<PAGE> 1
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 SEPTEMBER 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE TRANSITION PERIOD FROM _______ TO ________
COMMISSION FILE NO. 0-28196
PAGEMART WIRELESS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 75-2575229
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3333 LEE PARKWAY, SUITE 100
DALLAS, TEXAS 75219
(Address of principal executive offices) (Zip code)
(214) 765-4000
(Registrant's telephone number, including area code)
6688 N. CENTRAL EXPWY., SUITE 800; DALLAS, TEXAS 75206
(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 November 5, 1997, there were 39,997,236 shares of the registrant's class A
common stock outstanding.
<PAGE> 2
PAGEMART WIRELESS, INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q
PART I. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Condensed Consolidated Balance Sheets at December 31, 1996
and September 30,1997........................................3
Condensed Consolidated Statements of Operations for the Three
and Nine Months Ended September 30, 1996 and 1997............4
Condensed Consolidated Statements of Cash Flows for the Nine
Months Ended September 30, 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..............8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.............................................18
Item 4. Submission of Matters to a Vote of Security Holders...........18
Item 5. Other Information.............................................18
Item 6. Exhibits and Reports on Form 8- K.............................18
2
<PAGE> 3
PAGEMART WIRELESS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share amounts)
<TABLE>
<CAPTION>
December 31, September 30,
1996 1997
------------ -------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 22,603 $ 7,580
Accounts receivable, net 33,446 54,748
Inventories 11,702 6,103
Prepaid expenses and other current assets 2,821 5,865
------------ ------------
Total current assets 70,572 74,296
Property and equipment, net 96,943 117,469
Narrowband licenses 133,065 133,065
Deferred debt issuance costs, net 6,378 5,744
Other assets 6,662 3,439
------------ ------------
Total assets $ 313,620 $ 334,013
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable $ 23,186 $ 17,150
Current maturities of long-term debt -- 1,589
Deferred revenue 27,047 46,793
Other current liabilities 12,270 16,325
------------ ------------
Total current liabilities 62,503 81,857
Long-term debt 240,687 274,655
Commitments and contingencies
Stockholders' equity (deficit):
Common stock, $.0001 par value per share, 75,000,000
shares authorized, 39,804,932 and 39,986,891 shares issued
at December 31, 1996 and September 30, 1997, respectively 4 4
Additional paid-in capital 225,661 226,414
Accumulated deficit (214,688) (248,449)
Stock subscriptions receivable (547) (468)
------------ ------------
Total stockholders' equity (deficit) 10,430 (22,499)
------------ ------------
Total liabilities and stockholders' equity (deficit) $ 313,620 $ 334,013
============ ============
</TABLE>
The accompanying notes to condensed consolidated financial statements
are an integral part of these financial statements
3
<PAGE> 4
PAGEMART WIRELESS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
-------------------------------- -------------------------------
1996 1997 1996 1997
-------- -------- --------- ---------
Revenues:
<S> <C> <C> <C> <C>
Recurring revenue $ 39,697 $ 53,593 $ 110,404 $ 150,074
Equipment sales and activation fees 16,253 19,213 43,208 50,357
-------- -------- --------- ---------
Total revenues 55,950 72,806 153,612 200,431
Cost of equipment sold 19,216 24,055 50,939 62,437
Operating expenses:
Technical 9,756 11,963 26,679 34,116
Selling 10,691 12,251 30,602 37,256
General and administrative 13,707 16,957 39,669 48,547
Depreciation and amortization 5,714 7,672 14,904 21,806
-------- -------- --------- ---------
Total operating expenses 39,868 48,843 111,854 141,725
-------- -------- --------- ---------
Operating loss (3,134) (92) (9,181) (3,731)
Other (income) expense:
Interest expense 8,720 9,812 26,036 28,147
Interest income (482) (87) (847) (387)
Other 614 784 1,363 2,270
-------- -------- --------- ---------
Total other (income) expense 8,852 10,509 26,552 30,030
-------- -------- --------- ---------
Net loss $(11,986) $(10,601) $ (35,733) $ (33,761)
======== ======== ========= =========
Net loss per share
(primary and fully diluted) $ (0.30) $ (0.27) $ (0.97) $ (0.85)
Weighted average number
of shares outstanding
(primary and fully diluted) 39,731 39,955 36,695 39,894
</TABLE>
The accompanying notes to condensed consolidated financial statements
are an integral part of these financial statements
4
<PAGE> 5
PAGEMART WIRELESS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-------------------------------
1996 1997
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(35,733) $(33,761)
Adjustments to reconcile net loss to
net cash provided by (used in) operating activities:
Depreciation and amortization 14,904 21,806
Provision for bad debt 4,610 8,095
Accretion of discount on senior discount notes 22,760 26,123
Amortization of deferred debt issuance costs 1,511 634
Changes in certain assets and liabilities:
Increase in accounts receivable (15,412) (29,397)
(Increase) decrease in inventories (6,973) 5,739
(Increase) decrease in prepaid expense and other
current assets 126 (3,044)
(Increase) decrease in other assets, net (1,421) 2,276
Decrease in accounts payable (292) (6,036)
Increase in deferred revenue 4,913 19,746
Increase in other current liabilities 465 4,055
-------- --------
Net cash provided by (used in) operating activities (10,542) 16,236
-------- --------
Cash flows from investing activities:
Purchases of property and equipment, net (42,546) (40,541)
Release of restricted cash 500 --
Other (121) (984)
-------- --------
Net cash used in investing activities (42,167) (41,525)
-------- --------
Cash flows from financing activities:
Proceeds from issuance of common stock 70,500 --
Proceeds from issuance of common stock under
the stock option/stock issuance plan 135 575
Proceeds from conversion of common stock warrants -- 157
Payment of stock subscription receivable 10 100
Borrowings under Revolving Credit Agreement 31,100 --
Payments on Revolving Credit Agreement (31,100) --
Borrowings from vendor financing arrangement -- 9,933
Payments on vendor financing arrangement (15,027) (499)
Deferred debt issuance costs incurred for Revolving Credit Agreement (17) --
-------- --------
Net cash provided by financing activities 55,601 10,266
-------- --------
Net increase (decrease) in cash & cash equivalents 2,892 (15,023)
Cash and cash equivalents, beginning of period 26,973 22,603
-------- --------
Cash and cash equivalents, end of period $ 29,865 $ 7,580
======== ========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 1,154 $ 699
Income Taxes $ -- $ --
Supplemental schedule of noncash operating and investing activities:
Common stock issued in exchange for stock subscriptions receivable $ 21
</TABLE>
The accompanying notes to condensed consolidated financial statements
are an integral part of these financial statements
5
<PAGE> 6
PAGEMART WIRELESS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1997
(Unaudited)
1. GENERAL
PageMart, Inc. ("PageMart") was incorporated as a Delaware corporation
on May 8, 1989 to provide wireless messaging products and services. In January
1995, PageMart effected a corporate reorganization pursuant to which PageMart
Nationwide, Inc., a Delaware corporation, became the holding company parent of
PageMart. In December 1995, the corporate name was changed from PageMart
Nationwide, Inc. to PageMart Wireless, Inc. ("Wireless"). Wireless and its
subsidiaries are referred to herein as the "Company." The consolidated financial
statements of the Company include the accounts of PageMart and PageMart PCS,
Inc., a wholly-owned subsidiary of Wireless ("PageMart PCS"). PageMart PCS holds
certain narrowband personal communications services licenses. 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.
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 and nine months ended September 30, 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 reclassified to conform with the current year presentation.
3. NET LOSS PER SHARE
Net loss per share amounts as reflected on the statements of operations
are based upon the weighted average number of common shares outstanding. As
required by the Securities and Exchange Commission rules, all warrants, options
and shares issued during the year immediately preceding the June 1996 initial
public offering are assumed to be outstanding for all periods presented.
The Company will adopt the provisions of Statement of Financial
Accounting Standards No. 128, "Earnings per Share," ("SFAS No. 128") in the
fourth quarter of fiscal 1997. SFAS No. 128, issued February 1997, replaces the
primary earnings per share calculation with a basic earnings per share
calculation and modifies the calculation of diluted earnings per share. The
Company anticipates the adoption of SFAS No. 128 will have no impact on its
reporting of net loss per share for 1997 or prior periods.
4. SUBSEQUENT EVENT
The Company is proposing to (a) raise approximately $225 million
through an offering (the "Offering") of Senior Subordinated Discount Notes Due
2007 (the "New Subordinated Notes"), (b) refinance certain of its outstanding
indebtedness (the "Refinancing"), and (c) modify its corporate structure.
6
<PAGE> 7
The Refinancing will consist of the following: (i) the offer to
purchase all of the 12 1/4% Senior Discount Notes Due 2003 (the "12 1/4% Notes")
of PageMart tendered to PageMart in its tender offer (the "Tender Offer") for
all outstanding 12 1/4% Notes and the elimination of most of the covenants and
agreements in the indenture relating to the 12 1/4% Notes; and (ii) the
amendment of certain of the covenants and agreements in the indenture relating
to Wireless' 15% Senior Discount Notes due 2005 (the "15% Notes") pursuant to
consents being solicited from holders of such notes.
The Company will modify its corporate structure by merging (the
"Merger") PageMart into Wireless, pursuant to which Wireless will be the
surviving corporation.
The Company intends to use the net proceeds of the Offering of the New
Subordinated Notes to finance the Tender Offer, to fund the initial construction
and deployment of the Company's Narrowband Personal Communications Services
("NPCS") network and for other general corporate purposes.
Consummation of the Offering, the Refinancing and the Merger will occur
simultaneously and is conditional upon, among other things, market conditions,
receipt of consents from at least a majority in principal amount at maturity of
the 15% Notes and receipt of tenders of at least a majority in principal amount
at maturity of the 12 1/4% Notes.
The New Subordinated Notes will be sold in the United States in a
private placement and outside the United States pursuant to Regulation S.
Accordingly, the New Subordinated Notes will not be registered under the
Securities Act of 1933, as amended, and may not be offered or sold in the United
States absent registration or an applicable exemption from the registration
requirements of such act. This Form 10-Q shall not constitute an offer to sell
or the solicitation of an offer to buy, nor shall there be any sale of these
securities in any state in which such offer or solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of any
state.
7
<PAGE> 8
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 and nine months ended September
30, 1997 and 1996. This discussion should be read in conjunction with the
Company's condensed consolidated financial statements and the notes thereto
included elsewhere in this report. Certain prior year amounts have been
reclassified to conform with the current year presentation.
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 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 reflect management's judgment 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."
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, centralized customer service call centers and 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 to increase
profitability and cash flow through greater utilization of its nationwide
wireless communications network. From September 30, 1996 to September 30, 1997,
the number of domestic units in service increased from 1,684,937 to 2,343,299.
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. In addition, the Company began testing
and development of advanced messaging services in 1996 and plans to continue the
development and implementation in 1997 and 1998, and plans to incur additional
operating losses and make additional capital expenditures in such periods. The
Company expects to incur additional operating losses during the start-up phase
for such services. The Company does not anticipate any significant revenues from
advanced messaging services during 1997 and 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 offsets 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., EXCEL Communications, Inc.,
ALLTEL Communications, Inc., Bluegrass Cellular and First Cellular of Southern
Illinois as well as international expansion.
The Company has historically sold, rather than leased, 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 recouped a substantial portion of messaging equipment costs upon sale
to retailers and subscribers. This resulted 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 from those
8
<PAGE> 9
of 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. At September 30, 1997, the
Company's national retail, private brand strategic alliances and national sales
offices strategic business units represented approximately 25%, 30% and 45% of
the Company's total subscriber base, respectively. 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. The Company expects equipment prices
per unit generally to remain constant or decline only slightly as sales volumes
increase. Management anticipates that loss on equipment sold will generally
remain constant on a per unit basis for the foreseeable future. Units sold by
the Company during a given month may exceed units activated and in service due
to inventory stocking by and distribution strategies of national 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 disconnection rates for the years ended December 31,
1994, 1995 and 1996 and the nine months ended September 30, 1997 were 3.4%,
2.5%, 2.4% and 2.4%, 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 is dependent on usage. 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 private brand strategic alliance programs because these subscribers are
generally high volume customers that are charged wholesale airtime rates.
However, because private brand strategic alliance partners 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.
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 domestic one-way wireless messaging
operations, unless otherwise indicated.
Certain of the following financial information is presented on a per
subscriber 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.
9
<PAGE> 10
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997
Units in Service
Units in service from domestic operations were 1,684,937 and 2,343,299
as of September 30, 1996 and 1997, respectively, representing an annual growth
rate of 39%. In addition, for the three and nine months ended September 30,
1997, PageMart Canada Limited ("PageMart Canada") added 6,195 and 17,916
subscribers, respectively. As a result of its ownership interest in PageMart
Canada, the Company's proportional share of net subscriber additions from
PageMart Canada was 3,717 and 10,750 units for the three and nine months ended
September 30, 1997, respectively. The Company has experienced strong growth in
units in service due primarily to the success of its sales and marketing
strategies in the national retail, private brand strategic alliance and direct
sales programs.
Revenues
Revenues for the three and nine months ended September 30, 1997 were
$72.7 million and $200.3 million, respectively, compared to $56.0 million and
$153.6 million for the three and nine months ended September 30, 1996. Recurring
revenues for airtime, voice mail, and other services for the three and nine
months ended September 30, 1997 were $53.6 million and $150.1 million,
respectively, compared to $39.7 million and $110.4 million for the comparable
periods ended September 30, 1996. Revenues from equipment sales and activation
fees for the three and nine months ended September 30, 1997 were $19.1 million
and $50.2 million, respectively, compared to $16.3 million and $43.2 million for
the comparable periods ended September 30, 1996. 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 third quarter of 1997 was partially offset by a
decline in the average price per unit sold.
The Company's ARPU was $8.25 and $7.90 in the third quarter of 1996 and
1997, respectively. Over the past year, the Company's ARPU has decreased
primarily as a result of an increase in subscribers added through the private
brand strategic alliance channel. This decrease in ARPU has been offset
partially 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.
Cost of Equipment Sold
The cost of equipment sold for the three and nine months ended
September 30, 1997 was $24.0 million and $62.3 million, respectively, compared
to $19.2 million and $50.9 million for the comparable periods ended September
30, 1996. The change in 1997 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 purchase
discounts.
Operating Expenses
Technical expenses were $12.0 million and $34.1 million for the three
and nine months ended September 30, 1997, respectively, compared to $9.7 million
and $26.5 million for the comparable 1996 periods. 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 $2.02 and $1.76 in the
third quarter of 1996 and 1997, respectively, compared to $2.01 and $1.81 for
the nine months ended September 30, 1996 and 1997, respectively. The per unit
decrease was the result of increased operating efficiencies and economies of
scale achieved through the growth of the Company's subscriber base. During the
nine months ended September 30, 1997, the Company incurred $3,000 in technical
expenses associated with the development of its advanced messaging services.
Selling expenses for the three and nine months ended September 30, 1997
were $12.1 million and $36.9 million, respectively, compared to $10.6 million
and $30.3 million for the three and nine months ended September 30, 1996,
respectively. This increase resulted from greater marketing and advertising
costs related to the growth in units sold as well as costs associated with
stocking additional retail outlets. The Company added 7,146 retail outlets from
September 30, 1996 to September 30, 1997. During the nine months ended September
30, 1996 and
10
<PAGE> 11
1997, the Company added 444,913 and 491,854 net new domestic units in service,
respectively. 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 domestic subscriber addition (including loss on equipment
sales) was $85 for both the three and nine months ended September 30, 1996,
compared to $105 and $100 for the three and nine months ended September 30,
1997, respectively. This increase was due to losses recognized on the sale of
pagers due to stocking new retail outlets. The Company added 1,759 additional
retail outlets in the three months ended September 30, 1997, including additions
from Eckerd Drug and Southland (7- Eleven) stores. The losses on equipment sold
are recognized when pagers are shipped to the retailers, usually before the
units are placed into service, thus, increasing selling expenses (including loss
on sale of equipment) per net subscriber addition. During the three and nine
months ended September 30, 1997, the Company incurred $112,000 and $356,000,
respectively, in selling expenses associated with its international operations
(including loss on sale of equipment).
General and administrative expenses (including costs associated with
customer service, field administration and corporate headquarters) for the three
and nine months ended September 30, 1997 were $17.0 million and $48.5 million,
respectively, compared to $13.7 million and $39.5 million for the comparable
1996 periods. This increase was attributable to the Company's expansion of its
customer service call centers and other administrative capabilities 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 $2.84 and $2.50 in the third quarter of 1996 and 1997, respectively, and
$3.00 and $2.57 for the nine months ended September 30, 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. During the nine months ended September 30, 1997, the Company
incurred $13,000 in general and administrative expenses associated with the
development of its advanced wireless messaging services.
Depreciation and amortization for the three and nine months ended
September 30, 1997 were $7.6 million and $21.7 million, respectively, compared
to $5.7 million and $14.9 million for the comparable periods ended September 30,
1996. 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 in 1996 and
the first nine months of 1997. As an average cost per month per unit in service,
depreciation and amortization was $1.19 and $1.12 in the third quarter of 1996
and 1997, respectively, and was $1.13 and $1.15 for the nine months ended
September 30, 1996 and 1997, respectively. During the three and nine months
ended September 30, 1997, the Company incurred $46,000 and $132,000,
respectively, in depreciation expenses associated with the development of its
advanced wireless messaging services.
Interest Expense
Consolidated interest expense for the three and nine months ended
September 30, 1997 was $9.8 million and $28.1 million, respectively, compared to
$8.7 million and $26.0 million for the comparable periods ended September 30,
1996. The increase in 1997 was primarily the result of increased interest
expense related to the 12 1/4% Senior Discount Notes due 2003 issued by PageMart
in October 1993 (the "12 1/4% Notes") and the 15% Senior Discount Notes due 2005
issued by the Company in January 1995 (the "15% Notes"). Interest expense
related to the 12 1/4% Notes was $3.4 million and $3.8 million for the three
months ended September 30, 1996 and 1997, respectively, and was $9.8 million and
$11.1 million for the nine months ended September 30, 1996 and 1997,
respectively. Interest expense related to the 15% Notes was $4.7 million and
$5.4 million for the three months ended September 30, 1996 and 1997,
respectively, and was $13.6 million and $15.6 million for the nine months ended
September 30, 1996 and 1997, respectively.
Net Loss
The Company sustained consolidated net losses for the three and nine
months ended September 30, 1997 of $10.6 million and $33.8 million,
respectively, compared to $12.0 million and $35.7 million for the three and nine
months ended September 30, 1996, 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.
11
<PAGE> 12
MANAGEMENT'S PRESENTATION OF RESULTS OF OPERATIONS
Comparison with GAAP Presentation
The Company's unaudited condensed consolidated financial statements for
the three and nine months ended September 30, 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 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
domestic subscriber per month for the Company's one-way operations has grown
from $2.11 during the fourth quarter of 1995 to $2.51 during the third quarter
of 1997 due primarily to the Company's increase in subscribers 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.
12
<PAGE> 13
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
- ----------------------------------------------------------------------------------------------------------------------------
DEC. 31, MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30,
1995 1996 1996 1996 1996 1997 1997 1997
-------- -------- -------- -------- -------- -------- -------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Recurring revenues $30,658 $33,743 $36,964 $39,697 $42,637 $46,475 $50,004 $53,593
Technical expenses 7,015 7,943 8,783 9,725 10,273 10,765 11,385 11,963
General and
administrative expenses 12,243 12,792 13,043 13,668 14,162 15,763 15,814 16,957
Depreciation and
amortization 3,910 4,248 4,942 5,714 6,288 6,808 7,240 7,626
----- ----- ----- ----- ----- ----- ----- -----
Operating profit before
selling expenses 7,490 8,760 10,196 10,590 11,914 13,139 15,565 17,047
Selling expenses (1) 11,181 11,601 12,836 13,588 14,900 15,443 16,556 16,981
------ ------ ------ ------ ------ ------ ------ ------
Operating income (loss) ($3,691) ($2,841) ($2,640) ($2,998) ($2,986) ($2,304) ($991) $66
======= ======= ======= ======= ======= ======= ======= =======
EBITDA $219 $1,407 $2,302 $2,716 $3,302 $4,504 $6,249 $7,692
======= ======= ======= ======= ======= ======= ======= =======
OTHER DATA:
Units in service (2) 1,240,024 1,374,146 1,524,297 1,684,937 1,851,445 2,001,525 2,181,775 2,343,299
Net subscriber additions 108,560 134,122 150,151 160,640 166,508 150,080 180,250 161,524
ARPU (3) $8.62 $8.61 $8.50 $8.25 $8.04 $8.04 $7.97 $7.90
National retail outlets 3,411 3,690 4,286 5,025 5,530 7,388 10,412 12,171
Operating profit before
selling expenses per
domestic subscriber per
month (4) $2.11 $2.23 $2.35 $2.20 $2.25 $2.27 $2.48 $2.51
Selling expenses per net
domestic subscriber
addition (1)(5) $103 $86 $85 $85 $89 $103 $92 $105
Capital employed per
unit in service (6) $40 $41 $49 $49 $43 $41 $40 $36
- -------------------------
(1) Includes loss on sale of equipment.
(2) Stated as of the end of each period.
(3) Calculated by dividing domestic recurring revenues for the quarter by the average number of domestic 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 domestic 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 domestic subscriber
additions for the quarter.
(6) Calculated by dividing consolidated 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 domestic units in service at the end of the period.
</TABLE>
13
<PAGE> 14
Supplementary Information
The following table sets forth supplementary financial information
related to the Company's various operations (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, 1997
ONE-WAY ADVANCED PAGEMART
MESSAGING MESSAGING INT'L (1) TOTAL
------------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C> <C>
Revenues $72,735 $ - $71 $72,806
Technical expense 11,963 - - 11,963
Selling expense 12,115 - 136 12,251
General and administrative expense 16,957 - - 16,957
Depreciation and amortization expense 7,626 46 - 7,672
Operating income (loss) 66 (46) (112) (92)
EBITDA 7,692 - (112) 7,580
Total assets 165,708 168,763 (458) 334,013
Capital expenditures 9,618 7,563 - 17,181
NINE MONTHS ENDED SEPTEMBER 30, 1997
ONE-WAY ADVANCED PAGEMART
MESSAGING MESSAGING INT'L (1) TOTAL
------------------------------------------------------------------
(Unaudited)
Revenues $200,264 $ - $167 $200,431
Technical expense 34,113 3 - 34,116
Selling expense 36,876 - 380 37,256
General and administrative expense 48,534 13 - 48,547
Depreciation and amortization expense 21,674 132 - 21,806
Operating income (loss) (3,229) (148) (354) (3,731)
EBITDA 18,445 (16) (354) 18,075
Total assets 165,708 168,763 (458) 334,013
Capital expenditures 23,119 17,422 - 40,541
</TABLE>
(1) Expenses reflected in this table are for the Company's international
headquarters operations. The Company accounts for its investments in Canada
under the equity method. Consequently, the Company's share of expenses from
its Canadian operations are not reflected in this table.
SEASONALITY
Pager usage is slightly higher during the spring and summer months,
which is reflected in higher incremental usage fees earned by the Company. The
Company's retail sales are subject to seasonal fluctuations that affect retail
sales generally. Otherwise, the Company's results are generally not
significantly affected by seasonal factors.
14
<PAGE> 15
LIQUIDITY AND CAPITAL RESOURCES
The Company's operations have historically required substantial capital
investment for the development and installation of its wireless communications
network, the procurement of messaging equipment and expansion into new and
existing markets. To date, these investments by the Company have been funded by
the proceeds from the issuance of common stock, preferred stock, the 12 1/4%
Notes and the 15% Notes, as well as borrowings under vendor financing and
revolving credit agreements.
Capital expenditures for the nine months ended September 30, 1997 were
$40.5 million compared to $42.5 million for the nine months ended September 30,
1996. Capital expenditures for the nine months ended September 30, 1997 include
approximately $17.4 million related to the development of advanced messaging
services, $16.1 million for the Company's one-way messaging network and $7.0
million for the development of the Company's new administrative system. During
December 1995, the Company committed to purchase $40 million in network
infrastructure equipment from Motorola, Inc. from December 1, 1995 to October
31, 1999. Through September 30, 1997, the Company has purchased $21.8 million of
network infrastructure under this purchase commitment.
The Company's net cash provided by operating activities for the nine
months ended September 30, 1997 was $16.2 million compared with the net cash
used of $10.5 million for the nine months ended September 30, 1996. Net cash
used in investing activities was $41.5 million for the nine months ended
September 30, 1997 compared with $42.2 million for the comparable 1996 period.
Of the $41.5 million used in investing activities in the first nine months of
1997, $40.5 million was for capital expenditures. Net cash provided by financing
activities, including borrowings and equity issuances was $10.3 million for the
nine months ended September 30, 1997 compared with the $55.6 million for the
nine months ended September 30, 1996. Cash provided in 1996 resulted primarily
from $70.5 million in net proceeds received in connection with the initial
public offering of the Company's Class A Common Stock. Cash provided in 1997
resulted from net borrowings of $9.4 million on a vendor financing arrangement.
Long-term obligations, less current maturities, increased by approximately $34.0
million during the nine months ended September 30, 1997. The increase resulted
from the accretion of the 15% Notes of $15.2 million, the accretion of the 12
1/4% Notes of 10.9 million and $7.8 million of borrowings on a vendor financing
arrangement.
In March 1997, PageMart entered into a vendor financing arrangement
with an infrastructure vendor (the "Vendor Financing Arrangement"), providing
for the financing of one-way or advanced messaging services infrastructure
equipment over a period of 60 months up to a maximum aggregate amount of $30
million. Borrowings under the Vendor Financing Arrangement are secured by the
equipment purchased. The interest rate applicable to such financing is equal to
the sum of 7.00% and the London interbank offered rate ("LIBOR") as published in
The Wall Street Journal for three month maturities or the sum of 4.25% and the
U.S. prime rate of interest as published in The Wall Street Journal. The
weighted average interest rate in effect on September 30, 1997 with respect to
the Vendor Financing Arrangement was 12.6%.
As of September 30, 1997, the Company had $9.4 million outstanding
under the Vendor Financing Arrangement and its indebtedness under the 12 1/4%
Notes was $118.8 million and its indebtedness under the 15% Notes was $148.0
million. The Company is proposing to raise approximately $225 million through an
offering of senior subordinated discount notes and to refinance certain of its
outstanding indebtedness. Pursuant to this proposed refinancing, the Company's
capital structure will change as described in Footnote 4, Subsequent Event, of
the Notes to Condensed Consolidated Financial Statements.
The 12 1/4% Notes, which are unsecured senior obligations of PageMart,
mature in 2003 and were issued at a substantial discount from their principal
amount at maturity. The accretion of original issue discount on the 12 1/4%
Notes will cause an increase in indebtedness from September 30, 1997 to November
1, 1998 of $17.7 million. From and after November 1, 1998, interest on the 12
1/4% Notes will be payable semiannually, in cash. In connection with the
proposed refinancing, the Company will offer to purchase all of the 12 1/4%
Notes.
15
<PAGE> 16
The 15% Notes, which are unsecured senior obligations of Wireless,
mature in 2005 and were issued at a substantial discount from their principal
amount at maturity. The accretion of original issue discount on the 15% Notes
will cause an increase in indebtedness from September 30, 1997 to February 1,
2000 of $59.3 million. From and after February 1, 2000, interest on the 15%
Notes will be payable semiannually, in cash.
In May 1995, the Company entered into a four year Revolving Credit
Agreement with BT Commercial Corporation, as Agent, and Bankers Trust Company,
as Issuing Bank, which provides for a $50 million revolving line of credit (the
"Revolving Credit Agreement"). As of September 30, 1997 there were no loans
outstanding under the Revolving Credit Agreement. The maximum amount available
under the Revolving Credit Agreement at any time is limited to a borrowing base
amount equal to the lesser of (i) 80% of eligible accounts receivable plus 50%
eligible inventory owned by Wireless, and (ii) an amount equal to the service
contribution as defined in the Revolving Credit Agreement of Wireless and its
subsidiaries for the immediately preceding three-month period times 4.0. As of
September 30, 1997, the amount available under the Revolving Credit Agreement
was $24.1 million. In the event Wireless exercised its option to increase its
borrowing base by purchasing inventory and accounts receivable from PageMart,
the maximum amount available under the Revolving Credit agreement would have
been $44.9 million at September 30, 1997. Management anticipates borrowing under
the Revolving Credit Agreement during the fourth quarter of 1997.
The indenture under which the 15% Notes were issued (the "15%
Indenture"), the indenture under which the 12 1/4% Notes were issued (the "12
1/4% Indenture"), the Revolving Credit Agreement and the Vendor Financing
Arrangement contain certain restrictive covenants that, among other things,
limit the ability of the Company to incur indebtedness, pay dividends,
repurchase capital stock, engage in transactions with stockholders and
affiliates, create liens, sell assets, enter into leases and engage in mergers
and consolidations, and the Revolving Credit Agreement requires the Company to
maintain certain financial ratios and limits the ability of the Company to make
capital expenditures. In addition, the 12 1/4% Indenture prohibits PageMart from
paying any dividends or making other distributions on its capital stock, making
loans to Wireless, merging or consolidating with Wireless or assuming or
guaranteeing any obligations of Wireless unless PageMart is in compliance with
certain interest coverage ratios and certain other requirements. PageMart may,
however, sell its assets to Wireless in transactions that are arm's length in
nature. Wireless is currently a holding company with no business or operations
of its own. Because all of Wireless's operations are conducted through its
subsidiaries, Wireless's cash flow and consequently its ability to service debt,
is almost entirely dependent upon the earnings of its subsidiaries and the
distribution of those earnings or upon loans or other payment of funds by those
subsidiaries to Wireless. Wireless's subsidiaries are separate and distinct
legal entities and have no obligation, contingent or otherwise, to pay any
amounts due pursuant to Wireless's obligations or to make any funds available
therefor, whether by dividends, loans or other payments. Until the maturity of
the 12 1/4% Notes, which mature on November 1, 2003, earlier repayment of such
indebtedness or compliance with the requirements of such debt instruments,
Wireless will be unable to use any amount of cash generated by the operations of
PageMart and its subsidiaries. However, currently Wireless does not have
significant cash requirements until March 1999 when the Revolving Credit
Agreement matures. The Company is proposing to raise approximately $225 million
through an offering of senior subordinated discount notes and to refinance
certain of its outstanding indebtedness. Pursuant to this proposed refinancing,
the Company's capital structure will change as described in Footnote 4,
Subsequent Event, of the Notes to Condensed Consolidated Financial Statements.
On November 15, 1995, the Company purchased through PageMart
International, Inc., 200,000 voting shares of common stock of PageMart Canada,
which represents 20% of the ownership of PageMart Canada. PageMart
International, Inc. also owns 33% of the voting common stock of the holding
company parent of PageMart Canada ("Canada Holding"), which owns the remaining
80% of the voting common stock of PageMart Canada. The Company's investment in
Canada Holding and PageMart Canada totals approximately $3.7 million.
As of September 30, 1997, the Company had approximately $7.6 million in
cash and cash equivalents. The Company's cash balances and borrowings under the
Revolving Credit Agreement and the Vendor Financing Arrangement are expected to
be sufficient to fund the Company's one-way operations and related capital
requirements through 1998. The Company anticipates its one-way messaging
operations will generate sufficient cash flows to fund one-way capital
expenditures for 1998.
16
<PAGE> 17
As the Company begins development and implementation of advanced
messaging services, the Company expects to incur significant additional
operating losses during the start-up phase for such services and it will be
necessary for the Company to make substantial investments. The Company
anticipates requiring additional sources of capital to fund the construction of
an advanced messaging network, including expenditures relating to the buildout
requirements of the FCC. The Company anticipates investing $100 million to
construct and deploy an NPCS network sufficient to market advanced messaging
services nationwide by the end of 1998. Thereafter, the Company anticipates that
the advanced messaging operations may require up to $100 million of additional
investment to fund operations, marketing and to add capacity to the network as
the Company's advanced messaging customer base grows. In addition, the Company
may require up to $50 million of secured vendor financing to fund the purchase
of subscriber units. Although the Company does not currently have a source to
fund the purchase of the subscriber units, the Company believes that it will not
require such financing for at least one year. The Company's ability to incur
indebtedness is limited by the covenants contained in the 15% Indenture, the 12
1/4% Indenture, the Vendor Financing Arrangement, the issuance of the proposed
financing and the Revolving Credit Agreement. As a result, any additional
financing may need to be in the form of equity capital. The Company does not
anticipate any significant revenues from advanced messaging services during 1997
and 1998. The Company anticipates funding a portion of its advanced messaging
operations with available borrowings under the Vendor Financing Arrangement and
the Revolving Credit Agreement and from any excess cash generated from the
Company's one-way messaging operations. However, there can be no assurance that
sufficient financing will be available to the Company, and if available on
attractive terms.
Future revenues, costs, product mix and new product acceptance are all
influenced by a number of factors which are inherently uncertain and difficult
to predict. Therefore, no assurance can be given that financing for such
investments will be available. No assurance can be given that the Company's
strategy will be implemented as currently planned or that the Company's
operations will generate positive cash flows.
This Form 10-Q contains statements that constitute forward-looking
statements. Readers are cautioned that such forward-looking statements 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; the timely development and acceptance of new products;
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 advanced messaging services.
17
<PAGE> 18
Part II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Incorporated by reference to the Company's Form 8-K filed on November
3, 1997.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Company's Annual Meeting of Stockholders held on May 20,
1997, the following proposals were adopted by the vote specified below:
<TABLE>
<CAPTION>
WITHHELD/ BROKER
PROPOSAL FOR AGAINST ABSTAIN NONVOTES
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1) Election of directors:
a) Leigh Abramson 26,027,915 1,650 - -
b) John D. Beletic 26,027,915 1,650 - -
c) Guy de Chazal 26,027,915 1,650 - -
d) Alejandro Perez Elizondo 26,027,865 1,700 - -
e) Roger Linquist 26,027,915 1,650 - -
f) Arthur Patterson 26,027,915 1,650 - -
g) Pamela D.A. Reeve 26,027,915 1,650 - -
h) Frank V. Sica 26,027,915 1,650 - -
2) Approval of an amendment to
the Company's Stock Option
Plan to increase the maximum
number of authorized shares
of the Company's common
stock which may be issued
under the Stock Option Plan
by 2,950,000 for a total of
7,500,000 shares. 25,937,338 3,982 450 87,795
3) Ratification of Arthur Andersen
LLP as independent public
accountants 26,029,115 - 450 -
</TABLE>
ITEM 5. OTHER INFORMATION
On September 30, 1997, Roger Linquist resigned from the Company's board
of directors based on the prospect that his endeavors at General Wireless, Inc.
will occupy much more of his time. Mr. Linquist served on the board for
approximately eight years and was a founder of the Company.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The exhibits listed on the accompanying index to exhibits are
filed as part of this quarterly report.
(b) Reports on Form 8-K
None.
18
<PAGE> 19
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 WIRELESS, INC.
By: /s/John D. Beletic
------------------
John D. Beletic
November 12, 1997 Chairman and
Chief Executive Officer
By: /s/ G. Clay Myers
-----------------
G. Clay Myers
November 12, 1997 Vice President, Finance,
Chief Financial Officer and
Treasurer (principal financial
and chief accounting officer)
19
<PAGE> 20
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
10.1 * Severance and Reimbursement Agreement dated September 12, 1997 between the Company and N. Ross
Buckenham.
11.1 * Statement regarding computation of per share loss for the three months ended September 30,
1997.
11.2 * Statement regarding computation of per share loss for the three months ended September 30,
1996.
11.3 * Statement regarding computation of per share loss for the nine months ended September 30, 1997.
11.4 * Statement regarding computation of per share loss for the nine months ended September 30, 1996.
20.1 ** Form 8-K of the Company dated November 3, 1997
27.1 * Financial Data Schedule.
* Filed herewith
** Previously filed
</TABLE>
20
<PAGE> 1
EXHIBIT 10.1
SEVERANCE AND REIMBURSEMENT AGREEMENT
This Agreement, entered into as of September 12, 1997, is between PageMart
Wireless, Inc., a Delaware corporation (the "Employer"), and N. Ross Buckenham
(the "Employee").
The Employer has offered Employee the position of President, and has
requested Employee to move his residence to Dallas, Texas. Employee is willing
to accept such position and move his residence upon the terms and conditions
set forth in this Agreement.
THEREFORE, the parties hereby agree as follows:
1. SEVERANCE. If the Employer's employment of Employee terminates for
any reason other than an Excluded Reason (as defined below) or the
death or disability of Employee, then the Employer will pay Employee
an amount equal to one-half of his annual base salary in effect at the
date of termination. Such amount shall be paid within 10 days after
the date of termination of employment and shall be subject to
withholding taxes to the extent required by law.
2. REIMBURSEMENT. If the Employer's employment of Employee terminates
for any reason other than an Excluded Reason (as defined below), and
if Employee moves his principal residence to another location outside
of Texas within two years after the date of termination of employment,
then the Employer will pay the Employee $100,000 to compensate the
Employee for the expenses of moving his principal residence. Such
amount shall be paid within 10 days after Employee provides the
Employer with evidence that he has moved his principal residence and
shall be subject to withholding taxes to the extent required by law.
3. EXCLUDED REASONS. As used in this Agreement:
(a) The term "Excluded Reason" means the following:
(i) The retirement, resignation or other voluntary termination
of employment by the Employee for any reason other than a
Good Reason (as defined below); or
<PAGE> 2
(ii) The termination of employment by Employer due to conduct by
Employee constituting (i) fraud; (ii) misappropriation of
the Employer's property; (iii) an act of moral turpitude; or
(iv) a willful violation of any law, rule or regulation or
causing the Employer to willfully violate any law, rule or
regulation.
(b) The term "Good Reason" means that Employee is required to accept
a decrease in his base salary or a demotion to a position that is
subordinate to the position of President. To qualify as a
termination of employment for Good Reason, Employee must deliver
to the Employer written notice of termination for Good Reason
within 30 days after the event constituting Good Reason, in which
event his employment will terminate 10 days after the date of the
notice.
4. Conditions. The Employer's obligation to pay Employee the amounts set
forth in Sections 1 and 2 of this Agreement are subject to the
Employer's receipt of a general release of claims against the Employer
executed by Employee in a form satisfactory to the Employer. The time
of payment in each case shall be extended, if necessary, to the date
on which such release cannot be terminated or revoked by the Employee
pursuant to the terms of such release or applicable law.
5. Effective Date and term. This Agreement shall become effective after
Employee has moved his principal residence to Dallas, Texas, and shall
terminate on the fifth anniversary of the date hereof.
6. Miscellaneous. This Agreement is not intended to be an employment
agreement providing for any express or implied term of employment.
This Agreement represents the entire agreement between the parties
with respect to the subject matter hereof, and all prior agreements
between the parties relating to that subject matter are superceded. No
modification or amendment of this Agreement shall be valid and
binding, unless it is in writing and signed by the party against whom
enforcement is sought. The waiver of any provision of this Agreement
shall be effective only if in writing and signed by the party against
whom enforcement is sought, and then only in the specific instance and
for the particular purpose for which it was given. This Agreement
shall be binding upon the Employee and his heirs and personal
representatives, and upon the Employer and it's successors and
assigns. Neither this Agreement, nor any rights and obligations
created under it, may be assigned by the Employee without the prior
written consent of the Employer. This Agreement shall be construed in
accordance with, and governed by, the laws of the State of Texas.
Severance and Reimbursement Agreement Page 2
<PAGE> 3
Executed as of the date first written above.
/s/ N. ROSS BUCKENHAM
------------------------------
N. Ross Buckenham
PAGEMART WIRELESS, INC.
By: /s/ JOHN D. BELETIC
---------------------------
Title: President & CEO
Severance and Reimbursement Agreement Page 3
<PAGE> 1
EXHIBIT 11.1
PAGEMART WIRELESS, INC.
COMPUTATION OF PER SHARE EARNINGS (LOSS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, 1997
---------------------------------------
NUMBER PERCENT EQUIVALENT
OF SHARES OUTSTANDING SHARES
----------- ----------- -----------
COMMON STOCK
<S> <C> <C> <C>
From Founders' Stock 2,300,000 100.00% 2,300,000
Stock Options Exercised 702,486 95.45% 670,519
Preferred Stock Converted to Common Stock 15,310,943 100.00% 15,310,943
1994 Common Stock Offerings 11,242,857 100.00% 11,242,857
1995 Common Stock Offerings 4,323,874 100.00% 4,323,874
1996 Common Stock Offering 6,000,000 100.00% 6,000,000
Employee Stock Purchase Plan Shares Issued 58,431 100.00% 58,431
1997 Warrants Exercised 48,300 100.00% 48,300
---------- ----------
39,986,891 39,954,924
WEIGHTED AVERAGE SHARES OUTSTANDING 39,954,924
NET LOSS ($10,600,389)
NET LOSS PER SHARE ($0.27)
============
</TABLE>
<PAGE> 1
EXHIBIT 11.2
PAGEMART WIRELESS, INC.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, 1996
----------------------------------------
NUMBER PERCENT EQUIVALENT
OF SHARES OUTSTANDING SHARES
---------- ----------- ------------
<S> <C> <C> <C>
COMMON STOCK
From Founders' Stock 2,300,000 100.00% 2,300,000
Stock Options Exercised 553,164 99.96% 552,943
Preferred Stock Converted to Common Stock 15,310,943 100.00% 15,310,943
1994 Common Stock Offerings 11,242,857 100.00% 11,242,857
1995 Common Stock Offerings 4,323,874 100.00% 4,323,874
1996 Common Stock Offering 6,000,000 100.00% 6,000,000
---------- ------------
39,730,838 39,730,617
WEIGHTED AVERAGE SHARES OUTSTANDING 39,730,617
NET LOSS ($11,986,000)
NET LOSS PER SHARE ($0.30)
============
</TABLE>
<PAGE> 1
EXHIBIT 11.3
PAGEMART WIRELESS, INC.
COMPUTATION OF PER SHARE EARNINGS (LOSS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1997
----------------------------------------------
NUMBER PERCENT EQUIVALENT
OF SHARES OUTSTANDING SHARES
-------------- ----------- --------------
<S> <C> <C> <C>
COMMON STOCK
From Founders' Stock 2,300,000 100.00% 2,300,000
Stock Options Exercised 702,486 90.83% 638,067
Preferred Stock Converted to Common Stock 15,310,943 100.00% 15,310,943
1994 Common Stock Offerings 11,242,857 100.00% 11,242,857
1995 Common Stock Offerings 4,323,874 100.00% 4,323,874
1996 Common Stock Offering 6,000,000 100.00% 6,000,000
Employee Stock Purchase Plan Shares Issued 58,431 69.36% 40,526
1997 Warrants Exercised 48,300 79.05% 38,182
-------------- --------------
39,986,891 39,894,449
WEIGHTED AVERAGE SHARES OUTSTANDING 39,894,449
NET LOSS ($33,760,263)
NET LOSS PER SHARE ($0.85)
==============
</TABLE>
<PAGE> 1
EXHIBIT 11.4
PAGEMART WIRELESS, INC.
<TABLE>
<CAPTION>
YTD ENDED JUNE 13, 1996
----------------------------------------
NUMBER PERCENT EQUIVALENT
OF SHARES OUTSTANDING SHARES
----------- ----------- ----------
<S> <C> <C> <C>
COMMON STOCK
From Founders' Stock 2,300,000 100.00% 2,300,000
Stock Options Exercised 537,414 99.47% 534,581
Preferred Stock Converted to Common Stock 15,310,943 100.00% 15,310,943
1994 Common Stock Offerings 11,242,857 100.00% 11,242,857
1995 Common Stock Offerings 4,323,874 100.00% 4,323,874
---------- ----------
33,715,088 33,712,255
Adjustments to outstanding shares:
Add Exercises for 6/13/95 - 6/13/96 at 100% 2,833
Add Shares Issuable upon Exchange of Shares in
PageMart Canada Holding 714,286
Add Weighted Average Grants Issued 6/13/95 -
6/13/96 261,869
-------
Total adjustments to outstanding shares: 978,988
----------
Weighted Average Shares Outstanding (as adjusted) at 6/13/96 34,691,243
6/13/96 Shares Weighted at 165 days 20,890,712
JUNE 14 THROUGH SEPTEMBER 30, 1996
-----------------------------------------
NUMBER PERCENT EQUIVALENT
OF SHARES OUTSTANDING SHARES
----------- ----------- ----------
COMMON STOCK
From Founders' Stock 2,300,000 100.00% 2,300,000
Stock Options Exercised 553,164 99.63% 551,134
Preferred Stock Converted to Common Stock 15,310,943 100.00% 15,310,943
1994 Common Stock Offerings 11,242,857 100.00% 11,242,857
1995 Common Stock Offerings 4,323,874 100.00% 4,323,874
1996 Common Stock Offering 6,000,000 100.00% 6,000,000
---------- ----------
39,730,838 39,728,808
Weighted Average Shares Outstanding at 9/30/96 39,728,808
9/30/96 Shares Weighted at 109 days 15,804,526
WEIGHTED AVERAGE OF SHARES OUTSTANDING at 6/13/96 and 9/30/96 36,695,238
NET LOSS ($35,733,000)
NET LOSS PER SHARE ($0.97)
=============
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S SEPTEMBER 30, 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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 7,580
<SECURITIES> 0
<RECEIVABLES> 58,855
<ALLOWANCES> 4,107
<INVENTORY> 6,103
<CURRENT-ASSETS> 74,296
<PP&E> 186,099
<DEPRECIATION> 68,630
<TOTAL-ASSETS> 334,013
<CURRENT-LIABILITIES> 81,857
<BONDS> 274,655
0
0
<COMMON> 4
<OTHER-SE> (22,503)
<TOTAL-LIABILITY-AND-EQUITY> 334,013
<SALES> 50,357
<TOTAL-REVENUES> 200,431
<CGS> 62,437
<TOTAL-COSTS> 62,437
<OTHER-EXPENSES> 141,725
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 28,147
<INCOME-PRETAX> (33,761)
<INCOME-TAX> 0
<INCOME-CONTINUING> (33,761)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (33,761)
<EPS-PRIMARY> (0.85)
<EPS-DILUTED> (0.85)
</TABLE>
