<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 JUNE 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 July 30, 1999, there were 34,605,549, 3,809,363, 1,428,472 and 616,945
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
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<S> <C>
ITEM 1. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS AT DECEMBER 31, 1998
AND JUNE 30, 1999............................................................. 3
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE AND SIX
MONTHS ENDED JUNE 30, 1998 AND 1999............................................ 4
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX
MONTHS ENDED JUNE 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.......................... 20
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS................................................................... 20
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.......................................... 20
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.................................................... 20
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS................................ 20
ITEM 5. OTHER INFORMATION.................................................................. 21
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K................................................... 21
</TABLE>
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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, June 30,
1998 1999
------------ ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 17,476 $ 13,697
Short-term investments 1,000 --
Accounts receivable, net 38,304 49,106
Inventories 6,747 4,431
Prepaid expenses and other current assets 11,010 11,127
------------ ------------
Total current assets 74,537 78,361
Property and equipment, net 274,179 261,766
Narrowband licenses, net 132,555 130,891
Other assets 12,784 14,966
------------ ------------
Total assets $ 494,055 $ 485,984
============ ============
LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY
Current liabilities:
Accounts payable $ 38,703 $ 38,926
Deferred revenue 57,512 55,371
Current maturities of long-term debt 1,238 --
Other current liabilities 23,297 23,688
------------ ------------
Total current liabilities 120,750 117,985
Long-term debt 462,079 507,473
Other long-term liabilities 1,248 962
Stockholders' (deficit) equity:
Common stock, $.0001 par value per share, 75,000,000
shares authorized 40,398,292 and 40,429,248 shares issued
and outstanding at December 31, 1998 and June 30, 1999,
respectively 4 4
Additional paid-in capital 228,438 228,554
Accumulated deficit (317,891) (368,442)
Stock subscriptions receivable (573) (552)
------------ ------------
Total stockholders' (deficit) equity (90,022) (140,436)
------------ ------------
Total liabilities and stockholders' (deficit) equity $ 494,055 $ 485,984
============ ============
</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 June 30, Six Months Ended June 30,
----------------------------- ------------------------------
1998 1999 1998 1999
----------------------------- ------------------------------
<S> <C> <C> <C> <C>
Revenues:
Recurring revenues $ 63,537 $ 64,681 $ 124,409 $ 129,404
Equipment revenues 13,171 19,367 29,490 28,098
------------ ------------ ------------ ------------
Total revenues 76,708 84,048 153,899 157,502
Cost of equipment sold 15,915 21,747 36,533 32,674
------------ ------------ ------------ ------------
60,793 62,301 117,366 124,828
Operating expenses:
Technical 13,683 20,443 26,177 39,158
Selling 14,190 11,972 28,086 25,898
General and administrative 21,051 19,372 41,211 40,450
Depreciation and amortization 9,177 19,077 17,779 37,727
------------ ------------ ------------ ------------
Total operating expenses 58,101 70,864 113,253 143,233
------------ ------------ ------------ ------------
Operating income (loss) 2,692 (8,563) 4,113 (18,405)
Other (income) expense:
Interest expense 10,314 16,430 21,923 31,455
Interest income (1,088) (146) (2,060) (351)
Other 1,382 501 2,147 1,042
------------ ------------ ------------ ------------
Total other (income) expense 10,608 16,785 22,010 32,146
------------ ------------ ------------ ------------
Loss before extraordinary items (7,916) (25,348) (17,897) (50,551)
Extraordinary items:
Early retirement of debt -- -- (13,808) --
Satellite failure (3,798) -- (3,798) --
------------ ------------ ------------ ------------
Net loss $ (11,714) $ (25,348) $ (35,503) $ (50,551)
============ ============ ============ ============
Net loss per share:
(basic and diluted)
Loss before extraordinary items $ (0.20) $ (0.63) $ (0.44) $ (1.25)
Extraordinary items (0.09) -- (0.44) --
------------ ------------ ------------ ------------
Net loss $ (0.29) $ (0.63) $ (0.88) $ (1.25)
============ ============ ============ ============
Weighted average number
of shares outstanding
(basic and diluted) 40,198 40,413 40,140 40,403
============ ============ ============ ============
</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>
Six Months Ended June 30,
---------------------------------
1998 1999
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (35,503) $ (50,551)
Adjustments to reconcile net loss to
net cash provided by operating activities:
Extraordinary items 17,606 --
Depreciation and amortization 17,779 37,727
Provision for bad debt 5,290 3,246
Accretion of discount on senior discount notes 20,102 28,555
Amortization of deferred debt issuance costs 568 851
Changes in certain assets and liabilities:
(Increase) decrease in accounts receivable 9,698 (14,048)
(Increase) decrease in inventories (704) 2,316
Increase in prepaid expenses and other current assets (957) (117)
(Increase) decrease in other assets (288) 43
Increase in accounts payable 10,827 223
Increase (decrease) in deferred revenue 4,418 (2,141)
Increase (decrease) in other current liabilities (4,352) 391
------------ ------------
Net cash provided by operating activities 44,484 6,495
------------ ------------
Cash flows from investing activities:
Purchases of property and equipment (79,185) (23,495)
Sale of short-term investments -- 1,000
Other (49) (29)
------------ ------------
Net cash used in investing activities (79,234) (22,524)
------------ ------------
Cash flows from financing activities:
Proceeds from issuance of common stock under
the stock option/stock issuance plan 1,036 116
Payments of stock subscriptions receivable 58 21
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 (12,049) --
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 92,075 12,250
------------ ------------
Net increase (decrease) in cash and cash equivalents 57,325 (3,779)
Cash and cash equivalents, beginning of period 8,337 17,476
------------ ------------
Cash and cash equivalents, end of period $ 65,662 $ 13,697
============ ============
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 647 $ 1,383
</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 SIX MONTHS ENDED JUNE 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." 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 six
months ended June 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 $3.2 million and
$4.5 million were capitalized for the three and six months ended June 30, 1998.
The Company did not capitalize any interest costs for the three and six months
ended June 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 (the "Revolving Credit Agreement"), 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 (the
"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 June 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 was 10.4% as of June
30, 1999.
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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 six months ended June 30, 1998 and 1999, since the
effect from the conversion would be anti-dilutive.
JUNE 30, JUNE 30,
1998 1999
-------------- ---------------
Stock Options 4,761,813 5,767,759
Warrants 786,348 785,198
============== ===============
5,548,161 6,552,957
============== ===============
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 ("SFAS 130"), 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 six months ended June 30, 1999 and
1998; therefore, comprehensive income (loss) is the same as net income for both
periods.
8. SEGMENT REPORTING
In June 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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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 June 30, 1999, $156.1 million and $72.5
million of equity and $117.2 million and $390.3 million of debt have been
allocated to PageMart Paging and PageMart PCS, respectively. For the three
months ended June 30, 1999, interest expense of $4.1 million and $12.3 million
was allocated to PageMart Paging and PageMart PCS, respectively. For the six
months ended June 30, 1999, interest expense of $9.5 million and $22.0 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 June 30, 1998
----------------------------------------------------------------
(Unaudited)
PageMart PageMart PageMart
Paging PCS International Consolidated
----------- ----------- ------------- ------------
<S> <C> <S> <S> <S>
Revenues 76,701 -- 7 76,708
Operating income (loss) 4,036 (1,195) (149) 2,692
Interest expense 3,869 6,445 -- 10,314
Interest income 10 1,078 -- 1,088
Income (loss) before extraordinary item 171 (7,176) (911) (7,916)
EBITDA 13,082 (1,064) (149) 11,869
Total assets 223,871 252,435 1,461 477,767
Capital expenditures 11,018 33,962 -- 44,980
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended June 30, 1999
----------------------------------------------------------------
(Unaudited)
PageMart PageMart PageMart
Paging PCS International Consolidated
----------- ----------- ------------- ------------
<S> <C> <C> <C> <C>
Revenues $ 80,335 $ 3,548 $ 165 $ 84,048
Operating income (loss) 9,236 (17,681) (118) (8,563)
Interest expense 4,102 12,328 - 16,430
Interest income 4 142 - 146
Net loss 4,980 (29,867) (461) (25,348)
EBITDA 20,185 (9,553) (118) 10,514
Total assets 151,384 331,734 2,866 485,984
Capital expenditures 4,916 7,302 - 12,218
</TABLE>
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<TABLE>
<CAPTION>
Six Months Ended June 30, 1998
----------------------------------------------------------------
(Unaudited)
PageMart PageMart PageMart
Paging PCS International Consolidated
----------- ----------- ------------- ------------
<S> <C> <C> <C> <C>
Revenues $ 153,862 $ -- $ 37 $153,899
Operating income (loss) 6,562 (2,136) (313) 4,113
Interest expense 7,846 14,077 -- 21,923
Interest income 42 2,018 -- 2,060
Loss before extraordinary items (1,305) (14,809) (1,783) (17,897)
EBITDA 24,090 (1,885) (313) 21,892
Total assets 223,871 252,435 1,461 477,767
Capital expenditures 19,841 59,344 -- 79,185
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended June 30, 1999
----------------------------------------------------------------
(Unaudited)
PageMart PageMart PageMart
Paging PCS International Consolidated
----------- ----------- ------------- ------------
<S> <C> <C> <C> <C>
Revenues $ 153,037 $ 4,201 $ 264 $ 157,502
Operating income (loss) 15,714 (33,849) (270) (18,405)
Interest expense 9,468 21,987 -- 31,455
Interest income 4 347 -- 351
Net loss 6,048 (55,489) (1,110) (50,551)
EBITDA 37,588 (17,996) (270) 19,322
Total assets 151,384 331,734 2,866 485,984
Capital expenditures 9,372 14,123 -- 23,495
</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 six months ended June 30, 1999 and
1998. This discussion should be read in conjunction with the Company's
Consolidated Financial Statements and the notes thereto included elsewhere in
this report. Certain prior year's amounts 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
approximately 90% of the U.S. population. The Company has incurred significant
capital expenditures and expects to incur
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additional capital expenditures and significant 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 substantial costs associated with new subscriber
additions. 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 $8.6
million and $18.4 million operating loss for the three and six months ended June
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 1999. 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 June 30, 1999, the
total number of units in service increased from 52,125 to 2,625,494. 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, 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) direct sales and third party local resellers through
its Markets Strategic Business Unit ("SBU"), (ii) private brand and narrowband
PCS strategic alliances through its Carrier Services SBU, (iii) national retail
stores through its National Retail SBU and (iv) direct sales through its
National Accounts SBU. At June 30, 1999, 34% of the Company's domestic units in
service originated from the Markets SBU, 39% originated from the Carrier
Services SBU, 24% originated from the National Retail SBU and 3% originated from
the National Accounts SBU.
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
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<PAGE> 11
equipment being recorded at the time a unit is sold. The Company expects its
costs 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 June 30, 1998 and 1999, the Company's average
disconnection rates were 2.8% and 2.9%, 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) 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
stable, and fall in a range consistent with the second quarter of 1999. The
following discussion analyzes the results of the Company's PageMart Paging
division's operations unless otherwise indicated.
11
<PAGE> 12
Units in Service
Units in service from domestic one-way messaging operations were 2,752,580
and 2,564,053 as of June 30, 1998 and 1999, respectively. This represents a
decrease of 6.8% from June 30, 1998. In addition, PageMart Canada's units in
service were 36,610, and 61,708, respectively, as of June 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 21,966 and
37,025 units at June 30, 1998 and 1999, respectively.
The Company's one-way messaging operations experienced a net increase of
36,458 subscribers in the second 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 six months ended June 30, 1999 were $80.3
million and $153.0 million, compared to $76.7 million and $153.9 million for the
three and six months ended June 30, 1998. Recurring revenues for airtime, voice
mail and other services for the three and six months ended June 30, 1999 were
$64.0 million and $128.5 million, compared to $63.5 million and $124.4 million
for the three and six months ended June 30, 1998. Revenues from equipment sales
for the three and six months ended June 30, 1999 were $16.3 million and $24.5
million, compared to $13.2 million and $29.5 million for the three and six
months ended June 30, 1998. The decrease in total revenues for the six months
ended June 30, 1999 versus the comparable period in 1998 is attributable to the
decrease in equipment revenue. Equipment revenue decreased primarily due to
lower unit shipments to national retailers, as their on-hand inventories were
sufficient to meet demand. Equipment revenue increased by $3.2 million in the
three months ended June 30, 1999 versus the three months ended June 30, 1998 due
primarily to increased equipment sales by the Carrier Services SBU. Recurring
revenue increased 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 $7.84 in the second quarter of 1998 to $8.38 in the second
quarter of 1999.
Cost of Equipment Sold
The cost of equipment sold was $18.6 million and $28.8 million for the three
and six months ended June 30, 1999, compared to $15.9 million and $36.5 million
for the three and six months ended June 30, 1998. The increase in cost of
equipment sold for the three months ended June 30, 1999 was primarily
attributable to increased equipment sales by the Carrier Services SBU. The
decrease for the six months ended June 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 $13.1 million and $25.7 for the three and six months
ended June 30, 1999, compared to $13.5 million and $25.8 million for the three
and six months ended June 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 $1.66 and $1.72 in the second quarter
of 1998 and 1999, and to $1.63 and $1.65 for the six months ended June 30, 1998
and 1999, respectively.
Selling expenses for the three and six months ended June 30, 1999 were $10.3
million and $22.9 million, compared to $13.7 million and $27.2 million for the
three and six months ended June 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 future. For the three and
six months ended June 30, 1999, the Company incurred $145,000 and $312,000 in
selling expenses associated with international operations, respectively,
compared to $156,000 and $322,000 for the three and six months ended June 30,
1998, respectively.
12
<PAGE> 13
General and administrative expenses (including costs associated with
customer service, field administration and corporate headquarters) for the three
and six months ended June 30, 1999 were $18.1 million and $38.0 million,
compared to $20.5 million and $40.3 million for the three and six months ended
June 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 $2.53 and $2.37 for the
second quarter of 1998 and 1999, and $2.55 and $2.44 for the six months ended
June 30, 1998 and 1999, respectively. The decrease in general and administrative
expense for the three and six months ended June 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 its
information systems and call centers.
Depreciation and amortization was $10.9 million and $21.9 million for the
three and six months ended June 30, 1999, compared to $9.0 million and $17.5
million for the three and six months ended June 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 capitalization should remain
relatively constant in the future. As an average cost per month per unit in
service, depreciation and amortization was $1.43 and $1.41 for the three and six
months ended June 30, 1999, respectively, compared to $1.12 and $1.11 for the
three and six months ended June 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 and June 30, 1999, since minimal operating activities occurred in the
three and six months ended June 30, 1998.
Units in Service
Units in service were 24,416 as of June 30, 1999 compared to 4,259 units as
of March 31, 1999. Almost 70% of the net additions in the quarter were
attributable to the Company's Carrier Services SBU, with the remaining additions
coming from direct sales by the Markets 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.
Revenues
Revenues for the three months ended June 30, 1999 were $3.5 million
compared to $0.7 million for the three months ended March 31, 1999. Recurring
revenues for the three months ended June 30, 1999 and March 31, 1999 were
$675,000 and $207,000, respectively. Revenues from equipment sales for the three
months ended June 30, 1999 and March 31, 1999 were $2.9 million and $0.4
million, respectively. ARPU for PageMart PCS was $15.69 for the three months
ended June 30, 1999 compared to $27.37 for the three months ended March 31,
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 June 30, 1999 was
$3.1 million compared to $0.6 million for the three months ended March 31, 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.
13
<PAGE> 14
Operating Expenses
Technical expenses were $7.3 million for the three months ended June 30,
1999 compared to $6.1 million for the three months ended March 31, 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 June 30, 1999 were $1.5 million
compared to $1.2 million for the three months ended March 31, 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 June 30, 1999 and March 31, 1999 and were $1.3 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 $8.1 million for the three months ended
June 30, 1999 compared to $7.7 million for the three months ended March 31,
1999. The increase is a result of the buildout of the Company's advanced
messaging network in the second quarter of 1999.
Interest Expense
Consolidated interest expense was $16.4 million and $31.5 million for the
three and six months ended June 30, 1999, compared to $10.3 million and $21.9
million for the comparable periods ended June 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 three and
six months ended June 30, 1998. Interest expense related to the 15% Notes was
$7.0 million and $13.7 million for the three and six months ended June 30, 1999,
compared to $6.0 million and $11.9 million for the three and six months ended
June 30, 1998, respectively. Interest expense related to the 11 1/4% Notes was
$7.9 million and $15.7 million for the three and six months ended June 30, 1999,
compared to $7.1 million and $12.1 million for the three and six months ended
June 30, 1998, respectively. Interest expense related to the Credit Facility was
$1.2 million and $1.3 million for the three and six months ended June 30, 1999,
compared to $0.1 million and $0.2 million for the three and six months ended
June 30, 1998, respectively. Total interest expense for the three and six months
ended June 30, 1998, was reduced by the capitalization of $3.2 million and $4.5
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.
Net Loss
The Company sustained consolidated losses before extraordinary items for the
three and six months ended June 30, 1999 of $25.3 million and $50.6 million,
compared to $7.9 million and $17.9 million for the three and six months ended
June 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 second 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 six months ended
June 30, 1998 was $11.7 million and $35.5 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
to date 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 June 30, 1999, $156.1 million and $72.5
million of equity and $117.2 million and $390.3 million of debt have been
allocated to PageMart Paging and PageMart PCS, respectively. For the three
months ended June 30, 1999, interest expense of $4.1 million and $12.3 million
was allocated to PageMart Paging and PageMart PCS, respectively. For the six
months ended June 30, 1999, interest expense of $9.5 million and $22.0 million
was allocated to PageMart Paging and PageMart PCS, respectively.
14
<PAGE> 15
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
-------------------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30,
1998 1998 1998 1998 1999 1999
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
RECURRING REVENUES $ 60,872 $ 63,537 $ 65,205 $ 65,154 $ 64,516 $ 64,006
Equipment revenues 16,289 13,164 13,546 13,702 8,186 16,329
-------------------------------------------------------------------------------------
Total revenues 77,161 76,701 78,751 78,856 72,702 80,335
Cost of equipment sold 20,590 15,915 16,416 15,976 10,269 18,556
-------------------------------------------------------------------------------------
NET REVENUES 56,571 60,786 62,335 62,880 62,433 61,779
Technical expenses 12,359 13,464 13,364 12,993 12,571 13,146
General and administrative expenses 19,728 20,524 20,862 21,452 19,883 18,102
Selling expenses 13,476 13,716 12,907 12,519 12,576 10,346
Depreciation and amortization expense 8,482 9,046 9,808 10,269 10,925 10,949
-------------------------------------------------------------------------------------
OPERATING INCOME (LOSS): "EBIT" $ 2,526 $ 4,036 $ 5,394 $ 5,647 $ 6,478 $ 9,236
=====================================================================================
EBITDA $ 11,008 $ 13,082 $ 15,202 $ 15,916 $ 17,403 $ 20,185
=====================================================================================
OTHER DATA:
EBIT MARGIN (1) 4.5% 6.6% 8.7% 9.0% 10.4% 15.0%
EBITDA MARGIN(1) 19.5% 21.5% 24.4% 25.3% 27.9% 32.7%
Ending units in service 2,652,443 2,752,580 2,767,742 2,618,527 2,527,595 2,564,053
ARPU(2) $ 7.86 $ 7.84 $ 7.87 $ 8.06 $ 8.36 $ 8.38
Capital employed per unit in service(3) $ 31 $ 28 $ 27 $ 27 $ 25 $ 22
RETURN ON CAPITAL EMPLOYED(4) 53.6% 67.9% 81.4% 90.0% 110.2% 143.1%
</TABLE>
PAGEMART PCS STATEMENTS OF OPERATIONS
(Dollars in thousands, except other data)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30,
1998 1998 1998 1998 1999 1999
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
RECURRING REVENUES $ -- $ -- $ 14 $ 32 $ 207 $ 675
Equipment revenues -- -- 6 44 446 2,873
------------------------------------------------------------------------------
Total revenues -- -- 20 76 653 3,548
Cost of equipment sold -- -- 6 181 574 3,053
------------------------------------------------------------------------------
NET REVENUES -- -- 14 (105) 79 495
Technical expenses 135 219 1,308 2,742 6,144 7,297
General and administrative expenses 432 527 523 695 1,195 1,270
Selling expenses 254 318 381 1,066 1,183 1,481
Depreciation and amortization expense 120 131 1,601 3,963 7,725 8,128
------------------------------------------------------------------------------
OPERATING INCOME (LOSS): "EBIT" $ (941) $ (1,195) $ (3,799) $ (8,571) $(16,168) $(17,681)
==============================================================================
EBITDA $ (821) $ (1,064) $ (2,198) $ (4,608) $ (8,443) $ (9,553)
==============================================================================
OTHER DATA:
Ending units in service -- -- 287 775 4,259 24,416
ARPU(2) $ -- $ -- $ 32.52 $ 19.85 $ 27.37 $ 15.69
</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).
15
<PAGE> 16
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 $23.5 million and
$79.2 million for the six months ended June 30, 1999 and 1998, respectively.
Capital expenditures for the six months ended June 30, 1999 include
approximately $11.8 million related to the development and expansion of its
advanced messaging network, $1.1 million for the Company's one-way messaging
network, $1.3 million for facilities, $3.8 million for computer hardware and
software and $5.5 million for leased pagers. Capital expenditures for the six
months ended June 30, 1998 include approximately $59.3 million related to the
development of advanced messaging services, $5.6 million for the Company's
one-way messaging network, $6.9 million for the computer hardware and software,
$1.7 million for corporate expansion and relocation and $3.9 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. Through June 30, 1999, the Company had purchased $31.4 million of
network infrastructure under this purchase commitment.
The Company capitalized approximately $4.5 million of interest expense for
the narrowband PCS licenses and advanced messaging network costs for those
markets under construction during the six months ended June 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 six months
ended June 30, 1998 was $44.5 million, compared to net cash provided by
operating activities of $6.5 million for the six months ended June 30, 1999. Net
cash used in investing activities was $79.2 million and $22.5 million for the
six months ended June 30, 1998 and 1999, respectively, and were primarily for
capital expenditures. Net cash provided by financing activities was $92.1
million and $12.3 million for the six months ended June 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.
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
16
<PAGE> 17
in indebtedness from June 30, 1999 to February 1, 2003 of $140.1 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 June 30, 1999 to February 1, 2000 of $16.7
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 June 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 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 June 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 on the amounts was 10.4%.
As of June 30, 1999, the Company's indebtedness included $291.9 million
under the 11 1/4% Notes, $190.6 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 and limits the ability of
the Company to make capital expenditures.
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 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 expects to be required to issue the 714,286 shares of PageMart Wireless
to the Canadian investor in exchange for the Canadian investor's holdings in
PageMart Canada on August 28, 1999, or shortly thereafter. 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
17
<PAGE> 18
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. 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 by the end of 1999, although no assurances can be given that
such completion will occur. Regardless of the Company's ultimate disposition of
its investment in PageMart Canada, the Company expects to 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 $7.3 million in the
second quarter of 1999 to continue the overlay of its one-way network, which
covers approximately 90% of the U.S. population. In addition, the Company funded
negative EBITDA of $9.6 million to support operations and marketing in the
second quarter of 1999. The Company anticipates that the advanced messaging
operations will require approximately $20 million of additional capital
expenditures in 1999 to expand its network geographically and make other
enhancements. In addition, the Company expects the advanced messaging operations
to require approximately $15 million to fund operations and marketing for the
remainder of 1999 as the Company's advanced messaging customer base grows.
As of June 30, 1999, the Company had approximately $13.7 million in cash and
cash equivalents. At June 30, 1999 the borrowings available under the Vendor
Financing Arrangement were approximately $30 million. As of June 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 and capital expenditures 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
operations. The Company is currently in the process of assessing the impact of
the Year 2000 on its operations and is upgrading, modifying or replacing
software or equipment where necessary. To support the Company's assessment,
executive management has 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 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 is to:
18
<PAGE> 19
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;
o Develop contingency plans.
The Company includes 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.
As of the date of this report, the Company has materially completed the
inventory and prioritization of items. Certain administrative software that was
not Year 2000 ready had to be upgraded before extensive testing could begin. The
upgraded software was installed in October 1998. Testing plans have been
completed and testing is proceeding. Testing of the Company's information
systems has been substantially completed, and all Year 2000 problems that were
discovered have been or are scheduled to be remediated. The Company has
performed substantial testing of its network systems, and expects to
substantially complete such testing in the third quarter of 1999. The Company is
aware that certain network software uses two-digit dates, but the Company
believes that the use of the two digit dates does not have any material affect
on the operation of the network. The vendor of the software has delivered to the
Company a new version of the software that the vendor has certified as Year 2000
ready. The Company is continuing to test the Year 2000 readiness of the
currently installed version, and has begun testing the functional capabilities
of the new version, including Year 2000 readiness. If the new version meets the
Company's quality standards, the Company intends to install the new version in
the network. Otherwise, the Company will maintain the currently installed
version. As of the date of this report, testing of the network systems has not
revealed any material Year 2000 problems. After remediation of any problems
discovered during testing, the Company expects that critical hardware and
software systems that are within its ability to test will be Year 2000 ready.
The Company plans to conduct enterprise-wide, end-to-end testing of its systems
during early fourth quarter of 1999. Although, the Company's contingency plans
are not fully developed, the Company is developing contingency plans to promptly
resolve or mitigate, to the extent possible, the effects of any significant Year
2000 problem that is not 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;
o Work cooperatively with vendors and suppliers whose products or services are
not Year 2000 ready to resolve the problems.
Some third party products can be tested by the Company for Year 2000
readiness and will be included in the assessment 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 or expects to receive 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.
The Company believes that its Year 2000 readiness effort will significantly
reduce the level of uncertainty about the Company's Year 2000 readiness.
Throughout the remainder of 1999, the Company will continue to assess its 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 currently determine
whether all Year 2000 problems material to its operations will be 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.
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 June 30, 1999, the Company
spent approximately $21.9 million to upgrade, modify or replace hardware and
software, most of which relates to the increased
19
<PAGE> 20
functionality and efficiency. An ancillary benefit of these upgrades was Year
2000 readiness, the cost of which was not significant. The Company has not fully
determined the final aggregate costs of its Year 2000 readiness activities.
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 June 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. On October 27, 1997, an action against PageMart, Inc.
and Paging Network, Inc. was filed in Superior Court of the State of California,
County of San Francisco, by two customers of EconoPage, Inc. ("EconoPage"), a
reseller of the Company's services. On March 20, 1998, an action against the
Company and Paging Network, Inc. was filed in Superior Court of the State of
California, County of Los Angeles, by three customers of EconoPage of Southern
California, Inc. ("EPSC"), a reseller of the Company's services. In July 1999,
both lawsuits were settled without any material affect on or material payment by
the Company.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
20
<PAGE> 21
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Company's Annual Meeting of Stockholders held on May 12, 1999, 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 28,653,727 534,004 - -
b) John D. Beletic 28,650,528 537,203 - -
c) Guy de Chazal 28,653,727 534,004 - -
d) Steven B. Dodge 28,653,397 534,334 - -
e) Alejandro Perez Elizondo 28,653,896 533,835 - -
f) Michael C. Hoffman 28,653,896 533,835 - -
g) Arthur Patterson 28,653,328 534,403 - -
h) Pamela D.A. Reeve 28,485,424 702,307 - -
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 2,000,000 for a total of
9,500,000 shares. 24,542,121 4,638,185 7,425 -
3) Ratification of Arthur Andersen
LLP as independent public
accountants 29,180,895 3,787 3,049 -
</TABLE>
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,
AUGUST 13, 1999 CHAIRMAN AND
CHIEF EXECUTIVE OFFICER
BY: /S/ G. CLAY MYERS
-----------------
G. CLAY MYERS,
AUGUST 13, 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 June 30, 1999.
11.2 * Statement regarding computation of per share earnings (loss) for the
three months ended June 30, 1998.
11.3 * Statement regarding computation of per share earnings (loss) for the six
months ended June 30, 1999.
11.4 * Statement regarding computation of per share earnings (loss) for the six
months ended June 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 JUNE 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 1,074,725 100.00% 1,074,725
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 87.23% 111,124
Warrants Exercised 49,450 100.00% 49,450
------------ ------------
40,429,248 40,412,973
WEIGHTED AVERAGE SHARES OUTSTANDING 40,412,973
NET LOSS (25,348,032)
NET LOSS PER SHARE $ (0.63)
============
</TABLE>
<PAGE> 1
Exhibit 11.2
PAGEMART WIRELESS, INC.
COMPUTATION OF PER SHARE EARNINGS (LOSS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 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 958,269 93.46% 895,585
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 83.91% 76,053
1997 Warrants Exercised 48,300 100.00% 48,300
-------------- --------------
40,274,884 40,197,612
WEIGHTED AVERAGE SHARES OUTSTANDING 40,197,612
NET LOSS $ (11,714,165)
NET LOSS PER SHARE $ (0.29)
==============
</TABLE>
<PAGE> 1
Exhibit 11.3
PAGEMART WIRELESS, INC.
COMPUTATION OF PER SHARE EARNINGS (LOSS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 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 1,074,725 99.07% 1,064,695
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 87.12% 110,987
1997 Warrants Exercised 49,450 100.00% 49,450
------------ ------------
40,429,248 40,402,806
WEIGHTED AVERAGE SHARES OUTSTANDING 40,402,806
NET LOSS $(50,550,825)
NET LOSS PER SHARE $ (1.25)
============
</TABLE>
<PAGE> 1
Exhibit 11.4
PAGEMART WIRELESS, INC.
COMPUTATION OF PER SHARE EARNINGS (LOSS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 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 958,269 87.44% 837,941
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 83.82% 75,972
1997 Warrants Exercised 48,300 100.00% 48,300
------------ ------------
40,274,884 40,139,887
WEIGHTED AVERAGE SHARES OUTSTANDING 40,139,887
NET LOSS $(35,502,854)
NET LOSS PER SHARE $ (0.88)
============
</TABLE>
<PAGE> 1
EXHIBIT 12.1
PAGEMART WIRELESS, INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, JUNE 30, JUNE 30,
1994 1995 1996 1997 1998(1) 1999 1999
------------ ------------ ------------ ------------ ----------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Earnings:
Net loss ......................... $(45,813) $(53,113) $(45,598) $(43,887) $(59,316) $(25,348) $(50,551)
Add: Amount of
previously capitalized
interest amortized ............ -- -- -- -- 252 572 1,144
Add: Fixed charges ............... 12,933 30,720 35,041 38,499 43,798 16,430 31,455
-------- -------- -------- -------- -------- -------- --------
Adjusted earnings ................ (32,880) (22,393) (13,557) (5,388) (15,266) (8,346) (17,952)
Fixed charges:
Interest in
indebtedness .................. 11,209 28,383 32,368 36,672 52,645 15,849 30,518
Amortization of debt
issuance costs ................ 800 1,052 2,143 844 1,172 319 633
Interest portion
of rental and
lease expense ................. 924 1,285 530 983 1,428 262 304
-------- -------- -------- -------- -------- -------- --------
Fixed charges ..................... 12,933 30,720 35,041 38,499 55,245 16,430 31,455
Deficiency of
earnings available to
cover fixed charges ........... $(45,813) $(53,113) $(48,598) $(43,887) $(70,511) $(24,776) $(49,407)
======== ======== ======== ======== ======== ======== ========
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 JUNE 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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 13,697
<SECURITIES> 0
<RECEIVABLES> 49,106
<ALLOWANCES> 0
<INVENTORY> 4,431
<CURRENT-ASSETS> 78,361
<PP&E> 414,001
<DEPRECIATION> 152,235
<TOTAL-ASSETS> 485,984
<CURRENT-LIABILITIES> 117,985
<BONDS> 507,473
0
0
<COMMON> 4
<OTHER-SE> (140,440)
<TOTAL-LIABILITY-AND-EQUITY> 485,984
<SALES> 28,098
<TOTAL-REVENUES> 157,502
<CGS> 32,674
<TOTAL-COSTS> 71,832
<OTHER-EXPENSES> 37,727
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 31,455
<INCOME-PRETAX> (50,551)
<INCOME-TAX> 0
<INCOME-CONTINUING> (50,551)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (50,551)
<EPS-BASIC> (1.25)
<EPS-DILUTED> (1.25)
</TABLE>
