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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------
FORM 10-K/A
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF
----- THE SECURITIES EXCHANGE ACT OF 1934 [Fee Required]
For the fiscal year ended December 31, 1995
or
TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF
----- THE SECURITIES EXCHANGE ACT OF 1934 [No Fee Required]
For the transition period from _________ to _________
Commission File No. 0-24436
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PAGEMART, INC.
(Exact name of registrant as specified in charter)
DELAWARE 75-2283921
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
6688 NORTH CENTRAL EXPRESSWAY, SUITE 800
DALLAS, TEXAS 75206
(Address of principal executive offices)
(Registrant's telephone number, including area code): (214) 750-5809
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SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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None None
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE
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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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
There is no established market for the registrant's common stock.
Accordingly, the registrant is unable to estimate the value of shares held by
non-affiliates. See Item 5 entitled "Market for the Registrant's Common Equity
and Related Stockholder Matters" for additional information concerning the
market for the registrant's common stock.
As of March 1, 1996, 100 shares of the Registrant's Common Stock were
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE: None
The registrant meets the conditions set forth in General Instruction
(J)(1)(a) and (b) of Form 10-K and is therefore filing this Form with the
reduced disclosure format.
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PART I
ITEM 1. BUSINESS
PageMart, Inc. (the "Company") offers local, multi-city, regional and
nationwide paging and other one-way wireless services in all 50 states, covering
90% of the population of the United States. The Company also provides services
in Puerto Rico, the U.S. Virgin Islands and the Bahamas, and has recently
initiated nationwide services in Canada. The Company employs a digital, state of
the art transmission network that is 100% FLEX[Registered] enabled, allowing
the use of high speed messaging technology thereby providing increased
transmission capacity.
The Company is the principal operating subsidiary of PageMart Wireless,
Inc. ("Wireless"), the Company's parent. For information concerning the
business of PageMart Wireless, Inc. and its subsidiaries, including the
Company, see Wireless' Annual Report on Form 10-K/A for the fiscal year ended
December 31, 1995.
ITEM 2. PROPERTIES
The principal tangible assets of the Company are its paging network
equipment. Paging network equipment utilized by the Company includes paging
switching terminals, paging transmitters and a host of related equipment such
as satellite and digital link controllers, satellite dishes, antennas, cable,
etc. The Company continues to add equipment as it expands to new service
areas. To date, it has not experienced any difficulty or delay in obtaining
equipment as needed.
The Company generally leases the locations used for its transmission
facilities under operating leases. These leases, which are generally for five
years or less, currently provide for aggregate annual rental charges of
approximately $4.7 million. The Company does not anticipate difficulty in
renewing these leases or finding equally suitable alternate facilities on
acceptable terms. The Company also leases approximately 130,238 square feet of
office space for its corporate headquarters in Dallas, Texas, at an annual cost
of approximately $1.1 million and varying lesser amounts for local offices at
other locations. Aggregate annual rental charges under the Company's local
office leases are approximately $1.8 million.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in various lawsuits arising in the normal course
of business. In management's opinion, the ultimate outcome of these lawsuits
will not have a material adverse effect on the results of operations or
financial condition of the Company.
On July 8, 1994, an action against the Company was filed in the United
States District Court for the Eastern District of New York by Universal Contact
Communications Inc., a former reseller of the Company's wireless messaging
devices. The Company terminated the reseller relationship due to a monetary
default by plaintiff. The Company subsequently contacted plaintiff's
customers in an effort to provide continued service directly through the
Company, and discontinued plaintiff's paging services. In the complaint,
plaintiff alleges, among other things, that the Company violated federal law by
making unsolicited advertisements, breached its contract with plaintiff,
slandered plaintiff, converted certain confidential information and trade
secrets, tortiously interfered with plaintiff's business and contractual
relations, and engaged in unfair competition. Plaintiff seeks, among other
things, compensatory damages of $500,000 with respect to each of the nine
causes of action included in the complaint, punitive damages of $5,000,000, and
various forms of injunctive relief. The Company is vigorously defending the
action. In management's opinion, the ultimate outcome of this lawsuit is not
expected to have a material adverse effect on the results of operations or
financial condition of the Company.
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PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
There is currently no public market for the Company's common stock. As of
March 1, 1996, all of the Company's common stock was held by Wireless.
The Company has never declared or paid cash dividends on its common stock
and does not anticipate paying cash dividends to the holder of its common stock
in the foreseeable future. Under Section 4.05 of the Indenture (the "12 1/4 %
Indenture") related to the 12 1/4 % Senior Discount Notes due 2003 (the "12 1/4
% Notes") issued by the Company, neither the Company nor its subsidiaries are
permitted to pay dividends on their respective capital stock. The payment of
dividends on the Company's capital stock is also restricted by a financing
agreement with a vendor.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following is a discussion of the financial condition and results of
operations of the Company for the three years ended December 31, 1995. This
discussion should be read in conjunction with the Company's Consolidated
Financial Statements and the notes thereto included elsewhere in this report.
GENERAL
The Company has constructed and operates a wireless messaging and
communications network and provides paging and other one-way wireless messaging
services to its subscribers. In addition, the Company sells and distributes
wireless messaging equipment to subscribers, retailers and resellers. It earns
recurring revenues from each subscriber in the form of fixed periodic fees and
incurs substantial operating expenses in offering its services, including
technical, customer service and general and administrative expenses. See "--
Management's Presentation of Results of Operations."
Since commencing operations in 1990, the Company has invested heavily in
its wireless communications network and administrative infrastructure in order
to establish nationwide coverage, sales offices in major metropolitan areas,
customer service call centers and centralized administrative support functions.
The Company incurs substantial fixed operating costs related to its one-way
wireless communications infrastructure, which is designed to serve a much
larger subscriber base than the Company currently serves in order to
accommodate growth. In addition, the Company incurs substantial costs
associated with new subscriber additions. As a result, the Company has
generated significant net operating losses for each year of its operations.
See " --Management's Presentation of Results of Operations."
The Company's strategy is to expand its subscriber base as rapidly as
possible to increase cash flow through greater utilization of its nationwide
wireless communications network. From January 1, 1992 to December 31, 1995, the
number of units in service increased from 52,125 to 1,240,024. None of the
Company's growth is attributable to acquisitions. Given its growth strategy and
the substantial associated selling and marketing expenses, the Company expects
to continue to generate operating losses in 1996 from its one-way wireless
communications business. In addition, the Company plans to begin development
and implementation of two-way wireless messaging services during 1996, and
expects to incur additional operating losses during the start-up phase for such
services. The Company does not anticipate any significant revenues from
two-way services during 1996 or 1997, however it expects to generate
significant revenues with respect to two-way services in 1998. The Company's
ability to generate operating income is primarily dependent on its ability to
attain a sufficiently large installed subscriber base that generates recurring
revenues which offset the fixed operating costs of its wireless networks,
administration and selling and marketing expenses. The Company intends to
achieve this growth by promoting its customized paging and other wireless
messaging services through its national sales offices, retail distribution
channels, private brand strategic alliances with GTE Corporation,
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Southwestern Bell Mobile Systems, AT&T Wireless Services, Ameritech Mobile
Services, Inc. and long distance reseller EXCEL Telecommunications, Inc., and
international expansion.
Unlike most other paging carriers, the Company sells, rather than leases,
substantially all of the messaging equipment used by its subscribers. As a
result, the Company has much less capital invested in messaging equipment than
other paging carriers since it recoups a substantial portion of messaging
equipment costs upon sale to retailers and subscribers. This results in
significantly lower capital expenditures, depreciation and amortization than if
the Company leased such equipment to its subscribers. In addition, the
Company's financial results are much different than other paging carriers that
lease messaging equipment to subscribers because the Company recognizes the
cost of messaging equipment sold in connection with adding new subscribers at
the time of sale rather than capitalizing and depreciating the cost of
messaging equipment over periods ranging from three to five years as occurs
with paging carriers that lease messaging equipment to subscribers. However,
the Company expects to lease rather than sell a portion of its two-way
messaging units. In addition, the Company's retail distribution strategy
results in the recognition of expenses associated with messaging equipment
sales and other sales and marketing expenses in advance of new subscribers
being added to the base and generating revenues (as retailers carry inventory).
The Company sells its messaging equipment through multiple distribution
channels including direct sales, third party resellers, private brand strategic
alliances and local and national retail stores. Selling and marketing expenses
are primarily attributable to compensation paid to the Company's sales force,
advertising and marketing costs and to losses resulting from the fact that, for
competitive and marketing reasons, the Company generally sells each new unit
for less than its acquisition cost. The Company's accounting practices result
in selling and marketing expenses, including loss on sale of equipment, being
recorded at the time a unit is sold. Units sold by the Company during a given
month may exceed units activated and in service due to inventory stocking and
distribution strategies of the retailers. As a result, selling and marketing
expenses per net subscriber addition may fluctuate from period to period. In
general, the Company anticipates that, based on its recent experience, 90% of
its units sold through retail distribution channels will be activated and in
service within 75 days of shipment.
The Company derives its recurring revenue primarily from fixed periodic
fees for services that are not generally dependent on usage. Consequently, the
Company's ability to recoup its initial selling and marketing costs, to meet
operating expenses and to achieve profitability is dependent on the average
length of each customer's subscription period. As long as a subscriber
continues to utilize the Company's service, operating results benefit from the
recurring payments of the fixed fees without the incurrence of additional
selling expenses by the Company. Conversely, operating results are adversely
affected by customer disconnections. Each month a percentage of the Company's
existing customers have their service terminated for a variety of reasons,
including failure to pay, dissatisfaction with service and switching to a
competing service provider. The Company's average monthly disconnection rates
for the years ended December 31, 1993, 1994 and 1995 were 3.7%, 3.4% and 2.5%,
respectively.
More than 90% of the Company's Average Revenue Per Unit ("ARPU") is
attributable to fixed fees for airtime, coverage options and features. A
portion of the remainder of additional ARPU is dependent on usage.
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RESULTS OF OPERATIONS
The Company's principal operations to date are its one-way domestic
wireless messaging division. The following discussion of results of operations
analyzes the results of the Company's one-way wireless messaging operations,
unless otherwise indicated.
Certain of the following financial information is presented on a per unit
basis. Management of the Company believes that such a presentation is useful in
understanding the Company's results because it is a meaningful comparison
period to period given the Company's growth rate and the significant
differences in the number of subscribers of other paging companies.
FISCAL YEARS 1993, 1994 AND 1995
Units in Service
Units in service were 327,303, 772,730 and 1,240,024 as of December 31,
1993, 1994 and 1995, respectively. This represents a growth rate of 136% and
60% in 1994 and 1995, respectively. The Company has experienced strong growth
in units in service due primarily to the success of its sales and marketing
strategies in the direct sales, national retail and third party reseller
channels, as well as from private brand strategic alliance programs. According
to industry sources, the paging industry in general has experienced growth
rates of 29%, 38% and 25% for 1993, 1994 and 1995, respectively.
Revenues
Revenues for the fiscal years 1993, 1994 and 1995 were $50.7 million,
$109.8 million and $159.2 million, respectively. Recurring revenues for
airtime, voicemail and other services for the same periods were $24.2 million,
$56.6 million and $101.5 million, respectively. Revenues from equipment sales
and activation fees for 1993, 1994 and 1995 were $26.5 million, $53.2 million
and $57.7 million, respectively. The increases in recurring revenues and
revenues from equipment sales and activation fees were primarily due to rapid
growth in the number of units in service. The increase in equipment sales
during 1995 was somewhat offset by a decline in the average price per unit
sold.
The Company's ARPU was $9.81, $8.64 and $8.62 in the final quarter of
1993, 1994 and 1995, respectively. The Company's ARPU declined in 1994 and 1995
primarily as a result of an increase in subscribers added through third-party
resellers and distribution through private brand strategic alliance programs,
both of which yield lower ARPU. ARPU is lower for subscribers added through
third-party resellers and private brand strategic alliances because these are
generally high volume customers that are charged reduced airtime rates.
However, because third-party resellers and private brand strategic alliance
partners are responsible for selling and marketing costs to the end-user, and
billing, collection and other administrative costs associated with end-users,
the Company does not incur these costs with respect to such subscribers. The
decrease in 1995 was slightly offset by a higher mix of multi-city, regional
and nationwide services as well as increased sales of other value-added
services such as voicemail and toll free numbers.
Cost of Equipment Sold
The cost of equipment sold in 1993, 1994 and 1995 was $28.2 million, $57.8
million and $64.0 million, respectively. The increase was directly related to
the increase in the number of units sold partially offset by lower average
pager prices paid to suppliers.
Operating Expenses
Technical expenses were $9.5 million, $16.2 million and $25.5 million in
1993, 1994 and 1995, respectively. The increase resulted primarily from the
expansion of the Company's nationwide network infrastructure, which resulted in
greater expenses associated with the addition of new transmitter sites,
transmitter
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and terminal equipment and telecommunications expenses. On an
average monthly cost per unit in service basis, technical expenses were $3.55,
$2.45 and $2.11 in 1993, 1994 and 1995, respectively. The per unit decreases
were the result of increased operating efficiencies and economies of scale
experienced with the growth of the Company's subscriber base.
Selling expenses in 1993, 1994 and 1995 were $17.3 million, $31.3 million
and $36.1 million, respectively. This increase resulted from greater marketing
and advertising costs related to the significant growth in units sold as well
as from increased sales compensation because of the addition of sales personnel
in new and existing operating markets. During the years ended December 31,
1993, 1994 and 1995, the Company added 210,269, 445,427 and 467,294 net new
units in service, respectively. Sales and marketing employees increased from
305 at December 31, 1993 to 450 at December 31, 1994 and then decreased to 445
at December 31, 1995. Management believes the net loss on equipment sold to be
a component of selling and marketing expenses incurred to add new subscribers.
See "--Management's Presentation of Results of Operations." Selling and
marketing expenses per net subscriber addition (including loss on equipment
sales) were $91, $81 and $91 for the years ended December 31, 1993, 1994 and
1995, respectively. The increase in 1995 was due to the addition of new sales
offices, expansion of existing sales offices and an increase in the number of
retail stores supported by the Company's marketing organization.
General and administrative expenses (including costs associated with
customer service, field administration and corporate headquarters) in 1993,
1994 and 1995 were $15.6 million, $29.8 million and $43.4 million,
respectively. This increase was attributable to the Company's expansion of its
customer service call centers and continued expansion into new markets to
support the growing subscriber base which required additional office space,
administrative personnel and customer service representatives. The Company
increased the number of representatives in its customer service call centers
from 69 on December 31, 1993 to 389 on December 31, 1994 and to 600 on December
31, 1995, and believes it operates one of the most extensive of such facilities
in the paging industry. On an average cost per month per unit in service basis,
general and administrative expenses were $5.84, $4.52 and $3.59 in 1993, 1994
and 1995, respectively. The per unit decreases were a result of increased
operating efficiencies and economies of scale achieved through the growth of
the Company's subscriber base.
Depreciation and amortization in 1993, 1994 and 1995 was $5.1 million,
$8.1 million and $13.3 million, respectively. The increases resulted from the
expansion of the Company's network infrastructure including transmitter and
terminal equipment, as well as the purchase and development of a new
centralized administrative system in 1995. As an average cost per month per
unit in service, depreciation and amortization was $1.91, $1.23 and $1.10 for
the years ended December 31, 1993, 1994 and 1995, respectively.
Interest Expense
Interest expense increased from $6.5 million in 1993 to $12.9 million in
1994 and $15.2 million in 1995. The increase in 1994 was due to interest
related to the 12 1/4% Notes, partially offset by decreased borrowings under
vendor financing agreements. The increase in 1995 was primarily the result of
increased interest related to the 12 1/4% Notes, as well as increased
borrowings under vendor financing agreements. Interest expense related to the
12 1/4% Notes was $2.0 million, $10.8 million and $11.8 million in 1993, 1994
and 1995, respectively.
Net Loss
The Company sustained net losses in 1993, 1994 and 1995 of $31.1 million,
$45.8 million and $38.5 million, respectively, principally due to the cost of
funding the growth rate of the Company's subscriber base which resulted in an
increase in units sold, selling and marketing expenses, operating expenses and
interest expense.
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MANAGEMENT'S PRESENTATION OF RESULTS OF OPERATIONS
COMPARISON WITH GAAP PRESENTATION
The Company's audited Consolidated Financial Statements for the years
ended December 31, 1993, 1994 and 1995, included elsewhere in this report, have
been prepared in accordance with generally accepted accounting principles
("GAAP"). For internal management purposes the Company prepares statements of
operations that are derived from the Company's GAAP financial statements but
are reordered in a format that management uses for its internal review of the
Company's performance and that management believes are useful in understanding
the Company's results.
Management believes that operating profit before selling expenses is a
meaningful indicator of the profitability of the Company's installed base of
units in service because it measures the recurring revenues received for
services less the costs (including depreciation and amortization) associated
with servicing that installed base. Operating profit before selling expenses
per subscriber per month for the Company's one-way operations has grown from
$(.46) during the first quarter of 1994 to $2.11 during the fourth quarter of
1995 due primarily to the Company's increase in subscribers, operating
efficiency and resulting benefits in economies of scale.
Separately, selling and marketing expenses (including loss on equipment
sold) provide a measure of the costs associated with obtaining new subscribers
that the Company needs to generate the incremental recurring revenue necessary
to achieve profitability. Under the GAAP presentation, recurring revenues and
equipment and activation revenues are aggregated and are not separately
compared to the costs associated with each.
The items included in management's presentation of the results of
operations and their derivation from financial information presented in
accordance with GAAP are described below.
Recurring Revenues. Recurring revenues include periodic fees for
airtime, voicemail, customized coverage options, toll free numbers, excess
usage fees and other recurring revenues and fees associated with the
subscriber base. Recurring revenues do not include equipment sales revenues
or initial activation fees. Recurring revenues are the same under both the
management and GAAP presentations.
Service Expenses. Service expenses under the management presentation
include technical, customer service, general and administrative and
headquarters expenses, but do not include selling and marketing expenses,
depreciation or amortization.
Depreciation and Amortization. This item is the same under the
management and GAAP presentations.
Operating Profit Before Selling Expenses. Operating profit before
selling expenses under the management presentation is equal to recurring
revenues less service expenses and depreciation and amortization.
Operating profit before selling expenses is not derived pursuant to GAAP.
Selling Expenses. Selling expenses under the management presentation
represent the cost to the Company of selling pagers and other messaging
units to a customer, and are equal to selling costs (sales compensation,
advertising, marketing, etc.) plus costs of units sold less revenues from
equipment sales and activation fees. As described above, the Company sells
rather than leases substantially all of the one-way messaging equipment
used by subscribers. Selling expenses under the management presentation are
not derived pursuant to GAAP. Net loss on equipment sales is not included
in the GAAP presentation of selling expenses.
Operating Income (Loss). This item is the same under the management
and GAAP presentations.
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EBITDA. EBITDA represents earnings (loss) before interest, taxes,
depreciation and amortization. EBITDA is a financial measure commonly used
in the paging industry. EBITDA is not derived pursuant to GAAP and
therefore should not be construed as an alternative to operating income, as
an alternative to cash flows from operating activities (as determined in
accordance with GAAP) or as a measure of liquidity. The calculation of
EBITDA does not include the commitments of the Company for capital
expenditures and payment of debt and should not be deemed to represent
funds available to the Company. In the fourth quarter of 1995, the
Company's EBITDA from its one-way operations became positive for the first
time.
SELECTED QUARTERLY RESULTS OF OPERATIONS
The table below sets forth management's presentation of results of one-way
domestic operations and other data on a quarterly basis for the eight most
recent fiscal quarters. This presentation should be read in conjunction with
the Consolidated Financial Statements of the Company and the notes thereto
included elsewhere in this report, and should not be considered in isolation or
as an alternative to results of operations that are presented in accordance
with GAAP.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
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MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31,
1994 1994 1994 1994 1995
--------- -------- ------------- ------------ ----------
(unaudited)
(IN THOUSANDS, EXCEPT OTHER DATA)
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Recurring revenues..................... $ 10,639 $ 12,946 $ 15,161 $ 17,902 $ 20,464
Service expenses....................... 9,485 10,632 12,160 13,688 15,157
Depreciation and amortization.......... 1,658 1,876 2,217 2,354 2,802
-------- -------- -------- -------- --------
Operating profit before
selling expenses..................... (504) 438 784 1,860 2,505
Selling expenses(1).................... 7,047 7,543 9,580 11,732 9,704
-------- -------- -------- -------- --------
Operating income (loss)................ $ (7,551) $ (7,105) $ (8,796) $ (9,872) $ (7,199)
======== ======== ======== ======== ========
EBITDA................................. $ (5,893) $ (5,229) $ (6,579) $ (7,518) $ (4,397)
======== ======== ======== ======== ========
OTHER DATA:
Units in service(2).................... 402,017 495,605 608,427 772,730 874,944
Net subscriber additions............... 74,314 93,588 112,822 164,303 102,214
ARPU(3)................................ $ 9.73 $ 9.62 $ 9.15 $ 8.64 $ 8.28
Operating profit before selling
expenses per subscriber
per month(4)......................... (.46) .33 .47 .90 1.01
Selling expense per
net subscriber addition(1)(5)........ 95 81 85 71 95
<CAPTION>
THREE MONTHS ENDED
-----------------------------------------
JUNE 30, SEPTEMBER 30, DECEMBER 31,
1995 1995 1995
--------- ------------- ------------
(unaudited)
(IN THOUSANDS, EXCEPT OTHER DATA)
<S> <C> <C> <C>
OPERATING DATA:
Recurring revenues..................... $ 23,387 $ 26,994 $ 30,658
Service expenses....................... 16,208 18,192 19,258
Depreciation and amortization.......... 3,091 3,469 3,910
-------- -------- --------
Operating profit before
selling expenses..................... 4,088 5,333 7,490
Selling expenses(1).................... 10,614 10,889 11,181
-------- -------- --------
Operating income (loss)................ $ (6,526) $ (5,556) $ (3,691)
======== ======== ========
EBITDA................................. $ (3,435) $ (2,087) $ 219
======== ======== ========
OTHER DATA:
Units in service(2).................... 1,008,683 1,131,464 1,240,024
Net subscriber additions............... 133,739 122,781 108,560
ARPU(3)................................ $ 8.28 $ 8.41 $ 8.62
Operating profit before selling
expenses per subscriber
per month(4)......................... 1.45 1.66 2.11
Selling expense per
net subscriber addition(1)(5)........ 79 89 103
</TABLE>
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(1) Includes loss on sale of equipment.
(2) Stated as of the end of each period.
(3) Calculated by dividing recurring revenues for the quarter by the average
number of units in service during that quarter.
(4) Calculated by dividing operating profit before selling expenses (selling
expenses include loss on sale of equipment) for the quarter by the average
number of units in service during that quarter. Stated as the monthly
average for the quarter.
(5) Calculated by dividing selling expenses, including loss on sale of
equipment, for the quarter by the net subscriber additions for the quarter.
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PageMart, Inc. cautions readers that any forward-looking statements
contained in this Form 10-K or made by management of the Company involve risks
and uncertainties, and are subject to change based on various important
factors. The following factors, among others, in some cases have affected and
in the future could affect the Company's financial performance and actual
results, and could cause actual results for 1996 and beyond to differ
materially from those expressed in any such forward-looking statements --
economic conditions generally in the United States and consumer confidence; the
ability of the Company to manage its high debt levels; the impact of
technological change in the telecommunications industry; the future cost of
network infrastructure and subscriber equipment; the impact of competition and
pricing of paging and wireless services; changes in regulation by the Federal
Communications Commission and various state regulatory agencies; and the
ability of the Company to obtain financing to construct the transmission
network for two-way services.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data are included in this
report beginning on page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
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PART III
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this 10-K:
(1) Financial Statements. See Index to Consolidated Financial
Statements and Financial Statement Schedule on Page F-1 hereof.
(2) Financial Statement Schedule. See Index to Consolidated Financial
Statements and Financial Statement Schedule on Page F-1 hereof.
(3) Exhibits Required by Item 601 of Regulation S-K.
(A) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ----------------------
<S> <C>
3(i)** Restated Certificate of Incorporation of PageMart, Inc.
3(ii)* By-laws of PageMart, Inc.
4.1** Indenture, dated as of October 19, 1993, between PageMart,
Inc. and United States Trust Company of New York, as Trustee,
relating to the 12 1/4% Senior Discount Notes due 2003
10.1** Warrant Agreement, dated as of October 19, 1993, between
PageMart, Inc. and United States Trust Company of New York, as
Warrant Agent, relating to the Warrants to purchase Common Stock
of the Company.
10.2** Telecommunications Service Agreement, dated May 29, 1992,
between PageMart, Inc. and WilTel, Inc.
10.3** Equipment Lease Agreement, dated May 20, 1992, between
PageMart, Inc. and Glenayre Electronics, Inc.
10.4** First Addendum to Equipment Lease Agreement, dated May 20,
1992, between PageMart, Inc. and Glenayre Electronics, Inc.
10.5** Amendment No. 2 to Equipment Lease Agreement, dated
October 18, 1993, between PageMart, Inc. and Glenayre
Electronics, Inc.
10.6** Lease Agreement and Addendum, dated January 10, 1990,
between Kingston Houston Partners I, Ltd. and PageMart, Inc.
10.7** Expansion and Extension of Lease Agreement, dated April 7,
1993, between Kingston Houston Partners I, Ltd. and PageMart,
Inc.
10.8** Office Lease Agreement, dated January 29, 1992, between
Dallas Central Development Corp. and PageMart, Inc.
10.9** First Amendment to Office Lease Agreement, dated July 29,
1992, between Fulcrum Central Ltd., as successor in interest to
Dallas Central Development Corp., and PageMart, Inc.
10.10** Second Amendment to Office Lease Agreement, dated December 1,
1992, between Fulcrum Central Ltd., as successor in interest
to Dallas Central Development Corp., and PageMart, Inc.
10.11** Third Amendment to Office Lease Agreement, dated December 29,
1992, between Fulcrum Central Ltd., as successor in interest
to Dallas Central Development Corp., and PageMart, Inc.
10.12** Fourth Amendment to Office Lease Agreement, dated July 21,
1993, between Fulcrum Central Ltd., as successor in interest to
Dallas Central Development Corp., and PageMart, Inc.
10.13** License Agreement, dated May 12, 1994, between PageMart,
Inc., licensee, and International Business Machines Corporation,
licensor.
10.14** Sales Contract, dated January 21, 1994, between PageMart, Inc.,
buyer, and Mitsui Comtek Corporation, seller.
10.15** Resale Agreement, dated November 1, 1993, between PageMart, Inc.,
licensor, and GTE Service Corporation, licensee.
</TABLE>
9
<PAGE> 11
<TABLE>
<S> <C>
10.16** Financing and Security Agreement between Motorola and
Pagemart, Inc. dated May 18, 1994.
10.17** Subscription Agreement, dated June 9, 1994, between
PageMart, Inc. and Fomento Empresarial Regiomontano, S.A.
de C.V.
10.18** Letter of Intent, dated June 9, 1994, between PageMart,
Inc. and Fomento Empresarial Regiomontano, S.A. de C.V.
10.19* Strategic Alliance Agreement No. 1, dated September 15,
1994, between GTE Service Corporation and PageMart, Inc.
10.20* Strategic Alliance Agreement No. 2, dated October 13,
1994, between GTE Service Corporation and PageMart, Inc.
10.21* Secured promissory note of John D. Beletic, as Maker, in
favor of PageMart, Inc. dated January 28, 1994, in the amount of
$97,800.
10.22* Secured promissory note of John D. Beletic, as Maker, in
favor of PageMart, Inc. dated November 29, 1994, in the amount of
$200,000.
10.23* Agreement of Reorganization and Plan of Merger, dated as of
December 5, 1994, between PageMart, Inc., PageMart Nationwide,
Inc. and PM Merger Corp.
10.24+ Receivables Purchase Agreement between PageMart, Inc. and
PageMart Nationwide, Inc., dated as of May 11, 1995.
10.25+ Inventory Sale Agreement between PageMart, Inc. and
PageMart Nationwide, Inc., dated as of May 11, 1995.
10.26+ Satellite Services and Space Segment Lease Agreement, dated
January 2, 1995, between PageMart, Inc. and SpaceCom Systems,
Inc.
10.27*** Secured promissory note of John D. Beletic, as Maker, in
favor of PageMart Nationwide, Inc. dated May 11, 1995, in the
amount of $21,000.
10.28*** Subscription Agreement dated as of July 7, 1995 among
PageMart Nationwide, Inc., PageMart Canada Holding Corporation
and TD Capital Group Ltd.
10.29*** Agreement Among Stockholders among PageMart Nationwide,
Inc., PageMart International, Inc., TD Capital Group Ltd.,
PageMart Canada Holding Corporation and PageMart Canada Limited.
10.30*** Equipment Purchase Agreement between Motorola, Inc. and
PageMart Wireless, Inc. (1)
10.31*** Technology Asset Agreement dated as of December 1, 1995
between Motorola, Inc. and PageMart Wireless, Inc. (1)
21.1* PageMart, Inc. Subsidiaries.
27.1**** Financial Data Schedule for the year ended December 31, 1995.
</TABLE>
* Each of these exhibits is hereby incorporated by reference to the Form 10-K
of the Company for the fiscal year ended December 31, 1994.
** Each of these exhibits is hereby incorporated by reference to the
Registration Statement on Form S-1 of the Company (Reg. No. 33-78054).
*** Previously filed.
**** Filed herewith.
+ Each of these exhibits is hereby incorporated by reference to the
Registration Statement on Form S-1 of the Company (Reg. No. 33-81084).
(1) The Company has requested confidential treatment for certain portions of
this agreement.
(B) REPORTS ON FORM 8-K
A current report on Form 8-K dated October 6, 1995 was filed with the
Securities and Exchange Commission on October 17, 1995 and disclosed that the
Certificate of Incorporation of the Company's parent had been amended. No
financial statements were filed therewith.
10
<PAGE> 12
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Date: May 6, 1996
PAGEMART INC.
(Registrant)
By: /s/ JOHN D. BELETIC
-----------------------------------------------
John D. Beletic
Chairman, President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ JOHN D. BELETIC Chairman, President and Chief Executive Officer
- --------------------------- (Principal Executive Officer) May 6, 1996
John D. Beletic
/s/ G. CLAY MYERS Vice President, Finance, Chief Financial Officer
- --------------------------- and Treasurer (Principal Financial and
G. Clay Myers Accounting Officer) May 6, 1996
Director
- ---------------------------
Frank V. Sica
/s/ GUY L. DE CHAZAL Director May 6, 1996
- ---------------------------
Guy L. de Chazal
/s/ ARTHUR PATTERSON Director May 6, 1996
- ---------------------------
Arthur Patterson
Director
- ---------------------------
Andrew C. Cooper
/s/ ROGER D. LINQUIST Director May 6, 1996
- ---------------------------
Roger D. Linquist
/s/ LEIGH J. ABRAMSON Director May 6, 1996
- ---------------------------
Leigh J. Abramson
/s/ ALEJANDRO PEREZ ELIZONDO Director May 6, 1996
- ----------------------------
Alejandro Perez Elizondo
Director
- ---------------------------
Pamela D. A. Reeve
</TABLE>
11
<PAGE> 13
PAGEMART, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULE
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants ............................... F-2
Consolidated Balance Sheets as of December 31, 1994 and 1995 ........... F-3
Consolidated Statements of Operations for the Years Ended
December 31, 1993, 1994 and 1995 ..................................... F-4
Consolidated Statements of Stockholder's Equity (Deficit) for the Years
Ended December 31, 1993, 1994 and 1995 ............................... F-5
Consolidated Statements of Cash Flows for the Years Ended December 31,
1993, 1994 and 1995 .................................................. F-6
Notes to Consolidated Financial Statements ............................. F-7
Report of Independent Public Accountants on Financial Statement Schedule S-1
Schedule II -- Valuation and Qualifying Accounts for the Years Ended
December 31, 1993, 1994 and 1995 ..................................... S-2
</TABLE>
F-1
<PAGE> 14
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholder of PageMart, Inc.:
We have audited the accompanying consolidated balance sheets of PageMart,
Inc. (a Delaware corporation) and subsidiaries as of December 31, 1994 and
1995, and the related consolidated statements of operations, stockholder's
equity (deficit) and cash flows for each of the three years in the period ended
December 31, 1995. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of PageMart, Inc. and
subsidiaries as of December 31, 1994 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1995, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Dallas, Texas,
February 12, 1996
(except with respect to the matter
discussed in Note 12, as to which
the date is April 1, 1996)
F-2
<PAGE> 15
PAGEMART, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share amounts)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1994 1995
-------- --------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............................................. $ 14,507 $9,897
Accounts receivable (net of allowance for doubtful accounts of $1,388
and $4,534 in 1994 and 1995, respectively).......................... 15,584 10,079
Inventories........................................................... 12,809 11,179
Prepaid expenses and other current assets............................. 1,497 3,202
-------- --------
Total current assets............................................. 44,397 34,357
RESTRICTED INVESTMENTS.................................................. 500 500
PROPERTY AND EQUIPMENT (net of accumulated depreciation
of $16,491 and $29,163 in 1994 and 1995, respectively)................ 31,697 51,810
NARROWBAND LICENSES..................................................... 58,885 38,210
DEFERRED DEBT ISSUANCE COSTS (net of accumulated
amortization of $959 and $2,011 in 1994 and 1995, respectively)....... 3,041 2,695
OTHER ASSETS............................................................ 3,539 6,054
-------- --------
Total assets..................................................... $142,059 $133,626
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable...................................................... $ 16,451 $ 23,094
Deferred revenue...................................................... 13,962 21,409
Current maturities of long-term debt.................................. 3,513 5,479
Other current liabilities............................................. 4,040 6,166
-------- --------
Total current liabilities........................................ 37,966 56,148
LONG-TERM DEBT.......................................................... 92,632 104,499
COMMITMENTS AND CONTINGENCIES
STOCKHOLDER'S EQUITY (DEFICIT):
Preferred stock, $.0001 par value per share;
10,000,000 shares authorized and none issued and outstanding at
December 31, 1994 and December 31, 1995............................. -- --
Common stock, $.0001 par value per share, 88,500,000 shares
authorized and 29,529,525 and 100 issued at December 31, 1994
and December 31, 1995, respectively................................. 3 --
Additional paid-in capital............................................ 124,694 124,438
Accumulated deficit................................................... (112,977) (151,459)
Stock subscriptions receivable........................................ (243) --
Treasury stock, 200,000 shares of common stock at December 31, 1994,
and none at December 31, 1995, at cost.............................. (16) --
-------- --------
Total stockholder's equity (deficit)............................. 11,461 (27,021)
-------- --------
Total liabilities and stockholder's equity (deficit)............. $142,059 $133,626
======== ========
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these consolidated financial statements.
F-3
<PAGE> 16
PAGEMART, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands)
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------
1993 1994 1995
--------- --------- ---------
<S> <C> <C> <C>
REVENUES:
Recurring revenue ..................... $ 24,184 $ 56,648 $ 101,503
Equipment sales and activation fees ... 26,483 53,185 57,688
--------- --------- ---------
Total revenues ................... 50,667 109,833 159,191
COST OF EQUIPMENT SOLD .................. 28,230 57,835 63,982
OPERATING EXPENSES:
Technical ............................. 9,470 16,155 25,457
Selling ............................... 17,319 31,252 36,094
General and administrative ............ 15,578 29,810 43,358
Depreciation and amortization ......... 5,081 8,105 13,272
--------- --------- ---------
Total operating expenses ......... 47,448 85,322 118,181
--------- --------- ---------
Operating loss ................... (25,011) (33,324) (22,972)
OTHER (INCOME) EXPENSE:
Interest expense ...................... 6,538 12,933 15,199
Interest income ....................... (428) (858) (731)
Other ................................. -- 414 1,042
--------- --------- ---------
Total other (income) expense ..... 6,110 12,489 15,510
--------- --------- ---------
NET LOSS ................................ $ (31,121) $ (45,813) $ (38,482)
========= ========= =========
</TABLE>
The accompanying notes to consolidated financial statements are an
integral part of these consolidated financial statements.
F-4
<PAGE> 17
PAGEMART, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY (DEFICIT)
(Dollars in thousands, except share amounts)
<TABLE>
<CAPTION>
CONVERTIBLE
PREFERRED STOCK COMMON STOCK
-------------------------- -------------------------- ADDITIONAL
NUMBER OF NUMBER OF PAID-IN
SHARES AMOUNT SHARES AMOUNT CAPITAL
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1992 .... 10,033,332 $ 1 2,500,000 $ -- $ 27,017
Issuance of 5,277,611 shares of
Series C Preferred Stock
at $3.26 per share .......... 5,277,611 1 -- -- 17,034
Issuance of 627,900 common
stock warrants at $5.50
per warrant ................. -- -- -- -- 3,453
171,074 shares of common
stock issued under the stock
option/stock issuance plan .. -- -- 171,074 -- 19
Net loss ...................... -- -- -- -- --
----------- ----------- ----------- ----------- -----------
BALANCE, December 31, 1993 .... 15,310,943 2 2,671,074 -- 47,523
11,242,857 shares of common
stock issued in the 1994
Stock Offerings ............. -- -- 11,242,857 1 76,902
Conversion of convertible
preferred stock to common
stock ....................... (15,310,943) (2) 15,310,943 2 --
304,651 shares of common
stock issued under the stock
option/stock issuance plan .. -- -- 304,651 -- 269
Repayment of stock
subscriptions receivable .... -- -- -- -- --
Net loss ...................... -- -- -- -- --
----------- ----------- ----------- ----------- -----------
BALANCE, December 31, 1994 .... -- -- 29,529,525 3 124,694
Retirement of treasury stock .. -- -- (200,000) -- (16)
Reorganization of
PageMart, Inc. as a
wholly owned subsidiary
of PageMart Wireless, Inc. .. -- -- (29,329,425) (3) (240)
Net loss ...................... -- -- -- -- --
----------- ----------- ----------- ----------- -----------
BALANCE, December 31, 1995 .... -- $ -- 100 $ -- $ 124,438
=========== =========== =========== =========== ===========
<CAPTION>
STOCK
ACCUMULATED SUBSCRIPTIONS TREASURY
DEFICIT RECEIVABLE STOCK TOTAL
----------- ------------- ----------- -----------
<S> <C> <C> <C> <C>
BALANCE, December 31, 1992 .... $ (36,043) $ -- $ (16) $ (9,041)
Issuance of 5,277,611 shares of
Series C Preferred Stock
at $3.26 per share .......... -- (125) -- 16,910
Issuance of 627,900 common
stock warrants at $5.50
per warrant ................. -- -- -- 3,453
171,074 shares of common
stock issued under the stock
option/stock issuance plan .. -- (4) -- 15
Net loss ...................... (31,121) -- -- (31,121)
----------- ----------- ----------- -----------
BALANCE, December 31, 1993 .... (67,164) (129) (16) (19,784)
11,242,857 shares of common
stock issued in the 1994
Stock Offerings ............. -- -- -- 76,903
Conversion of convertible
preferred stock to common
stock ....................... -- -- -- --
304,651 shares of common
stock issued under the stock
option/stock issuance plan .. -- (216) -- 53
Repayment of stock
subscriptions receivable .... -- 102 -- 102
Net loss ...................... (45,813) -- -- (45,813)
----------- ----------- ----------- -----------
BALANCE, December 31, 1994 .... (112,977) (243) (16) 11,461
Retirement of treasury stock .. -- -- 16 --
Reorganization of
PageMart, Inc. as a
wholly owned subsidiary
of PageMart Wireless, Inc. .. -- 243 -- --
Net loss ...................... (38,482) -- -- (38,482)
----------- ----------- ----------- -----------
BALANCE, December 31, 1995 .... $ (151,459) $ -- $ -- $ (27,021)
=========== =========== =========== ===========
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these consolidated financial statements.
F-5
<PAGE> 18
PAGEMART, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1993 1994 1995
-------- -------- --------
<S> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net loss .......................................................... $(31,121) $(45,813) $(38,482)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization ................................... 5,081 8,105 13,272
Provision for bad debt .......................................... 1,273 6,590 6,135
Accretion of discount on Senior Discount Exchange Notes ......... 1,885 10,034 11,458
Changes in certain assets and liabilities:
Increase in accounts receivable ................................ (6,541) (14,629) (630)
(Increase) decrease in inventories ............................. (5,024) (4,497) 1,630
Increase in prepaid expenses and other current assets .......... (58) (1,091) (1,705)
(Increase) decrease in other assets ............................ (134) 254 (592)
Increase in accounts payable ................................... 6,860 8,491 6,643
Increase in deferred revenue ................................... 2,602 6,780 7,447
Increase in other current liabilities .......................... 1,992 248 2,126
-------- -------- --------
Net cash used in operating activities ........................ (23,185) (25,528) 7,302
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of short-term investments ............................... (8,616) (2,480) --
Proceeds from sales of short-term investments ..................... 1,044 11,096 --
Proceeds from transfer of Narrowband Licenses ..................... -- -- 20,649
Purchases of Narrowband Licenses .................................. -- (58,885) --
Purchases of property and equipment ............................... (10,810) (16,719) (32,486)
Investment in international ventures .............................. -- (1,902) (2,174)
Purchases of intangible assets .................................... (224) (195) (276)
-------- -------- --------
Net cash used in investing activities ........................ (18,606) (69,085) (14,287)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of preferred stock ......................... 16,910 -- --
Proceeds from issuance of common stock ............................ -- 76,903 --
Proceeds from issuance of common stock under the stock option/stock
issuance Plan ................................................... 15 53 --
Proceeds from issuance of Senior Discount Notes, net .............. 67,575 -- --
Payment of stock subscriptions receivable ......................... -- 102 --
Proceeds from issuance of common stock warrants ................... 3,453 -- --
Borrowings from vendor credit facilities .......................... 20,111 8,540 6,777
Payments on vendor credit facilities .............................. (46,281) (2,052) (4,402)
-------- -------- --------
Net cash provided by financing activities .................... 61,783 83,546 2,375
-------- -------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ................ 19,992 (11,067) (4,610)
CASH AND CASH EQUIVALENTS, beginning of period ...................... 5,582 25,574 14,507
-------- -------- --------
CASH AND CASH EQUIVALENTS, end of period ............................ $ 25,574 $ 14,507 $ 9,897
======== ======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest ........................................................ $ 3,886 $ 998 $ 2,269
Income taxes .................................................... $ -- $ -- $ --
NONCASH TRANSACTIONS:
Series C Preferred Stock issued in exchange for stock subscriptions
receivable ...................................................... $ 125 $ -- $ --
Common stock issued in exchange for stock subscriptions
receivable ...................................................... $ 4 $ 216 $ --
In August 1994, 15,310,943 shares of preferred stock were converted
into 15,310,943 shares of common stock .......................... $ -- $ -- $ --
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these consolidated financial statements.
F-6
<PAGE> 19
PAGEMART, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL
PageMart, Inc. ("PageMart"), a wholly owned subsidiary of PageMart
Wireless, Inc. ("Wireless"), was incorporated as a Delaware corporation on May
8, 1989, to provide wireless messaging products and services. PageMart and its
subsidiaries are referred to herein as the "Company." Wireless was incorporated
in Delaware on November 29, 1994 as a wholly owned subsidiary of PageMart.
Effective January 15, 1995, PageMart merged with a wholly owned subsidiary of
Wireless, pursuant to which PageMart was the surviving corporation (the
"Reorganization"). As part of the Reorganization, each share of outstanding
common stock of PageMart was converted into the right to receive one share of
common stock of Wireless. Upon consummation of the Reorganization, the
stockholders of PageMart had the same ownership interest in Wireless as they
had in PageMart, and Wireless owned all of the capital stock of PageMart.
The consolidated financial statements of PageMart include the accounts of
PageMart II, Inc., PageMart Operations, Inc., PageMart of California, Inc.,
PageMart of Virginia, Inc. and PageMart International, Inc. Each of these
companies is a wholly owned subsidiary of PageMart. PageMart II, Inc. and
PageMart Operations, Inc. hold certain Federal Communications Commission
("FCC") licenses. PageMart International, Inc., which has had no significant
operations to date, holds certain investments in an international venture in
Canada. Other than these licenses and international investments, the
subsidiaries of PageMart have no significant assets or liabilities.
The Company has incurred substantial losses from operations and negative
cash flows from operations since inception and is highly leveraged. Management
expects to continue to incur operating losses in 1996. These losses are driven
by the Company's investment in the growth of its subscriber base and continued
expansion into additional markets. The Company's business plan calls for
substantial growth in its subscriber base in order for the Company to achieve
operating profitability and positive cash flows from operations. There can be
no assurance that the Company will meet its business plan, achieve operating
profitability, or achieve positive cash flows from operations. If the Company
cannot achieve operating profitability, it may not be able to make the required
payments on existing or future obligations.
The Company and Wireless have made significant investments in Narrowband
Personal Communications Services ("NPCS") licenses through participation in
auctions conducted by the FCC. The Company plans to utilize these assets in
connection with two-way wireless messaging services. The Company's success in
implementing two-way services is dependent primarily upon market acceptance of
proposed two-way services and the ability of the Company to successfully
develop and construct a transmission network and market two-way services.
There can be no assurance that two-way services offered will be accepted by the
market or that the Company will be successful in developing and constructing a
transmission network or marketing two-way services.
During 1993, the Company received net proceeds of approximately $17
million from the issuance of Series C Preferred Stock and net proceeds of
approximately $71 million from the issuance of 12 1/4% Senior Discount Notes
due 2003 and common stock warrants (see Note 5). During 1994, the Company
received net proceeds of approximately $76.9 million from the issuance of
common stock (the "1994 Stock Offerings"). In conjunction with the 1994 Stock
Offerings, each outstanding share of preferred stock was converted into one
share of common stock (see Note 8).
In management's opinion, the Company's current working capital combined
with anticipated support from Wireless will be sufficient to support the
planned growth for its one-way wireless communications operations through 1996.
As the Company begins implementation and development of two-way services, the
Company anticipates requiring additional sources of capital to fund the
construction and operation of a two-way messaging network.
F-7
<PAGE> 20
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION
The accompanying financial statements include the accounts of PageMart and
its wholly owned subsidiaries. All significant intercompany balances and
transactions have been eliminated.
CASH AND CASH EQUIVALENTS
The Company includes as cash and cash equivalents cash on hand, cash in
banks and highly liquid investments with original maturities of three months or
less.
SHORT-TERM INVESTMENTS
Short-term investments consist of investments in high-grade commercial
paper with original maturities of more than three months for which market value
approximates cost. The Company's short-term investments are made in reputable,
creditworthy companies and government issues and do not generate significant
credit risk to the Company.
INVENTORIES
Inventories consist of pagers held for resale and are stated at the lower
of cost or market. Cost is determined by using the specific identification
method, which approximates the first-in, first-out method. The Company
purchases a majority of its pagers from Motorola, Inc.
RESTRICTED INVESTMENTS
Restricted investments represent certificates of deposit in the amount of
$500,000 pledged as collateral on the Company's notes payable to a vendor.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and depreciated using the
straight-line method for financial reporting purposes and accelerated methods
for tax reporting purposes over estimated useful lives ranging from three to
seven years. Depreciation expense totaled approximately $4,860,000, $7,824,000
and $12,683,000 for the years ended December 31, 1993, 1994 and 1995,
respectively. The Company purchases a majority of its network equipment from
Motorola, Inc. and Glenayre Technologies, Inc. Maintenance and repair costs are
charged to expense as incurred.
Property and equipment consisted of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1994 1995
-------- --------
<S> <C> <C>
Network equipment ............................ $ 40,224 $ 57,387
Computer equipment ........................... 5,067 16,829
Furniture and equipment ...................... 2,897 6,757
-------- --------
48,188 80,973
Less: Accumulated depreciation .............. (16,491) (29,163)
-------- --------
$ 31,697 $ 51,810
======== ========
</TABLE>
F-8
<PAGE> 21
REVENUE RECOGNITION
The Company recognizes equipment revenue immediately upon the shipment of
pagers adjusted by allowances for normal returns. Recurring revenue, including
revenue from airtime charges and fees for other services such as voicemail,
customized coverage options and toll-free numbers are recognized in the month
in which the service is provided. All expenses related to the sale of
equipment are recognized at the time of sale. Deferred revenue represents
advance billings for services not yet performed. Such revenue is deferred and
recognized in the month in which the service is provided. Patent licensing
revenues are recognized on a straight-line basis over the term of the related
agreement (see Note 6). Patent licensing revenues of $383,000 are included in
recurring revenues in fiscal 1995.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
ADVERTISING EXPENSES
Advertising expenses are expensed as incurred.
RECLASSIFICATIONS
Certain amounts in the prior years' consolidated financial statements have
been reclassified to conform with the current year presentation.
ACCOUNTING FOR LONG-LIVED ASSETS
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of" ("SFAS 121"). The Company will adopt SFAS
121 for the fiscal year ending December 31, 1996. SFAS 121 establishes
accounting standards for the impairment of long-lived assets, certain
identifiable intangibles, and goodwill related to those assets to be held and
used and for long-lived assets and certain identifiable intangibles to be
disposed of. SFAS 121 requires that those assets to be held and used be
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable through future cash
flows. SFAS 121 requires that those assets to be disposed of be reported at
the lower of the carrying amount or the fair value less cost to sell. Adoption
of SFAS 121 is not expected to have a material effect on the financial
statements of the Company.
3. NARROWBAND PERSONAL COMMUNICATIONS SERVICES LICENSES
During July and December 1994, the Company and Wireless participated in
auctions of NPCS frequencies conducted by the FCC. As a result of the
auctions, the Company was awarded a narrowband license for a 50 kHz unpaired
nationwide frequency for a purchase price of approximately $38 million, and
Wireless was awarded five 50/50 kHz paired regional narrowband licenses for a
purchase price of approximately $95 million. Amortization of the NPCS licenses
will commence when placed in service.
4. INVESTMENT IN UNCONSOLIDATED SUBSIDIARY
Effective November 15, 1995 PageMart International, Inc. owns 200,000
shares of common stock of PageMart Canada Limited ("PageMart Canada") which
represents 20% of the ownership of PageMart Canada. The remaining 800,000
shares (representing 80% of the ownership) is held by PageMart Canada Holding
Corporation ("Canada Holding"). Canada Holding is owned 50% (1,000,000 shares
of Class A Common Stock) by third-party Canadian investors unrelated to
PageMart and 50% (1,000,000 shares of Class B Common Stock) by PageMart
International, Inc. The common shares have identical economic rights.
However, voting control of Canada Holding is held by the Class A Common
Stockholders as the Class A shares have two votes per share.
F-9
<PAGE> 22
The Company accounts for its investments in PageMart Canada and Canada Holding
under the equity method. Such investments are included in Other Assets in the
Consolidated Balance Sheet.
The agreement among stockholders contains provisions which restrict the
transfer of Canada Holding shares and PageMart Canada shares for periods
ranging from three to five years. During the two years following the third
anniversary of the transactions, the third-party Canadian investors may
exchange the 1,000,000 Class A common shares they hold in Canada Holding to
714,286 shares of voting common stock of Wireless, subject to certain U.S. and
Canadian ownership requirements. Wireless is ultimately responsible for
effectuating the exchange within the U.S. and Canadian ownership regulations.
Such exchange may be accelerated in the event Wireless enters into an agreement
to be acquired. After the third anniversary of the transactions, Wireless will
have the right to purchase the shares held by the third party Canadian
investors at their fair market value provided regulatory ownership requirements
permit such purchase.
5. LONG-TERM DEBT
Long-term debt, including capital lease obligations, consisted of the
following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1994 1995
--------- ---------
<S> <C> <C>
12 1/4% Senior Discount Notes due November 1,
2003, at accreted value ........................ $ 83,494 $ 94,952
Vendor Purchase Financing Facility of $8
million, bearing interest at prime plus 4%
based upon the rate quoted by The Wall Street
Journal from time to time (rates on existing
indebtedness were 12.5% at December 31, 1994,
and 12.75% at December 31, 1995), secured by
equipment purchased. Principal and interest is
payable over 36 months from date of purchase.... 4,756 5,138
Capital lease obligations to a vendor up to $15
million, bearing interest at 7 1/2% plus the
weekly average U.S. Treasury Constant
Maturities for 3-year Treasury Notes for the
calendar week immediately preceding funding of
the equipment financing (rates on existing
indebtedness ranged from 11.84% -- 15.13% at
December 31, 1994 and 1995), secured by
equipment and cash with principal and interest
payable over 60 months from date of financing.. 7,895 9,888
--------- ---------
Total debt ................................. 96,145 109,978
Less: Current maturities ................ (3,513) (5,479)
--------- ---------
Long-term debt ............................. $ 92,632 $ 104,499
========= =========
</TABLE>
During the fourth quarter of 1993, the Company completed an offering in
which it issued $136.5 million principal amount (at maturity) of 12 1/4% Senior
Discount Notes due 2003 (the "12 1/4% Notes") with an initial accreted value of
$71.6 million together with warrants to purchase 627,900 shares of its common
stock for $3.26 per share. From and after May 1, 1999, interest on the 12 1/4%
Notes will be payable semiannually in cash at the rate of 12 1/4% per annum.
The 12 1/4% Notes represent senior indebtedness of the Company and are
redeemable at the option of the Company, in whole or in part, at any time after
November 1, 1998, at $136.5 million plus accrued interest. In addition, at any
time prior to November 1, 1996, up to 35% of the accreted value of the 12 1/4%
Notes are redeemable at the option of the Company with the proceeds of a Public
Equity Offering (as defined) at 111% of accreted value plus accrued and unpaid
interest, if any.
In July 1994, the Company commenced an exchange offer pursuant to an
effective registration statement whereby all outstanding 12 1/4% Notes were
exchanged for the Company's 12 1/4% Senior Discount Exchange Notes due 2003.
F-10
<PAGE> 23
The 12 1/4% Notes carry certain restrictive covenants that, among other
things, limit the ability of the Company to incur indebtedness, pay dividends,
prepay subordinated indebtedness, repurchase capital stock, create liens, sell
assets, engage in mergers and consolidations, and enter into transactions with
any holder of 5% or more of any capital stock of the Company or any of its
affiliates. The Company is in compliance with all such restrictive covenants.
Maturities of long-term debt and capital lease obligations are as follows
(in thousands):
<TABLE>
<CAPTION>
FOR THE YEAR
ENDING DECEMBER 31,
-------------------
<S> <C>
1996 ......................................... $ 5,479
1997 ......................................... 5,047
1998 ......................................... 2,359
1999 ......................................... 1,719
2000 ......................................... 422
Thereafter ................................... 94,952
--------
$109,978
========
</TABLE>
6. COMMITMENTS AND CONTINGENCIES
The Company has entered into various operating lease agreements for office
space, office equipment and transmission equipment sites. Total rent expense
for 1993, 1994 and 1995 was $4,246,000, $6,084,000 and $8,471,000,
respectively.
Included in network equipment is equipment held under capital leases with
capitalized costs of $10,357,000 and $14,617,000 less accumulated depreciation
of $2,632,000 and $5,054,000 at December 31, 1994 and 1995, respectively.
Future minimum lease payments related to the Company's capital and
operating leases are as follows (in thousands):
<TABLE>
<CAPTION>
FOR THE YEAR CAPITAL OPERATING
ENDING DECEMBER 31, LEASES LEASES
- ------------------- ------- ---------
<S> <C> <C>
1996 .............................................. $ 3,989 $ 7,093
1997 .............................................. 3,626 6,169
1998 .............................................. 2,533 4,175
1999 .............................................. 1,902 2,936
2000 .............................................. 438 1,911
Thereafter ........................................ -- 1,726
------- -------
Total minimum lease payments ...................... $12,488 $24,010
=======
Less: amounts representing interest .............. 2,600
-------
Present value of future minimum lease payments .... $ 9,888
=======
</TABLE>
The Company is party to various legal proceedings arising out of the
ordinary course of business. The Company believes, based on the advice of
legal counsel, that there is no proceeding, either threatening or pending,
against the Company that could result in a material adverse effect on the
results of operations or financial condition of the Company.
In December 1995, the Company transferred certain intellectual property to
a significant vendor in exchange for certain benefits which will be recognized
over a forty-seven month period. The Company also committed to
F-11
<PAGE> 24
purchase $40 million in network infrastructure equipment over a forty-seven
month period as part of this transaction.
7. FAIR VALUES OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in
estimating the fair value disclosures for its financial instruments. For cash
and cash equivalents, the carrying amounts reported in the Consolidated Balance
Sheets are equal to fair value. For debt, management estimated the fair value
based upon quoted market prices for publicly traded debt and based on the
appropriate interest rate at year-end for all other debt.
The carrying amounts and fair values of the Company's financial
instruments at December 31, 1994 and 1995, are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1994 DECEMBER 31, 1995
-------------------- --------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Cash and cash equivalents ...... $ 14,507 $ 14,507 $ 9,897 $ 9,897
Long-term debt ................. $ 96,145 $ 95,548 $109,978 $104,955
</TABLE>
8. STOCKHOLDER'S EQUITY (DEFICIT)
PREFERRED STOCK
On August 5, 1994 in conjunction with the 1994 Stock Offerings and the
related stockholders agreement, each outstanding share of previously issued
preferred stock converted into one share of common stock. In September 1994
the Company's Certificate of Incorporation was amended to reduce the number of
authorized shares of preferred stock to 10,000,000. At December 31, 1994 and
1995, none of the authorized shares of preferred stock were issued and
outstanding.
Under the Company's Certificate of Incorporation, the board of directors
has the power to authorize the issuance of one or more classes or series of
preferred stock and to fix the designations, powers, preferences and relative,
participating, optional or other rights, if any, and the qualifications,
limitations or restrictions thereof, if any, with respect to each such class or
series of preferred stock.
COMMON STOCK
During the fourth quarter 1993 in connection with issuance of the 12 1/4%
Notes (see Note 5), the Company issued warrants to purchase 627,900 shares of
its common stock for $3.26 per share. The warrants were valued at $5.50 per
share at the date issued. In connection with the Reorganization (see Note 1),
the warrants became exercisable for Wireless common stock.
During the third quarter of 1994, the Company issued an aggregate of
11,242,857 shares of common stock in the 1994 Stock Offerings at a purchase
price of $7.00 per share. The aggregate net proceeds (after expenses) of the
1994 Stock Offerings were approximately $76.9 million. Of the total shares
issued, 714,287 shares were convertible non-voting common stock and the
remaining 10,528,570 shares were common stock. In connection with the
Reorganization (see Note 1), all shares of common stock of PageMart were
converted into the right to receive one share of common stock of Wireless.
At December 31, 1995, of the 88,500,000 authorized shares of PageMart
common stock, 100 shares were issued.
F-12
<PAGE> 25
9. STOCK OPTION/STOCK ISSUANCE PLAN
The Company had a stock option/stock issuance plan (the "Plan") under
which it granted common stock or options to purchase common stock. Effective
with the Reorganization, the plan was transferred to Wireless. The Plan is
administered by the board of directors.
The stock options vest over 60 months and are exercisable for periods not
to exceed 10 years from the date of grant. Vested options outstanding at
December 31, 1993 and 1994 were approximately 268,000 and 237,000,
respectively, with exercise prices ranging from $.08 to $1.50 at December 31,
1993 and $.08 to $3.26 at December 31, 1994. As of December 31, 1994, 1,774,275
shares of common stock were reserved for the Plan. The stock option activity
was as follows:
<TABLE>
<CAPTION>
SHARES PRICE PER SHARE
--------- ---------------
<S> <C> <C>
Options outstanding at December 31, 1992 ........ 886,500 $ .08-1.50
Options granted ................................ 646,250 1.50-3.26
Options exercised .............................. (171,074) .08-1.00
Options canceled ............................... (214,458) .08-3.26
---------
Options outstanding at December 31, 1993 ........ 1,147,218 .08-3.26
Options granted ................................ 866,300 5.00-9.00
Options exercised .............................. (304,651) .08-3.26
Options canceled ............................... (112,158) .08-9.00
---------
Options outstanding at December 31, 1994 ........ 1,596,709 $ .08-9.00
=========
</TABLE>
Under the provisions of the Plan, the Company may also issue stock to
employees. The stock vests over a period not to exceed forty-eight months.
Additional vesting occurs upon death or disability. Upon the termination of an
officer, the Company can repurchase the unvested stock at cost. Under the Plan,
the Company issued 300,000 shares to an officer during 1992, at $.326 per
share. All awards under the Plan have been made at a price at or above the
estimated fair value of the Company's common stock at the date of grant.
10. FEDERAL INCOME TAXES
PageMart files a consolidated income tax return with its parent, Wireless.
PageMart has a tax sharing arrangement with Wireless, whereby PageMart's taxes
are provided on a stand-alone basis.
Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standard No. 109 ("SFAS 109"), "Accounting for Income Taxes." SFAS
109 requires an asset and liability approach which requires the recognition of
deferred tax assets and liabilities for the expected future tax consequences of
events which have been recognized in the Company's financial statements. The
Company had approximately $104.7 million and $126.8 million of net operating
loss carryforwards for federal income tax purposes at December 31, 1994 and
1995, respectively. The net operating loss carryforwards will expire in the
years 2004 through 2010 if not previously utilized. The utilization of these
carryforwards is subject to certain limitations. Of the net operating loss
carryforwards at December 31, 1995, management has estimated that approximately
$34.1 million is subject to an annual utilization limit of $4.8 million.
In connection with the adoption of SFAS 109, the Company has recorded a
valuation reserve equal to its net deferred tax asset at each reporting period,
due to historical and anticipated future operating losses. Accordingly, the
adoption of SFAS 109 did not have an effect on the Company's financial position
or results of operations. Management will evaluate the appropriateness of the
reserve in the future based upon historical and operating results of the
Company.
F-13
<PAGE> 26
Deferred income taxes reflect the tax consequences on future years of
temporary differences between the tax basis of assets and liabilities and their
financial reporting basis and the potential benefits of certain tax
carryforwards. The significant deferred tax assets and liabilities, as
determined under the provisions of SFAS 109, and the change in those assets and
liabilities are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1994 CHANGE DECEMBER 31, 1995
----------------- ------ -----------------
<S> <C> <C> <C>
Gross deferred tax asset:
Net operating loss carryforwards ...... $ 35,593 $ 7,535 $ 43,128
Bad debt reserve ...................... 472 1,626 2,098
Inventory reserve ..................... 542 286 828
Accretion of Senior Discount Notes .... 4,052 3,896 7,948
Other ................................. 341 602 943
-------- -------- --------
41,000 13,945 54,945
Gross deferred tax liability:
Depreciation .......................... (2,647) (1,047) (3,694)
-------- -------- --------
38,353 12,898 51,251
Valuation allowance ................. (38,353) (12,898) (51,251)
-------- -------- --------
Net deferred tax asset .............. $ 0 $ 0 $ 0
======== ======== ========
</TABLE>
11. RELATED PARTY TRANSACTIONS
In connection with the offering of the 12 1/4% Notes completed in 1993
(see Note 5), the Company incurred $2,626,000 in fees to an affiliate of a
shareholder.
Wireless has entered into a receivables purchase agreement with PageMart
pursuant to which PageMart may sell receivables to Wireless from time to time
at book value less a reserve for normal bad debt. As of December 31, 1995,
Wireless owned $11.4 million in receivables purchased from PageMart.
PageMart is obligated to provide certain managerial and administrative
services to PageMart Canada at PageMart Canada's request at agreed upon rates.
Under a technology license agreement, PageMart licenses PageMart Canada to
use, in Canada, the intellectual property used by PageMart in its business in
the U.S. The license is perpetual, irrevocable, and royalty-free. The
agreement also permits PageMart Canada to purchase the license of new
technology developed by PageMart for a royalty. The royalty is a portion of
the cost of developing the technology, with the amount to be paid by PageMart
Canada to be the portion of these costs equal to the ratio of PageMart Canada's
revenue stream to that of PageMart.
Under an intercompany rate agreement, the rates which the U.S. and
Canadian companies will charge each other when customers of one travel into the
other's jurisdiction are specified. Such rates approximate fair market value.
12. SUBSEQUENT EVENT
Wireless has filed a Registration Statement on Form S-1 with the
Securities and Exchange Commission in the contemplation of an initial public
offering of Wireless' Class A Common Stock.
F-14
<PAGE> 27
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULE
To the Board of Directors and Stockholder of PageMart, Inc.
We have audited in accordance with generally accepted auditing standards,
the consolidated financial statements of PageMart, Inc. and subsidiaries
included in this Form 10-K and have issued our report thereon dated February
12, 1996 (except with respect to the matter discussed in Note 12, as to which
the date is April 1, 1996). Our audit was made for the purpose of forming an
opinion on those financial statements taken as a whole. Schedule II is
presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in the audit of
the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Dallas, Texas,
February 12, 1996
S-1
<PAGE> 28
PAGEMART, INC. AND SUBSIDIARIES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
-------- -------- -------- -------- --------
ADDITIONS
--------------------
BALANCE AT CHARGED TO CHARGED
BEGINNING COSTS AND TO OTHER BALANCE AT
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS END OF PERIOD
- ----------- ---------- ---------- -------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Allowance for Doubtful Accounts
Year Ended 12/31/95 ................. $1,388 $6,135 $0 $2,989(a) $4,534
Year Ended 12/31/94 ................. $1,172 $6,590 $0 $6,374(a) $1,388
Year Ended 12/31/93 ................. $ 708 $1,273 $0 $ 809(a) $1,172
</TABLE>
- ---------------
(a) Accounts written off as uncollectible, net of recoveries.
S-2
<PAGE> 29
EXHIBIT INDEX
Exhibit
No. Description of Exhibit
- ------- ----------------------
27.1 Financial Data Schedule.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED THE COMPANY'S
DECEMBER 31, 1995 CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 9,897
<SECURITIES> 0
<RECEIVABLES> 14,613
<ALLOWANCES> 4,534
<INVENTORY> 11,179
<CURRENT-ASSETS> 34,357
<PP&E> 80,973
<DEPRECIATION> 29,163
<TOTAL-ASSETS> 133,626
<CURRENT-LIABILITIES> 56,148
<BONDS> 104,499
<COMMON> 0
0
0
<OTHER-SE> (27,021)
<TOTAL-LIABILITY-AND-EQUITY> 133,626
<SALES> 57,688
<TOTAL-REVENUES> 159,191
<CGS> 63,982
<TOTAL-COSTS> 63,982
<OTHER-EXPENSES> 118,181
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 15,199
<INCOME-PRETAX> (38,482)
<INCOME-TAX> 0
<INCOME-CONTINUING> (38,482)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (38,482)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
