Credit Agreement with
its parent, Telephone and Data Systems, Inc. [AMEX:TDS]. Total proceeds from the
Revolving Credit Agreement were used to purchase and develop the narrowband PCS
licenses, acquisitions, expand the Company's transmission infrastructure, and
provide working capital.
Income tax benefit was $6,000 in the first nine months of 1996 compared to
income tax expense of $157,000 in 1995, reflecting increased operating losses
for state income tax purposes during 1996. The Company and TDS are parties to a
tax allocation agreement which became effective January 1, 1994. Under the
agreement, the Company calculates its losses and credits as if it were a
separate affiliated group and will carry forward its losses and credits, if any,
to reduce future tax liabilities. For financial reporting purposes, the Company
computes its federal income taxes as if it were not a member of the TDS
consolidated group.
Net loss totaled $32.3 million in the first nine months of 1996 compared to
$11.6 million in 1995, reflecting a significant increase in operating loss as
well as costs associated with the Company's investment in the Nexus joint
venture and increased interest expense. Loss per common share was $1.61 in 1996
compared to $0.58 in 1995, reflecting the change in net loss.
Three months ended 9/30/96 compared to three months ended 9/30/95
Service revenue decreased 1.4% ($343,000) in the third quarter of 1996 from the
same period in 1995. The 1.5% growth in the number of pagers in service at the
end of each period was offset by a 6.3% decline in ARPU to $9.96 for the third
quarter of 1996 from $10.63 for the same period in 1995. Competitive pricing
pressures accounted for 5.2% of the change with a shift in the distribution
channel mix contributing the remaining 1.1%.
Service operating expenses increased 55.9% ($14.7 million) in the third quarter
of 1996 from the same period in 1995. Restructuring charges totaled $7.0 million
for the third quarter of 1996 compared to restructuring charges of $2.2 million
for the third quarter of 1995. The remaining increase in service operating
expense from the third quarter of 1995 to the third quarter of 1996 was for
reasons generally the same as for the first nine months of 1996.
Equipment sales income increased to $579,000 in the third quarter of 1996 from a
loss of $124,000 for the same period in 1995.
Operating loss was $16.7 million in the third quarter of 1996 compared to $2.3
million for the same period in 1995, for reasons generally the same as for the
first nine months of 1996.
Investment and other income/(expense) was $(213,000) in the third quarter of
1996 compared to $(187,000) for the same period in 1995, for reasons generally
the same as for the first nine months of 1996.
-5-
<PAGE>
Interest expense-affiliates decreased 22.6% ($506,000) in the third quarter of
1996 compared to the same period in 1995, for reasons generally the same as for
the first nine months of 1996.
Income tax benefit was $5,000 in the third quarter of 1996 compared to income
tax expense of $105,000 for the same period in 1995, for reasons generally the
same as for the first nine months of 1996.
Net loss totaled $18.6 million in the third quarter of 1996 compared to $4.9
million for the same period in 1995. Loss per share was $0.93 for the third
quarter of 1996 compared $0.24 for the same period in 1995.
Capital Resources and Liquidity
Construction, development and upgrade of the Company's radio paging systems, the
purchase of narrowband PCS licenses, and growth in the number of customers
served, both internally and through acquisitions, have caused financing
requirements to exceed internally generated cash flow during the last three
years. Accordingly, the Company has obtained substantial external funds in the
form of borrowings under a Revolving Credit Agreement with TDS and anticipates
that it will require significant external funds over the next few years. The
additional funds will be used to finance continuing operations as needed, as
well as for expanding its infrastructure to accommodate the services that the
narrowband PCS licenses will allow the Company to provide.
Cash flows from operating activities required $2.5 million for the first nine
months of 1996 and provided $9.5 million for the same period in 1995. The $12.0
million decrease in cash provided was primarily due to the $20.7 million
additional net loss coupled with a total of $800,000 for changes in items
requiring cash, such as accounts receivable and accrued interest. These
decreases were partially offset by a $7.9 million change in depreciation and
amortization and other items not requiring cash.
Cash flows from financing activities provided $35.3 million for the first nine
months of 1996 compared to $60.5 million in 1995. Cash flows from financing
activities include cash from borrowings under the Revolving Credit Agreement
with TDS and sales of common stock related to the Company's employee benefit
plans.
Cash flows from investing activities required cash totaling $31.7 million for
the first nine months of 1996 compared to $68.2 million in 1995. The majority of
the cash outflow through the third quarter of 1996 related to additions to
property, plant and equipment totaling $26.3 million, representing enhancements
to existing systems, purchase of pagers and costs related to the build out of
the CTC. In addition, net cash outflow of $4.3 million was related to
capitalized interest and development costs for the Company's five regional
narrowband PCS licenses. The majority of the cash outflow during the first nine
months of 1995 related to the initial purchase of the five regional narrowband
PCS licenses ($43.6 million). The Company also required $3.5 million primarily
for the acquisition of a Florida paging company during the first nine months of
1995. Cash required for other investments related primarily to the Company's
joint venture with Nexus Telecommunication Systems, Ltd.
-6-
<PAGE>
The Company expects to spend approximately $3.0 million in the fourth quarter of
1996 for the development of its five regional narrowband PCS licenses, primarily
for interest capitalized on the borrowings to acquire the licenses. The Company
intends to begin deploying narrowband PCS services during the second half of
1997 in some of its existing markets. In addition, significant funds will be
required as the Company continues to develop its infrastructure and to market
the services that these licenses will allow the Company to provide, such as
two-way acknowledgment paging and digital data transmission.
At September 30, 1996, the Company had $5.4 million in cash. Pursuant to the
Revolving Credit Agreement, amended November 13, 1996, the Company may borrow up
to an aggregate of $150 million from TDS, which amount is payable to TDS at
December 31, 1998. At September 30, 1996, $129.8 million total long-term debt
under this agreement was used for the acquisition and development of five
regional narrowband PCS licenses ($61.0 million), investments in infrastructure,
systems and pagers ($43.0 million), acquisitions ($15.7 million), and continuing
operations ($10.1 million). The Revolving Credit Agreement allows the Company to
borrow funds at an interest rate equal to 1 1/2% above the prime rate, which is
payable quarterly. The Company's interest rate at September 30, 1996 was 9 3/4%.
The Company has determined that it was in violation of a covenant under the
Revolving Credit Agreement with TDS relating to maintaining a certain ratio of
equity to liabilities. The Company has obtained a waiver of the covenant from
TDS until January 2, 1998. In absence of such waiver, the entire amount
outstanding under the Revolving Credit Agreement would have become immediately
due and payable at the discretion of TDS.
In connection with the Company's efforts to increase its customer base and
market share and to invest in new communications technologies, the Company
anticipates requiring additional funding, the nature, amount and source of which
cannot now be determined, but which may include increases under or changes in
the structure of the Revolving Credit Agreement with TDS, public or private
offerings of debt or equity securities. However, the Company has no agreements,
commitments or understandings with respect to any such transactions. If
sufficient funding is not made available to the Company on terms and prices
acceptable to the Company, the Company would have to reduce its construction and
development programs, which could have a material adverse impact on the
Company's financial condition and results of operations.
-7-
<PAGE>
<TABLE>
<CAPTION>
AMERICAN PAGING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Unaudited
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------------------------
1996 1995 1996 1995
-------- -------- -------- --------
(Dollars in thousands, except per share amounts)
<S> <C> <C> <C> <C>
SERVICE REVENUE ....................... $ 23,766 $ 24,109 $ 70,967 $ 69,212
-------- -------- -------- --------
SERVICE OPERATING EXPENSE
Cost of service .................... 7,716 6,052 21,835 17,477
Selling and advertising ............ 7,999 3,472 19,508 11,923
General and administrative ......... 13,000 10,171 30,402 28,254
Depreciation and amortization ...... 12,324 6,629 26,987 17,913
-------- -------- -------- --------
Total service operating expense . 41,039 26,324 98,732 75,567
-------- -------- -------- --------
SERVICE OPERATING LOSS ................ (17,273) (2,215) (27,765) (6,355)
-------- -------- -------- --------
EQUIPMENT SALES
Revenue ............................ 2,773 3,434 8,178 11,114
Cost of equipment sold ............. 2,194 3,558 7,760 11,137
-------- -------- -------- --------
EQUIPMENT SALES INCOME/(LOSS) ......... 579 (124) 418 (23)
-------- -------- -------- --------
OPERATING LOSS ........................ (16,694) (2,339) (27,347) (6,378)
-------- -------- -------- --------
INVESTMENT AND OTHER INCOME/(EXPENSE)
Investment loss in joint venture ... (266) (266) (934) (760)
Interest income .................... 53 47 175 122
Other, net ......................... -- 32 33 89
-------- -------- -------- --------
Total investment and other (expense) (213) (187) (726) (549)
-------- -------- -------- --------
LOSS BEFORE INTEREST
AND INCOME TAXES ................... (16,907) (2,526) (28,073) (6,927)
Interest expense - affiliates ......... 1,734 2,240 4,253 4,562
-------- -------- -------- --------
LOSS BEFORE INCOME TAXES .............. (18,641) (4,766) (32,326) (11,489)
Income tax (benefit)/expense .......... (5) 105 (6) 157
-------- -------- -------- --------
NET LOSS .............................. $(18,636) $ (4,871) $(32,320) $(11,646)
======== ======== ======== ========
WEIGHTED AVERAGE COMMON AND
SERIES A COMMON SHARES (000s) ...... 20,050 20,023 20,046 20,013
NET LOSS PER COMMON AND
SERIES A COMMON SHARE .............. $ (0.93) $ (0.24) $ (1.61) $ (0.58)
</TABLE>
The accompanying notes to consolidated financial statements are an
integral part of these statements.
-8-
<PAGE>
AMERICAN PAGING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited
Nine Months Ended
September 30,
1996 1995
-------- --------
(Dollars in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss ...................................... $(32,320) $(11,646)
Add (deduct) adjustments to reconcile net loss
to net cash provided by operating activities:
Depreciation and amortization ............. 26,987 17,913
Deferred income taxes, net ................ (4) (68)
Investment loss ........................... 934 760
Other noncash expense ..................... 2,421 3,843
Change in accounts receivable ............. (719) (741)
Change in accounts payable ................ (671) (3,643)
Change in unearned revenue ................ 415 620
Change in accrued taxes ................... 327 259
Change in accrued interest ................ (1,346) 1,737
Change in other assets and liabilities .... 1,479 505
-------- --------
(2,497) 9,539
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Change in Revolving Credit Agreement - TDS .... 35,237 60,369
Common stock issued ........................... 96 173
-------- --------
35,333 60,542
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment .... (26,329) (19,625)
Acquisitions, excluding cash acquired ......... -- (3,508)
Investment in PCS ............................. (4,348) (43,593)
Other investments ............................. (1,030) (1,479)
-------- --------
(31,707) (68,205)
-------- --------
NET INCREASE IN CASH AND CASH EQUIVALENTS ........ 1,129 1,876
CASH AND CASH EQUIVALENTS
Beginning of period ........................... 4,280 2,284
-------- --------
End of period ................................. $ 5,409 $ 4,160
======== ========
The accompanying notes to consolidated financial statements are an
integral part of these statements.
-9-
<PAGE>
AMERICAN PAGING, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
(Unaudited)
September 30, December 31,
1996 1995
-------- --------
(Dollars in thousands)
CURRENT ASSETS
Cash and cash equivalents ........................ $ 5,409 $ 4,280
Accounts receivable
Customers ...................................... 12,371 11,883
Affiliates - income taxes ...................... 325 258
Other .......................................... 246 15
Inventory ........................................ 3,360 3,408
Deferred tax asset ............................... 2,253 2,028
Prepaid expenses and other ....................... 1,234 1,508
-------- --------
25,198 23,380
-------- --------
INVESTMENTS ........................................ 193 97
-------- --------
PROPERTY, PLANT AND EQUIPMENT
In service ....................................... 114,766 102,385
Less accumulated depreciation .................... 57,923 42,933
-------- --------
56,843 59,452
-------- --------
INTANGIBLE ASSETS
PCS licenses ..................................... 59,601 55,538
Other intangibles, net of accumulated amortization
of $16,608 and $13,733, respectively ........... 16,969 20,682
-------- --------
76,570 76,220
-------- --------
TOTAL ASSETS ....................................... $158,804 $159,149
======== ========
The accompanying notes to consolidated financial statements are an
integral part of these statements.
-10-
<PAGE>
AMERICAN PAGING, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
(Unaudited)
September 30, December 31,
1996 1995
--------- ---------
(Dollars in thousands)
CURRENT LIABILITIES
Due to affiliates -
Accounts payable ........................... $ 3,914 $ 1,540
Accrued interest ........................... 1,045 2,391
Accounts payable ............................. 2,571 9,192
Unearned revenue and deposits ................ 11,244 10,829
Accrued taxes ................................ 747 353
Other current liabilities .................... 4,229 3,024
--------- ---------
23,750 27,329
--------- ---------
REVOLVING CREDIT AGREEMENT - TDS ............... 129,760 94,523
--------- ---------
DEFERRED LIABILITIES AND CREDITS
Net deferred income tax liability ............ 1,942 1,721
--------- ---------
COMMON SHAREHOLDERS' EQUITY
Common shares, par value $1 per share ........ 7,550 7,537
Series A Common shares, par value $1 per share 12,500 12,500
Additional paid-in capital ................... 72,546 72,463
Retained deficit ............................. (89,244) (56,924)
--------- ---------
3,352 35,576
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ..... $ 158,804 $ 159,149
========= =========
The accompanying notes to consolidated financial statements are an
integral part of these statements.
-11-
<PAGE>
AMERICAN PAGING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The consolidated financial statements included herein have been prepared by
the Company, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations, although the
Company believes that the disclosures are adequate to make the information
presented not misleading. It is suggested that these consolidated financial
statements be read in conjunction with the consolidated financial
statements and the notes thereto included in the Company's annual report on
Form 10-K for the year ended December 31, 1995.
The accompanying unaudited consolidated financial statements contain all
adjustments (consisting of only normal recurring items) necessary to
present fairly the financial position as of September 30, 1996 and December
31, 1995, and the results of operations and cash flows for the three month
periods and nine month periods ended September 30, 1996 and 1995. The
results of operations for the three month periods and nine month periods
ended September 30, 1996 and 1995, are not necessarily indicative of the
results to be expected for the full year.
2. Net loss per Common and Series A Common share for the three month and nine
month periods ended September 30, 1996 and 1995 was computed by dividing
net loss by the weighted average number of Common shares and Series A
Common shares outstanding during the period.
3. The following table summarizes interest and income taxes paid:
Nine Months Ended September 30,
1996 1995
---- ----
(Dollars in thousands)
Interest paid $ 9,749 $ 2,825
Income taxes paid 96 244
4. Assuming the acquisitions accounted for as purchases during the period
January 1, 1995 to September 30, 1996, had taken place on January 1, 1995,
unaudited pro forma results of operations would have been as follows:
Nine Months Ended September 30,
1996 1995
---- ----
(Dollars in thousands)
Service revenue $ 70,967 $ 72,227
Net loss (32,320) (12,470)
Loss per Common share $ (1.61) $ (0.62)
5. The Company has determined that it was in violation of a covenant under the
Revolving Credit Agreement with TDS relating to maintaining a certain ratio
of equity to liabilities. The Company has obtained a waiver of the covenant
from TDS until January 2, 1998. In absence of such waiver, the entire
amount outstanding under the Revolving Credit Agreement would have become
immediately due and payable at the discretion of TDS.
-12-
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit
Number Description
- ------- -----------
10 Amendment to Revolving Credit Agreement, dated November 13, 1996,
between TDS and American Paging
27 Financial Data Schedule
(b) No reports were filed on Form 8-K during the quarter ended
September 30, 1996.
-13-
<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.
American Paging, Inc.
(Registrant)
Date: November 14, 1996 By: /s/ TERRENCE T. SULLIVAN
Terrence T. Sullivan
President
(Chief Executive Officer)
Date: November 14, 1996 By: /s/ MICHELLE M. HAUPT
Michelle M. Haupt
Controller
(Principal Accounting Officer)
-14-
Exhibit 10
November 13, 1996
American Paging, Inc.
1300 Godward Street NE Suite #3100
Minneapolis, MN 55413
Re: Revolving Credit Agreement dated January 1, 1994, as amended (the
"Revolving Credit Agreement"), between American Paging, Inc.(the "Company")
and Telephone and Data Systems, Inc. ("TDS")
Ladies and Gentlemen:
This letter will constitute TDS's agreement to amend the Revolving Credit
Agreement by changing all of the references to "$140,000,000" in the Revolving
Credit Agreement to "$150,000,000." All of the other terms and conditions of the
Revolving Credit Agreement shall remain in full force and effect.
TDS also hereby waives all defaults or events of default by the Company
under the Revolving Credit Agreement resulting from the violation of the
covenant in Section 7(b)(2) of the Revolving Credit Agreement or the insolvency
of the Company from the respective dates from any such default or event of
default through January 2, 1998.
Please acknowledge your agreement to this amendment by executing a copy of
this letter and return it to the undersigned.
Very truly yours,
TELEPHONE AND DATA SYSTEMS, INC.
By: /S/ MURRAY L. SWANSON
Murray L. Swanson
Executive Vice President - Finance
Accepted and agreed to as of the date set forth above by Terrence T. Sullivan,
President of the Company, as acknowledged by Michelle M. Haupt, Controller of
the Company.
AMERICAN PAGING, INC.
By: /S/ MICHELLE M. HAUPT
Michelle M. Haupt
Controller
-15-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated financial statements of American Paging, Inc. as of September 30,
1996, and for the nine months then ended, and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 5,409
<SECURITIES> 0
<RECEIVABLES> 12,942
<ALLOWANCES> 0
<INVENTORY> 3,360
<CURRENT-ASSETS> 25,198
<PP&E> 114,766
<DEPRECIATION> 57,923
<TOTAL-ASSETS> 158,804
<CURRENT-LIABILITIES> 23,750
<BONDS> 0
0
0
<COMMON> 20,050
<OTHER-SE> (16,698)
<TOTAL-LIABILITY-AND-EQUITY> 158,804
<SALES> 8,178
<TOTAL-REVENUES> 79,145
<CGS> 7,760
<TOTAL-COSTS> 106,492
<OTHER-EXPENSES> 726
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,253
<INCOME-PRETAX> (32,326)
<INCOME-TAX> (6)
<INCOME-CONTINUING> (32,320)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (32,320)
<EPS-PRIMARY> (1.61)
<EPS-DILUTED> (1.61)
</TABLE>
