<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 MARCH 31, 2000
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
WEBLINK WIRELESS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 75-2575229
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
3333 LEE PARKWAY, SUITE 100 75219
DALLAS, TEXAS (Zip code)
(Address of principal executive offices)
(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 May 1, 2000, there were 42,368,004, 3,809,363, and 211,750 shares of the
registrant's class A, class B and class D common stock outstanding,
respectively. There were no shares of the registrant's class C common stock
outstanding at April 30, 2000.
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WEBLINK 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, 1999
and March 31, 2000 ............................................... 3
Condensed Consolidated Statements of Operations for the Three
Months Ended March 31, 1999 and 2000 ............................. 4
Condensed Consolidated Statements of Cash Flows for the Three
Months Ended March 31, 1999 and 2000 ............................. 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 ............ 17
PART II. OTHER INFORMATION
Item 1. Legal Proceedings ..................................................... 18
Item 2. Changes in Securities and Use of Proceeds ............................. 18
Item 3. Defaults Upon Senior Securities ....................................... 18
Item 4. Submission of Matters to a Vote of Security Holders ................... 18
Item 5. Other Information ..................................................... 18
Item 6. Exhibits and Reports on Form 8-K ...................................... 18
</TABLE>
2
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WEBLINK WIRELESS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
December 31, March 31,
1999 2000
------------- -------------
ASSETS (Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 10,440 $ 20,726
Accounts receivable, net 39,857 28,923
Inventories 5,941 6,468
Other current assets 7,657 7,940
------------- -------------
Total current assets 63,895 64,057
Property and equipment, net 245,596 235,720
Narrowband licenses, net 129,228 128,397
Other assets 13,211 16,820
------------- -------------
Total assets $ 451,930 $ 444,994
============= =============
LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY
Current liabilities:
Accounts payable $ 21,918 $ 23,668
Deferred revenue 54,836 45,635
Other current liabilities 24,772 24,815
------------- -------------
Total current liabilities 101,526 94,118
Long-term debt 538,185 464,194
Other long-term liabilities 659 501
Stockholders' (deficit) equity:
Common stock, $.0001 par value per share, 75,000,000 shares authorized
40,772,267 issued and 40,764,267 outstanding at December 31, 1999, and
46,387,959 shares issued and 46,379,959 outstanding at March 31, 2000 4 5
Treasury stock, at cost, 8,000 shares at December 31, 1999 and
March 31, 2000 (68) (68)
Additional paid-in capital 229,847 347,606
Accumulated deficit (417,758) (437,654)
Stock subscriptions receivable (465) (244)
Deferred compensation -- (23,464)
------------- -------------
Total stockholders' (deficit) equity (188,440) (113,819)
------------- -------------
Total liabilities and stockholders' (deficit) equity $ 451,930 $ 444,994
============= =============
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
3
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WEBLINK WIRELESS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
------------------------------
1999 2000
------------- -------------
<S> <C> <C>
Revenues:
Recurring revenues $ 64,723 $ 63,013
Network revenues -- 654
Equipment revenues 8,731 13,798
------------- -------------
Total revenues 73,454 77,465
Cost of equipment sold 10,927 15,275
------------- -------------
62,527 62,190
Operating expenses:
Technical 18,715 16,731
General and administrative 21,078 19,755
Selling 13,926 12,545
Depreciation and amortization 18,650 19,498
Amortization of stock compensation -- 2,134
------------- -------------
Total operating expenses 72,369 70,663
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Operating income (loss) (9,842) (8,473)
Other (income) expense:
Interest expense 15,025 17,184
Interest income (205) (422)
Gain on sale of Canadian affiliate -- (3,331)
Other 541 314
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Total other (income) expense 15,361 13,745
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Loss before extraordinary item (25,203) (22,218)
Extraordinary item:
Gain from early extinguishment of debt -- 2,322
------------- -------------
Net loss $ (25,203) $ (19,896)
============= =============
Net loss per share:
(basic and diluted)
Loss before extraordinary item $ (0.62) $ (0.52)
Extraordinary gain -- 0.05
------------- -------------
Net loss $ (0.62) $ (0.47)
============= =============
Weighted average number
of shares outstanding
(basic and diluted) 40,399 42,643
============= =============
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
4
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WEBLINK WIRELESS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended March 31,
------------------------------
1999 2000
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<S> <C> <C>
Cash flows from operating activities:
Net loss $ (25,203) $ (19,896)
Adjustments to reconcile net loss to
net cash (used in) provided by operating activities:
Extraordinary gain -- (2,322)
Depreciation and amortization 18,650 19,498
Amortization of stock compensation -- 2,134
Provision for bad debts 1,961 2,050
Loss on sale of property and equipment -- 183
Gain on sale of Canadian affiliate -- (3,331)
Accretion of discount on senior discount notes 14,273 10,326
Amortization of deferred debt issuance costs 315 532
Utilization of Canadian roaming credits -- 154
Changes in certain assets and liabilities:
(Increase) decrease in accounts receivable (7,898) 8,730
Increase in inventories (880) (527)
Increase in other current assets (123) (283)
(Increase) decrease in other assets 13 (1,097)
Increase (decrease) in accounts payable (5,490) 1,750
Increase (decrease) in deferred revenue 1,904 (9,201)
Increase (decrease) in other current liabilities (394) 43
------------- -------------
Net cash (used in) provided by operating activities (2,872) 8,743
------------- -------------
Cash flows from investing activities:
Purchases of property and equipment (11,277) (8,923)
Proceeds from the sale of property and equipment -- 22
Proceeds from the sale of Canadian affiliate -- 2,560
Other (20) (12)
------------- -------------
Net cash used in investing activities (11,297) (6,353)
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Cash flows from financing activities:
Proceeds from issuance of common stock under
the stock option plan 23 7,675
Payments of stock subscriptions receivable 21 221
Deferred debt issuance costs (3,202) --
Borrowings under the Credit Facility 25,000 --
Borrowings on the vendor financing arrangement 539 --
Payments on the vendor financing arrangement (10,224) --
------------- -------------
Net cash provided by financing activities 12,157 7,896
------------- -------------
Net increase (decrease) in cash and cash equivalents (2,012) 10,286
Cash and cash equivalents, beginning of period 17,476 10,440
------------- -------------
Cash and cash equivalents, end of period $ 15,464 $ 20,726
============= =============
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 271 $ 883
Taxes -- --
Supplemental schedule of noncash investing and financing activities:
Common stock issued in exchange for 11 1/4% Senior Subordinated
Discount Exchange Notes $ -- $ 81,005
Write-off of deferred debt issuance costs-11 1/4% Notes- net amount -- 1,148
Early extinguishment of 11 1/4% Senior Subordinated Discount Exchange Notes,
at accreted value -- 84,475
Equity conversion related to unconsolidated subsidiary -- 3,482
Phantom stock awards -- 25,598
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
5
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WEBLINK WIRELESS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2000
(UNAUDITED)
1. GENERAL
WebLink Wireless, Inc. ("WebLink") was incorporated as a Delaware
corporation on May 8, 1989, to provide wireless messaging products and services,
under the name PageMart, Inc. ("PageMart"). 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 name of PageMart Nationwide, Inc. was changed to PageMart Wireless, Inc.
("Wireless"). On January 28, 1998, PageMart was merged into Wireless with
Wireless as the surviving corporation. On December 1, 1999, the name of Wireless
was changed to WebLink. WebLink 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.,
WebLink International, Inc. and certain other direct and indirect subsidiaries
of WebLink. Each of these companies is a wholly-owned subsidiary of WebLink.
PageMart PCS, Inc. holds certain narrowband personal communications services
licenses. PageMart II, Inc. and PageMart Operations, Inc. hold certain Federal
Communications Commission ("FCC") licenses. Other than these licenses, the
subsidiaries of WebLink 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, 1999. 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 months
ended March 31, 2000 are not necessarily indicative of the results that may be
expected for the year ending December 31, 2000.
3. REVENUE RECOGNITION OF NONRECURRING ENGINEERING FEE
The Company has entered into agreements with Arch Communications Group,
Inc. ("Arch"), Metrocall, Inc. ("Metrocall") and AirTouch Paging ("AirTouch").
The agreements are organized into two phases. Currently, Arch, Metrocall and
AirTouch are marketing their switch-based wireless data services utilizing the
Company's wireless data network. During the second phase, Arch, Metrocall and
AirTouch will install their own networks leveraging the Company's infrastructure
and sites. Under these agreements, the companies share certain capital and
operating expenses, which will significantly lower costs for those companies.
AirTouch elected to enter the second phase of the agreement in a limited part of
the United States in January of 2000. As part of the agreements, the companies
have agreed to pay a non-recurring engineering fee ("NRE"), which represents
access to WebLink's technology for constructing a two-way wireless data network.
This fee will be recognized by the Company on a straight-line basis as network
revenues over the period from the election date for the second phase to the end
of the contract. As part of the AirTouch agreement, the Company pays AirTouch an
NRE for the use of some of its sites, which is recognized on a straight-line
basis over a similar period as technical expense.
4. NETWORK REVENUE
Network revenues are comprised of: (1) NRE fees, (2) construction revenues
related to the installation of receiving equipment and (3) non-airtime service
revenues.
5. EARNINGS PER SHARE
Net loss per share amounts 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 - Earning 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 dilutive
loss per share for the three months ended March 31, 1999 and 2000, since the
effect from the conversion would be anti-dilutive.
6
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<TABLE>
<CAPTION>
MARCH 31, 1999 MARCH 31, 2000
-------------- --------------
<S> <C> <C>
Stock Options 5,933,930 6,565,691
Phantom Stock -- 1,075,000
Warrants 785,198 640,758
-------------- --------------
6,719,128 8,281,449
============== ==============
</TABLE>
6. INVESTMENT IN UNCONSOLIDATED SUBSIDIARY
Effective November 15, 1995, WebLink International, Inc. (formerly PageMart
International, Inc.) purchased 200,000 shares of common stock of PageMart Canada
Limited ("PageMart Canada") which represented 20% of the ownership of PageMart
Canada. The remaining 800,000 shares were held by PageMart Canada Holding
Corporation ("Canada Holding"). Canada Holding was owned 50% (1,000,000 shares
of class A common stock) by third-party Canadian investors unrelated to WebLink
International, and 50% (1,000,000 shares of class B common stock) by WebLink
International. The common shares have identical economic rights, but voting
control of Canada Holding was held by the class A common stockholders as the
class A shares have two votes per share. The Company accounted for its
investments in PageMart Canada and Canada Holding under the equity method. Such
investments were included in Other Current Assets in the Consolidated Balance
Sheets.
On February 1, 2000, WebLink International sold its investments in PageMart
Canada to Bell Mobility Paging Inc. ("Bell Mobility"), a wholly-owned subsidiary
of Bell Canada. WebLink International received cash consideration and Bell
Mobility repaid certain intercompany liabilities by providing Canadian roaming
credits. The Canadian roaming credits are recorded at present value using an 11
1/4% discount rate. A nonrecurring gain of approximately $3.3 million was
recognized on this transaction. Concurrently, pursuant to the Agreement Among
Stockholders of PageMart Canada dated July 28, 1995, 714,286 shares of class A
common stock of the Company were issued in exchange for the 1,000,000 class A
common shares held by the third-party Canadian investors in Canada Holding. The
terms of the sale established an exclusive 10-year network relationship with
Bell Mobility as the Canadian member of the Company's international network.
7. LONG-TERM DEBT
In March 2000, the Company issued 3.8 million shares of its class A common
stock in exchange for $84.5 million accreted value ($115.9 million maturity
value) of the 11 1/4% Senior Subordinated Discount Exchange Notes due 2008 (the
"11 1/4% Notes"). The Company also wrote down approximately $1.1 million of net
deferred debt issuance costs. In connection with this transaction, the Company
recognized an extraordinary gain of $2.3 million related to the early retirement
of debt.
8. STOCK OPTION / STOCK PURCHASE PLANS
Effective January 3, 2000, the Board of Directors adopted and the
stockholders approved at the April 5, 2000 annual meeting, the WebLink Wireless,
Inc. 2000 Flexible Incentive Plan (the "Flexible Incentive Plan"). The Flexible
Incentive Plan provides for the grant of nonqualified and incentive stock
options, stock appreciation rights, restricted stock, performance awards,
dividend equivalent rights, phantom stock, and other awards of incentive
compensation to individuals, partnerships, corporations, joint ventures and any
other form of business organization (collectively, "Persons") who are
responsible for the management, growth and financial success of the Company,
including, without limitation, officers, directors, employees and consultants.
The purpose of the Flexible Incentive Plan is to strengthen the Company by
providing eligible Persons with the opportunity to acquire a proprietary
interest or increase their proprietary interest in the Company, thereby
providing a means of attracting desirable employees, directors, vendors and
consultants, and encouraging them to remain in the service of the Company.
Three million shares of common stock are currently reserved for issuance
under the Flexible Incentive Plan, subject to adjustment in the event of a
recapitalization, stock split, reverse stock split, dividend or other
distribution, reorganization, merger, consolidation, or other similar corporate
transaction.
On February 10, 2000, 1,075,000 shares of phantom stock were granted under
the Flexible Incentive Plan with a three year vesting period. The phantom stock
is payable in the Company's class A common stock at zero cost to the recipients.
Based on the closing market price of $23.8125 reported on The Nasdaq Stock
Market ("Nasdaq") on February 10, 2000, these grants have an aggregate market
value of $25.6 million. The compensation cost associated with the grants is
recorded as amortization of stock compensation over the vesting period.
Accordingly, $8.5 million will be incurred in each of 2000, 2001 and 2002 and
$2.1 million was recognized for the three months ended March 31, 2000.
At the April 5, 2000 annual meeting of stockholders, a proposal to amend
the Company's Nonqualified Formula Stock Option Plan for Non-Employee Directors
("Director's Plan") to increase the maximum number of authorized shares of the
Company's common stock which may be issued under the Director's Plan by 200,000
for a total of 300,000 shares was adopted.
7
<PAGE> 8
9. 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 and its components within the
financial statements. Comprehensive income 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 components are
immaterial for the three months ended March 31, 1999 and 2000; therefore,
comprehensive income is the same as net income for both periods.
10. RELATED PARTY TRANSACTION
The Company has entered into an agreement with the chairman and chief
executive officer providing that all obligations on his indebtedness totaling
approximately $178,000, including $15,000 of accrued interest, to the Company
will be suspended until and forgiven on January 3, 2001 if his employment has
not previously been terminated by the Company for cause or by the chairman for a
reason other than good reason (as defined in such agreement).
11. 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 ending 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. The Company reports segments based on these divisions,
as management makes operating decisions and assesses individual performances
based on the performance of these segments.
The Company has three reportable segments: Wireless Data, Traditional
Paging and International Divisions. Through its Wireless Data Division, the
Company offers two-way messaging and internet-based information services.
Through its Traditional Paging Division, the Company provides paging and other
one-way wireless messaging services to its subscribers. Through its
International Division, the Company provides messaging services in selected
countries on a seamless international network. The Company pursues international
opportunities through 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 Annual
Report on Form 10-K for the fiscal year ended December 31, 1999, except for the
allocation of equity and debt by division.
The Company has allocated long-term debt between its Wireless Data and
Traditional Paging 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. Free cash flow ("Free Cash Flow"),
defined as earnings (loss) before interest, taxes, depreciation and
amortization, and amortization of stock compensation ("EBITDA"), less capital
expenditures, generated by a division is utilized to reduce its respective debt
allocation. As of March 31, 2000, $143.4 million and $180.4 million of equity
and $388.2 million and $76.0 million of long-term debt have been allocated to
Wireless Data and Traditional Paging, respectively. For the three months ended
March 31, 2000, interest expense of $14.3 million and $2.9 million was allocated
to Wireless Data and Traditional Paging, respectively.
The Wireless Data, Traditional Paging and International Divisions each
incur direct costs associated with their separate operations. These direct costs
are charged to the division that incurs the costs. Common costs shared by the
divisions are allocated based on the estimated utilization of resources using
various factors that attempt to mirror the true economic cost of operating each
division. Amortization of stock compensation is allocated equally to the
Wireless Data and Traditional Paging Divisions.
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<PAGE> 9
The following table sets forth segment financial information related to the
Company's various operations (in thousands):
<TABLE>
<CAPTION>
Three Months Ended March 31, 1999
---------------------------------------------------------------
(Unaudited)
Traditional
Wireless Data Paging International Consolidated
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues $ 653 $ 72,702 $ 99 $ 73,454
Operating (loss) income (16,168) 6,478 (152) (9,842)
Interest expense 9,659 5,366 -- 15,025
Interest income 205 -- -- 205
Net (loss) income (25,622) 1,068 (649) (25,203)
EBITDA (8,443) 17,403 (152) 8,808
Total assets 332,479 159,159 2,866 494,504
Capital expenditures 6,821 4,456 -- 11,277
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended March 31, 2000
---------------------------------------------------------------
(Unaudited)
Traditional
Wireless Data Paging International Consolidated
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues $ 6,999 $ 70,380 $ 86 $ 77,465
Operating (loss) income (17,727) 9,412 (158) (8,473)
Interest expense 14,279 2,905 -- 17,184
Interest income 278 144 -- 422
(Loss) income before extraordinary item (33,713) 11,831 (336) (22,218)
EBITDA (6,601) 19,918 (158) 13,159
Total assets 318,845 125,758 391 444,994
Capital expenditures 6,090 2,833 -- 8,923
</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 months ended March 31, 1999 and 2000.
This discussion should be read in conjunction with the Company's Condensed
Consolidated Financial Statements and the Notes thereto included elsewhere in
this report.
The form 10-Q contains statements that constitute forward-looking
statements. In addition to statements that speak to a time in the future, 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 and Exchange Commission, as well as the following
factors, could affect the Company's financial performance and could cause actual
results for 2000 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 high
outstanding indebtedness; the impact of technological change in the
telecommunications industry; the future cost and availability of network
infrastructure and subscriber devices; the impact of competition and pricing of
paging and wireless data services; the timely market acceptance of new products
and services such as two-way messaging; change in regulation by the FCC and
various state regulatory agencies; and the potential technical problems relating
to the Company's wireless data network.
GENERAL
Through its Wireless Data Division, the Company has constructed and
operates a wireless data network which covers 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 wireless data services. Management
does not expect the Wireless Data Division to generate positive EBITDA (defined
below) until early 2001. Through its Traditional Paging Division, the Company
provides paging and other one-way wireless messaging services to its
subscribers.
EBITDA represents earnings (loss) before interest, taxes, depreciation and
amortization, and amortization of stock compensation. EBITDA is a financial
measure commonly used in the Company's industry. EBITDA is not derived pursuant
to generally accepted accounting principles ("GAAP"), and therefore should not
be construed as an alternative to operating income, as an alternative to cash
flows from operating activities (as determined in accordance with GAAP) or as a
measure of liquidity. The calculation of EBITDA does not include commitments of
the Company for capital expenditures and payment of debt and should not be
deemed to represent funds available to the Company.
The Company sells or 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
9
<PAGE> 10
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 1997. Although the Company recognized a $2.5 million
operating profit in 1998, the Company sustained an aggregate $32.9 million
operating loss from 1997 through 1999 and a $8.5 million operating loss for the
three months ended March 31, 2000. The Wireless Data Division generated
operating losses in 1997, 1998, 1999 and the three months ended March 31, 2000
and management expects this trend to continue into 2001. In the third quarter of
1997, the Company began generating operating profits in its Traditional Paging
Division and management expects this trend to continue through 2001.
Nevertheless, the Company expects to incur consolidated operating losses through
2001.
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 March 31, 2000, the
number of units in service increased from 52,125 to 2,481,741. This includes
94,297 and 2,387,444 units in service from the Wireless Data Division and
Traditional Paging Division, respectively. None of the Company's growth is
attributable to acquisitions. The Company intends to achieve unit growth by
promoting its wireless data services through its sales force, 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., MCI WorldCom Network
Services, Inc., EXCEL Communications, Inc., ALLTEL Communications, Inc.,
Bluegrass Cellular, Inc. and First Cellular of Southern Illinois, and wireless
data network alliances with companies such as Arch, Metrocall and AirTouch.
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
subscribers, retailers and resellers. 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 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. 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 due to the inventory carried by retailers. However, the Company expects
to lease a significant portion of its wireless data subscriber units because of
the high cost of wireless data subscriber units compared to traditional paging
units. In 1998, 1999 and the three months ended March 31, 2000, the Company's
capital expenditures for subscriber units has increased as the result of the
Company's increased units in wireless data services.
The Company sells and leases its subscriber units through the following
distribution channels: (i) private brand strategic alliances and wireless data
network alliances through its Carrier Services Strategic Business Unit ("SBU"),
(ii) third party local resellers through its Reseller SBU, (iii) national and
regional retail stores through its National Retail SBU and (iv) direct sales
through its Field Sales and National Accounts SBU's. At March 31, 2000, 44% of
the Company's domestic units in service originated from the Carrier Services
SBU, 25% from the Reseller SBU, 20% from the National Retail SBU and 11% from
the Field Sales and the National Accounts SBU. In the third quarter of 1998, the
Company announced the formation of its Wireless Control Systems (formerly
Telemetry) SBU. The Company expects this SBU to begin generating revenues in the
second quarter of 2000.
For competitive and marketing reasons, the Company generally sells each new
unit to retailers for less than its acquisition cost. 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. 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.
The Company derives its recurring revenue primarily from fixed periodic
fees for services. 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 time that each customer
continues to utilize the Company's service, as 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, 1997, 1998 and 1999 were
2.5%, 3.2% and 3.1%, respectively. For the three months ended March 31, 1999 and
2000, the Company's average disconnection rates were 3.1% and 3.4%,
respectively. Average monthly disconnect rates are calculated by dividing
10
<PAGE> 11
(a) the sum of (i) the subscriber disconnections from each of the Carrier
Services SBU's strategic alliance partners, to the extent that each partner has
net disconnections, (ii) net subscriber disconnections from the local reseller
channel, taken as a whole and (iii) subscriber disconnections from all national
retail and direct sales channels, 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 revenue per unit ("ARPU") is
attributable to fixed fees for airtime, coverage options and features. The
remainder is dependent on usage. Management anticipates that the Company's
consolidated ARPU will increase as subscriber additions in the Wireless Data
Division increase, since wireless data services yield a significantly higher
ARPU than traditional paging services. Management anticipates that the Company's
Traditional Paging Division's 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.
RESULTS OF OPERATIONS
Certain of the following financial information is presented on a per
subscriber unit per month basis. Management believes that such a presentation is
useful in understanding the Company's results because it provides a meaningful
comparison period-to-period, given the Company's subscriber base and the
significant differences in the number of subscribers of other wireless data
companies.
WIRELESS DATA DIVISION
The Company's Wireless Data 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. When the wireless data network
was substantially completed in April 1999, approximately 90% of the U.S.
population was covered. The following discussion analyzes the results of this
division's operations, unless otherwise indicated.
Units in Service
The Company had 4,259 units in service as of March 31, 1999 compared to
94,297 as of March 31, 2000. Wireless data net subscriber additions during the
fourth quarter of 1999 were 12,574, below the second and third quarter 1999
levels, as they were negatively affected by the unavailability of acceptable
two-way subscriber devices from manufacturers. The Company received its first
shipments of full two-way wireless data devices in February 2000 contributing to
the 32,722 net subscriber additions reported in the first quarter of 2000.
Management expects that wireless data net subscriber additions will range from
45,000 to 55,000 in the second quarter of 2000.
Revenues
Revenues for the three months ended March 31, 1999 were $653,000 compared
to $7.0 million for the three months ended March 31, 2000. Recurring revenues
for the same periods were $207,000 and $4.0 million, respectively. Revenues from
equipment sales for the three months ended March 31, 1999 and 2000 were $446,000
and $2.3 million, respectively. In the first quarter of 2000, AirTouch elected
to enter the second phase of their network affiliation agreement with the
Company; Network revenue of $654,000 was recognized. Network revenues are
comprised of: (1) NRE fees that are recognized over the remaining term of the
contract; (2) construction revenues related to the installation of receiving
equipment; and (3) non-airtime service revenues. The Company did not recognize
any comparable revenue for the three months ended March 31, 1999. ARPU was
$27.37 for the three months ended March 31, 1999 compared to $17.32 for the
three months ended March 31, 2000. ARPU was abnormally high for the three months
ended March 31, 1999 due to the timing of additions in the quarter. Management
expects Wireless Data ARPU to vary somewhat throughout 2000 as the timing of
additions throughout the year from wholesale-priced distribution channels and
additional local service subscribers contribute to wireless data unit growth.
Cost of Equipment Sold
The cost of equipment sold for the three months ended March 31, 1999 was
$574,000 compared to $2.5 million for the three months ended March 31, 2000.
Management expects a significant portion of new wireless data units will be
leased, rather than sold, resulting in lower cost of equipment sold, higher
capital expenditures and higher depreciation expense.
Operating Expenses
Technical expenses were $6.1 million for the three months ended March 31,
1999 compared to $7.1 million for the three months ended March 31, 2000.
Management expects technical costs to increase in 2000 as the Company
11
<PAGE> 12
plans to add transmitters and receivers to improve and expand its coverage.
General and administrative expenses (including costs associated with
customer service, field administration and corporate headquarters) for the three
months ended March 31, 1999 and 2000 were $1.2 million and $1.3 million,
respectively. As the number of wireless data units in service grows, additional
resources will be required to be allocated to support those customers, some of
which will be shifted from the Traditional Paging Division. This is expected to
cause an increase in general and administrative expenses in the Wireless Data
Division.
Selling expenses for the three months ended March 31, 1999 were $1.2
million compared to $2.7 million for the three months ended March 31, 2000.
Management expects to aggressively market wireless data services, and selling
expenses are expected to increase as a result. If market growth warrants,
selling expenses may increase significantly in the future.
Depreciation and amortization was $7.7 million for the three months ended
March 31, 1999 compared to $10.1 million for the three months ended March 31,
2000. The nationwide buildout of the Company's wireless data network was
substantially completed in April 1999. As a result, the Company recorded higher
depreciation expense in the first quarter of 2000.
TRADITIONAL PAGING DIVISION
The Company provides domestic one-way paging services in its Traditional
Paging Division. This division is a mature business requiring only a maintenance
level of capital investment and producing EBITDA, operating income and net
income. Management expects EBITDA from this division to decline slowly over time
from the level experienced in the first quarter of 2000. The following
discussion analyzes the results of this division's operations, unless otherwise
indicated.
Units in Service
Units in service from domestic one-way paging operations were 2,527,595 and
2,387,444 as of March 31, 1999 and 2000, respectively. In addition, for the
three months ended March 31, 1999, PageMart Canada's units in service were
57,234. As a result of its ownership interest in PageMart Canada, the Company's
proportional share of the units in service of PageMart Canada for the three
months ended March 31, 1999 was 34,340 units. On February 1, 2000, the Company
sold its ownership interest in PageMart Canada; therefore, the Company will no
longer report a proportional share of the units in service of PageMart Canada
(see Note 6 to the Condensed Consolidated Financial Statements of the Company).
The Company's one-way operations experienced a net decrease of 171,909
units in service in the first quarter of 2000 due in part to a major unit
decline by a large reseller. This is a continued trend from 1999 when the
Company experienced historically weak fiscal quarters in terms of net subscriber
additions in the second and third quarters, with the first and fourth quarters
resulting in a net loss of subscribers. Management believes there is a declining
market for traditional one-way paging services, and demand appears to be
shifting to the higher quality and greater benefits of wireless data services.
Therefore, management expects net subscriber losses to continue in 2000.
Management anticipates a 75,000 to 95,000 decline in one-way paging units in the
second quarter of 2000.
Revenues
Total revenues for the three months ended March 31, 1999 and 2000 were
$72.7 million and $70.4 million, respectively. Recurring revenues for airtime,
voice mail and other services for the same periods were $64.5 million, and $59.0
million, respectively. The decrease in recurring revenue is due primarily to the
decrease in the number of subscriber units. Revenues from equipment sales for
the three months ended March 31, 1999 and 2000 were $8.2 million and $11.4
million, respectively. The increase in equipment revenue is due to an increase
in unit sales by the Carrier Services SBU partially offset by a decrease in unit
sales by the National Retail SBU.
The Company's ARPU was $8.36 and $7.95 in the first quarters of 1999 and
2000, respectively. The decline resulted primarily from a decrease in
subscribers in the National Retail distribution channel, which generally has a
higher ARPU, and was offset partially by an increased mix of higher revenue
multi-city, regional and nationwide services as well as increased sales of other
value-added services such as voice mail and toll-free numbers. Management
expects ARPU to gradually decline in the foreseeable future with variations from
changes in distribution and product mix.
Cost of Equipment Sold
The cost of equipment sold for the three months ended March 31, 1999 and
2000 was $10.3 million and $12.6 million, respectively. The increase in 2000 was
chiefly due to an increase in unit sales by the Carrier Services SBU partially
offset by a decrease in unit sales by the National Retail SBU. The Company
expects subscriber device costs to decrease somewhat throughout 2000. The loss
on equipment sold (equipment revenue less cost of equipment sold) is recognized
when subscriber devices are shipped to the retailers, usually before the devices
are placed into
12
<PAGE> 13
service. The Company has historically sold rather than leased the majority of
devices.
Operating Expenses
Technical expenses were $12.6 million and $9.7 million for the three months
ended March 31, 1999 and 2000, respectively. The decrease in 2000 was due in
part to the decrease in the subscriber base and the maturation of operations.
Additionally, management expects on-going technical expenses to slowly decline
as resources are transferred to the Wireless Data Division. Based on an average
monthly cost per unit in service, technical expenses were $1.63 and $1.30 for
the three months ended March 31, 1999 and 2000, respectively. The per unit
decreases were the result of increased operating efficiencies.
During the first quarter of 2000, the Traditional Paging Division's results
were favorably affected by a $1.5 million reduction in technical expense related
to the execution of interconnection agreements with certain local exchange
carriers ("LEC's") as provided in the Telecommunication Act of 1996. The Company
expects further favorable financial benefits as agreements are executed with
other LEC's.
General and administrative expenses (including costs associated with
customer service, field administration and corporate headquarters) for the three
months ended March 31, 1999 and 2000 were $19.9 million and $18.4 million,
respectively. The decrease was largely due to increased operating efficiencies.
On an average cost per month per unit in service basis, general and
administrative expenses were $2.58 and $2.49 for the three months ended March
31, 1999 and 2000, respectively. Management expects general and administrative
costs in the Traditional Paging Division to decline as resources are transferred
to the Wireless Data Division.
Selling expenses for the three months ended March 31, 1999 and 2000 were
$12.6 million and $9.7 million, respectively. Management expects this latter
number to remain relatively constant in the near future. The decrease is the
result of the maturation of operations. During the first quarter of 2000, the
Company incurred $81,000 in selling expenses associated with international
operations.
Depreciation and amortization for the three months ended March 31, 1999 and
2000 was $10.9 million and $9.4 million, respectively. The decrease resulted
from the spending of only maintenance levels in capital expenditures.
Depreciation and amortization should remain relatively constant in the future.
As an average cost per month per unit in service, depreciation and amortization
was $1.42 and $1.27 for the three months ended March 31, 1999 and 2000,
respectively.
CONSOLIDATED
Amortization of Stock Compensation
On February 10, 2000, 1,075,000 shares of Phantom Stock were granted under
the Flexible Incentive Plan with a three year vesting period. Based on the
closing market price of $23.8125 reported on Nasdaq on February 10, 2000, these
grants have an aggregate market value of $25.6 million. The compensation cost
associated with the grants is recorded as amortization of stock compensation
over the vesting period. Accordingly, $8.5 million will be incurred in each of
2000, 2001 and 2002 and $2.1 million was recognized for the three months ended
March 31, 2000.
Interest Expense
Consolidated interest expense increased from $15.0 million for the three
months ended March 31, 1999 to $17.2 million for the three months ended March
31, 2000. The increase in 2000 was primarily the result of the increased
interest related to the 15% Senior Discount Exchange Notes due 2005 (the "15%
Notes"), the 11 1/4% Notes and the 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"). For the three months ended
March 31, 1999 and 2000, respectively; interest expense related to the 15% Notes
was $6.8 million and $7.8 million; to the 11 1/4% Notes, $7.8 million and $8.2
million; to a vendor financing arrangement, $248,000 and $0; and to the Credit
Facility, $147,000 and $1.1 million.
Net Loss
The Company sustained a consolidated loss for the three months ended March
31, 1999 of $25.2 million. For the three months ended March 31, 2000, the
Company sustained a consolidated net loss before an extraordinary item of $22.2
million including a $3.3 million gain recognized from the sale of the Company's
investment in its Canadian affiliate (see Note 6 to the Condensed Consolidated
Financial Statements of the Company). A one-time extraordinary gain of $2.3
million was recognized in conjunction with the early retirement of $84.5 million
accreted value of the 11 1/4% Notes. Including the extraordinary item, the
Company's consolidated net loss was $19.9 million. The decrease in losses in
2000 was primarily due to decreased operating expenses in the Traditional Paging
Division and revenue growth in the Wireless Data Division.
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<PAGE> 14
Divisional Allocations
The Company has allocated long-term debt between its Wireless Data and
Traditional Paging 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. Free Cash Flow, defined as EBITDA less
capital expenditures, ("Free Cash Flow") generated by a division is utilized to
reduce its respective debt allocation. As of March 31, 2000, $143.4 million and
$180.4 million of equity and $388.2 million and $76.0 million of long-term debt
has been allocated to the Wireless Data and Traditional Paging Divisions,
respectively.
The Wireless Data, Traditional Paging and International Divisions each
incur direct costs associated with their separate operations. These direct costs
are charged to the division that incurs the costs. Common costs shared by the
divisions are allocated based on the estimated utilization of resources using
various factors that attempt to mirror the true economic cost of operating each
division. Amortization of stock compensation is allocated equally to the
Wireless Data and Traditional Paging Divisions.
SELECTED QUARTERLY RESULTS OF OPERATIONS
The table below sets forth management's presentation of the results of the
Wireless Data and Traditional Paging Divisions' operations and other data on a
quarterly basis for the six most recent fiscal quarters. This presentation
should be read in conjunction with the Condensed Consolidated Financial
Statements of the Company and the Notes thereto included elsewhere in this
report and the Company's quarterly reports on Form 10-Q for the corresponding
periods below, and should not be considered in isolation or as an alternative to
results of operations that are presented in accordance with GAAP.
<TABLE>
<CAPTION>
WIRELESS DATA DIVISION
================================================================================
THREE MONTHS ENDED
--------------------------------------------------------------------------------
Dec. 31, Mar. 31, Jun. 30, Sept. 30, Dec. 31, Mar. 31,
1998 1999 1999 1999 1999 2000
---------- ---------- ---------- ---------- ---------- ----------
(Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Recurring revenues $ 32 $ 207 $ 675 $ 1,811 $ 2,809 $ 4,049
Network revenues -- -- -- -- -- 654
Equipment revenues 44 446 2,873 3,760 806 2,296
---------- ---------- ---------- ---------- ---------- ----------
76 653 3,548 5,571 3,615 6,999
Cost of equipment sold 181 574 3,053 3,725 942 2,486
---------- ---------- ---------- ---------- ---------- ----------
Net revenues (105) 79 495 1,846 2,673 4,513
Technical expenses 2,742 6,144 7,297 6,818 6,736 7,077
General and administrative
expenses 695 1,195 1,270 1,445 1,804 1,307
Selling expenses 1,066 1,183 1,481 1,537 1,927 2,730
Depreciation and amortization 3,963 7,725 8,128 9,390 9,951 10,059
Amortization of stock compensation -- -- -- -- -- 1,067
---------- ---------- ---------- ---------- ---------- ----------
Operating loss (EBIT) ($8,571) ($16,168) ($17,681) ($17,344) ($17,745) ($17,727)
========== ========== ========== ========== ========== ==========
EBITDA (1) ($4,608) ($8,443) ($9,553) ($7,954) ($7,794) ($6,601)
========== ========== ========== ========== ========== ==========
Other data:
Ending units in service 775 4,259 24,416 49,001 61,575 94,297
ARPU (2) $ 19.85 $ 27.37 $ 15.69 $ 16.44 $ 16.94 $ 17.32
</TABLE>
- ----------
(1) Earnings (loss) before interest, taxes, depreciation and amortization,
and amortization of stock compensation.
(2) Calculated by dividing recurring revenues for the quarter by the simple
average number of units in service during that quarter. Stated as the
monthly average for the quarter.
14
<PAGE> 15
<TABLE>
<CAPTION>
TRADITIONAL PAGING DIVISION
THREE MONTHS ENDED
--------------------------------------------------------------------------------------
Dec. 31, March 31, June 30, Sept. 30, Dec. 31, March 31,
1998 1999 1999 1999 1999 2000
----------- ----------- ----------- ----------- ----------- -----------
(Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Recurring revenues $ 65,154 $ 64,516 $ 64,006 $ 64,549 $ 62,029 $ 58,964
Equipment revenues 13,702 8,186 16,329 17,052 14,514 11,416
----------- ----------- ----------- ----------- ----------- -----------
78,856 72,702 80,335 81,601 76,543 70,380
Cost of equipment sold 15,976 10,269 18,556 18,827 15,656 12,626
----------- ----------- ----------- ----------- ----------- -----------
Net revenues 62,880 62,433 61,779 62,774 60,887 57,754
Technical expenses 12,993 12,571 13,146 12,674 11,229 9,654
General and administrative
expenses 21,452 19,883 18,102 18,809 18,211 18,448
Selling expenses 12,519 12,576 10,346 10,315 10,411 9,734
Depreciation and amortization 10,269 10,925 10,949 10,572 10,507 9,439
Amortization of stock compensation -- -- -- -- -- 1,067
----------- ----------- ----------- ----------- ----------- -----------
Operating income (EBIT) $ 5,647 $ 6,478 $ 9,236 $ 10,404 $ 10,529 $ 9,412
=========== =========== =========== =========== =========== ===========
EBITDA (1) $ 15,916 $ 17,403 $ 20,185 $ 20,976 $ 21,036 $ 19,918
=========== =========== =========== =========== =========== ===========
Other data:
EBIT margin (2) 9.0% 10.4% 15.0% 16.6% 17.3% 16.3%
EBITDA margin (2) 25.3% 27.9% 32.7% 33.4% 34.5% 34.5%
Ending units in service 2,618,527 2,527,595 2,564,053 2,622,530 2,559,353 2,387,444
ARPU (3) $ 8.06 $ 8.36 $ 8.38 $ 8.30 $ 7.98 $ 7.95
</TABLE>
- ----------
(1) Earnings (loss) before interest, taxes, depreciation and amortization,
and amortization of stock compensation.
(2) Calculated by dividing quarterly EBIT or EBITDA by net revenues.
(3) Calculated by dividing recurring revenues for the quarter by the simple
average number of units in service during that quarter. Stated as the
monthly average for the quarter.
SEASONALITY
Device 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 generally subject to seasonal fluctuations.
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 in
existing markets. To date, these investments by the Company have been funded by
the proceeds from the issuance of common stock, preferred stock, long-term debt,
as well as borrowings under bank and vendor financing arrangements.
Capital expenditures were $11.3 million and $8.9 million for the three
months ended March 31, 1999 and 2000, respectively. The Company committed to
purchase $40 million in network infrastructure equipment and ReFLEX25 wireless
data subscriber units from Motorola, Inc. from December 1, 1995 to June 30,
2001. Through March 31, 2000, the Company purchased $41.5 million, thus, fully
meeting the Company's commitment.
The Company's net cash used in operating activities for the three months
ended March 31, 1999 was $2.9 million, compared to net cash provided by
operating activities of $8.7 million for the three months ended March 31, 2000.
Net cash used in investing activities was $11.3 million and $6.4 million,
respectively, and was primarily for capital expenditures. Net cash provided by
financing activities was $12.2 million and $7.9 million, respectively. Cash
provided by financing activities in 1999 resulted primarily from the borrowing
of $25.0 million under the Company's Credit Facility. Cash provided by financing
activities in 2000 primarily resulted from the proceeds received from the
issuance of common stock under the Company's stock option plan.
The 11 1/4% Notes, which are unsecured senior subordinated obligations of
the Company, mature in 2008 and were issued at a substantial discount from their
principal amount at maturity. In March 2000, the Company issued 3.8 million
shares of its class A common stock in exchange for $84.5 million accreted value
($115.9 million maturity value) of the 11 1/4% Notes. The accretion of original
issue discount on the 11 1/4% Notes will cause an increase in indebtedness,
after the exchange transaction, from March 31, 2000 to February 1, 2003 of $84.2
million. From and after August 1, 2003, interest on the 11 1/4% Notes will be
payable semiannually, in cash.
15
<PAGE> 16
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 15% Notes were fully accreted by February 1, 2000. From
and after August 1, 2000, interest on the 15% Notes will be payable
semiannually, in cash. Management believes it has the necessary resources,
including availability under the Credit Facility, to meet the cash requirements
of the interest payments in August 2000 and February 2001.
In March 1997, the Company entered into a vendor financing arrangement with
an infrastructure vendor (the "Vendor Financing Arrangement"), providing for the
financing of infrastructure and other equipment over a period of 60 months up to
a maximum aggregate amount of $30 million. Borrowings under the Vendor Financing
Arrangement are available until December 31, 2000 and are secured by the
equipment purchased. The interest rate applicable to such financing is equal to
the sum of 7% and the London interbank offered rate ("LIBOR") as published in
The Wall Street Journal for three-month maturities or the sum of 4.25% and the
U.S. prime rate of interest as published in The Wall Street Journal. As of March
31, 2000, the Company had no amounts outstanding under the Vendor Financing
Arrangement.
In March 1999, the Company entered into the Credit Facility which 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 under the Credit Facility, of which approximately $12
million was used to repay amounts outstanding under the Vendor Financing
Arrangement and to fund the fees and expenses of the Credit Facility. As of
March 31, 2000, total availability under the Credit Facility was $100 million,
of which $25 million was outstanding in the form of Term Loans. 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 borrowed for the period
from January 1, 2000 to March 31, 2000 was 9.85%.
As of March 31, 2000, the Company's indebtedness was $231.9 million under
the 11 1/4% Notes, $207.3 million under the 15% Notes and $25 million under the
Credit Facility.
The indentures under which the 15% Notes and 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.
During 1999, the Company reported $45.4 million of consolidated EBITDA and
$45.7 million of consolidated capital expenditures. The Company anticipates that
the Wireless Data Division will require approximately $55 to $65 million of
capital to fund operations and capital expenditures during 2000, funded
principally by the Free Cash Flow from the Traditional Paging Division during
2000. The Traditional Paging Division is expected to generate $65 to $75 million
of EBITDA and require approximately $10 million of capital expenditures in 2000,
thus generating Free Cash Flow of approximately $55 to $65 million.
As of March 31, 2000, the Company had approximately $20.7 million in cash
and cash equivalents. At March 31, 2000, borrowings available under the Vendor
Financing Arrangement were $30 million and under the Credit Facility were $75
million. The Company anticipates that its cash balance and amounts available
under the Vendor Financing Arrangement and Credit Facility, combined with the
Free Cash Flow from the Company's Traditional Paging Division, will be
sufficient to fund the Company's consolidated operations, capital expenditures
and all cash interest costs through 2000. The Company anticipates having to
borrow further on its Credit Facility in the second half of this year.
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.
16
<PAGE> 17
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 March 31, 2000, 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.
17
<PAGE> 18
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
The following current reports on Form 8-K were filed by WebLink
Wireless, Inc. during the quarter ended March 31, 2000:
Current Report on Form 8-K dated March 10, 2000, disclosing under
Item 5 "Other Events" the reduction of total debt by $84.5
million.
18
<PAGE> 19
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WEBLINK WIRELESS, INC.
MAY 12, 2000 BY: /S/JOHN D. BELETIC
--------------------------------
JOHN D. BELETIC
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
MAY 12, 2000 BY: /S/JOHN R. HAUGE
--------------------------------
JOHN R. HAUGE
VICE PRESIDENT, FINANCE
CHIEF FINANCIAL OFFICER AND TREASURER
(PRINCIPAL FINANCIAL AND CHIEF
ACCOUNTING OFFICER)
19
<PAGE> 20
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
11.1* Statement regarding computation of per share loss for the three
months ended March 31, 2000
11.2* Statement regarding computation of per share loss for the three
months ended March 31, 1999
12.1* Computation of ratio of earnings to fixed charges
27.1* Financial Data Schedule
* Filed herewith
<PAGE> 1
Exhibit 11.1
WEBLINK WIRELESS, INC.
COMPUTATION OF PER SHARE EARNINGS (LOSS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 2000
-------------------------------------------
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 2,428,622 77.80% 1,889,467
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
1999 Treasury Stock Transaction (6,588) 100.00% (6,588)
March 2000 Debt Swap 3,789,715 24.18% 916,195
Canadian Transaction 714,286 65.93% 470,958
Employee Stock Purchase Plan Shares Issued 145,737 100.00% 145,737
Warrants Exercised 130,513 37.89% 49,450
----------- -----------
46,379,959 42,642,893
WEIGHTED AVERAGE SHARES OUTSTANDING 42,642,893
NET LOSS (19,895,793)
NET LOSS PER SHARE $ (0.47)
===========
</TABLE>
<PAGE> 1
Exhibit 11.2
WEBLINK WIRELESS, INC.
COMPUTATION OF PER SHARE EARNINGS (LOSS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 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 98.73% 1,061,080
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 110,943 100.00% 110,943
Warrants Exercised 49,450 100.00% 49,450
------------ ------------
40,412,792 40,399,147
WEIGHTED AVERAGE SHARES OUTSTANDING 40,399,147
NET LOSS ($25,203,000)
NET LOSS PER SHARE $ (0.62)
============
</TABLE>
<PAGE> 1
EXHIBIT 12.1
WEBLINK WIRELESS, INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
THREE MONTHS
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, MARCH 31,
1995 1996 1997 1998 (1) 1999 2000
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Earnings:
Net loss ........................ $ (53,113) $ (48,598) $ (43,887) $ (59,316) $ (99,867) $ (19,896)
Add: Amount of
previously capitalized
interest amortized ........... -- -- -- 252 2,288 572
Add: Fixed charges .............. 30,720 35,041 38,499 43,798 65,310 17,184
------------ ------------ ------------ ------------ ------------ ------------
Adjusted earnings ............... (22,393) (13,557) (5,388) (15,266) (32,269) (2,140)
Fixed charges:
Interest in
indebtedness ................. 28,383 32,368 36,672 52,645 63,452 16,788
Amortization of debt
issuance costs ............... 1,052 2,143 844 1,172 1,291 334
Interest portion
of rental and
lease expense ................ 1,285 530 983 1,428 567 62
------------ ------------ ------------ ------------ ------------ ------------
Fixed charges ................... 30,720 35,041 38,499 55,245 65,310 17,184
Deficiency of
earnings available to
cover fixed charges ............. $ (53,113) $ (48,598) $ (43,887) $ (70,511) $ (97,579) $ (19,324)
============ ============ ============ ============ ============ ============
Earnings to fixed charges ratio ... -- -- -- -- -- --
</TABLE>
(1) The fixed charge adjustment to earnings excludes $11.4 million of
capitalized interest.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S MARCH 31, 2000 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> US $
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<EXCHANGE-RATE> 1
<CASH> 20,726
<SECURITIES> 0
<RECEIVABLES> 28,923
<ALLOWANCES> 0
<INVENTORY> 6,468
<CURRENT-ASSETS> 64,057
<PP&E> 437,461
<DEPRECIATION> 201,741
<TOTAL-ASSETS> 444,994
<CURRENT-LIABILITIES> 94,118
<BONDS> 464,194
0
0
<COMMON> 5
<OTHER-SE> (113,824)
<TOTAL-LIABILITY-AND-EQUITY> 444,994
<SALES> 13,798
<TOTAL-REVENUES> 77,465
<CGS> 15,275
<TOTAL-COSTS> 32,006
<OTHER-EXPENSES> 21,632
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 17,184
<INCOME-PRETAX> (22,218)
<INCOME-TAX> 0
<INCOME-CONTINUING> (22,218)
<DISCONTINUED> 0
<EXTRAORDINARY> 2,322
<CHANGES> 0
<NET-INCOME> (19,896)
<EPS-BASIC> (.47)
<EPS-DILUTED> (.47)
</TABLE>
