<PAGE>
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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, 1997
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
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(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 7, 1997
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Common shares, $1 par value 7,635,493 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.
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Part I. Financial Information
Management's Discussion and Analysis of
Results of Operations and Financial Condition 2-8
Consolidated Statements of Operations -
Three months and nine months ended
September 30, 1997 and 1996 9
Consolidated Statements of Cash Flows -
Nine months ended September 30, 1997 and 1996 10
Consolidated Balance Sheets -
September 30, 1997 and December 31, 1996 11-12
Notes to Consolidated Financial Statements 13
Part II. Other Information 14
Signatures 15
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<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 9/30/97 compared to nine months ended 9/30/96
American Paging, Inc. [AMEX:APP or the "Company"] results of operations reflect
continued progress in the turnaround efforts in an increasingly competitive
wireless messaging industry. While results of operations for the nine months
ended September 30, 1997 compared to the same period in 1996 reflect a decrease
in operating cash flow and increased net losses, the Company has achieved
quarter to quarter improvements in net unit growth and in reducing sales and
marketing expenses.
For the first nine months of 1997, service revenue decreased 8.3% to $65.1
million on a 0.6% increase in the number of units in service since September 30,
1996. Customer units in service totaled 792,800 at September 30, 1997 compared
to 788,300 at September 30, 1996. Operating cash flow (operating loss plus
depreciation and amortization) for the first nine months of 1997 was $(1.2)
million compared to $(360,000) for the same period in 1996. Service operating
expenses decreased 9.0% to $89.8 million, principally due to decreased general
and administrative expense and depreciation expense partially offset by
increased sales and marketing costs and costs of providing network service. As a
result, the Company incurred an operating loss of $24.8 million for the first
nine months of 1997. In addition, the Company incurred higher interest expense
contributing to a net loss of $36.8 million for the first nine months of 1997.
For the first nine months of 1996, the Company recorded $4.0 million of general
and administrative expenses related to the restructuring effort, primarily for
duplicate staffing, employee severance costs, and consulting and legal fees.
Also related to the restructuring, the Company recorded additional depreciation
charges of $5.3 million -- $2.8 million for a write-down of obsolete inventory
and $2.5 million primarily for the write-off of the customer management and
billing system.
Restructuring activities undertaken during the first half of 1996 surrounded the
Company's conversion to a centralized Customer Telecare Center ("CTC") which
resulted in dysfunctions in several of the Company's core processes.
Restructuring activities in the second half of 1996 were implemented by a new
senior management team assembled to specifically address these operational
dysfunctions. The senior management's strategic plan centered on improving the
productivity of the sales and marketing organization, reducing cost of service
by consolidating current transmission systems and improving customer care
practices.
While results for the first nine months of 1997 are down when compared to 1996,
the Company has made quarter to quarter progress in its turnaround efforts.
Streamlining the field sales force combined with improved productivity of the
field sales representatives resulted in quarter to quarter reductions in sales
and marketing costs and the second straight quarter of positive net unit growth.
Units in service increased 12,200 during the quarter to 792,800. Additionally,
process improvements at the CTC led to an improvement in the churn rate to 2.5%
for the third quarter of 1997. The churn rate has steadily improved over the
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last year from a peak of 3.9% during the third quarter of 1996.
Service revenue decreased 8.3% ($5.9 million) in the first nine months of 1997
as a result of a 6.2% decrease in average monthly service revenue per unit
("ARPU") and a decrease in the average number of units in service. Service
revenue declined due to continuing competitive pricing pressures and a
continuing shift in the distribution channel mix towards indirect channels,
which typically provide lower service revenue per unit. Accordingly, ARPU
declined to $9.31 in the first nine months of 1997 from $9.92 in the same period
in 1996; 5.3% was due to the competitive pricing pressures and 0.9% was due to
the change in distribution channel mix. As of September 30, 1997, units in
service increased to 792,800 from 788,300 a year ago. However, over the past
twelve months units in service reached a low of 767,400 at March 31, 1997
resulting in a decrease in average number of units in service.
Service operating expenses decreased 9.0% ($8.9 million) in the first nine
months of 1997 when compared to the same period in 1996. Excluding restructuring
charges of $9.3 million noted above, service operating expenses would have
increased by $400,000. This increase was driven by increased network service
costs, sales and marketing costs, and depreciation expense which was almost
fully offset by reductions in general and administrative costs.
Beginning in January 1997, the Company changed its income statement presentation
for two categories of service operating expenses to be properly aligned with
management responsibility. Bad debt expense, previously included in general and
administrative expense, is now included in sales and marketing expense, and
pager repair expense, previously included in cost of service, is now included in
general and administrative expense. Amounts in the affected expense categories
have been reclassified for 1996 in the Consolidated Statement of Operations.
Cost of service increased 5.5% ($1.1 million) in the first nine months of 1997,
primarily due to increased costs of reselling third-party nationwide service
associated with an increase in nationwide units in service. Partially offsetting
these increases was an overall reduction in the number of technical and
inventory personnel, and transferring many of these functions to the CTC, the
costs of which are included in general and administrative expense. Additionally,
the Company has implemented cost containment measures in cost of service by
migrating more customers to newer, more efficient systems as well as eliminating
the infrastructure costs of older systems.
During the past twelve months, transmitters were added primarily for the
continued expansion and upgrade of existing systems coupled with the retirement
of smaller, outdated systems to improve operating efficiencies. The Company's
new systems and upgraded transmitters are capable of digital broadcast using the
high-speed FLEX -Registered Trademark- signaling protocol, significantly
increasing system capacity over the Company's conventional signaling protocol.
Over the next three years, the Company intends to reduce its cost of service by
reducing the number of frequencies it maintains and dismantling older networks.
Sales and marketing expense increased 6.2% ($1.5 million) in the first nine
months of 1997, primarily due to increased sales and marketing personnel costs.
For the first nine months of 1997 compared to the same period in 1996, the
Company experienced increased turnover within the sales force as well as
increased costs associated with recruiting and training new sales personnel. A
majority of this variance occurred during the first quarter of 1997 when the
sales and marketing functions were reorganized. Store location expense increased
in 1997 due to the fact that field store locations are now almost solely
dedicated to sales activities. As a result, a greater percentage of field store
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<PAGE>
related expenses are categorized as sales and marketing. Prior to the opening of
the CTC in April 1996, only a portion of field store expenses was allocated to
sales and marketing expense as various administrative functions still remained
at the field stores.
During the conversion to the CTC in 1996, credit and collection activities were
temporarily suspended while these activities were consolidated from field
offices to the CTC. Additionally, insufficient resources were allocated to
credit and collection issues during the third and fourth quarters of 1996 as a
result of changes in the management of the Company. During the first half of
1997, the Company resumed its normal collection activities and also implemented
additional credit review and qualification procedures. As a result, bad debt as
a percent of service revenue was 6.8% for the nine months of 1997 compared to
5.7% for the same period last year. The Company intends for the additional
credit review and qualifications to result in decreased bad debt expense as a
percent of service revenue in subsequent quarters.
General and administrative expense decreased 28.1% ($8.1 million) in the first
nine months of 1997. During the first nine months of 1996, the Company recorded
restructuring expenses of $4.0 million related to duplicate staffing, employee
severance costs, and consulting and legal fees. No restructuring-related
expenses were recorded during the first nine months of 1997. Throughout 1997,
the Company has implemented various cost containment measures aimed at
decreasing general and administrative expenses overall. In addition, consulting
costs and employee travel and relocation expenses decreased during the first
nine months of 1997 compared to the same period last year. During the conversion
to the CTC in 1996, there was a significant increase in employee travel to
Oklahoma City as well as additional costs to relocate customer support
personnel. The decreases in consulting costs and employee related expenses were
partially offset by increased staffing levels at the CTC for the entire nine
months of 1997.
Depreciation and amortization expense decreased 12.3% ($3.3 million) in the
first nine months of 1997 primarily due to restructuring-related expenses
recorded in 1996. In the first nine months of 1996, the Company recorded $5.3
million in additional depreciation expense primarily due to the write-off of
obsolete inventory and the Company's customer management and billing system.
Excluding restructuring charges, depreciation and amortization would have
increased due to increased investment in CTC system and equipment enhancements,
system infrastructure, and subscriber devices. Excluding the investment in
narrowband Personal Communications Services ("PCS") licenses (which is not yet
being amortized), the gross depreciable/amortizable balance grew 3.4% to $146.9
million at September 30, 1997 from $142.0 million at September 30, 1996.
Amortization of a portion of the Company's narrowband PCS license costs will
commence when the first customer is activated on one of the five regional
narrowband PCS licenses.
Equipment sales (loss)/income was $(114,000) in the first nine months of 1997
compared to $418,000 in 1996. The Company generally plans to break even on
equipment sales, but may have income or loss in any given quarter. For marketing
purposes, it may, at times in selected locations, discount paging equipment
below cost due to competitive pressures or sales promotions. In the first nine
months of 1997, the Company has experienced increased price competition in the
direct distribution channel which resulted in equipment sales losses.
Operating loss was $24.8 million in the first nine months of 1997 compared to
$27.3 million in 1996. The operating results for 1997 compared to 1996 reflect a
decrease in service revenue coupled with a decrease in operating expenses,
primarily related to the restructuring expenses recorded in the first nine
months of 1996.
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<PAGE>
Investment and other income/(expense) was $(322,000) in the first nine months of
1997 compared to $(726,000) in 1996 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 ("AMS"), was formed
to develop a patented communications network that provides two-way paging,
location and telemetry services. The Company stopped funding AMS as of June 30,
1997. As a result, the Company's interest in AMS will become diluted as Nexus
contributes additional capital to the joint venture.
Interest expense-affiliates increased $7.4 million to $11.6 million for the
first nine months of 1997 compared to 1996. The increase is the result of
increased long-term indebtedness of $38.2 million since September 30, 1996, used
to fund construction expenditures and continuing operations, as well as a
decision in 1996 to stop capitalizing interest related to the Company's
narrowband PCS licenses. Beginning October 1, 1995 and continuing through
September 30, 1996, the Company capitalized interest costs related to borrowings
for the acquisition and development of its narrowband PCS licenses. The Company
stopped capitalizing interest as of October 1, 1996 due to a suspension in the
Company's development of its narrowband PCS licenses. See the Capital Resources
and Liquidity section for more information related to the Company's plans with
respect to the buildout of its narrowband PCS licenses. Capitalized interest for
the first nine months of 1996 totaled $4.2 million. At September 30, 1997, the
Company had $168.0 million outstanding under its Revolving Credit Agreement
("RCA") with its parent, Telephone and Data Systems, Inc.[AMEX:TDS].
The Company is included in a consolidated federal income tax return with other
members of the TDS consolidated group. For financial reporting purposes, the
Company computes federal income taxes as if it were filing a separate return as
its own affiliated group and was not included in the TDS group. TDS and the
Company are parties to a Tax Allocation Agreement under which the Company is
able to carry forward any losses and credits and use them to offset any future
income tax liabilities to TDS.
Net loss totaled $36.8 million in the first nine months of 1997 compared to
$32.3 million in 1996, reflecting the increase in interest expense offset
somewhat by a decrease in operating loss. Net loss per common share was $1.83 in
1997 compared to $1.61 in 1996, reflecting the change in net loss.
Three months ended 9/30/97 compared to three months ended 9/30/96
Service revenue decreased 11.1% ($2.6 million) in the third quarter of 1997
compared to the same period in 1996, primarily as a result of a 10.0% decrease
in ARPU. Competitive pricing declines coupled with a continuing shift in the
distribution channel mix contributed to the decline in ARPU to $8.97 for the
third quarter of 1997 from $9.96 for 1996.
Service operating expense decreased 26.6% ($10.9 million) in the third quarter
of 1997 compared to the same period in 1996. The Company recorded $7.0 million
in restructuring-related expenses in the third quarter of 1996; $5.0 million in
accelerated depreciation and $2.0 million in general and administrative expense.
For the third quarter of 1997, cost of service increased 13.2% ($869,000) for
reasons generally the same as for the first nine months of 1997. Sales and
marketing expense decreased 26.1% ($2.6 million) in the third quarter of 1997
primarily due to a significant decrease in the number of field sales employees
as the Company streamlines its field sales force. Bad debt as a percent of
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<PAGE>
service revenue decreased to 5.7% for the third quarter of 1997 compared to 8.2%
for the same period a year ago as a result of improved credit review and
qualification procedures implemented at the CTC. General and administrative
expenses decreased 44.1% ($5.4 million) in the third quarter of 1997 compared to
the same period in 1996 for reasons generally the same as for the first nine
months of 1997. Depreciation expense decreased 30.1% ($3.8 million) in the third
quarter of 1997 for reasons generally the same as for the first nine months of
1997.
Equipment sales (loss)/income decreased to $(298,000) in the third quarter of
1997 compared to $579,000 for same period in 1996.
Operating loss was $9.3 million in the third quarter of 1997 compared to $16.7
million for 1996. The 44.3% decrease in operating loss was primarily due to the
$7.0 million in restructuring-related expenses recorded during the third quarter
of 1996.
Investment and other income/(expense) was $80,000 in the third quarter of 1997
compared to $(212,000) for the same period in 1996, for reasons generally the
same as for the first nine months of 1997.
Interest expense-affiliates increased $2.4 million for the third quarter of 1997
compared to the same period in 1996, for reasons generally the same as for the
first nine months of 1997.
Net loss totaled $13.4 million for the third quarter of 1997 compared to $18.6
million for 1996. Net loss per common share was $0.67 for the third quarter of
1997 compared $0.93 for 1996.
Capital Resources and Liquidity
The purchase of narrowband PCS licenses, construction and development of the
Company's radio paging infrastructure and the CTC, costs associated with
restructuring the Company's operations, and acquisitions have caused financing
requirements to exceed internally generated cash flows during the last few
years. Accordingly, the Company has obtained substantial external funds in the
form of borrowings under a Revolving Credit Agreement ("RCA") with TDS, and
anticipates that it will require additional funds over the next few years. The
additional funds will be used to finance continuing operations as needed, as
well as for expanding and upgrading its infrastructure to provide increased
coverage and improve service quality to customers.
Cash flows from operating activities required $14.7 million in the first nine
months of 1997 and $2.5 million for the same period in 1996. The $12.2 million
increase in cash required was a direct result of $4.5 million of additional net
loss coupled with $1.7 million required for working capital items, such as
accounts payable, accounts receivable and unearned revenue. In addition, there
was $6.0 million less of cash flows provided during the first nine months of
1997 from depreciation and amortization expense and other non-cash items.
Cash flows from financing activities provided $28.2 million in the first nine
months of 1997 compared to $35.3 million in 1996. Cash flows from financing
activities primarily include cash from borrowings under the RCA with TDS. The
Company borrowed $28.0 million during the first nine months of 1997 under the
RCA with TDS compared to $35.2 million for the same period in 1996.
Cash flows from investing activities required cash totaling $13.7 million in the
first nine months of 1997 compared to $31.7 million in 1996. The majority of the
cash outflows during the first nine months of 1997 related to net additions to
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<PAGE>
property, plant and equipment representing purchases of subscriber devices,
enhancements to existing systems and construction of new systems. The majority
of cash outflows during the first nine months of 1996 related to net additions
to property, plant and equipment of $26.3 million. In addition, net cash outflow
of $4.3 million was related to capitalized interest and development costs for
the Company's narrowband PCS licenses.
Capital expenditures for subscriber devices for lease, infrastructure and other
equipment are anticipated to total approximately $17 million in 1997. Included
in that estimate is approximately $6 million for deployment of infrastructure,
including both FLEX -Registered Trademark- and ReFLEX25 -Registered Trademark-
technologies. The Company has selected the ReFLEX25 -Registered Trademark-
protocol for the development of its narrowband PCS licenses. The subscriber
device equipment to be used with the ReFLEX25 -Registered Trademark- technology
is anticipated to become commercially available in the first quarter of 1998.
The source of funds for these expenditures is expected to be additional
borrowings under the RCA with TDS. Subject to the Company's ability to obtain
sufficient financing, the Company will also require additional funds to continue
to develop its narrowband PCS infrastructure and market the services these
licenses allow the Company to provide. There can be no assurance that the
Company will be successful in developing these licenses due to such factors as
the inability to obtain sufficient financing at a reasonable cost, the
availability of supporting infrastructure and related subscriber device
equipment, competition, regulatory developments or other factors.
At September 30, 1997, the Company had $358,000 in cash. The Company had unused
borrowing capacity at September 30, 1997 of $12 million under its RCA with TDS.
Pursuant to the RCA, the Company may borrow up to an aggregate of $180 million
from TDS. At September 30, 1997, $168 million total long-term debt under this
agreement was used for investments in infrastructure, systems and subscriber
devices ($63.2 million), the acquisition and development of five regional
narrowband PCS licenses ($61.0 million), continuing operations ($28.1 million),
and acquisitions ($15.7 million).
The RCA 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, 1997 was 10.0%. No principal is payable until January 1, 1999,
subject to acceleration under certain circumstances, at which time the entire
principal balance then outstanding is scheduled to become due and payable. The
Company determined that it was in violation of a covenant under the RCA with TDS
relating to maintaining a certain ratio of equity to liabilities. Effective
March 5, 1997, the Company obtained a waiver of the covenant from TDS through
January 1, 1999. In absence of such waiver, the entire amount outstanding under
the RCA would have become immediately due and payable at the discretion of TDS.
The Company expects to utilize the remaining $12 million available under the RCA
during the fourth quarter of 1997 and the first quarter of 1998. In connection
with the Company's efforts to increase its customer base and market share,
invest in new communications technologies and fulfill its obligations under the
RCA with TDS, the Company will require additional sources of funding, the
nature, amount and source of which cannot now be determined, but which may
include changes in the structure of the RCA with TDS or public or private
offerings of debt or equity securities. The Company is currently negotiating
with TDS to increase the amount available under the RCA and to amend or waive
the current covenants under the RCA. If sufficient funding is not made available
to the Company on terms and prices acceptable to the Company, it could have a
material adverse impact on the Company's financial condition and results of
operations.
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Private Securities Litigation Reform Act of 1995 Safe Harbor Cautionary Language
This Management's Discussion and Analysis of Financial Condition and Results of
Operations contain "forward-looking" statements, as defined in the Private
Securities Litigation Reform Act of 1995, that are based on current
expectations, estimates and projections. Statements that are not historical
facts, including statements about the Company's beliefs and expectations are
forward-looking statements. These statements contain potential risks and
uncertainties and, therefore, actual results may differ materially. American
Paging undertakes no obligation to update publicly any forward-looking
statements whether as a result of new information, future events or otherwise.
Important factors that may affect these projections or expectations include, but
are not limited to: changes in the overall economy; changes in competition in
the Company's markets; new wireless messaging technology advances; possible
future litigation; availability of future financing; start-up of narrowband PCS
operations; and unanticipated changes in growth in paging customers, penetration
rates, churn rates and the mix of products and services offered in the Company's
markets. Readers should evaluate any statements in light of these important
factors.
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<TABLE>
<CAPTION>
AMERICAN PAGING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Unaudited
Three Months Ended Nine Months Ended
September 30, September 30,
-------- -------- -------- --------
1997 1996 1997 1996
-------- -------- -------- --------
(Dollars in thousands, except per share amounts)
<S> <C> <C> <C> <C>
SERVICE REVENUE ............................ $ 21,118 $ 23,766 $ 65,112 $ 70,967
-------- -------- -------- --------
SERVICE OPERATING EXPENSE
Cost of service ......................... 7,442 6,573 20,482 19,418
Sales and marketing ..................... 7,353 9,952 25,009 23,552
General and administrative .............. 6,817 12,190 20,694 28,775
Depreciation and amortization ........... 8,513 12,324 23,658 26,987
-------- -------- -------- --------
Total service operating expense ...... 30,125 41,039 89,843 98,732
-------- -------- -------- --------
SERVICE OPERATING LOSS ..................... (9,007) (17,273) (24,731) (27,765)
-------- -------- -------- --------
EQUIPMENT SALES
Revenue ................................. 1,812 2,773 6,646 8,178
Cost of equipment sold .................. 2,110 2,194 6,760 7,760
-------- -------- -------- --------
EQUIPMENT SALES (LOSS)/INCOME .............. (298) 579 (114) 418
-------- -------- -------- --------
OPERATING LOSS ............................. (9,305) (16,694) (24,845) (27,347)
-------- -------- -------- --------
INVESTMENT & OTHER INCOME/(EXPENSE)
Investment loss in joint venture ........ 11 (266) (459) (934)
Interest income ......................... 26 53 94 175
Other, net .............................. 43 -- 43 33
-------- -------- -------- --------
Total investment & other income/(expense) 80 (213) (322) (726)
-------- -------- -------- --------
LOSS BEFORE INTEREST
AND INCOME TAXES ........................ (9,225) (16,907) (25,167) (28,073)
Interest expense - affiliates .............. 4,170 1,734 11,617 4,253
-------- -------- -------- --------
LOSS BEFORE INCOME TAXES ................... (13,395) (18,641) (36,784) (32,326)
Income tax benefit ......................... -- (5) -- (6)
-------- -------- -------- --------
NET LOSS ................................... $(13,395) $(18,636) $(36,784) $(32,320)
======== ======== ======== ========
WEIGHTED AVERAGE COMMON AND
SERIES A COMMON SHARES (000s) ........... 20,119 20,050 20,101 20,046
NET LOSS PER COMMON AND
SERIES A COMMON SHARE ................... $ (0.67) $ (0.93) $ (1.83) $ (1.61)
======== ======== ======== ========
</TABLE>
The accompanying notes to consolidated financial statements are an
integral part of these statements.
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<PAGE>
AMERICAN PAGING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited
Nine Months Ended
September 30,
1997 1996
-------- --------
(Dollars in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss ................................................ $(36,784) $(32,320)
Add (deduct) adjustments to reconcile net loss
to net cash provided by operating activities:
Depreciation and amortization ......................... 23,658 26,987
Deferred income taxes, net ............................ -- (4)
Investment loss ....................................... 459 934
Other noncash expense ................................. 248 2,421
Change in accounts receivable ......................... 17 (719)
Change in accounts payable ............................ (237) (671)
Change in unearned revenue ............................ (2,879) 415
Change in accrued taxes ............................... 564 327
Change in accrued interest ............................ 218 (1,346)
Change in other assets and liabilities ................ 20 1,479
-------- --------
(14,718) (2,497)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Change in Revolving Credit Agreement - TDS .............. 28,000 35,237
Common stock issued ..................................... 246 96
-------- --------
28,246 35,333
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment, net ......... (13,594) (26,329)
Investment in PCS Licenses .............................. -- (4,348)
Other investments ....................................... (504) (1,030)
Change in temporary investments and marketable securities 371 --
-------- --------
(13,727) (31,707)
-------- --------
NET (DECREASE) INCREASE IN
CASH AND CASH EQUIVALENTS ............................... (199) 1,129
CASH AND CASH EQUIVALENTS
Beginning of period ..................................... 557 4,280
-------- --------
End of period ........................................... $ 358 $ 5,409
======== ========
The accompanying notes to consolidated financial statements are an
integral part of these statements.
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<PAGE>
AMERICAN PAGING, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
(Unaudited)
September 30, December 31,
1997 1996
-------- --------
(Dollars in thousands)
CURRENT ASSETS
Cash and cash equivalents ............................ $ 358 $ 557
Temporary investments ................................ 13 150
Accounts receivable
Customers .......................................... 12,397 12,639
Other .............................................. 460 234
Inventory ............................................ 5,490 8,548
Deferred tax asset ................................... 2,346 2,482
Prepaid expenses and other ........................... 1,415 1,231
-------- --------
22,479 25,841
-------- --------
INVESTMENTS
Investment in joint venture .......................... 237 193
Marketable securities ................................ 53 286
-------- --------
290 479
-------- --------
PROPERTY, PLANT AND EQUIPMENT
In service ........................................... 117,421 113,000
Less accumulated depreciation ........................ 70,383 61,528
-------- --------
47,038 51,472
-------- --------
INTANGIBLE ASSETS
PCS licenses ......................................... 60,901 60,901
Other intangibles, net of accumulated amortization
of $20,347 and $17,543, respectively ............... 11,861 14,681
-------- --------
72,762 75,582
-------- --------
TOTAL ASSETS ........................................... $142,569 $153,374
======== ========
The accompanying notes to consolidated financial statements are an
integral part of these statements.
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<PAGE>
AMERICAN PAGING, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
(Unaudited)
September 30, December 31,
1997 1996
--------- ---------
(Dollars in thousands)
CURRENT LIABILITIES
Due to affiliates -
Accounts payable ............................... $ 1,469 $ 1,486
Accrued interest ............................... 1,387 1,169
Accounts payable ................................. 3,181 3,401
Unearned revenue and deposits .................... 7,648 10,527
Accrued taxes .................................... 920 357
Accrued compensation ............................. 2,228 1,266
Other current liabilities ........................ 2,083 2,841
--------- ---------
18,916 21,047
--------- ---------
REVOLVING CREDIT AGREEMENT - TDS ................... 167,960 139,960
--------- ---------
DEFERRED INCOME TAX LIABILITY ...................... 2,033 2,169
--------- ---------
COMMON SHAREHOLDERS' EQUITY
Common shares, par value $1 per share ............ 7,632 7,560
Series A Common shares, par value $1 per share ... 12,500 12,500
Additional paid-in capital ....................... 72,764 72,589
Retained deficit ................................. (139,236) (102,451)
--------- ---------
(46,340) (9,802)
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ......... $ 142,569 $ 153,374
========= =========
The accompanying notes to consolidated financial statements are an
integral part of these statements.
-12-
<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, 1996. Certain reclassifications
have been made to prior year financial statements for consistency with
current year presentation.
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, 1997 and December
31, 1996, and the results of operations and cash flows for the three month
periods and nine month periods ended September 30, 1997 and 1996. The
results of operations for the three month periods and nine month periods
ended September 30, 1997 and 1996, 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 periods
and nine month periods ended September 30, 1997 and 1996 were computed by
dividing net loss by the weighted average number of Common shares and
Series A Common shares outstanding during the period.
The Financial Accounting Standards Boards issued Statement of Financial
Accounting Standards ("SFAS") No. 128, "Earnings per Share" in March 1997
which will become effective in December 1997. The Company has not yet
adopted SFAS No. 128, but there will be no impact on Net loss per Common
and Series A Common share.
3. The following table summarizes interest and income taxes paid:
Nine Months Ended September 30,
1997 1996
---- ----
(Dollars in thousands)
Interest paid $11,400 $ 9,749
Income taxes paid 1 96
-13-
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit
Number Description
------- -----------
27 Financial Data Schedule
(b) No reports were filed on Form 8-K during the quarter ended
September 30, 1997.
-14-
<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, thereto duly authorized.
American Paging, Inc.
(Registrant)
Date: November 13, 1997 By: /s/ TERRENCE T. SULLIVAN
----------------------------
Terrence T. Sullivan
President
(Chief Executive Officer)
Date: November 13, 1997 By: /s/ DENNIS M. BESTE
----------------------------
Dennis M. Beste
Vice President-Finance and Treasurer
(Chief Financial Officer)
Date: November 13, 1997 By: /s/ MICHELLE M. HAUPT
----------------------------
Michelle M. Haupt
Controller
(Principal Accounting Officer)
-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,
1997, 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-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 358
<SECURITIES> 0
<RECEIVABLES> 12,397
<ALLOWANCES> 0
<INVENTORY> 5,490
<CURRENT-ASSETS> 22,479
<PP&E> 117,421
<DEPRECIATION> 70,383
<TOTAL-ASSETS> 142,569
<CURRENT-LIABILITIES> 18,916
<BONDS> 0
0
0
<COMMON> 20,132
<OTHER-SE> (66,472)
<TOTAL-LIABILITY-AND-EQUITY> 142,569
<SALES> 6,646
<TOTAL-REVENUES> 71,758
<CGS> 6,760
<TOTAL-COSTS> 96,603
<OTHER-EXPENSES> 322
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,617
<INCOME-PRETAX> (36,784)
<INCOME-TAX> 0
<INCOME-CONTINUING> (36,784)
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<NET-INCOME> (36,784)
<EPS-PRIMARY> (1.83)
<EPS-DILUTED> (1.83)
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