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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
======================================================================
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _______ TO ________
COMMISSION FILE NO. 0-81084
PAGEMART, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 75-2283921
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6688 N. CENTRAL EXPWY., SUITE 800
DALLAS, TEXAS 75206
(Address of principal executive offices) (Zip code)
(214) 750-5809
(Registrant's telephone number, including area code)
NOT APPLICABLE
(Former name, former address and former fiscal year,
if changed since last report.)
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
--- ---
As of April 11, 1997, there were 100 shares of the registrant's common stock
outstanding, all of which were owned by PageMart Wireless, Inc.
The registrant meets the conditions set forth in General Instruction H(1)(a)
and (b) of Form 10-Q and is therefore filing this Form with the reduced
disclosure format.
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PAGEMART, INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE
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ITEM 1. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS AT DECEMBER 31, 1996
AND MARCH 31, 1997............................................................. 3
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE
MONTHS ENDED MARCH 31, 1996 AND 1997............................................ 4
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE
MONTHS ENDED MARCH 31, 1996 AND 1997............................................ 5
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS................................. 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS................................... 6
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS....................................................................14
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.....................................................14
</TABLE>
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PAGEMART, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
December 31, March 31,
1996 1997
--------------- ---------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 55 $ 5
Accounts receivable, net 134 --
Inventories 1 8,511
Prepaid expenses and other current assets 3,021 2,911
--------------- ---------------
Total current assets 3,211 11,427
Restricted investments -- --
Property and equipment, net 82,960 81,714
Narrowband licenses 38,210 38,210
Deferred debt issuance costs, net 2,355 2,268
Other assets 5,731 4,584
=============== ===============
Total assets $ 132,467 $ 138,203
=============== ===============
LIABILITIES AND STOCKHOLDER'S DEFICIT
Current liabilities:
Accounts payable $ 28,133 $ 35,919
Current maturities of long-term debt -- --
Deferred revenue 44,507 45,642
Other current liabilities 8,925 9,779
--------------- ---------------
Total current liabilities 81,565 91,340
Long-term debt 107,947 111,444
Commitments and contingencies
Stockholder's deficit:
Common stock $.0001 par value per share, 1,000 shares authorized, 100
issued at December 31,
1996 and March 31, 1997 -- --
Additional paid-in capital 124,438 124,438
Accumulated deficit (181,483) (189,019)
--------------- ---------------
Total stockholder's deficit (57,045) (64,581)
--------------- ---------------
Total liabilities and stockholder's deficit $ 132,467 $ 138,203
=============== ===============
</TABLE>
The accompanying notes to condensed consolidated financial statements
are an integral part of these financial statements.
3
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PAGEMART, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------------
1996 1997
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<S> <C> <C>
Revenues:
Recurring revenue $ 33,743 $ 46,475
Equipment sales and activation fees 14,802 15,248
--------------- ---------------
Total revenues 48,545 61,723
Cost of equipment sold 17,082 18,119
Operating expenses:
Technical 8,090 10,765
Selling 9,447 12,666
General and administrative 12,919 15,763
Depreciation and amortization 4,248 6,808
--------------- ---------------
Total operating expenses 34,704 46,002
--------------- ---------------
Operating loss (3,241) (2,398)
Other (income) expense:
Interest expense 4,043 4,430
Interest income (92) (29)
Other 195 737
--------------- ---------------
Total other (income) expense 4,146 5,138
--------------- ---------------
Net loss $ (7,387) $ (7,536)
=============== ===============
</TABLE>
The accompanying notes to condensed consolidated financial statements
are an integral part of these financial statements.
4
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PAGEMART, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------------
1996 1997
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Cash flows from operating activities:
Net loss $ (7,387) $ (7,536)
Adjustments to reconcile net loss to
net cash provided by operating activities
Depreciation and amortization 4,248 6,808
Provision for bad debt 1,453 2,707
Accretion of discount on senior discount notes 3,077 3,497
Amortization of deferred debt issuance costs 86 87
Changes in certain assets and liabilities:
(Increase) decrease in accounts receivable 3,310 (2,573)
(Increase) decrease in inventories 3,163 (8,510)
Decrease in prepaid expenses and other current assets 295 110
(Increase) decrease in other assets (1,509) 779
Increase in accounts payable 3,403 7,786
Increase in deferred revenue 1,540 1,135
Increase in other current liabilities 704 854
--------------- ---------------
Net cash provided by operating activities 12,383 5,144
--------------- ---------------
Cash flows from investing activities:
Purchases of property and equipment, net (12,796) (4,434)
Investment in international ventures (3) --
Purchases of intangible assets (53) (10)
Other -- (750)
--------------- ---------------
Net cash used in investing activities (12,852) (5,194)
--------------- ---------------
Cash flows from financing activities:
Payments on vendor credit facilities (1,306) --
--------------- ---------------
Net cash used in financing activities (1,306) 0
--------------- ---------------
Net decrease in cash and cash equivalents (1,775) (50)
Cash and cash equivalents, beginning of period 9,897 55
=============== ===============
Cash and cash equivalents, end of period $ 8,122 $ 5
=============== ===============
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 675 $ 44
Income taxes $ -- $ --
</TABLE>
The accompanying notes to condensed consolidated financial statements
are an integral part of these financial statements.
5
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PAGEMART, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 1997
(UNAUDITED)
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. 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. PageMart and its subsidiaries are referred
to herein as the "Company".
2. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
have been prepared by the Company in accordance with generally accepted
accounting principles for interim financial information and are in the form
prescribed by the Securities and Exchange Commission in instructions to Form
10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. The interim unaudited financial
statements should be read in conjunction with the audited financial statements
of the Company for the year ended December 31, 1996. In the opinion of
management, all adjustments (consisting only of normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the three months ended March 31, 1997 are not necessarily
indicative of the results that may be expected for the year ending December 31,
1997.
Certain amounts in the prior year condensed consolidated financial
statements have been classified to conform with the current year presentation.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following is a discussion of the results of operations and
financial condition of the Company for the three months ended March 31, 1996
and 1997. This discussion should be read in conjunction with the Company's
condensed consolidated financial statements and the notes thereto included
elsewhere in this report.
When used in this discussion, the words `estimate', `project', `plan',
`expect' and similar expressions are intended to identify forward-looking
statements. Such statements are subject to certain risks and uncertainties,
including the timely development and acceptance of new products, the impact of
competitive products and pricing that could cause actual results to differ
materially from those projected. Readers are cautioned not to place undue
reliance on these forward-looking statements, which speak only as of the date
hereof.
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. The
Company 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."
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Since commencing operations in 1990, the Company has invested heavily
in its one-way 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 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 to increase
cash flow through greater utilization of its nationwide wireless communications
network. From March 31, 1996 to March 31, 1997, the number of domestic units in
service increased from 1,374,146 to 2,001,525. 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 1997 from its one-way wireless communications
business. 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, Southwestern Bell Mobile Systems, AT&T Wireless Services,
Ameritech Mobile Services, Inc. and long distance reseller EXCEL
Communications, 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 and depreciation expense 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. 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.
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
7
<PAGE> 8
disconnection rates for the years ended December 31, 1994, 1995, 1996 and for
the three months ended March 31, 1997 were 3.4%, 2.5%, 2.4% and 2.3%,
respectively.
Approximately 90% of the Company's average monthly 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.
RESULTS OF OPERATIONS
The Company's principal operations to date are its domestic one-way
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.
THREE MONTHS ENDED MARCH 31, 1996 AND 1997
Units in Service
Units in service from domestic operations were 1,374,146 and 2,001,525
as of March 31, 1996 and 1997, respectively, representing an annual growth rate
of 46%. In addition, during the quarter ended March 31, 1997, PageMart Canada
Limited ("PageMart Canada") added 6,092 subscribers. As a result of its
ownership interest in PageMart Canada, the Company's proportional share of net
subscriber additions from PageMart Canada was 3,665 units for the three months
ended March 31, 1997. 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.
Revenues
Revenues for the three months ended March 31, 1996 and 1997 were $48.5
million and $61.7 million, respectively. Recurring revenues for airtime, voice
mail, and other services for the same periods were $33.7 million and $46.5
million, respectively. Revenues from equipment sales and activation fees for
the three months ended March 31, 1996 and 1997 were $14.8 million and $15.2
million, respectively. The increases in recurring revenues and revenues from
equipment sales and activation fees were primarily due to the rapid growth in
the number of units in service. The increase in equipment sales during the
first quarter of 1997 was somewhat offset by a decline in the average price per
unit sold. The Company expects equipment prices per unit generally to remain
constant or decline only slightly as sales volumes increase.
The Company's ARPU was $8.61 and $8.04 in the first quarter of 1996
and 1997, respectively. Over the past twelve months, the Company's ARPU has
decreased primarily as a result of an increase in subscribers added through
third party resellers and private brand strategic alliance channels. This
decrease in ARPU has been offset somewhat by a higher mix of multi-city,
regional and nationwide services as well as increased sales of other
value-added services such as voice mail and toll-free numbers. Management
anticipates that the Company's ARPU will decline in the foreseeable future due
to a continued higher mix of subscribers added through private brand strategic
alliance programs which yield lower ARPU. ARPU is lower for subscribers added
through third-party reseller private brand strategic alliances because these
are generally high volume customers that are charged wholesale airtime rates.
However, because private brand strategic alliance partners and third-party
resellers are responsible for selling and marketing costs, billing, collection
and other administrative costs associated with end-users, the Company incurs
substantially lower marketing and administrative costs with respect to such
subscribers.
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Cost of Equipment Sold
The cost of equipment sold for the three months ended March 31, 1996
and 1997 was $17.1 million and $18.1 million, respectively. The change was
primarily due to an increase in the number of units sold. The Company expects
pager costs generally to remain constant with modest reductions in cost to the
Company as a result of volume purchases. Management anticipates that loss on
equipment sold will generally remain constant on a per unit basis for the
foreseeable future due to increased competition, especially in the national
retail channel.
Operating Expenses
Technical expenses were $8.1 million and $10.8 million for the three
months ended March 31, 1996, and 1997, respectively. The increase was primarily
due to increased telecommunications and site expenses associated with servicing
the Company's expanded network and larger subscriber base. On an average
monthly cost per unit in service basis, technical expenses were $2.06 and $1.86
in the first quarter of 1996 and 1997, respectively. The per unit decrease was
the result of increased operating efficiencies and economies of scale
experienced with the growth of the Company's subscriber base.
Selling expenses for the three months ended March 31, 1996 and 1997
were $9.4 million and $12.7 million respectively. This increase resulted from
greater marketing and advertising costs related to the 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 first quarter of
1996 and 1997, the Company added 134,122 and 150,080 net new domestic units in
service, respectively. Sales and marketing employees increased from 486 at
March 31, 1996 to 530 at March 31, 1997. Management views 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 $86 and $103 for the three months ended March 31, 1996
and 1997, respectively. This increase was due to losses recognized on the sale
of pagers due to stocking a large number of new retail outlets in first quarter
1997 including 1,858 new outlets for RadioShack(R). The losses are recognized
when pagers are shipped to retailers, usually before the units are placed into
service; thus, increasing selling expenses per net subscriber addition. Selling
expenses are also expected to be higher than average during the second quarter
of 1997 due to stocking the remainder of the RadioShack(R) outlets. During the
three months ended March 31, 1997, the Company incurred $94,000 in selling
expenses associated with its international operations (including loss on
equipment sales).
General and administrative expenses (including costs associated with
customer service, field administration and corporate headquarters) in the first
quarter of 1996 and 1997 were $12.9 million and $15.8 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. On an average cost per month
per unit in service basis, general and administrative expenses were $3.29 and
$2.73 in the first quarter of 1996 and 1997, respectively. The per unit
decrease was a result of increased operating efficiencies and economies of
scale achieved through the growth of the Company's subscriber base.
Depreciation and amortization for the three months ended March 31,
1996 and 1997 were $4.2 million and $6.8 million, respectively. The increase
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 during 1996 and the first three months
three months of 1997. As an average cost per month per unit in service,
depreciation and amortization was $1.08 and $1.19 for the three months ended
1996 and 1997, respectively.
Interest Expense
Interest expense increased from $4.0 million in the first quarter of
1996 to $4.4 million in the first quarter of 1997. The increase in 1997 was
primarily the result of increased interest expense related to the 12 1/4% Notes
due 2003 issued by the Company. Interest expense related to the 12 1/4% Notes
was $3.2 million and $3.6 million in the first quarter of 1996 and 1997,
respectively.
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Net Loss
The Company sustained net losses in the first quarter of 1996 and 1997
of $7.4 million and $7.5 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 unaudited condensed consolidated financial statements
for the three months ended March 31, 1996 and 1997 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 is 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 $2.27 during the first quarter of
1997 due primarily to the Company's increase in subscribers, operating
efficiency and resulting benefits in economies of scale.
In addition, 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, voice mail, 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.
Technical Expenses. This item is the same under the management and
GAAP presentations.
General and Administrative Expenses. This item is the same under the
management and GAAP presentations.
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 technical expenses, general and administrative
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.
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.
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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 condensed consolidated financial statements of the Company and the
notes thereto included elsewhere in this report and the Company's quarterly
reports on Form 10-Q for the corresponding periods below, and should not be
considered in isolation or as an alternative to results of operations that are
presented in accordance with GAAP (in thousands, except other data).
<TABLE>
<CAPTION>
Three Months Ended
-----------------------------------------------------------------------------------------------------
June 30, Sept 30, Dec 31, Mar 31, June 30, Sept 30, Dec 31, Mar 31,
1995 1995 1995 1996 1996 1996 1996 1997
--------- --------- --------- --------- --------- --------- --------- ---------
(Unaudited)
OPERATING DATA:
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Recurring revenues $ 23,387 $ 26,994 $ 30,658 $ 33,743 $ 36,964 $ 39,697 $ 42,637 $ 46,475
Technical expenses 6,141 6,842 7,015 7,943 8,783 9,725 10,273 10,765
General and administrative
expenses 10,067 11,350 12,243 12,792 13,043 13,668 14,162 15,763
Depreciation and amortization 3,091 3,469 3,910 4,248 4,942 5,714 6,288 6,808
--------- --------- --------- --------- --------- --------- --------- ---------
Operating profit before
selling expenses 4,088 5,333 7,490 8,760 10,196 10,590 11,914 13,139
Selling expenses (1) 10,614 10,889 11,181 11,601 12,836 13,588 14,900 15,443
--------- --------- --------- --------- --------- --------- --------- ---------
Operating income (loss) $ (6,526) $ (5,556) $ (3,691) $ (2,841) $ (2,640) $ (2,998) $ (2,986) $ (2,304)
========= ========= ========= ========= ========= ========= ========= =========
EBITDA $ (3,435) $ (2,087) $ 219 1,407 2,302 2,716 3,302 $ 4,504
========= ========= ========= ========= ========= ========= ========= =========
OTHER DATA:
Units in service (2) 1,008,683 1,131,464 1,240,024 1,374,146 1,524,297 1,684,937 1,851,445 2,001,525
Net subscriber additions 133,739 122,781 108,560 134,122 150,151 160,640 166,508 150,080
ARPU (3) $ 8.28 $ 8.41 $ 8.62 $ 8.61 $ 8.50 $ 8.25 $ 8.04 $ 8.04
National retail outlets 2,900 3,408 3,411 3,690 4,286 5,025 5,530 7,388
Operating profit before
selling expenses per
subscriber per month (4) $ 1.45 $ 1.66 $ 2.11 $ 2.23 $ 2.35 $ 2.20 $ 2.25 $ 2.27
Selling expenses per net
subscriber Addition (1)(5) $ 79 $ 89 $ 103 $ 86 $ 85 $ 85 $ 89 $ 103
Capital employed per unit
in service (6) $ 39 $ 39 $ 40 $ 41 $ 49 $ 49 $ 43 $ 41
</TABLE>
(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. Stated as the
monthly average for the 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.
(6) Calculated by dividing total assets (excluding cash, narrowband
personal communications services assets and international investments)
minus current liabilities (excluding current maturities of long-term
debt) at the end of the period, by units in service at the end of the
period.
12
<PAGE> 13
The Company cautions readers that any forward-looking statements
contained in this form 10-Q or made by management of the Company involve risk
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 1997 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 FCC and
various state regulatory agencies and the ability of the Company to obtain
financing to construct, operate and market the transmission network for two-way
services.
13
<PAGE> 14
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is involved in various lawsuits arising in the normal
course of business. In management's opinion, the ultimate outcome of these
lawsuits will not have a material adverse effect on the Company's financial
position or results of operations.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The exhibit listed on the accompanying index to exhibit is
filed as a part of this quarterly report.
(b) Reports on Form 8-K
None.
14
<PAGE> 15
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THE
REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED THEREUNTO DULY AUTHORIZED.
PAGEMART, INC.
/S/JOHN D. BELETIC
--------------------------------
JOHN D. BELETIC
MAY 14, 1997 CHAIRMAN, PRESIDENT AND
CHIEF EXECUTIVE OFFICER
/S/G. CLAY MYERS
--------------------------------
G. CLAY MYERS
MAY 14, 1997 VICE PRESIDENT, FINANCE,
CHIEF FINANCIAL OFFICER AND
TREASURER (PRINCIPAL FINANCIAL
AND CHIEF ACCOUNTING OFFICER)
15
<PAGE> 16
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
27.1 * Financial Data Schedule.
* Filed herewith.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S MARCH 31, 1997 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 5
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 8,511
<CURRENT-ASSETS> 11,427
<PP&E> 136,246
<DEPRECIATION> (54,532)
<TOTAL-ASSETS> 138,203
<CURRENT-LIABILITIES> 91,340
<BONDS> 111,444
0
0
<COMMON> 0
<OTHER-SE> (64,581)
<TOTAL-LIABILITY-AND-EQUITY> 138,203
<SALES> 15,248
<TOTAL-REVENUES> 61,723
<CGS> 18,119
<TOTAL-COSTS> 18,119
<OTHER-EXPENSES> 46,002
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,430
<INCOME-PRETAX> (7,536)
<INCOME-TAX> 0
<INCOME-CONTINUING> (7,536)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,536)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
