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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 SEPTEMBER 30, 1999
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)
(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 October 30, 1999, there were 35,753,589, 3,809,363, 728,472 and 316,225
shares of the registrant's class A, class B, class C and class D common stock
outstanding, respectively.
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PAGEMART WIRELESS, INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE
----
<S> <C>
ITEM 1. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS AT DECEMBER 31, 1998
AND SEPTEMBER 30, 1999................................................3
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE AND NINE
MONTHS ENDED SEPTEMBER 30, 1998 AND 1999...............................4
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE
MONTHS ENDED SEPTEMBER 30, 1998 AND 1999...............................5
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS........................6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS..........................9
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.................21
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS..........................................................21
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS..................................21
ITEM 3. DEFAULTS UPON SENIOR SECURITIES............................................21
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS........................21
ITEM 5. OTHER INFORMATION..........................................................21
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K...........................................21
</TABLE>
2
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PAGEMART WIRELESS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
<TABLE>
<CAPTION>
December 31, September 30,
1998 1999
------------ ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 17,476 $ 6,205
Short-term investments 1,000 --
Accounts receivable, net 38,304 51,538
Inventories 6,747 3,044
Other current assets 11,010 9,286
--------- ---------
Total current assets 74,537 70,073
Property and equipment, net 274,179 254,810
Narrowband licenses, net 132,555 130,060
Other assets 12,784 14,154
========= =========
Total assets $ 494,055 $ 469,097
========= =========
LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY
Current liabilities:
Accounts payable $ 38,703 $ 33,858
Deferred revenue 57,512 50,707
Current maturities of long-term debt 1,238 --
Other current liabilities 23,297 25,304
--------- ---------
Total current liabilities 120,750 109,869
Long-term debt 462,079 522,671
Other long-term liabilities 1,248 813
Stockholders' (deficit) equity:
Common stock, $.0001 par value per share, 75,000,000 shares authorized
40,398,292 and 40,602,649 shares issued and outstanding at December 31,
1998 and September 30, 1999, respectively 4 4
Additional paid-in capital 228,438 228,967
Accumulated deficit (317,891) (392,685)
Stock subscriptions receivable (573) (542)
--------- ---------
Total stockholders' (deficit) equity (90,022) (164,256)
--------- ---------
Total liabilities and stockholders' (deficit) equity $ 494,055 $ 469,097
========= =========
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
3
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PAGEMART WIRELESS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
------------------------------- -------------------------------
1998 1999 1998 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues:
Recurring revenues $ 65,219 $ 66,360 $ 189,628 $ 195,764
Equipment revenues 13,565 20,908 43,055 49,006
--------- --------- --------- ---------
Total revenues 78,784 87,268 232,683 244,770
Cost of equipment sold 16,430 22,593 52,963 55,267
--------- --------- --------- ---------
62,354 64,675 179,720 189,503
Operating expenses:
Technical 14,672 19,492 40,849 58,650
Selling 13,471 12,008 41,557 37,906
General and administrative 21,385 20,254 62,596 60,704
Depreciation and amortization 11,409 19,962 29,188 57,689
--------- --------- --------- ---------
Total operating expenses 60,937 71,716 174,190 214,949
--------- --------- --------- ---------
Operating income (loss) 1,417 (7,041) 5,530 (25,446)
Other (income) expense:
Interest expense 10,434 16,722 32,357 48,177
Interest income (787) (110) (2,847) (461)
Other 752 590 2,899 1,632
--------- --------- --------- ---------
Total other (income) expense 10,399 17,202 32,409 49,348
--------- --------- --------- ---------
Loss before extraordinary items (8,982) (24,243) (26,879) (74,794)
Extraordinary items:
Early retirement of debt -- -- (13,808) --
Satellite failure -- -- (3,798) --
--------- --------- --------- ---------
Net loss $ (8,982) $ (24,243) $ (44,485) $ (74,794)
========= ========= ========= =========
Net loss per share:
(basic and diluted)
Loss before extraordinary items $ (0.22) $ (0.60) $ (0.67) $ (1.85)
Extraordinary items -- -- (0.44) --
--------- --------- --------- ---------
Net loss $ (0.22) $ (0.60) $ (1.11) $ (1.85)
========= ========= ========= =========
Weighted average number
of shares outstanding
(basic and diluted) 40,326 40,525 40,203 40,435
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
4
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PAGEMART WIRELESS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-------------------------------
1998 1999
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (44,485) $ (74,794)
Adjustments to reconcile net loss to
net cash provided by operating activities:
Extraordinary items 17,606 --
Depreciation and amortization 29,188 57,689
Provision for bad debt 8,132 5,352
Accretion of discount on senior discount notes 29,815 43,604
Amortization of deferred debt issuance costs 871 1,378
Changes in certain assets and liabilities:
(Increase) decrease in accounts receivable 3,979 (18,586)
(Increase) decrease in inventories (939) 3,703
(Increase) decrease in other current assets (2,394) 1,724
Decrease in other assets 653 68
Increase (decrease) in accounts payable 19,246 (4,845)
Increase (decrease) in deferred revenue 4,289 (6,805)
Increase (decrease) in other current liabilities (1,951) 2,007
--------- ---------
Net cash provided by operating activities 64,010 10,495
--------- ---------
Cash flows from investing activities:
Purchases of property and equipment (128,467) (35,397)
Sale of short-term investments -- 1,000
Other (57) (42)
--------- ---------
Net cash used in investing activities (128,524) (34,439)
--------- ---------
Cash flows from financing activities:
Proceeds from issuance of common stock under
the stock option/stock issuance plan 1,572 529
Payments of stock subscriptions receivable 58 31
Retirement of 12 1/4% Senior Discount Notes (130,689) --
Proceeds from issuance of 11 1/4% Senior Subordinated Discount Notes 249,700 --
Offering Costs related to issuance of 11 1/4% Senior Subordinated
Discount Notes and retirement of 12 1/4% Senior Discount Notes (12,096) --
Deferred debt issuance costs -- (3,202)
Borrowings under the Credit Facility -- 25,000
Borrowings on the vendor financing arrangement 5,268 539
Payments on the vendor financing arrangement (21,249) (10,224)
--------- ---------
Net cash provided by financing activities 92,564 12,673
--------- ---------
Net increase (decrease) in cash and cash equivalents 28,050 (11,271)
Cash and cash equivalents, beginning of period 8,337 17,476
--------- ---------
Cash and cash equivalents, end of period $ 36,387 $ 6,205
========= =========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 719 $ 2,178
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
5
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PAGEMART WIRELESS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1999
(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"). On January 28, 1998,
PageMart was merged into Wireless with Wireless as the surviving corporation.
Wireless and its subsidiaries are referred to herein as the "Company." On
October 22, 1999, the Company announced plans to change the Company's name and
ticker symbol, effective December 1, 1999, to WebLink Wireless, Inc. and
"WLNK,"+ respectively. The consolidated financial statements of the Company
include the accounts of PageMart PCS, Inc., PageMart II, Inc., PageMart
Operations, Inc., PageMart International, Inc. and certain other direct and
indirect subsidiaries of Wireless. Each of these companies is a wholly-owned
subsidiary of Wireless. PageMart PCS, Inc. holds certain narrowband personal
communications services licenses. PageMart II, Inc. and PageMart Operations,
Inc. hold certain Federal Communications Commission ("FCC") licenses. PageMart
International, Inc. holds certain investments in international operations in
Canada. Other than these licenses and international investments, the
subsidiaries of Wireless 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, 1998. In the opinion of management, all adjustments
(consisting only of normal recurring adjustments) considered necessary for a
fair presentation have been included. Operating results for the three and nine
months ended September 30, 1999 are not necessarily indicative of the results
that may be expected for the year ending December 31, 1999.
Certain amounts in the prior year condensed consolidated financial
statements have been reclassified to conform with the current year presentation.
3. CAPITALIZED INTEREST
In accordance with Statement of Financial Accounting Standards No. 34
Capitalization of Interest Cost, the Company capitalizes interest on certain
qualifying assets during the construction period. Interest costs attributable to
the construction of the Company's advanced messaging network of $3.7 million and
$8.2 million were capitalized for the three and nine months ended September 30,
1998. The Company did not capitalize any interest costs for the three and nine
months ended September 30, 1999.
4. LONG-TERM DEBT
On March 23, 1999, the Company entered into a four-year credit agreement
with Bankers Trust Company and Morgan Stanley Senior Funding, Inc. which
provides for a $100 million credit facility (the "Credit Facility"). The Credit
Facility replaced the $50 million revolving line of credit the Company
established on May 11, 1995 with BT Commercial Corporation, as Agent, and
Bankers Trust Company, as issuing bank which was simultaneously terminated. The
Credit Facility provides for $75 million of multi-draw term loans (the "Term
Loans") and $25 million of revolving loans. On March 24, 1999, the Company
borrowed $25 million in Term Loans pursuant to the terms of the Credit Facility.
Approximately $12 million of the initial borrowing was used to repay amounts
outstanding under a vendor financing arrangement and to fund the fees and
expenses of the Credit Facility. As of September 30, 1999, total availability
under the Credit Facility was $75 million, of which $25 million was outstanding
in the form of Term Loans. Further availability of the Credit Facility above the
current $75 million is based on the Company's achievement of certain minimum
targets for advanced messaging subscriber units in service. The Credit Facility
bears interest at the U.S. prime rate plus 2.75% or at London Interbank Offering
Rate ("LIBOR") plus 3.75%. The weighted average interest rate on the amounts
borrowed for the period from March 24, 1999 to September 30, 1999 was 9.8%.
6
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The Credit Facility contains 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 requires the Company to maintain certain
operating and financial performance measures and limits the ability of the
Company to make capital expenditures.
5. 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. Under the
provisions of Statement of Financial Accounting Standards No. 128 - Earnings per
Share, dilutive securities are excluded from the calculation of earnings per
share when there is a net loss because their inclusion would be anti-dilutive.
The securities listed below were not included in the computation of diluted loss
per share for the three and nine months ended September 30, 1998 and 1999, since
the effect from the conversion would be anti-dilutive.
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30,
1998 1999
------------ ------------
<S> <C> <C>
Stock Options 4,957,813 5,613,640
Warrants 786,348 640,758
========= =========
5,744,161 6,254,398
========= =========
</TABLE>
6. STOCK OPTION/STOCK ISSUANCE/STOCK PURCHASE PLANS
At the May 12, 1999 annual meeting of shareholders, a proposal to amend the
Company's Fifth Amended and Restated 1991 Stock Option Plan ("1991 Plan") to
increase the maximum number of authorized shares of the Company's common stock
which may be issued under the 1991 Plan by 2,000,000 for a total of 9,500,000
shares was adopted.
7. COMPREHENSIVE INCOME (LOSS)
In January 1998, the Company adopted the Financial Accounting Standards
Board Statement No. 130--Reporting Comprehensive Income, which establishes
standards for reporting comprehensive income (loss) and its components within
the financial statements. Comprehensive income (loss) is defined as all changes
in the equity of a business enterprise from transactions and other events and
circumstances, except those resulting from investments by owners and
distributions to owners. The Company's comprehensive income (loss) components
are immaterial for the three and nine months ended September 30, 1999 and 1998;
therefore, comprehensive income (loss) is the same as net income for both
periods.
8. SEGMENT REPORTING
In September 1997, the Financial Accounting Standards Board issued
Statement No. 131 Disclosures about Segments of an Enterprise and Related
Information ("SFAS 131"). The Company adopted SFAS 131 for the fiscal year ended
December 31, 1998. SFAS 131 establishes accounting standards for the way that
public business enterprises report information about operating segments in
annual financial statements and requires that those enterprises report selected
information about operating segments in interim financial reports issued to
shareholders. It also establishes standards for related disclosures about
products and services, geographic areas and major customers.
The Company's reportable segments are divisions that offer different
products and/or services. They are managed separately because each division
requires different technology and management strategies. The Company reports
segments based on these divisions as management makes operating decisions and
assesses individual performances based on the performance of these divisions.
The Company has three reportable segments: PageMart Paging, PageMart PCS
and PageMart International. Through its PageMart Paging division, 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. Through its PageMart PCS division, the Company has constructed and
operates an advanced messaging network as an overlay of its one-way network,
which covers approximately 90% of the U.S.
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<PAGE> 8
population. Through PageMart International, the Company provides messaging
services in selected countries on a seamless international network. The Company
pursues international opportunities through foreign related entities, interests
in joint venture arrangements, or network affiliation agreements between the
Company and the owners of foreign networks.
The accounting policies of the segments are the same as those described in
the summary of significant accounting policies presented in the Company's Form
10-K for the fiscal year ended December 31, 1998, except for the allocation of
equity and debt by divisions as discussed below.
The Company allocates proceeds from equity and debt offerings to its
PageMart Paging and PageMart PCS divisions. The methodology the Company follows
results in the attribution of the proceeds of each offering based on the
specific capital and operating requirements of each division. Positive free cash
flow (defined as earnings before interest, taxes, depreciation and amortization
less capital expenditures) generated by a division is utilized to reduce its
respective debt allocation. As of September 30, 1999, $156.5 million and $72.5
million of equity and $115.2 million and $407.5 million of debt have been
allocated to PageMart Paging and PageMart PCS, respectively. For the three
months ended September 30, 1999, interest expense of $3.9 million and $12.8
million was allocated to PageMart Paging and PageMart PCS, respectively. For the
nine months ended September 30, 1999, interest expense of $13.4 million and
$34.8 million was allocated to PageMart Paging and PageMart PCS, respectively.
The following table sets forth segment financial information related to the
Company's various operations (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, 1998
----------------------------------------------------------------
(UNAUDITED)
PAGEMART PAGEMART PAGEMART
PAGING PCS INTERNATIONAL CONSOLIDATED
--------- --------- ------------- ------------
<S> <C> <C> <C> <C>
Revenues $ 78,751 $ 20 $ 13 $ 78,784
Operating income (loss) 5,394 (3,799) (178) 1,417
Interest expense 5,145 5,289 -- 10,434
Interest income -- (787) -- (787)
Income (loss) before extraordinary item 231 (8,289) (924) (8,982)
Net income (loss) 231 (8,289) (924) (8,982)
EBITDA 15,202 (2,198) (178) 12,826
Total assets 195,149 296,295 1,925 493,369
Capital expenditures 10,193 39,089 -- 49,282
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, 1999
-------------------------------------------------------------------
(UNAUDITED)
PAGEMART PAGEMART PAGEMART
PAGING PCS INTERNATIONAL CONSOLIDATED
--------- --------- ------------- ------------
<S> <C> <C> <C> <C>
Revenues $ 81,601 $ 5,571 $ 96 $ 87,268
Operating income (loss) 10,404 (17,344) (101) (7,041)
Interest expense 3,905 12,817 -- 16,722
Interest income (19) (91) -- (110)
Net income (loss) 6,492 (30,070) (665) (24,243)
EBITDA 20,976 (7,954) (101) 12,921
Total assets 136,569 329,662 2,866 469,097
Capital expenditures 4,257 7,645 -- 11,902
</TABLE>
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<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1998
----------------------------------------------------------------
(UNAUDITED)
PAGEMART PAGEMART PAGEMART
PAGING PCS INTERNATIONAL CONSOLIDATED
--------- --------- ------------- ------------
<S> <C> <C> <C> <C>
Revenues $ 232,613 $ 20 $ 50 $ 232,683
Operating income (loss) 11,956 (5,935) (491) 5,530
Interest expense 12,991 19,366 -- 32,357
Interest income (42) (2,805) -- (2,847)
Loss before extraordinary items (1,074) (23,098) (2,707) (26,879)
Net loss (18,680) (23,098) (2,707) (44,485)
EBITDA 39,292 (4,083) (491) 34,718
Total assets 195,149 296,295 1,925 493,369
Capital expenditures 30,034 98,433 -- 128,467
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1999
-------------------------------------------------------------
(UNAUDITED)
PAGEMART PAGEMART PAGEMART
PAGING PCS INTERNATIONAL CONSOLIDATED
----------- ----------- ------------- --------------
<S> <C> <C> <C> <C>
Revenues $ 234,638 $ 9,772 $ 360 $ 244,770
Operating income (loss) 26,118 (51,193) (371) (25,446)
Interest expense 13,373 34,804 - 48,177
Interest income (23) (438) - (461)
Net income (loss) 12,540 (85,559) (1,775) (74,794)
EBITDA 58,564 (25,950) (371) 32,243
Total assets 136,569 329,662 2,866 469,097
Capital expenditures 13,629 21,768 - 35,397
</TABLE>
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, 1999
and 1998. 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 amounts in the prior year condensed
consolidated financial statements have been reclassified to conform with the
current year presentation.
This Form 10-Q contains statements that constitute forward-looking
statements. The words "estimate," "project," "plan," "expect," "believe" and
similar expressions are intended to identify forward-looking statements. Readers
are cautioned that such forward-looking statements involve risks and
uncertainties, and are subject to change based on various important factors. The
factors set forth in other filings with the Securities Exchange Commission and
the following factors, among others, in some cases have affected and in the
future could affect the Company's financial performance and could cause actual
results for 1999 and beyond to differ materially from those expressed in any
such forward-looking statements: economic conditions and consumer confidence
generally in the United States; the ability of the Company to manage its
outstanding indebtedness; 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 messaging services; the timely development and acceptance of new
products; changes in regulation by the FCC and various state regulatory
agencies; potential technical problems relating to the Company's transmission
network for advanced messaging services; and the cost and ability of the Company
and third parties upon whose products and services the Company depends to be
Year 2000 ready in a timely manner.
GENERAL
Through its PageMart Paging division, 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. Through its
PageMart PCS division, the Company has constructed and operates an advanced
messaging network as an overlay of its one-way network, which covers
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approximately 90% of the U.S. population. The Company has incurred significant
capital expenditures and expects to incur additional capital expenditures and
operating losses associated with the implementation and deployment of its
advanced messaging services. Management does not expect the PageMart PCS
Division to generate positive EBITDA (defined herein) until late in 2000.
The Company sells and leases wireless messaging end-user devices to
subscribers, retailers and resellers. The Company earns recurring revenues from
subscribers 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.
Since commencing operations in 1990, the Company has invested heavily in its
wireless communications network and administrative infrastructure in order to
establish nationwide coverage, sales offices in major metropolitan areas,
centralized customer service call centers and administrative support functions.
The Company incurs substantial fixed operating costs related to its 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 costs associated with each new subscriber addition.
The Company sustained consolidated operating losses in each year of operations
from inception through the period ended December 31, 1997. Although the Company
recognized a $2.5 million operating profit for the year ended December 31, 1998,
the Company has sustained an aggregate $12.7 million operating loss for the
three year period ended December 31, 1998 and a $7.0 million and $25.4 million
operating loss for the three and nine months ended September 30, 1999,
respectively. In the third quarter of 1997, the Company began generating
operating profits in its PageMart Paging division and management expects this
trend to continue in 2000. The PageMart PCS division generated operating losses
in 1998 and management expects this trend to continue until late in 2000. The
Company expects to continue to incur consolidated operating losses through the
year ending December 31, 2000, as the Company incurs incremental operating
expenses from PageMart PCS.
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 January 1, 1992 to September 30, 1999, the
total number of units in service increased from 52,125 to 2,711,274. This
includes 2,622,530 from the PageMart Paging division, 49,001 from the PageMart
PCS division and 39,743 from the Company's proportional share in PageMart
Canada. None of the Company's growth is attributable to acquisitions. The
Company intends to achieve unit growth by promoting its customized paging and
other wireless messaging services through its sales offices, national retail
distribution channels, private brand strategic alliances with telecommunication
companies such as BellSouth Cellular Corp., GTE Corporation, Southwestern Bell
Mobile Systems, Sprint, Ameritech Mobile Services, Inc., EXCEL Communications,
Inc., ALLTEL Communications, Inc., Bluegrass Cellular, Inc. and First Cellular
of Southern Illinois and narrowband PCS alliances with companies such as Arch
Communications Group, Inc., Metrocall, Inc., AirTouch Paging and TSR Wireless
LLC.
The Company has historically sold, rather than leased, substantially all
subscriber units used by its subscribers. As a result, the Company has had much
less capital invested in subscriber units than other paging carriers since it
has recouped a substantial portion of subscriber unit costs upon sale to
retailers and subscribers. This has resulted in significantly lower capital
expenditures and depreciation expense than if the Company had leased units to
its subscribers. In addition, the Company's financial results are much different
than other paging carriers that lease subscriber units to subscribers because
the Company recognizes the cost of subscriber units sold in connection with
adding new subscribers at the time of sale rather than capitalizing and
depreciating the cost of subscriber units over periods ranging from three to
four years, as occurs with paging carriers that lease subscriber units to
subscribers. In addition, the Company's retail distribution strategy results in
the recognition of expenses associated with subscriber unit sales and other
sales and marketing expenses in advance of new subscribers being added to the
base and generating revenues, as retailers carry inventory. However, the Company
expects to lease a substantial portion of its advanced messaging subscriber
units as initial sales of advanced messaging services are expected to be
dominated by business and corporate customers and because of the high cost of
advanced messaging subscriber units compared to one-way messaging units.
The Company sells and leases its subscriber units through the following
distribution channels: (i) private brand and narrowband PCS strategic alliances
through its Carrier Services Strategic Business Unit ("SBU"), (ii) third party
local resellers through its Reseller SBU, (iii) national retail stores through
its National Retail SBU and (iv) direct sales through its Field Sales and
National Accounts SBUs. At September 30, 1999, 42% of the Company's domestic
units in service originated from the Carrier Services SBU, 25% originated from
the Reseller SBU, 21% originated from the National Retail SBU and 12% originated
from the Field Sales SBU and the National Accounts SBU, collectively.
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<PAGE> 11
For competitive and marketing reasons, the Company generally sells each new
unit to national retailers for less than its acquisition cost. Management
anticipates that the loss on equipment sold in the National Retail SBU will
generally remain constant on a per unit basis for the foreseeable future. The
Company's accounting practices result in selling and marketing expenses and loss
on sales of equipment being recorded at the time a unit is sold. The Company
expects its cost of subscriber units on a per unit basis generally to remain
constant or decline slightly as sales volumes increase. Units sold by the
Company during a given month may exceed units activated and in service due to
inventory stocking and distribution strategies of retailers.
In the third quarter of 1998, the Company announced the formation of its
Wireless Control Systems (formerly Telemetry) SBU. The Company expects the
Wireless Control Systems SBU to begin generating revenues in the first half of
2000.
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 for
service, dissatisfaction with service and switching to a competing service
provider. The Company's average monthly disconnection rates for the years ended
December 31, 1996, 1997, and 1998 were 2.4%, 2.5% and 3.2%, respectively. For
the three months ended September 30, 1998 and 1999, the Company's average
disconnection rates were 3.1% and 3.0%, respectively. Average monthly disconnect
rates are calculated by dividing (a) the sum of (i) subscriber disconnections
from all direct sales and national retail channels (ii) net subscriber
disconnections from the local reseller channel, taken as a whole and (iii) the
subscriber disconnections from each of the Carrier Services SBU's strategic
alliance partners, to the extent that each partner has net disconnections, by
(b) the total number of units in service at the beginning of the period.
Disconnect rates are stated as the monthly average of each period presented.
Approximately 85% 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 primarily dependent on usage. Management anticipates
that the Company's one-way ARPU will remain constant or decline slightly in the
foreseeable future due to a continued higher mix of subscribers added through
private brand strategic alliance programs, which yield lower ARPU because
strategic alliance partners 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. Management anticipates that the Company's consolidated ARPU will
increase as subscriber additions for its advanced messaging services increase,
since advanced messaging yields a significantly higher ARPU than one-way
messaging.
Earnings (loss) before interest, taxes, depreciation and amortization
("EBITDA") is a financial measure commonly used in the paging industry and
excludes other (income) expense and extraordinary items. EBITDA is not derived
pursuant to generally accepted accounting principles ("GAAP"), and therefore
should not be construed 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 commitments of the Company for
capital expenditures and payment of debt and should not be deemed to represent
funds available to the Company.
RESULTS OF OPERATIONS
Certain of the following financial information is presented on a per
subscriber unit per month basis. Management of the Company believes that such a
presentation is useful in understanding the Company's results because it
provides a meaningful comparison from period-to-period, given the changes in the
Company's subscriber base and the significant differences in the number of
subscribers of other paging companies.
PAGEMART PAGING DIVISION
The Company's principal operations to date are the domestic one-way wireless
operations of its PageMart Paging division. This division is a maturing business
- - requiring only a maintenance level of capital investment and producing
reliable EBITDA, operating income and net income. For the foreseeable future,
management expects EBITDA from the PageMart Paging division to be relatively
11
<PAGE> 12
stable, and fall in a range consistent with the second and third quarters of
1999. The following discussion analyzes the results of the Company's PageMart
Paging division's operations unless otherwise indicated.
Units in Service
Units in service from domestic one-way messaging operations were 2,767,742
and 2,622,530 as of September 30, 1998 and 1999, respectively. In addition,
PageMart Canada's units in service were 44,885, and 66,238, respectively, as of
September 30, 1998 and 1999. As a result of its ownership interest in PageMart
Canada, the Company's proportional share of the units in service of PageMart
Canada was 26,931 and 39,743 units at September 30, 1998 and 1999, respectively.
The Company's one-way messaging operations experienced a net increase of
58,477 subscribers in the third quarter of 1999. The increase was attributable
to a general improvement by each SBU with either net additions or fewer
disconnections when compared with the previous quarter. The Carrier Services SBU
experienced an exceptionally good quarter with one new strategic partner
contributing significantly to the overall increase in the number of quarterly
additions reported by this SBU.
Revenues
Total revenues for the three and nine months ended September 30, 1999 were
$81.6 million and $234.6 million, compared to $78.8 million and $232.6 million
for the three and nine months ended September 30, 1998. Recurring revenues for
airtime, voice mail and other services for the three and nine months ended
September 30, 1999 were $64.5 million and $193.1 million, compared to $65.2
million and $189.6 million for the three and nine months ended September 30,
1998. Revenues from equipment sales for the three and nine months ended
September 30, 1999 were $17.1 million and $41.6 million, compared to $13.5
million and $43.0 million for the three and nine months ended September 30,
1998. Recurring revenue increased for the nine months ended September 30, 1999
compared to the nine months ended September 30, 1998 despite a decrease in units
in service because most of the decline in units was associated with low-ARPU
local numeric service subscribers offset by increased sales in higher ARPU
alphanumeric services and in value added services such as roaming and nationwide
coverage. PageMart Paging's ARPU increased from $7.87 in the third quarter of
1998 to $8.30 in the third quarter of 1999. Equipment revenue decreased for the
nine months ended September 30, 1999 versus the comparable period of 1998
primarily due to lower unit shipments to national retailers, as their on-hand
inventories were sufficient to meet demand. Equipment revenue increased by $3.6
million in the three months ended September 30, 1999 versus the three months
ended September 30, 1998 due primarily to increased equipment sales by the
Carrier Services SBU.
Cost of Equipment Sold
The cost of equipment sold was $18.8 million and $47.7 million for the three
and nine months ended September 30, 1999, compared to $16.4 million and $52.9
million for the three and nine months ended September 30, 1998. The increase in
cost of equipment sold for the three months ended September 30, 1999 was
primarily attributable to increased equipment sales by the Carrier Services SBU.
The decrease for the nine months ended September 30, 1999 versus the comparable
period in 1998 was primarily attributable to lower unit shipments to national
retailers, as their on-hand inventories were sufficient to meet demand. The
Company expects pager costs to generally remain constant. The loss on equipment
sold (equipment revenue less cost of equipment sold) is recognized when pagers
are shipped to the retailers, usually before the units are placed into service.
The Company has historically sold rather than leased the majority of units in
the PageMart Paging division.
Operating Expenses
Technical expenses were $12.7 million and $38.4 for the three and nine
months ended September 30, 1999, compared to $13.4 million and $39.2 million for
the three and nine months ended September 30, 1998. Management expects technical
expenses to remain relatively constant in the future. Based on an average
monthly cost per unit in service, technical expenses were $1.63 for the three
and nine months ended September 30, 1999, respectively, compared to $1.61 and
$1.65 for the three and nine months ended September 30, 1998, respectively.
Selling expenses for the three and nine months ended September 30, 1999 were
$10.3 million and $33.2 million, compared to $12.9 million and $40.1 million for
the three and nine months ended September 30, 1998. The decrease in selling
expense is the result of the maturation of the PageMart Paging operations.
Management expects this number to remain relatively constant in the near
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<PAGE> 13
future. For the three and nine months ended September 30, 1999, the Company
incurred $156,000 and $468,000 in selling expenses associated with international
operations, respectively, compared to $183,000 and $505,000 for the three and
nine months ended September 30, 1998, respectively.
General and administrative expenses (including costs associated with
customer service, field administration and corporate headquarters) for the three
and nine months ended September 30, 1999 were $18.8 million and $56.8 million,
compared to $20.9 million and $61.1 million for the three and nine months ended
September 30, 1998. Management expects general and administrative expenses to
remain relatively constant in the future. On an average cost per month per unit
in service basis, general and administrative expenses were $2.42 and $2.41 for
the three and nine months ended September 30, 1999, respectively, compared to
$2.52 and $2.57 for the three and nine months ended September 30, 1998,
respectively. The decrease in general and administrative expense for the three
and nine months ended September 30, 1999 was largely due to headcount
reductions, initiated in the first quarter of 1999, largely as a result of
certain productivity-oriented technology enhancements in the Company's
information systems and call centers.
Depreciation and amortization was $10.6 million and $32.4 million for the
three and nine months ended September 30, 1999, compared to $9.8 million and
$27.3 million for the three and nine months ended September 30, 1998. The
increases resulted from the expansion of the Company's network infrastructure
including transmitter and terminal equipment, as well as the purchase and
development of computer hardware and software associated with the Company's
administrative system. Because only maintenance levels of capital expenditures
are expected in the PageMart Paging division, depreciation and amortization
should remain relatively constant in the future. As an average cost per month
per unit in service, depreciation and amortization was $1.36 and $1.38 for the
three and nine months ended September 30, 1999, respectively, compared to $1.18
and $1.15 for the three and nine months ended September 30, 1998, respectively.
PAGEMART PCS DIVISION
The Company's PageMart PCS division is expected to fuel the growth of the
Company in the future. Nationwide coverage was first offered on December 15,
1998 with coverage to 70% of the U.S. population. The Company's advanced
messaging network now overlays the Company's traditional messaging network,
covering approximately 90% of the U.S. population. The following discussion
analyzes the results of the Company's PageMart PCS division's operations, unless
otherwise indicated. The periods compared below are the three months ended March
31, 1999, the three months ended June 30, 1999 and the three months ended
September 30, 1999, since minimal operating activities occurred in the three and
nine months ended September 30, 1998.
Units in Service
Units in service were 49,001 as of September 30, 1999 compared to 4,259
units as of March 31, 1999 and 24,416 as of June 30, 1999. Almost 70% of the net
additions were attributable to the Company's Carrier Services SBU, with the
remaining additions coming from direct sales by the Field Sales SBU and National
Accounts SBU. PageMart's narrowband PCS alliances with Metrocall, Inc. and
AirTouch Paging added their first units in the second quarter of 1999 and are
expected to continue increasing their net additions throughout the remainder of
1999. PageMart's Carrier Services SBU is also expected to continue to be a
significant contributor in advanced messaging unit additions through its
strategic alliances with other telecommunications providers.
Management believes that advanced messaging units in service will increase
in the fourth quarter of 1999. However, advanced messaging net subscriber
additions during the fourth quarter of 1999 may be at or below the third quarter
1999 levels. Advanced messaging net additions have been negatively affected by
several factors including the unavailability of acceptable two-way subscriber
devices from manufacturers, reduced availability of 1.5-way devices due to
delays on updated subscriber devices from one manufacturer and delays in
launching sales campaigns for advanced messaging services in certain
distribution channels. Full two-way devices are currently in test on PageMart's
network and are expected to be available for sale on the network in December
1999. Significant two-way unit additions are not expected until the first
quarter of 2000.
Revenues
Revenues for the three months ended September 30, 1999 were $5.6 million
compared to $0.7 million for the three months ended March 31, 1999 and $3.5
million for the three months ended June 30, 1999. Recurring revenues for the
three months ended September 30, 1999, June 30, 1999 and March 31, 1999 were
$1.8 million, $0.7 million and $0.2 million, respectively. Revenues from
equipment sales for the three months ended September 30, 1999, June 30, 1999 and
March 31, 1999 were $3.8 million,
13
<PAGE> 14
$2.9 million and $0.4 million, respectively. ARPU for PageMart PCS was $16.44
for the three months ended September 30, 1999 compared to $27.37 for the three
months ended March 31, 1999 and $15.69 for the three months ended June 30, 1999,
reflecting a higher percentage of units sold on a wholesale basis. In addition,
approximately one-half of the net subscriber additions in the second quarter of
1999 were added in the final month of the quarter, and therefore did not
contribute significantly to second quarter recurring revenues. Management
expects advanced messaging ARPU to vary throughout the year as the timing of
additions throughout the quarter from wholesale-priced distribution channels and
additional local service subscribers contribute to advanced messaging unit
growth.
Cost of Equipment Sold
The cost of equipment sold for the three months ended September 30, 1999
was $3.7 million compared to $0.6 million for the three months ended March 31,
1999 and $3.1 million for the three months ended June 30, 1999. Management
expects a substantial portion of new advanced messaging units will be leased,
rather than sold, resulting in a lower cost of equipment sold, and higher
capital expenditures.
Operating Expenses
Technical expenses were $6.8 million for the three months ended September
30, 1999, compared to $6.1 million for the three months ended March 31, 1999 and
$7.3 million for the three months ended June 30, 1999. Management expects
technical costs to increase over the remainder of 1999, in order to support an
expected increase in the advanced messaging subscriber base.
Selling expenses for the three months ended September 30, 1999 were $1.5
compared to $1.2 million for the three months ended March 31, 1999 and $1.5
million for the three months ended June 30, 1999. Selling expenses should
continue to increase as the addition of advanced messaging units in service
increases.
General and administrative expenses (including costs associated with
customer service, field administration and corporate headquarters) for the three
months ended September 30, 1999, June 30, 1999 and March 31, 1999 and were $1.4
million, $1.3 million and $1.2 million, respectively. As the number of advanced
messaging units in service grows, the PageMart PCS division will require
additional resources to be allocated to support those customers. This is
expected to cause an increase in general and administrative expenses.
Depreciation and amortization was $9.4 million for the three months ended
September 30, 1999, compared to $7.7 million for the three months ended March
31, 1999 and $8.1 million for the three months ended June 30, 1999. The
nationwide buildout of the Company's advanced messaging network was completed in
the second quarter of 1999. As a result, the increase is due to the Company
recording a full quarter of depreciation expense in the third quarter.
INTEREST EXPENSE
Consolidated interest expense was $16.7 million and $48.2 million for the
three and nine months ended September 30, 1999, compared to $10.4 million and
$32.4 million for the comparable periods ended September 30, 1998. The increase
in 1999 was primarily the result of the increased interest related to the 15%
Senior Discount Notes due 2005 (the "15% Notes"), the 11 1/4% Senior
Subordinated Discount Notes due 2008 (the "11 1/4% Notes") and the Credit
Facility. Interest expense related TO the 12 1/4% Senior Discount Notes due 2003
(the "12 1/4% Notes"), which were retired in January 1998 was $1.2 million for
the nine months ended September 30, 1998. Interest expense related to the 15%
Notes was $7.3 million and $21.0 million for the three and nine months ended
September 30, 1999, compared to $6.3 million and $18.2 million for the three and
nine months ended September 30, 1998, respectively. Interest expense related to
the 11 1/4% Notes was $8.2 million and $24.0 million for the three and nine
months ended September 30, 1999, compared to $7.4 million and $19.5 million for
the three and nine months ended September 30, 1998, respectively. Interest
expense related to the Credit Facility was $1.1 million and $2.4 million for the
three and nine months ended September 30, 1999, compared to $0.1 million and
$0.2 million for the three and nine months ended September 30, 1998,
respectively. Total interest expense for the three and nine months ended
September 30, 1998, was reduced by the capitalization of $3.7 million and $8.2
million of interest related to the construction of the Company's advanced
messaging network. With the launch of the Company's advanced messaging network
in December 1998, the Company is no longer capitalizing interest costs
associated with the advanced messaging network buildout.
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<PAGE> 15
NET LOSS
The Company sustained consolidated losses for the three and nine months
ended September 30, 1999 of $24.2 million and $74.8 million, compared to
consolidated losses before extraordinary items of $9.0 million and $26.9 million
for the three and nine months ended September 30, 1998. The increased loss was
principally due to increased operating expenses associated with the start-up
operations of the Company's advanced messaging division. A one-time
extraordinary charge of $13.8 million was recognized during the first quarter of
1998 related to the early retirement of the 12 1/4% Notes. Also, a one-time
charge of $3.8 million was recognized during the third quarter of 1998 related
to the interruption in service experienced by the Company when the Galaxy IV
satellite failed. Including the extraordinary items, the Company's consolidated
net loss for the three and nine months ended September 30, 1998 was $9.0 million
and $44.5 million, respectively.
ALLOCATION OF EQUITY AND DEBT TO DIVISIONS
The Company allocates proceeds from equity and debt offerings to its
PageMart Paging and PageMart PCS divisions. The methodology the Company follows
results in the attribution of the proceeds of each offering based on the
specific capital and operating requirements of each division. Positive free cash
flow (defined as earnings before interest, taxes, depreciation and amortization
less capital expenditures) generated by a division is utilized to reduce its
respective debt allocation. As of September 30, 1999, $156.5 million and $72.5
million of equity and $115.2 million and $407.5 million of debt have been
allocated to PageMart Paging and PageMart PCS, respectively. For the three
months ended September 30, 1999, interest expense of $3.9 million and $12.8
million was allocated to PageMart Paging and PageMart PCS, respectively. For the
nine months ended September 30, 1999, interest expense of $13.4 million and
$34.8 million was allocated to PageMart Paging and PageMart PCS, respectively.
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<PAGE> 16
SELECTED QUARTERLY RESULTS OF OPERATIONS
The table below sets forth management's presentation of results of PageMart
Paging's and PageMart PCS' operations and other data on a quarterly basis for
the six most recent fiscal quarters. This presentation should be read in
conjunction with the Consolidated Financial Statements of the Company and the
notes thereto included elsewhere in this report and 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.
PAGEMART PAGING STATEMENTS OF OPERATIONS
(Dollars in thousands, except other data)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------------------------------------------------------------
JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30,
1998 1998 1998 1999 1999 1999
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
RECURRING REVENUES $ 63,537 $ 65,205 $ 65,154 $ 64,516 $ 64,006 $ 64,549
Equipment revenues 13,164 13,546 13,702 8,186 16,329 17,052
----------- ----------- ----------- ----------- ----------- -----------
Total revenues 76,701 78,751 78,856 72,702 80,335 81,601
Cost of equipment sold 15,915 16,416 15,976 10,269 18,556 18,827
----------- ----------- ----------- ----------- ----------- -----------
NET REVENUES 60,786 62,335 62,880 62,433 61,779 62,774
Technical expenses 13,464 13,364 12,993 12,571 13,146 12,674
General and administrative expenses 20,524 20,862 21,452 19,883 18,102 18,809
Selling expenses 13,716 12,907 12,519 12,576 10,346 10,315
Depreciation and amortization expense 9,046 9,808 10,269 10,925 10,949 10,572
----------- ----------- ----------- ----------- ----------- -----------
OPERATING INCOME (LOSS): "EBIT" $ 4,036 $ 5,394 $ 5,647 $ 6,478 $ 9,236 $ 10,404
=========== =========== =========== =========== =========== ===========
EBITDA $ 13,082 $ 15,202 $ 15,916 $ 17,403 $ 20,185 $ 20,976
=========== =========== =========== =========== =========== ===========
OTHER DATA:
EBIT MARGIN (1) 6.6% 8.7% 9.0% 10.4% 15.0% 16.6%
EBITDA MARGIN (1) 21.5% 24.4% 25.3% 27.9% 32.7% 33.4%
Ending units in service 2,752,580 2,767,742 2,618,527 2,527,595 2,564,053 2,622,530
ARPU (2) $ 7.84 $ 7.87 $ 8.06 $ 8.36 $ 8.38 $ 8.30
Capital employed per unit in service $ 28 $ 27 $ 27 $ 25 $ 22 $ 22
RETURN ON CAPITAL EMPLOYED (4) 67.9% 81.4% 90.0% 110.2% 143.1% 145.4%
</TABLE>
PAGEMART PCS STATEMENTS OF OPERATIONS
(Dollars in thousands, except other data)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------------------------------------------------------------
JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30,
1998 1998 1998 1999 1999 1999
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
RECURRING REVENUES $ -- $ 14 $ 32 $ 207 $ 675 $ 1,811
Equipment revenues -- 6 44 446 2,873 3,760
----------- ----------- ----------- ----------- ----------- -----------
Total revenues -- 20 76 653 3,548 5,571
Cost of equipment sold -- 6 181 574 3,053 3,725
----------- ----------- ----------- ----------- ----------- -----------
NET REVENUES -- 14 (105) 79 495 1,846
Technical expenses 219 1,308 2,742 6,144 7,297 6,818
General and administrative expenses 527 523 695 1,195 1,270 1,445
Selling expenses 318 381 1,066 1,183 1,481 1,537
Depreciation and amortization expense 131 1,601 3,963 7,725 8,128 9,390
----------- ----------- ----------- ----------- ----------- -----------
OPERATING INCOME (LOSS): "EBIT" $ (1,195) $ (3,799) $ (8,571) $ (16,168) $ (17,681) $ (17,344)
=========== =========== =========== =========== =========== ===========
EBITDA $ (1,064) $ (2,198) $ (4,608) $ (8,443) $ (9,553) $ (7,954)
=========== =========== =========== =========== =========== ===========
OTHER DATA:
Ending units in service -- 287 775 4,259 24,416 49,001
ARPU (2) $ -- $ 32.52 $ 19.85 $ 27.37 $ 15.69 $ 16.44
</TABLE>
- ------------------------
(1) Calculated by dividing quarterly EBIT or EBITDA by net revenues.
(2) Calculated by dividing domestic recurring revenues for the quarter by the
simple average number of domestic units in service during that quarter.
Stated as the monthly average for the quarter.
(3) Calculated by dividing consolidated total assets (excluding cash,
narrowband PCS assets and international investments) minus non-interest
bearing current liabilities, at the end of the period by domestic units in
service at the end of the period.
(4) Calculated by multiplying quarterly EBITDA by four and dividing EBITDA by
total capital employed (capital employed per unit in service multiplied by
units in service).
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<PAGE> 17
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.
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 subscriber units 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,
the 15% Notes and the 11 1/4% Notes, as well as borrowings under the Revolving
Credit Agreement, Credit Facility and Vendor Financing Arrangement (as defined
herein).
Capital expenditures (excluding capitalized interest) were $35.4 million and
$128.5 million for the nine months ended September 30, 1999 and 1998,
respectively. Capital expenditures for the nine months ended September 30, 1999
include approximately $16.1 million related to the development and expansion of
its advanced messaging network, $1.9 million for the Company's one-way messaging
network, $1.6 million for facilities, $7.7 million for computer hardware and
software and $8.1 million for leased subscriber units. Capital expenditures for
the nine months ended September 30, 1998 include approximately $98.4 million
related to the development of advanced messaging services, $9.4 million for the
Company's one-way messaging network, $12.3 million for the computer hardware and
software, $2.2 million for corporate expansion and relocation and $6.1 million
for leased pagers. During December 1995, the Company committed to purchase $40
million in network infrastructure equipment from Motorola from December 1, 1995
to October 31, 1999. The agreement has been amended to extend the commitment to
June 30, 2001 and include ReFLEX25 advanced messaging units. Through October 31,
1999, the Company had purchased $34.5 million of network infrastructure and
ReFLEX25 advanced messaging units under this purchase commitment.
The Company capitalized approximately $8.2 million of interest expense for
the narrowband PCS licenses and advanced messaging network costs for those
markets under construction during the nine months ended September 30, 1998. With
the launch of the Company's advanced messaging network in December 1998, the
Company is no longer capitalizing interest costs associated with the advanced
messaging network buildout.
The Company's net cash provided by operating activities for the nine months
ended September 30, 1998 was $64.0 million, compared to $10.5 million for the
nine months ended September 30, 1999. Net cash used in investing activities was
$128.5 million and $34.4 million for the nine months ended September 30, 1998
and 1999, respectively, and were primarily for capital expenditures. Net cash
provided by financing activities was $92.6 million and $12.7 million for the
nine months ended September 30, 1998 and 1999, respectively. Cash provided by
financing activities in 1998 resulted primarily from the receipt of $107.8
million of net proceeds from the issuance of the 11 1/4% Notes and the
retirement of the 12 1/4% Notes. Cash provided by financing activities in 1999
resulted primarily from the borrowing of $25.0 million under the Company's new
Credit Facility.
On January 28, 1998, the Company completed an offering of 11 1/4% Notes (the
"Offering") resulting in approximately $249.7 million in gross proceeds.
Simultaneously, with the closing of the Offering, the Company refinanced certain
of its outstanding indebtedness, and modified its corporate structure (the
"Refinancing"). The Refinancing consisted of the following: (i) purchasing all
of the outstanding 12 1/4% Notes ($136.5 million principal amount at maturity),
(iI) amending certain terms of the covenants and agreements in the indenture
relating to the 15% Notes; and (iii) merging PageMart, Inc. into PageMart
Wireless, Inc., with PageMart Wireless, Inc. as the surviving corporation.
Approximately $130.7 million of the gross proceeds of the Offering was used
to purchase all of the outstanding 12 1/4% Notes. The proceeds remaining after
offering expenses and refinancing were approximately $107.8 million. The Company
has used the remaining proceeds to fund the construction of its advanced
messaging network and for general corporate purposes. In connection with the
Refinancing, the Company incurred an extraordinary charge of approximately $13.8
million related to the early retirement of debt.
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<PAGE> 18
The 11 1/4% Notes, which are unsecured senior obligations of the Company,
mature in 2008 and were issued at a substantial discount from their principal
amount at maturity. The accretion of original issue discount on the 11 1/4%
Notes will cause an increase in indebtedness from September 30, 1999 to February
1, 2003 of $132.0 million. From and after August 1, 2003, interest on the
11 1/4% Notes will be payable semiannually, in cash.
The 15% Notes, which are unsecured senior obligations of the Company, 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, 1999 to February 1, 2000 of $9.6
million. From and after February 1, 2000, interest on the 15% Notes will be
payable semiannually, in cash.
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 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% and the
London Interbank Offering 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.
During the first quarter ended March 31, 1998, the Company repaid the total
amount outstanding of $21.2 million on the Vendor Financing Arrangement and
modified the agreement to provide $30 million of available financing, in
aggregate, during the period from September 1, 1998 through December 31, 2000.
During the first quarter ended March 31, 1999, the Company repaid the total
amount outstanding of $10.0 million on the Vendor Financing Arrangement with
proceeds from the Credit Facility. As of September 30, 1999, the Company had no
amounts outstanding under the Vendor Financing Arrangement.
In March 1999, the Company entered into a four year credit agreement with
Bankers Trust Company and Morgan Stanley Senior Funding, Inc. which provides for
a $100 million credit facility (the "Credit Facility"). The Credit Facility
replaced the $50 million revolving line of credit the Company established on May
11, 1995 with BT Commercial Corporation, as Agent, and Bankers Trust Company, as
issuing bank (the "Revolving Credit Agreement"), which was simultaneously
terminated. The Credit Facility provides for $75 million of multi-draw term
loans and $25 million of revolving loans. On March 24, 1999, the Company
borrowed $25 million in Term Loans pursuant to the terms of the Credit Facility.
Approximately $12 million of the initial borrowing was used to repay amounts
outstanding under the Vendor Financing Arrangement and to fund the fees and
expenses of the Credit Facility. As of September 30, 1999, total availability
under the Credit Facility was $75 million, of which $25 million was outstanding
in the form of Term Loans. Further availability of the Credit Facility above the
current $75 million is based on the Company's achievement of certain minimum
targets for advanced messaging subscriber units in service. The Credit Facility
bears interest at the U.S. prime rate plus 2.75% or at LIBOR plus 3.75%. The
weighted average interest rate for the nine months ended September 30, 1999 on
the amounts was 9.8%.
As of September 30, 1999, the Company's indebtedness included $300.1 million
under the 11 1/4% Notes, $197.6 million under the 15% Notes and $25 million
under the Credit Facility.
The indenture under which the 15% Notes were issued, the indenture under
which the 11 1/4% Notes were issued, the Vendor Financing Arrangement and the
Credit Facility 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 Credit Facility requires the Company to maintain
certain operating and financial performance measures, limits the ability of the
Company to make capital expenditures, prohibits certain changes in ownership
control. In the event of a change in control of the Company, as defined, each
holder of the 15% Notes will have the right, at such holder's option, to require
the Company to repurchase that holder's 15% Notes at a purchase price equal to
101% of the principal amount thereof, plus any accrued and unpaid interest to
the date of repurchase.
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. On November 26, 1998, the Company received notification from
the third party Canadian investor, which represents the controlling shareholder
interest in PageMart Canada, of its intent to exchange its 1,000,000
18
<PAGE> 19
shares of Class A Common Stock in Canada Holding for 714,286 shares of PageMart
Wireless pursuant to rights contained in the Agreement Among Stockholders of
PageMart Canada, dated July 28, 1995. The Agreement Among Stockholders permits
the Company to find a replacement for the Canadian investors in order to comply
with Canadian regulations governing ownership of Canadian paging licenses. The
Company may consider selling its interest in PageMart Canada in exchange for a
network affiliation arrangement similar to those utilized by the Company in
other countries. Management intends to conclude the process of identifying and
completing the relevant agreements with a new Canadian investor in the fourth
quarter of 1999 or first quarter of 2000, although no assurances can be given
that such completion will occur. The Company expects to be required to issue the
714,286 shares of PageMart Wireless common stock to the current Canadian
investor in exchange for the Canadian investor's holdings in PageMart Canada on
or before the completion of a transaction with a new Canadian investor.
Subsequent to the exchange transaction, Canada Holding may become a wholly-owned
subsidiary of the Company and therefore may be required to be consolidated. The
Company currently accounts for its investment in Canada under the equity method.
The Company is currently examining alternative arrangements in Canada including
the replacement of the Canadian investor or the ultimate transfer of its
investment in PageMart Canada to another entity. Regardless of the Company's
ultimate disposition of its investment in PageMart Canada, the Company may make
further investments in PageMart Canada to upgrade the network for advanced
messaging.
During the first quarter of 1998, the Company began the implementation of
its advanced messaging services network. The Company has incurred significant
capital expenditures and expects to incur significant operating losses and
additional capital expenditures associated with the implementation and
deployment of its advanced messaging services through December 31, 2000. The
Company incurred capital expenditures of approximately $7.6 million in the third
quarter of 1999 in the PageMart PCS division. In addition, the Company funded
PageMart PCS's negative EBITDA of $8.0 million to support operations and
marketing in the third quarter of 1999.
During the third quarter of 1999, the Company reported $12.9 million of
consolidated EBITDA and $11.9 million consolidated capital expenditures
therefore generating excess EBITDA of $1.0 million. The Company anticipates that
the PageMart PCS division will require approximately $14 to $16 million of
capital to fund operations and capital expenditures during the fourth quarter
1999 funded entirely by the excess of EBITDA over capital expenditures from
PageMart Paging for the fourth quarter of 1999. The PageMart Paging division is
expected to generate approximately $80 to $85 million of EBITDA and require
approximately $15 to $18 million of capital expenditures in 2000, thus
generating excess EBITDA of $62 to $70 million. The Company expects the PageMart
PCS division to require approximately $55 to $65 million to fund capital
expenditures and operations in 2000
As of September 30, 1999, the Company had approximately $6.2 million in cash
and cash equivalents. At September 30, 1999, the borrowings available under the
Vendor Financing Arrangement were approximately $30 million. As of September 30,
1999, the additional borrowings available under the Credit Facility were $50
million. Additional availability under the Credit Facility is based on certain
minimum targets on advanced messaging subscriber units in service. The Company
anticipates that its cash balance and amounts available under the Credit
Facility and Vendor Financing Arrangement, combined with anticipated excess cash
flows from the Company's PageMart Paging division, will be sufficient to fund
the Company's consolidated operations, capital expenditures and all cash
interest costs through 2000.
From time to time, the Company will selectively consider potential
opportunities to make acquisitions intended to enhance its strategic position in
the wireless messaging industry. If the Company were to pursue any such
acquisitions, the Company would expect to obtain any necessary financing through
additional borrowings and/or equity financing and would need to successfully
integrate the acquired business into the existing operations.
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.
YEAR 2000 READINESS DISCLOSURE
In 1997, the Company began an evaluation of its computer systems and network
infrastructure for Year 2000 readiness. The Year 2000 issue stems from the use
of two-digit dates in computer programs. Programs that use the two-digit dates
may recognize a date using "00" as the year 1900 rather than the year 2000. This
could result in system malfunctions or failures causing disruptions in
19
<PAGE> 20
operations. To support the Company's assessment of the impact of the Year 2000
on its operations, executive management appointed a cross-functional steering
committee to address potential Year 2000 problems and to formulate and guide the
Company's Year 2000 enterprise readiness plans. The Company has completed the
assessment and has upgraded, modified or replaced software or equipment where
necessary.
The Company divided its Year 2000 efforts into two primary areas: its
administrative and network systems, and third party suppliers and vendors.
The Company's administrative and network systems consist of software and
hardware systems that are a combination of internally developed software and
third party software and hardware. The Company's approach has been to:
o Create an inventory of items that must be assessed and prioritize the items
by how critical they are to the operations of the Company;
o Assess their readiness through testing;
o Plan and implement corrective actions; and
o Develop contingency plans.
The Company included third party software and hardware in this assessment
process to the extent practicable, even though it may have obtained Year 2000
readiness information from the vendor or supplier of the software or hardware.
The Company has materially completed the inventory and prioritization of items.
Testing of the Company's information and network systems has been substantially
completed, and all Year 2000 problems that were discovered have been remedied.
The Company has developed contingency plans to promptly resolve or mitigate, to
the extent possible, the effects of any significant Year 2000 problem that has
not been corrected.
The Company uses hardware, software and services supplied by third party
vendors in most of its operations. The Company's approach has been to:
o Create a list of suppliers and vendors;
o Communicate with each supplier and vendor to try to obtain information about
the Year 2000 readiness of its products and services; and
o Work cooperatively with vendors and suppliers whose products or services are
not Year 2000 ready to resolve the problems.
Some third party products were tested by the Company for Year 2000 readiness
as part of the assessment and testing described above. Other third party
products and services cannot be independently tested by the Company, some of
which are critical to the operations of the Company, such as satellite and other
third party telecommunications services and electric utility services. Although
the Company has received Year 2000 readiness certification or information
regarding most of these third party products and services, the Company can make
no representation that all third party products and services will be Year 2000
ready.
Based on its testing and the Year 2000 readiness information received from
third party vendors, the Company believes that all critical components of its
administrative and network systems are Year 2000 ready.
The Company believes that its Year 2000 readiness effort has significantly
reduced the level of uncertainty about the Company's Year 2000 readiness.
However, due to the general uncertainty inherent in the Year 2000 problem,
resulting in part from the uncertainty of the Year 2000 readiness of third party
suppliers and vendors, the Company cannot guarantee that all Year 2000 problems
material to its operations have been corrected. A failure to correct a material
Year 2000 problem could result in the interruption or failure of certain normal
business operations, such as the Company's paging and messaging services,
customer activations and services, or customer invoicing and collections. Such
failures, if prolonged, could materially and adversely affect the Company's
results of operations, liquidity or financial condition.
20
<PAGE> 21
The Company's program to upgrade, modify or replace software and hardware
has two objectives, to increase functionality and efficiency and to make the
Company Year 2000 ready. From January 1, 1998 through September 30, 1999, the
Company spent approximately $22.8 million to upgrade, modify or replace hardware
and software, most of which relates to increased functionality and efficiency.
An ancillary benefit of these upgrades was Year 2000 readiness, the cost of
which was not significant.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's investment policy requires investments in high-quality
investment grade securities including obligations of the U.S. Government
guaranteed by the United States of America, money market deposits and corporate
commercial paper. The Company typically invests its surplus cash in these types
of securities for periods of relatively short duration. Although the Company is
exposed to market risk related to changes in short-term interest rates on these
investments, the Company manages these risks by closely monitoring market
interest rates and the duration of its investments. Due to the short-term
duration and the limited dollar amounts exposed to market interest rates,
management believes that fluctuations in short-term interest rates will not have
a material adverse effect on the Company's results of operations. The Company
does not enter into financial investments for speculation or trading purposes
and is not a party to any financial or commodity derivatives.
The Credit Facility bears interest at the U.S. prime rate plus 2.75% or at
LIBOR plus 3.75%. Therefore, the Credit Facility is subject to short-term
interest rate risk. At September 30, 1999, the balance outstanding under the
Credit Facility was $25.0 million. Consequently, a 100 basis point increase in
the U.S. prime rate or LIBOR would result in a $250,000 increase in interest
expense over a twelve month period.
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 results of operations or financial
condition of the Company.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
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
21
<PAGE> 22
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, 1999 CHAIRMAN AND
CHIEF EXECUTIVE OFFICER
BY: /s/ G. CLAY MYERS
--------------------------------
G. CLAY MYERS,
NOVEMBER 12, 1999 VICE PRESIDENT, FINANCE,
CHIEF FINANCIAL OFFICER AND
TREASURER (PRINCIPAL FINANCIAL
AND CHIEF ACCOUNTING OFFICER)
<PAGE> 23
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C>
11.1 * Statement regarding computation of per share earnings (loss) for the
three months ended September 30, 1999.
11.2 * Statement regarding computation of per share earnings (loss) for the
three months ended September 30, 1998.
11.3 * Statement regarding computation of per share earnings (loss) for the
nine months ended September 30, 1999.
11.4 * Statement regarding computation of per share earnings (loss) for the
nine months ended September 30, 1998.
12.1 * Computation of ratio of earnings to fixed charges.
27.1 * Financial Data Schedule.
</TABLE>
* Filed herewith
<PAGE> 1
EXHIBIT 11.1
PAGEMART WIRELESS, INC.
COMPUTATION OF PER SHARE EARNINGS (LOSS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, 1999
-----------------------------------------------------
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 1,167,063 95.78% 1,117,811
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 127,399 100.00% 127,399
Warrants Exercised 130,513 78.40% 102,317
---------- -----------
40,602,649 40,525,201
WEIGHTED AVERAGE SHARES OUTSTANDING 40,525,201
NET LOSS (24,243,367)
NET LOSS PER SHARE $ (0.60)
===========
</TABLE>
<PAGE> 1
EXHIBIT 11.2
PAGEMART WIRELESS, INC.
COMPUTATION OF PER SHARE EARNINGS (LOSS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, 1998
-----------------------------------------------------
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 1,057,725 95.47% 1,009,840
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 90,641 100.00% 90,641
1997 Warrants Exercised 48,300 100.00% 48,300
---------- -----------
40,374,340 40,326,455
WEIGHTED AVERAGE SHARES OUTSTANDING 40,326,455
NET LOSS $(8,982,341)
NET LOSS PER SHARE $ (0.22)
===========
</TABLE>
<PAGE> 1
EXHIBIT 11.3
PAGEMART WIRELESS, INC.
COMPUTATION OF PER SHARE EARNINGS (LOSS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1999
-----------------------------------------------------
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 1,167,063 92.47% 1,079,210
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 Offerings 6,000,000 100.00% 6,000,000
Employee Stock Purchase Plan Shares Issued 127,399 90.37% 115,135
Warrants Exercised 130,513 48.10% 62,775
---------- ------------
40,602,649 40,434,794
WEIGHTED AVERAGE SHARES OUTSTANDING 40,434,794
NET LOSS $(74,794,192)
NET LOSS PER SHARE $ ($1.85)
============
</TABLE>
<PAGE> 1
EXHIBIT 11.4
PAGEMART WIRELESS, INC.
COMPUTATION OF PER SHARE EARNINGS (LOSS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1998
-----------------------------------------------------
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 1,057,725 84.70% 895,871
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 Offerings 6,000,000 100.00% 6,000,000
Employee Stock Purchase Plan Shares Issued 90,641 89.27% 80,916
Warrants Exercised 48,300 100.00% 48,300
---------- ------------
40,374,340 40,202,761
WEIGHTED AVERAGE SHARES OUTSTANDING 40,202,761
NET LOSS $(44,485,195)
NET LOSS PER SHARE $ ($1.11)
============
</TABLE>
<PAGE> 1
EXHIBIT 12.1
PAGEMART WIRELESS, INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1994 1995 1996 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Earnings:
Net loss ........................ $ (45,813) $ (53,113) $ (48,598) $ (43,887)
Add: Amount of
previously capitalized
interest amortized ............. -- -- -- --
Add: Fixed charges ................ 12,933 30,720 35,041 38,499
------------ ------------ ------------ ------------
Adjusted earnings ................. (32,880) (22,393) (13,557) (5,388)
Fixed charges:
Interest in
indebtedness .................. 11,209 28,383 32,368 36,672
Amortization of debt
issuance costs ................ 800 1,052 2,143 844
Interest portion
of rental and
lease expense ................. 924 1,285 530 983
------------ ------------ ------------ ------------
Fixed charges ..................... 12,933 30,720 35,041 38,499
Deficiency of
earnings available to
cover fixed charges ........... $ (45,813) $ (53,113) $ (48,598) $ (43,887)
============ ============ ============ ============
Earnings to fixed charges ratio ... -- -- -- --
<CAPTION>
THREE MONTHS NINE MONTHS
YEAR ENDED ENDED ENDED
DECEMBER 31, SEPT. 30, SEPT. 30,
1998(1) 1999 1999
------------ ------------ ------------
<S> <C> <C> <C>
Earnings:
Net loss ........................ $ (59,316) $ (24,243) $ (74,794)
Add: Amount of
previously capitalized
interest amortized ............. 252 572 1,716
Add: Fixed charges ................ 43,798 16,722 48,177
------------ ------------ ------------
Adjusted earnings ................. (15,266) (6,949) (24,901)
Fixed charges:
Interest in
indebtedness .................. 52,645 16,327 46,845
Amortization of debt
issuance costs ................ 1,172 327 960
Interest portion
of rental and
lease expense ................. 1,428 68 372
------------ ------------ ------------
Fixed charges ..................... 55,245 16,722 48,177
Deficiency of
earnings available to
cover fixed charges ........... $ (70,511) $ (23,671) $ (73,078)
============ ============ ============
Earnings to fixed charges ratio ... -- -- --
</TABLE>
(1) The fixed charge adjustment to earnings excludes $11.4 million of
capitalized interest for the year ended December 31, 1998.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S SEPTEMBER 30, 1999 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-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 6,205
<SECURITIES> 0
<RECEIVABLES> 51,538
<ALLOWANCES> 0
<INVENTORY> 3,044
<CURRENT-ASSETS> 70,073
<PP&E> 425,902
<DEPRECIATION> 171,092
<TOTAL-ASSETS> 469,097
<CURRENT-LIABILITIES> 109,869
<BONDS> 522,671
0
0
<COMMON> 4
<OTHER-SE> (164,260)
<TOTAL-LIABILITY-AND-EQUITY> 469,097
<SALES> 49,006
<TOTAL-REVENUES> 244,770
<CGS> 55,267
<TOTAL-COSTS> 113,917
<OTHER-EXPENSES> 57,689
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 48,177
<INCOME-PRETAX> (74,794)
<INCOME-TAX> 0
<INCOME-CONTINUING> (74,794)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (74,794)
<EPS-BASIC> (1.85)
<EPS-DILUTED> (1.85)
</TABLE>
