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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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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 June 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 August 1, 1997
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Common shares, $1 par value 7,609,714 Shares
Series A Common shares, $1 par value 12,500,000 Shares
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<PAGE>
AMERICAN PAGING, INC.
SECOND 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 2-8
Consolidated Statements of Operations -
Three months and six months ended June 30, 1997 and 1996 9
Consolidated Statements of Cash Flows -
Six months ended June 30, 1997 and 1996 10
Consolidated Balance Sheets -
June 30, 1997 and December 31, 1996 11-12
Notes to Consolidated Financial Statements 13
Part II. Other Information 14
Signatures 15
-1-
<PAGE>
PART I. FINANCIAL INFORMATION
AMERICAN PAGING, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
Six months ended 6/30/97 compared to six months ended 6/30/96
American Paging, Inc. [AMEX:APP or the "Company"] results of operations reflect
progress in the turnaround efforts of a new senior management team in an
increasingly competitive wireless messaging industry. While results of
operations for the six months ended June 30, 1997 compared to the same period in
1996 reflect decreased customer units, lower service revenue and higher
operating expenses, the Company has achieved quarter to quarter improvements in
several financial statistics.
In 1995, American Paging restructured its sales and customer service
organizations in an effort to improve unit growth, revenue growth, operating
efficiency, operating cash flow and earnings. During the restructuring period,
the Company achieved several goals to position the Company for future growth in
the wireless messaging industry. Chief among the goals was the consolidation of
17 geographically-dispersed customer service and administrative functions into
one Customer Telecare Center ("CTC"), which is located in Oklahoma City,
Oklahoma. During the conversion to the centralized CTC in the first quarter of
1996 and for several months thereafter, the Company encountered dysfunctions in
several of its core business processes. Among the challenges encountered during
the restructuring initiative were an increased level of turnover of sales
personnel, a loss of qualified administrative support for the field, and a need
to redesign the customer support and retention processes.
In order to improve these core business processes, changes were made in the top
management of the Company. The new senior management team, assembled in late
1996 and early 1997, implemented a strategic plan for 1997 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.
For the first half of 1997, service revenue decreased 6.8% to $44.0 million on a
2.9% decrease in the number of units in service since June 30, 1996. Customer
units in service totaled 780,600 at June 30, 1997 compared to 803,500 at June
30, 1996. Operating cash flow (operating loss plus depreciation and
amortization) for the first half of 1997 was $(395,000) compared to a positive
$4.0 million for the same period in 1996. Service operating expenses increased
3.5% to $59.7 million, principally due to increased sales and marketing costs
partially offset by decreases in general and administrative costs. As a result,
the Company incurred an operating loss of $15.5 million for the first half of
1997. In addition, the Company incurred higher interest expense contributing to
a net loss of $23.4 million for the first half of 1997.
While results for the first half of 1997 are down when compared to 1996, the
Company has made progress in its turnaround efforts, particularly during the
second quarter of 1997. Among the positive indicators was the first net increase
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<PAGE>
in units in service since the second quarter of 1996. Units in service increased
13,200 during the quarter to 780,600. Operating cash flow improved over $1.0
million compared to the first quarter of 1997. Cost of service decreased by
nearly 10% compared to the first quarter of 1997. Additionally, process
improvements at the CTC led to a decrease in the churn rate to 2.6%. The churn
rate has steadily decreased over the last three quarters from a peak of 3.9%
during the third quarter of 1996.
Service revenue decreased 6.8% ($3.2 million) in 1997 compared to 1996 as a
result of a 2.9% decrease in units in service compared to the same period in
1996. Service revenue also 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, average monthly service revenue per customer unit ("ARPU") declined
4.1% to $9.48 for the first six months of 1997 from $9.89 for the same period in
1996; 3.2% was due to the competitive pricing pressures and 0.9% was due to the
change in distribution channel mix.
Service operating expenses increased 3.5% ($2.0 million) in 1997, principally
due to higher sales and marketing costs partially offset by decreases 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 responsbility. 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 1.5% ($195,000) in the first half 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 29.8% ($4.1 million) in the first half of
1997, primarily due to increased sales and marketing personnel costs. For the
first half of 1997 compared to the first half of 1996, the Company experienced
increased turnover within the sales force as well as increased costs associated
with recruiting and training new sales personnel. 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
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<PAGE>
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 7.4% for the first half of 1997 compared to 4.4% for the same period last
year. The Company intends for bad debt as a percent of service revenue to return
to historical levels with the aforementioned credit and collection procedures.
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 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.
General and administrative expense decreased 16.3% ($2.7 million) in the first
half of 1997. During the first half of 1996, the Company recorded restructuring
expenses of approximately $1.9 million related to subleasing office space,
employee severance and out placement services, and for consulting services. No
restructuring-related expenses were recorded during the first half of 1997.
Throughout 1997, the Company has implemented various cost containment measures
aimed at decreasing general and administrative expenses overall. In addition,
employee travel and relocation expenses decreased during the first half 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. These decreases were
partially offset by increased staffing levels at the CTC for the entire six
months of 1997.
Depreciation and amortization expense increased 3.3% ($482,000) in the first
half of 1997, reflecting 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 5.4% to $149.0 million at June 30, 1997 from $141.3 million at June 30,
1996. In the first half of 1996, the Company recorded approximately $350,000 in
additional depreciation expense due to the reduction in useful lives of fixed
assets retired as a result of the Company's restructuring.
Equipment sales income/(loss) was $184,000 in the first half of 1997 compared to
$(161,000) 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.
Operating loss was $15.5 million in the first half of 1997 compared $10.7
million in 1996. Operating margin on service revenue decreased to (35.3%) in
1997 from (22.6%) in 1996. The decrease in operating results reflect decreased
service revenue coupled with increased sales and marketing costs partially
offset by lower general and administrative expenses.
Investment and other income/(expense) was $(402,000) in the first half of 1997
compared to $(513,000) 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
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<PAGE>
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 may become diluted.
Interest expense-affiliates increased $4.9 million to $7.4 million for the first
half of 1997 compared to 1996. The increase is the result of increased long-term
indebtedness of $37.2 million used to fund construction expenditures and
continuing operations, as well as a decision 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. Please
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 half of 1996 totaled $2.8 million. At June
30, 1997, the Company had $159.0 million outstanding under its Revolving Credit
Agreement with its parent, Telephone and Data Systems, Inc. [AMEX:TDS].
The Company and TDS are parties to a tax allocation agreement, pursuant to
which, 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 $23.4 million in the first half of 1997 compared to $13.7
million in 1996, reflecting a significant increase in operating loss as well as
increased interest expense. Net loss per common share was $1.16 in 1997 compared
to $0.68 in 1996, reflecting the change in net loss.
Three months ended 6/30/97 compared to three months ended 6/30/96
Service revenue decreased 7.7% ($1.8 million) in the second quarter of 1997
compared to the same period in 1996, primarily as a result of the 2.9% decrease
in the number of units in service. Competitive pricing declines coupled with a
continuing shift in the distribution channel mix contributed to the 4.0% decline
in ARPU to $9.34 for the second quarter of 1997 from $9.73 for 1996.
Service operating expense decreased 4.0% ($1.2 million) in the second quarter of
1997 compared to the same period in 1996. For the second quarter of 1997, cost
of service decreased 9.5% ($647,000) due to the implementation of newer, more
efficient systems as well as cost containment measures in third-party system
maintenance contracts and the elimination of the infrastructure costs of older
systems. Sales and marketing expense increased 15.3% ($1.2 million) in the
second quarter of 1997. In addition to the reasons cited above for the increase
for the first half of 1997, bad debt as a percent of service revenue increased
to 7.7% compared to 4.1% for the same period last year. General and
administrative expenses decreased 19.3% ($1.6 million) in the second quarter of
1997 for reasons generally the same as for the first half of 1997.
Equipment sales income increased to $77,000 in the second quarter of 1997
compared to $41,000 for same period in 1996.
-5-
<PAGE>
Operating loss was $7.1 million in the second quarter of 1997 compared to $6.6
million for 1996. The 8.6% increase in operating loss was primarily due to a
decrease in service revenue coupled with increased sales and marketing expenses.
The increase in sales and marketing expense was partially offset by cost
containment measures in other operating and general and administrative costs.
Investment and other income/(expense) was $(191,000) in the second quarter of
1997 compared to $(294,000) for the same period in 1996, for reasons generally
the same as for the first half of 1997.
Interest expense-affiliates increased $2.5 million for the second quarter of
1997 compared to the same period in 1996, for reasons generally the same as for
the first half of 1996.
Net loss totaled $11.3 million for the second quarter of 1997 compared to $8.3
million for 1996. Net loss per common share was $0.56 for the second quarter of
1997 compared $0.42 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 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 $7.6 million in the first half of
1997 and $3.6 million for the same period in 1996. The $4.0 million increase in
cash required was primarily due to the $9.7 million additional net loss.
Offsetting the additional net loss was a $5.7 million increase in cash provided
by working capital items, such as accounts payable, accounts receivable and
unearned revenue.
Cash flows from financing activities provided $19.2 million in the first half of
1997 compared to $27.3 million in 1996. Cash flows from financing activities
primarily include cash from borrowings under the Revolving Credit Agreement with
TDS. The Company borrowed $19.0 million during the first half of 1997 under the
Revolving Credit Agreement with TDS compared to $27.2 million for the same
period in 1996.
Cash flows from investing activities required cash totaling $11.5 million in the
first half of 1997 compared to $25.7 million in 1996. The majority of the cash
outflow during the first half of 1997 related to net additions to property,
plant and equipment representing purchases of subscriber devices, enhancements
to existing systems and construction of new systems. Capital expenditures for
radio paging property and equipment and the purchase of subscriber devices for
lease are anticipated to total approximately $25 million in 1997.
During 1997, the Company intends to spend approximately $12 million for deploy-
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<PAGE>
ment 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 Revolving Credit
Agreement with TDS. Subject to the Company's ability to obtain sufficient
financing, the Company will also require signficant 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.
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.
At June 30, 1997, the Company had $646,000 in cash. The Company had unused
borrowing capacity at June 30, 1997 of $21 million under its Revolving Credit
Agreement with TDS.
Pursuant to the Revolving Credit Agreement, amended effective March 5, 1997, the
Company may borrow up to an aggregate of $180 million from TDS. At June 30,
1997, $159 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 subscriber devices ($60.7
million), continuing operations ($21.6 million), and acquisitions ($15.7
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 June 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 Revolving Credit Agreement with TDS relating to maintaining a certain
ratio of equity to liabilities. 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 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, invest in new communications technologies and fulfill its
obligations under the Revolving Credit Agreement with TDS, the Company may
require additional funding, the nature, amount and source of which cannot now be
determined, but which may include changes in the structure of the Revolving
Credit Agreement with TDS or public or private offerings of debt or equity
securities. 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.
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<PAGE>
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.
-8-
<PAGE>
<TABLE>
<CAPTION>
AMERICAN PAGING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Unaudited
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------------------------
1997 1996 1997 1996
-------- -------- -------- --------
(Dollars in thousands, except per share amounts)
<S> <C> <C> <C> <C>
SERVICE REVENUE ....................... $ 21,684 $ 23,493 $ 43,994 $ 47,201
-------- -------- -------- --------
SERVICE OPERATING EXPENSE
Cost of service .................... 6,179 6,826 13,040 12,845
Sales and marketing ................ 8,453 7,329 17,656 13,600
General and administrative ......... 6,817 8,452 13,877 16,585
Depreciation and amortization ...... 7,441 7,494 15,145 14,663
-------- -------- -------- --------
Total service operating expense . 28,890 30,101 59,718 57,693
-------- -------- -------- --------
SERVICE OPERATING LOSS ................ (7,206) (6,608) (15,724) (10,492)
-------- -------- -------- --------
EQUIPMENT SALES
Revenue ............................ 2,564 2,803 4,834 5,405
Cost of equipment sold ............. 2,487 2,762 4,650 5,566
-------- -------- -------- --------
EQUIPMENT SALES INCOME/(LOSS) ......... 77 41 184 (161)
-------- -------- -------- --------
OPERATING LOSS ........................ (7,129) (6,567) (15,540) (10,653)
-------- -------- -------- --------
INVESTMENT AND OTHER INCOME/(EXPENSE)
Investment loss in joint venture ... (229) (374) (470) (668)
Interest income .................... 38 80 68 122
Other, net ......................... -- -- -- 33
-------- -------- -------- --------
Total investment and other (expense) (191) (294) (402) (513)
-------- -------- -------- --------
LOSS BEFORE INTEREST
AND INCOME TAXES ................... (7,320) (6,861) (15,942) (11,166)
Interest expense - affiliates ......... 3,940 1,441 7,447 2,519
-------- -------- -------- --------
LOSS BEFORE INCOME TAXES .............. (11,260) (8,302) (23,389) (13,685)
Income tax expense/(benefit) .......... -- 38 -- (1)
-------- -------- -------- --------
NET LOSS .............................. $(11,260) $ (8,340) $(23,389) $(13,684)
======== ======== ======== ========
WEIGHTED AVERAGE COMMON AND
SERIES A COMMON SHARES (000s) ...... 20,101 20,047 20,090 20,044
NET LOSS PER COMMON AND
SERIES A COMMON SHARE .............. $ (0.56) $ (0.42) $ (1.16) $ (0.68)
======== ======== ======== ========
</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
Six Months Ended
June 30,
1997 1996
-------- --------
(Dollars in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss ................................................ $(23,389) $(13,684)
Add (deduct) adjustments to reconcile net loss
to net cash provided by operating activities:
Depreciation and amortization ......................... 15,145 14,663
Deferred income taxes, net ............................ -- (4)
Investment loss ....................................... 470 668
Other noncash expense ................................. 873 1,428
Change in accounts receivable ......................... 1,213 (2,894)
Change in accounts payable ............................ (588) (4,391)
Change in unearned revenue ............................ (1,897) 2,223
Change in accrued taxes ............................... (223) 308
Change in accrued interest ............................ 156 (1,423)
Change in other assets and liabilities ................ 638 (541)
------- -------
(7,602) (3,647)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Change in Revolving Credit Agreement - TDS .............. 19,000 27,237
Common stock issued ..................................... 206 90
------- -------
19,206 27,327
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment, net ......... (11,472) (22,027)
Investment in PCS Licenses .............................. -- (2,873)
Other investments ....................................... (469) (763)
Change in temporary investments and marketable securities 426 --
------- -------
(11,515) (25,663)
------- -------
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS ............................... 89 (1,983)
CASH AND CASH EQUIVALENTS
Beginning of period ..................................... 557 4,280
------- -------
End of period ........................................... $ 646 $ 2,297
======== ========
The accompanying notes to consolidated financial statements are an
integral part of these statements.
-10-
<PAGE>
AMERICAN PAGING, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
(Unaudited)
June 30, December 31,
1997 1996
-------- --------
(Dollars in thousands)
CURRENT ASSETS
Cash and cash equivalents ........................ $ 646 $ 557
Temporary investments ............................ 3 150
Accounts receivable
Customers ...................................... 11,247 12,639
Other .......................................... 413 234
Inventory ........................................ 9,498 8,548
Deferred tax asset ............................... 2,346 2,482
Prepaid expenses and other ....................... 1,472 1,231
--------- ---------
25,625 25,841
--------- ---------
INVESTMENTS
Investment in joint venture ...................... 193 193
Marketable securities ............................ 7 286
--------- ---------
200 479
--------- ---------
PROPERTY, PLANT AND EQUIPMENT
In service ....................................... 119,078 113,000
Less accumulated depreciation .................... 71,232 61,528
--------- ---------
47,846 51,472
--------- ---------
INTANGIBLE ASSETS
PCS licenses ..................................... 60,901 60,901
Other intangibles, net of accumulated amortization
of $19,413 and $17,543, respectively ........... 12,810 14,681
--------- ---------
73,711 75,582
--------- ---------
TOTAL ASSETS ....................................... $ 147,382 $ 153,374
========= =========
The accompanying notes to consolidated financial statements are an
integral part of these statements.
-11-
<PAGE>
AMERICAN PAGING, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
(Unaudited)
June 30, December 31,
1997 1996
-------- --------
(Dollars in thousands)
CURRENT LIABILITIES
Due to affiliates -
Accounts payable ........................... $ 1,432 $ 1,486
Accrued interest ........................... 1,325 1,169
Accounts payable ............................. 2,866 3,401
Unearned revenue and deposits ................ 8,630 10,527
Accrued taxes ................................ 133 357
Accrued compensation ......................... 1,398 1,266
Other current liabilities .................... 3,590 2,841
-------- --------
19,374 21,047
-------- --------
REVOLVING CREDIT AGREEMENT - TDS ............... 158,960 139,960
-------- --------
DEFERRED LIABILITIES AND CREDITS ............... 2,033 2,169
-------- --------
COMMON SHAREHOLDERS' EQUITY
Common shares, par value $1 per share ........ 7,610 7,560
Series A Common shares, par value $1 per share 12,500 12,500
Additional paid-in capital ................... 72,745 72,589
Retained deficit ............................. (125,840) (102,451)
-------- --------
(32,985) (9,802)
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ..... $ 147,382 $ 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 June 30, 1997 and December 31,
1996, and the results of operations and cash flows for the three month
periods and six month periods ended June 30, 1997 and 1996. The results of
operations for the three month periods and six month periods ended June 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 six month periods ended June 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 management anticipates 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:
Six Months Ended June 30,
1997 1996
---- ----
(Dollars in thousands)
Interest paid $ 7,291 $ 6,696
Income taxes paid 1 96
-13-
<PAGE>
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security-Holders.
At the Annual Meeting of Shareholders of the Company, held on May 5, 1997, the
following numbers of votes were cast for the matters indicated:
1. For the election of one Class I Director of the Company by the holders of
Common shares:
Broker
Nominee For Withhold Non-Vote
---------- ----- ---------- ----------
Edwin L. Russell 7,217,565 85,895 -0-
2. For the election of one Class I Director of the Company by the holder of
Series A Common Shares:
Broker
Nominee For Withhold Non-Vote
---------- ----- ---------- ----------
LeRoy T. Carlson, Jr. 187,500,000 -0- -0-
3. For the election of one Class III Director of the Company by the holder
of Series A Common Shares:
Broker
Nominee For Withhold Non-Vote
---------- ----- ---------- ----------
Terrence T. Sullivan 187,500,000 -0- -0-
4. Proposal to Approve 1997 Employee Stock Purchase Plan:
Broker
For Against Abstain Non-Vote
----- --------- --------- ----------
Series A
Common Shares 187,500,000 -0- -0- -0-
Common Shares 7,175,583 98,817 29,061 -0-
----------- ------ ------ -----
Total 194,675,583 98,817 29,061 -0-
5. Proposal to ratify the selection of Arthur Andersen LLP as Independent
Public Accountants for 1997 by the holders of Common shares:
Broker
For Against Abstain Non-Vote
----- --------- --------- ----------
Series A
Common Shares 187,500,000 -0- -0- -0-
Common Shares 7,269,508 8,691 25,260 -0-
----------- ------ ------ -----
Total 194,769,508 8,691 25,260 -0-
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 June 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: August 11, 1997 By: /s/ TERRENCE T. SULLIVAN
Terrence T. Sullivan
President
(Chief Executive Officer)
Date: August 11, 1997 By: /s/ DENNIS M. BESTE
Dennis M. Beste
Vice President-Finance and Treasurer
(Chief Financial Officer)
Date: August 11, 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 June 30, 1997,
and for the six months then ended, and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 646
<SECURITIES> 0
<RECEIVABLES> 11,247
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<COMMON> 20,110
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