<PAGE> 1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
<TABLE>
<C> <S>
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER: 0-21924
</TABLE>
METROCALL, INC.
(Exact Name of Registrant as Specified in its Charter)
<TABLE>
<S> <C>
DELAWARE 54-1215634
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6677 RICHMOND HIGHWAY, ALEXANDRIA, VIRGINIA 22306
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including area code: (703) 660-6677
</TABLE>
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 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 [ ]
Indicate the number of shares outstanding of each of the issuer's classes
of common stock as of the latest practicable date:
<TABLE>
<CAPTION>
CLASS OUTSTANDING AT NOVEMBER 13, 1997
---------------------------------------- ----------------------------------------
<S> <C>
Common Stock, $.01 par value 29,112,998
</TABLE>
================================================================================
<PAGE> 2
METROCALL, INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets, December 31, 1996 and September
30, 1997............................................................. 3
Condensed Consolidated Statements of Operations for the three months
ended September 30, 1996 and 1997.................................... 4
Condensed Consolidated Statements of Operations for the nine months
ended September 30, 1996 and 1997.................................... 5
Condensed Consolidated Statement of Stockholders' Equity for the nine
months ended September 30, 1997...................................... 6
Condensed Consolidated Statements of Cash Flows for the nine months
ended September 30, 1996 and 1997.................................... 7
Notes to Condensed Consolidated Financial Statements................... 8
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................ 15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings...................................................... 24
Item 2. Changes in Securities.................................................. 24
Item 3. Defaults Upon Senior Securities........................................ 24
Item 4. Submission of Matters to a Vote of Security Holders.................... 24
Item 5. Other Information...................................................... 24
Item 6. Exhibits and Reports on Form 8-K....................................... 24
SIGNATURES............................................................................ 28
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
METROCALL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE INFORMATION)
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............................................................. $ 10,917 $ 15,851
Accounts receivable, less allowance for doubtful accounts of $2,961 as of December 31,
1996 and $2,461 as of September 30, 1997............................................ 20,906 26,288
Prepaid expenses and other current assets............................................. 5,681 8,007
-------- --------
Total current assets............................................................ 37,504 50,146
-------- --------
PROPERTY AND EQUIPMENT:
Land, buildings and leasehold improvements............................................ 12,694 16,058
Furniture, office equipment and vehicles.............................................. 29,742 41,038
Paging and plant equipment............................................................ 188,236 211,291
Less -- Accumulated depreciation and amortization..................................... (77,260) (105,192)
-------- --------
153,412 163,195
-------- --------
INTANGIBLE ASSETS, net of accumulated amortization of approximately $20,926 as of
December 31, 1996 and $47,747 as of September 30, 1997................................ 452,639 491,221
OTHER ASSETS............................................................................ 3,023 1,718
-------- --------
TOTAL ASSETS............................................................................ $646,578 $ 706,280
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt.................................................. $ 700 926
Accounts payable...................................................................... 17,194 19,078
Accrued expenses and other current liabilities........................................ 18,940 23,452
Deferred revenues and subscriber deposits............................................. 7,937 7,814
-------- --------
Total current liabilities....................................................... 44,771 51,270
CAPITAL LEASE OBLIGATIONS, net of current portion....................................... 3,244 4,500
CREDIT FACILITY AND OTHER LONG-TERM DEBT, less current maturities....................... 171,314 226,999
SENIOR SUBORDINATED NOTES, due 2005 and 2007............................................ 152,534 152,534
DEFERRED INCOME TAX LIABILITY........................................................... 76,687 73,894
MINORITY INTEREST IN PARTNERSHIP........................................................ 499 510
-------- --------
Total liabilities............................................................... 449,049 509,707
-------- --------
SERIES A CONVERTIBLE PREFERRED STOCK, 14% cumulative; par value $.01 per share; 810,000
shares authorized; 159,600 and 170,772 shares issued and outstanding as of December
31, 1996 and September 30, 1997, respectively, and a liquidation preference of $40,598
and $44,934 at December 31, 1996 and September 30, 1997, respectively................. 31,231 36,041
SERIES B JUNIOR CONVERTIBLE PREFERRED STOCK, 14% cumulative, par value $.01 per share;
9,000 shares authorized; none and 1,500 shares issued and outstanding as of December
31, 1996 and September 30, 1997, and a liquidation preference of $0 and $15,525 at
December 31, 1996 and September 30, 1997, respectively................................ -- 15,525
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, par value $.01 per share; authorized 1,000,000 shares; none issued
and outstanding..................................................................... -- --
Common stock, par value $.01 per share; authorized 60,000,000 shares; 24,521,135 and
29,112,998 shares issued and outstanding as of December 31, 1996 and September 30,
1997, respectively.................................................................. 245 291
Additional paid-in capital............................................................ 262,827 284,731
Accumulated deficit................................................................... (96,774) (140,015)
-------- --------
Total stockholders' equity...................................................... 166,298 145,007
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.............................................. $646,578 $ 706,280
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE> 4
METROCALL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE INFORMATION)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
------------------------
1996 1997
---------- ----------
<S> <C> <C>
REVENUES:
Service, rent and maintenance revenues............................. $ 30,624 $ 64,701
Product sales...................................................... 5,998 10,318
---------- ----------
Total revenues............................................. 36,622 75,019
Net book value of products sold.................................... (4,986) (7,642)
---------- ----------
31,636 67,377
---------- ----------
OPERATING EXPENSES:
Service, rent and maintenance expenses............................. 9,799 20,907
Selling and marketing.............................................. 6,006 13,512
General and administrative......................................... 7,661 14,694
Depreciation and amortization...................................... 15,288 23,468
---------- ----------
38,754 72,581
---------- ----------
Loss from operations....................................... (7,118) (5,204)
INTEREST AND OTHER INCOME (EXPENSE).................................. 97 (121)
INTEREST EXPENSE..................................................... (5,196) (9,856)
MINORITY INTEREST IN LOSS OF INVESTMENTS............................. (2,269) --
---------- ----------
LOSS BEFORE INCOME TAX BENEFIT....................................... (14,486) (15,181)
INCOME TAX BENEFIT................................................... 171 1,345
---------- ----------
Net loss................................................... (14,315) (13,836)
PREFERRED DIVIDENDS.................................................. -- (2,184)
---------- ----------
Loss attributable to common stockholders................... $ (14,315) $ (16,020)
========= =========
Loss per share attributable to common stockholders................... $ (0.94) $ (0.55)
========= =========
Weighted-average common shares outstanding........................... 15,161,923 29,076,710
========= =========
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE> 5
METROCALL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE INFORMATION)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
------------------------
1996 1997
---------- ----------
<S> <C> <C>
REVENUES:
Service, rent and maintenance revenues............................. $ 79,453 $ 183,237
Product sales...................................................... 19,155 28,832
---------- ----------
Total revenues............................................. 98,608 212,069
Net book value of products sold.................................... (15,546) (21,324)
---------- ----------
83,062 190,745
---------- ----------
OPERATING EXPENSES:
Service, rent and maintenance expenses............................. 26,297 56,347
Selling and marketing.............................................. 15,998 38,425
General and administrative......................................... 20,363 44,530
Depreciation and amortization...................................... 40,385 67,017
---------- ----------
103,043 206,319
---------- ----------
Loss from operations....................................... (19,981) (15,574)
INTEREST AND OTHER INCOME (EXPENSE).................................. 2,760 (61)
INTEREST EXPENSE..................................................... (13,596) (25,763)
MINORITY INTEREST IN LOSS OF INVESTMENTS............................. (2,422) --
---------- ----------
LOSS BEFORE INCOME TAX BENEFIT....................................... (33,239) (41,398)
INCOME TAX BENEFIT................................................... 279 3,510
---------- ----------
Net loss................................................... $ (32,960) (37,888)
PREFERRED DIVIDENDS.................................................. -- (5,353)
---------- ----------
Loss attributable to common stockholders................... $ (32,960) $ (43,241)
========== ==========
Loss per share attributable to common stockholders................... $ (2.23) $ (1.64)
========== ==========
Weighted-average common shares outstanding........................... 14,806,114 26,358,780
========== ==========
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE> 6
METROCALL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
<TABLE>
<CAPTION>
COMMON STOCK
-------------------- ADDITIONAL
SHARES PAR PAID-IN ACCUMULATED
OUTSTANDING VALUE CAPITAL DEFICIT TOTAL
----------- ----- --------- ---------- --------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1996................. 24,521,135 $ 245 $ 262,827 $ (96,774) $166,298
Issuance of shares in employee stock
purchase plan............................ 109,747 1 429 -- 430
Adjustment to consideration for 1996
acquisition.............................. 74,085 1 (213) -- (212)
Issuance of common stock in the acquisition
of Radio and Communications Consultants,
Inc. and Advanced Cellular Telephone,
Inc...................................... 494,279 5 2,899 -- 2,904
Issuance of common stock in the acquisition
of Page America Group, Inc............... 3,911,856 39 18,787 -- 18,826
Issuance of shares under option
agreement................................ 1,896 -- 2 -- 2
Preferred dividends........................ -- -- -- (5,353) (5,353)
Net loss................................... -- -- -- (37,888) (37,888)
----------- ----- --------- ---------- --------
BALANCE, September 30, 1997................ 29,112,998 $ 291 $ 284,731 $ (140,015) $145,007
========= ==== ======== ========= ========
</TABLE>
See notes to condensed consolidated financial statements.
6
<PAGE> 7
METROCALL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------
1996 1997
--------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss............................................................. $ (32,960) $(37,888)
Adjustments to reconcile net loss to net cash provided by operating
activities-- Depreciation and amortization........................ 40,385 67,017
Amortization of debt financing costs.............................. 480 776
Decrease in deferred income taxes................................. (503) (4,047)
Write-off of deferred acquisition costs........................... 388 --
Minority interest in loss of investments.......................... 2,422 --
Deferred debt financing costs..................................... (4,496) (1,339)
Cash provided by (used in) changes in assets and liabilities, net of
effect of acquisitions and dispositions:
Accounts receivable............................................... 80 (5,315)
Prepaid expenses and other current assets......................... 51 (1,946)
Accounts payable.................................................. 9,846 888
Deferred revenues and subscriber deposits......................... (420) (1,486)
Other current liabilities......................................... 2,581 2,025
-------- --------
Net cash provided by operating activities.................... 17,854 18,685
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash paid for acquisitions, net of cash acquired..................... (29,440) (25,255)
Proceeds from sale of telemessaging operations....................... -- 10,650
Purchases of property and equipment, net............................. (58,482) (54,400)
Additions to intangibles............................................. (67,584) (1,042)
Equity investments................................................... (27,245) --
Other................................................................ (981) 798
-------- --------
Net cash used in investing activities........................ (183,732) (69,249)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt......................................... 52,700 56,000
Principal payments on long-term debt................................. (267) (945)
Net proceeds from issuance of common stock........................... 115 432
Increase in minority interest in partnership......................... (1) 11
-------- --------
Net cash provided by financing activities.................... 52,547 55,498
-------- --------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS................... (113,331) 4,934
CASH AND CASH EQUIVALENTS, beginning of period......................... 123,574 10,917
-------- --------
CASH AND CASH EQUIVALENTS, end of period............................... $ 10,243 $ 15,851
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash payments for interest........................................... $ 9,700 $ 18,105
Cash payments for income taxes....................................... $ 236 $ 537
</TABLE>
See notes to condensed consolidated financial statements.
7
<PAGE> 8
METROCALL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
1. ORGANIZATION AND RISK FACTORS
Metrocall, Inc. ("Metrocall" or the "Company") provides local, regional and
nationwide paging and other wireless messaging services. The Company's selling
efforts are concentrated in six operating regions: (i) the Northeast
(Massachusetts through Delaware), (ii) the Mid-Atlantic (Maryland, Virginia and
the Washington, D.C. metropolitan area), (iii) the Southeast (including
Virginia, the Carolinas, Georgia, Florida, Alabama, Louisiana, Mississippi and
Tennessee), (iv) the Southwest (primarily Texas), (v) the Midwest (primarily
Illinois and Indiana), and (vi) the West (primarily California, Nevada and
Arizona). Through its Nationwide Network, the Company provides coverage to over
1,000 cities representing the top 100 Standard Metropolitan Statistical Areas.
Risks and Other Important Factors
The Company sustained net losses of $2.4 million, $20.1 million, $49.1
million, and $37.9 million for each of the years ended December 31, 1994, 1995,
1996 and the nine months ended September 30, 1997, respectively. The Company's
loss from operations for the nine months ended September 30, 1997 was $15.6
million. In addition, at September 30, 1997, the Company had an accumulated
deficit of approximately $140.0 million. The Company's losses from operations
and its net losses are expected to continue for additional periods in the
future. There can be no assurance that the Company's operations will become
profitable.
The Company's operations require the availability of substantial funds to
finance the maintenance and growth of its existing paging operations and
customer base, development and construction of future wireless communications
networks, expansion into new markets, and the acquisition of other wireless
communications companies. At September 30, 1997, the Company had incurred
approximately $385.0 million in total long-term debt and capital leases. Amounts
available under the Company's credit facility are subject to certain financial
covenants and other restrictions such that as of September 30, 1997,
approximately $69.2 million of additional borrowings were available to the
Company under its credit facility. Subsequent to September 30, 1997, the Company
issued $200.0 million in senior subordinated debt, the net proceeds of which
were used to repay indebtedness under the credit facility. See "Note
9 -- Subsequent Events." The Company's ability to borrow additional amounts in
the future is dependent on its ability to comply with the provisions of its
credit facility.
The Company is also subject to certain additional risks and uncertainties
including, but not limited to, changes in technology, business integration,
competition and regulation.
2. BASIS OF PRESENTATION
The condensed consolidated financial statements included herein have been
prepared by the Company, without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission and include, in the opinion of
management, all adjustments, consisting of normal recurring adjustments,
necessary for a fair presentation of interim period results. Certain information
and footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations. The Company believes, however,
that its disclosures are adequate to make the information presented not
misleading. These condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes thereto
included in the Company's 1996 Annual Report on Form 10-K, as amended. The
results of operations for the three and nine-month periods ended September 30,
1997, are not necessarily indicative of the results to be expected for the full
year.
8
<PAGE> 9
METROCALL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Revenue Recognition
The Company recognizes revenue under service, rental and maintenance
agreements with customers as the related services are performed. Sales of
equipment are recognized upon delivery.
Cash and Cash Equivalents
Cash and cash equivalents include short-term, highly liquid investments
purchased with original maturities of three months or less.
Property and Equipment
Property and equipment are carried at cost. Depreciation is computed using
the straight-line method over the following estimated useful lives.
<TABLE>
<CAPTION>
YEARS
-----
<S> <C>
Buildings and leasehold improvements................................ 10-31
Furniture and office equipment...................................... 5-10
Vehicles............................................................ 3-5
Subscriber paging equipment......................................... 3-5
Transmission and plant equipment.................................... 5-12
</TABLE>
The net book value of lost pagers is charged to depreciation expense. New
pagers are depreciated using the half-year convention upon acquisition.
Betterments to acquired pagers are charged to depreciation expense.
Prepaid Expenses and Other Current Assets
Pursuant to the Telecommunications Act of 1996 and consistent with the
Federal Communications Commission's ("FCC") local transport rules, the Company
has ceased paying local exchange carriers ("LECs") in the Company's various
service areas for any facilities used by those LECs to transport local calls to
the Company's local paging networks. The Company has also notified the LECs that
it expects to receive credit from each LEC, for any such local transport charges
assessed against the Company by that LEC since November 1, 1996, the effective
date for the FCC's rules governing local transport. As of December 31, 1996 and
September 30, 1997, the Company had recorded credits receivable from the LECs
related to such local transport charges of $1.0 million and $3.5 million,
respectively. These LEC receivables have been classified as Prepaid Expenses and
Other Current Assets in the accompanying balance sheets as of December 31, 1996
and September 30, 1997.
Long-Lived Assets
Long-lived assets and identifiable intangibles to be held and used are
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount should be addressed. Impairment is
9
<PAGE> 10
METROCALL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
measured by comparing the book value to the estimated undiscounted future cash
flows expected to result from use of the assets and their eventual disposition.
The Company has determined that there has been no permanent impairment in the
carrying value of long-lived assets reflected in the accompanying balance sheet.
Effective July 1, 1996, the Company changed the estimated useful lives of
certain intangibles acquired in 1994, including goodwill and regulatory licenses
issued by the FCC recorded in the acquisitions of FirstPAGE USA, Inc. and
MetroPaging, Inc. from 40 years to 15 years for goodwill and from 40 years to 25
years for FCC licenses. The impact of these changes was to increase amortization
expense for the three and nine-month periods ended September 30, 1997 by
approximately $650,000 and $1.95 million, respectively.
Reclassifications
Certain amounts in the prior period's consolidated financial statements
have been reclassified to conform with the current period's presentation.
4. LOSS PER SHARE ATTRIBUTABLE TO COMMON STOCKHOLDERS
Loss per share attributable to common stockholders for the three and
nine-month periods ended September 30, 1996 and 1997, is based upon the
weighted-average number of common equivalent shares outstanding during the
period. The effect of outstanding options and warrants on loss per share
attributable to common stockholders for the three and nine-month periods ended
September 30, 1996 and 1997, is not included because such options and warrants
would be antidilutive.
New Accounting Pronouncement
On March 3, 1997, the Financial Accounting Standards Board released
Statement No. 128, "Earnings Per Share" ("Statement 128"). Statement 128
requires dual presentation of basic and diluted earnings per share on the face
of the income statement for all periods presented. Basic earnings per share
excludes dilution and is computed by dividing income available to common
stockholders by the weighted-average number of common shares outstanding for the
period. Diluted earnings per share reflects the potential dilution that could
occur if securities or other contracts to issue common stock were exercised or
converted into common stock or resulted in the issuance of common stock that
then shared in the earnings of the entity. Diluted earnings per share is
computed similarly to fully diluted earnings per share pursuant to Accounting
Principles Bulletin No. 15. Statement 128 is effective for reporting periods
ending after December 15, 1997, and when adopted, it will require restatement of
prior periods' earnings per share.
Since the effect of outstanding options, warrants and other rights to
acquire common stock is antidilutive, they have been excluded from the Company's
computation of net loss per share. Accordingly, management does not believe that
Statement 128 will have an impact upon historical net loss per share as
reported.
5. RECENT AND PENDING ACQUISITIONS
Radio and Communications Consultants, Inc. and Advanced Cellular Telephone,
Inc.
On February 5, 1997, the Company acquired 100% of the outstanding common
stock of Radio and Communications Consultants, Inc. and Advanced Cellular
Telephone, Inc. (collectively, "RCC") by means of a merger with Metrocall of
Shreveport, Inc., a wholly owned subsidiary of Metrocall formed to effect the
merger with RCC. The merger was financed through the issuance of 494,279 shares
of the Company's common stock, approximately $800,000 in cash and assumed
liabilities of approximately $200,000. The Company also recorded a deferred tax
liability of approximately $1.3 million in connection with this transaction. The
RCC acquisition has been accounted for as a purchase for financial accounting
purposes.
10
<PAGE> 11
METROCALL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. RECENT AND PENDING ACQUISITIONS -- (CONTINUED)
Page America Group, Inc.
On July 1, 1997, the Company acquired substantially all the assets of Page
America Group, Inc. and subsidiaries ("Page America"). The total purchase price
of approximately $63.7 million included consideration of approximately $25.0
million in cash, 1,500 shares of Series B Junior Convertible Preferred Stock
(see Note 6) having a value upon liquidation of $15.0 million, 3,997,458 shares
of Metrocall common stock (subsequently reduced to 3,911,856 shares) and assumed
liabilities and transaction fees and expenses of approximately $4.9 million. The
cash portion of the purchase price including fees and expenses was funded
through borrowings under the Company's credit facility. The Page America
acquisition has been accounted for as a purchase for financial reporting
purposes.
ProNet Inc.
The Company and ProNet Inc. ("ProNet") have entered into a merger agreement
dated August 8, 1997, whereby ProNet will be merged with and into the Company.
Under the terms of the merger agreement, the Company will issue 0.90 shares of
Metrocall common stock for each share of ProNet common stock, subject to
adjustment based on certain defined operating performance criteria and debt and
pager inventory targets. In connection with the merger, the Company will assume
ProNet's 11 7/8% senior subordinated notes due 2005 totaling $100.0 million and
expects to refinance indebtedness outstanding under ProNet's credit facility
with borrowings under the Company's own credit facility. The Company expects the
merger will be accounted for as a purchase for financial reporting purposes. The
merger is subject to approval by the FCC and each company's stockholders.
6. STOCK AND STOCK RIGHTS
Capital Stock
The authorized capital stock of Metrocall consists of 60,000,000 shares of
common stock, par value $.01 per share and 1,000,000 shares of preferred stock,
par value $0.01 per share, of which 810,000 shares have been designated as
Series A Convertible Preferred Stock ("Series A Preferred") and 9,000 shares
have been designated Series B Junior Convertible Preferred Stock ("Series B
Preferred"). On August 6, 1997, the Board of Directors approved, subject to
stockholder approval, an increase in the number of authorized shares of common
stock to 80,000,000.
Series A Preferred
On November 15, 1996, the Company issued 159,600 shares of Series A
Preferred, together with warrants, discussed below, for $39.9 million. Each
share of Series A Preferred has a stated value of $250 per share and has a
liquidation preference over shares of the Company's common stock and Series B
Preferred Stock equal to the stated value. The Series A Preferred carries a
dividend of 14% of the stated value per year, payable semiannually on May 15 and
November 15 in cash or in additional shares of Series A Preferred, at the
Company's option. Preferred dividends for the Series A Preferred accrued for the
three and nine-month periods ended September 30, 1997 were approximately $1.5
million and $4.3 million, respectively. Effective May 15, 1997, the Company paid
dividends on the Series A Preferred totaling 11,172 shares of additional Series
A Preferred. Accrued but unpaid dividends on the Series A Preferred at September
30, 1997 were approximately $2.2 million.
In connection with the Series A Preferred, the Company issued warrants to
purchase the Company's common stock. Each warrant represents the right of the
holder to purchase 18.266 shares of common stock or an aggregate of 2,915,254
shares. The exercise price is $7.40 per share. The warrants expire November 15,
2001. The total value allocated to the warrants for financial reporting
purposes, $7.9 million or $2.70 per share,
11
<PAGE> 12
METROCALL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. STOCK AND STOCK RIGHTS -- (CONTINUED)
is being accreted over the term of the Series A Preferred as preferred
dividends. These amounted to approximately $164,000 and $492,000 for the three
and nine-month periods ended September 30, 1997, respectively.
Series B Preferred
In connection with the Page America transaction (see Note 5), the Board of
Directors authorized the designation of 9,000 shares of preferred stock as
Series B Preferred. The Company issued 1,500 shares of Series B Preferred on
July 1, 1997. Each share of Series B Preferred has a stated value of $10,000 per
share and a liquidation preference, which is junior to the Series A Preferred
but senior to the shares of Metrocall common stock, equal to its stated value.
The Series B Preferred carries a dividend of 14% of the stated value per year,
payable semiannually in cash or in additional shares of Series B Preferred, at
the Company's option. Preferred dividends accrued for the Series B Preferred for
the period from issuance to September 30, 1997, were approximately $525,000
which were unpaid at September 30, 1997. Under the terms of the Series B
Preferred, 25% of the outstanding shares of Series B Preferred became
convertible into common stock at a conversion price of approximately $6.61 per
share. Additional shares of Series B Preferred will be convertible at the rate
of 25% of the outstanding shares on each of December 1, 1997, March 1, 1998 and
June 1, 1998.
Stock Option Plans
At December 31, 1996, 1,747,002 options were issued and outstanding with a
weighted-average exercise price of approximately $8.18 per share, expiring on
various dates ranging from 2003 through 2006. On February 5, 1997, the
Compensation Committee of the Board of Directors approved a change in the
exercise price for substantially all outstanding options for current employees,
officers and directors. The new exercise price was $6.00 per share, the fair
market value on the date of the change.
During the nine months ended September 30, 1997, the Board of Directors
approved grants of options to purchase 679,000 shares of Metrocall common stock
to current officers, employees and directors with exercise prices ranging from
$4.50 to $6.00 per share with a weighted-average exercise price of $5.97 per
share. All options were granted with exercise prices equal to or greater than
the fair market value on the date of grant.
Employee Stock Purchase Plan
On May 1, 1996, the stockholders of the Company approved the Metrocall,
Inc. Employee Stock Purchase Plan (the "Stock Purchase Plan"), which offers
eligible employees the opportunity to purchase an aggregate of 300,000 shares of
Metrocall common stock through payroll deductions. Each eligible employee may
elect to purchase shares of Metrocall common stock at the lesser of 85% of the
fair market value of Metrocall common stock on either the first or last trading
day for each payroll deduction period. On January 1, 1997, the Company issued
34,770 shares of Metrocall common stock under the Stock Purchase Plan with a
purchase price of approximately $4.14 per share. For the payroll deduction
period ended June 30, 1997, the Company issued 74,977 shares of common stock
effective July 1, 1997 with a purchase price of approximately $3.80 per share.
On November 5, 1997, the Board of Directors approved, subject to stockholder
approval, an increase in the number of shares available under the Stock Purchase
Plan to 1,000,000, and certain other changes.
12
<PAGE> 13
METROCALL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. COMMITMENTS AND CONTINGENCIES
Legal and Regulatory Matters
The Company is subject to certain legal and regulatory matters in the
normal course of business. In the opinion of management, the outcome of such
assertions will not have a material adverse effect on the financial position or
results of operations of the Company.
In April 1996, the Company entered into an agreement to purchase certain of
the assets of Source One Wireless, Inc. ("Source One") and placed $1.0 million
cash in escrow. On June 26, 1996, the Company advised Source One that Source One
had failed to meet certain conditions to complete the transaction and terminated
the agreement. On September 20, 1996, Source One filed an action in the Circuit
Court of Cook County, Illinois, claiming that the Company had breached the
agreement and seeking specific performance of the purchase agreement or
unspecified damages in excess of $80.0 million. The Company removed this action
to the United States District Court for the Northern District of Illinois. The
Company intends to vigorously defend the claims in this action and believes it
has meritorious defenses to this action. The Company has denied the claim and
asserted affirmative defenses and counterclaims based on misrepresentations and
breaches of contract by Source One. The period for fact discovery has closed;
trial is not expected before January 1998.
8. SALE OF TELEMESSAGING ASSETS
On May 9, 1997, the Company completed the sale of the assets of the
telemessaging business acquired in the merger with A+ Network in November 1996
pursuant to the terms of an Asset Purchase Agreement (the "Purchase Agreement")
between Metrocall and Procommunications, Inc. dated April 30, 1997. Pursuant to
the terms of the Purchase Agreement, the Company received proceeds totaling
$11.0 million in cash. For the period from January 1, 1997 through the date of
disposition, the telemessaging business generated net revenues of approximately
$3.7 million and operating income of approximately $0.1 million. No gain or loss
was recognized upon the sale for financial reporting purposes as net assets sold
approximate the net proceeds received.
9. SUBSEQUENT EVENTS
Senior Subordinated Notes
On October 21, 1997, the Company sold $200.0 million aggregate principal
amount of 9 3/4% senior subordinated notes due 2007 (the "Notes") in a private
placement (the "Notes Offering"). The Notes bear interest, payable semi-annually
on January 15 and July 15, at a rate of 9.75% per year and mature on November 1,
2007. The Notes are callable beginning November 1, 2002. The Notes are unsecured
obligations of the Company, subordinated to all present and future senior
indebtedness of the Company. The Company used the net proceeds from the Notes
Offering, approximately $193.0 million, to repay outstanding indebtedness under
its credit facility. The Company has agreed to certain registration rights with
respect to the Notes. If the Notes are not exchanged for a registered series of
notes with identical terms, or a shelf registration statement does not become
effective with respect to such notes, by April 21, 1998, the interest on the
Notes will increase by .5% per annum until registration is completed.
The Notes contain various covenants that, among other restrictions, limit
the ability of the Company to incur additional indebtedness, pay dividends,
engage in certain transactions with affiliates, sell assets and engage in
mergers and consolidations except under certain circumstances.
The Notes may be redeemed, in whole or in part, at any time on or after
November 1, 2002, at the option of the Company. The following redemption prices,
plus any accrued and unpaid interest to, but not including,
13
<PAGE> 14
METROCALL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. SUBSEQUENT EVENTS -- (CONTINUED)
the applicable redemption date, are applicable to any optional redemption of the
Notes by the Company during the 12-month period beginning on November 1 of the
years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
------------------------------------------ ----------
<S> <C>
2002...................................... 104.8750%
2003...................................... 102.4375
2004 and thereafter....................... 100.0000
</TABLE>
In the event of a change of control of the Company, as defined, each holder
of the Notes will have the right, at such holder's option, to require the
Company to repurchase that holder's Notes at a purchase price equal to 101% of
the principal amount thereof, plus any accrued and unpaid interest to the date
of repurchase.
Senior Secured Credit Facility
Concurrent with the Notes Offering discussed above, the Company and its
bank lenders executed an amended and restated credit agreement on October 21,
1997. In addition to restructuring available borrowings, the amended and
restated credit agreement includes approval of the ProNet merger. Under the
amended and restated credit agreement, subject to certain conditions, the
Company may borrow up to $300.0 million under two loan facilities. The first
facility is a $175.0 million reducing revolving credit facility, and the second
facility is a $125.0 million reducing credit facility of which $75.0 million can
be borrowed only to refinance ProNet bank debt in connection with the ProNet
merger. At October 21, 1997, after application of the net proceeds from the
Notes Offering, a total of approximately $50.9 million was outstanding under the
credit facility. The credit facility has a remaining term of seven years and is
secured by substantially all the assets of the Company. Required quarterly
repayments begin on March 31, 2000 through December 31, 2004.
The amended and restated credit facility contains various covenants that,
among other restrictions, require the Company to maintain certain financial
ratios, including total debt to annualized operating cash flow (not to exceed
6.0 to 1.0 through December 31, 1998 and declining thereafter), senior debt to
annualized operating cash flow, annualized operating cash flow to pro forma debt
service, total sources of cash to total uses of cash and operating cash flow to
interest expense (in each cash, as such terms are defined in the agreement
relating to the amended and restated credit facility). The covenants also limit
additional indebtedness and future mergers and acquisitions without the approval
of the lenders and restrict the payment of cash dividends and other stockholder
distributions by the Company during the term of the credit facility. The credit
facility also prohibits certain changes in ownership control of the Company, as
defined, during the term of the credit facility.
In connection with amendments during the three-month period ended September
30, 1997, and the amended and restated credit facility, discussed above, the
Company paid fees to its bank lenders of approximately $1.3 million. These fees
have been deferred and will be amortized over the remaining term of the credit
facility as interest expense.
14
<PAGE> 15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of the financial condition and
results of operations of the Company should be read in conjunction with the
financial statements and the notes thereto which appear elsewhere in this
quarterly report and its annual report on Form 10-K, as amended, for the year
ended December 31, 1996.
All statements contained herein that are not historical facts, including
but not limited to, statements regarding anticipated future capital
requirements, the Company's future development plans, the Company's ability to
obtain additional debt, equity or other financing, and the Company's ability to
generate cash from operations and further savings from existing operations, are
based on current expectations. These statements are forward looking in nature
and involve a number of risks and uncertainties. Actual results may differ
materially. Among the factors that could cause actual results to differ
materially are the following: the availability of sufficient capital to finance
the Company's business plan on terms satisfactory to the Company; competitive
factors, such as the introduction of new technologies and competitors into the
paging and wireless communications industry; pricing pressures which could
affect demand for the Company's services; changes in labor, equipment and
capital costs; future acquisitions and strategic partnerships; general business
and economic conditions; and the other risk factors described from time to time
in the Company's reports filed with the Securities and Exchange Commission. The
Company wishes to caution readers not to place undue reliance on any such
forward looking statements, which statements are made pursuant to the Private
Securities Litigation Reform Act of 1995 and, as such, speak only as of the date
made.
OVERVIEW
Metrocall is currently the fifth largest paging company in the United
States based on number of subscribers, with approximately 2,633,544 pagers in
service. For the quarter ended September 30, 1997, the Company added 301,538
total subscribers to its base of pagers in service through internal growth and
the acquisition of substantially all the assets of Page America Group, Inc.
("Page America"). The Page America acquisition added 198,625 subscribers in the
Northeast and Midwest regions. On February 5, 1997, the Company completed the
acquisition of Radio and Communications Consultants, Inc. and Advanced Cellular
Telephone, Inc. (collectively, "RCC"), affiliated paging companies operating in
the Shreveport, Louisiana market. The results of operations for the three and
nine months ended September 30, 1997 reflect the results of operations of
companies acquired throughout 1996 including Parkway Paging, Inc. ("Parkway"),
Satellite Paging and Message Network (collectively, "Satellite") and A+ Network,
Inc. ("A+ Network"), as well as RCC and Page America from their dates of
acquisition. Additionally, the results of operations for the nine months ended
September 30, 1997 also reflect the operations of the Company's telemessaging
business until its sale on May 1, 1997. Net revenues and operating income
derived from the telemessaging operations and included in the results of
operations for the nine-month period ended September 30, 1997 were approximately
$3.7 million and $0.1 million, respectively.
On August 8, 1997, the Company entered a merger agreement with ProNet Inc.
("ProNet") whereby ProNet will be merged with and into the Company. At September
30, 1997, ProNet had 1,426,274 pagers in service. On a pro forma basis for the
ProNet merger, the Company believes it will rank as the second largest paging
company in the United States. Completion of the ProNet merger requires approval
by the Federal Communications Commission and each company's stockholders.
The definitions below relate to management's discussion of the Company's
results of operations that follows.
- Service, rent and maintenance revenues: include primarily monthly,
quarterly, semi-annually and annually billed recurring revenue, not
generally dependent on usage, charged to subscribers for paging and
related services such as voice mail and pager repair and replacement.
Service, rent and maintenance revenues also include revenues derived from
telemessaging, cellular and long distance services.
15
<PAGE> 16
- Net revenues: include service, rent and maintenance revenues and sales
of customer owned and maintained ("COAM") pagers less net book value of
products sold.
- Service, rent and maintenance expenses: include costs related to the
management, operation and maintenance of the Company's network systems
and customer support centers.
- Selling and marketing expenses: include salaries, commissions and
administrative costs for the Company's sales force and related marketing
and advertising expenses.
- General and administrative expenses: include executive management,
accounting, office telephone, repairs and maintenance, management
information systems and employee benefits.
The Company derives the majority of its revenues from fixed, periodic
(usually monthly) fees, generally not dependent on usage, charged to subscribers
for paging services. While a subscriber continues to use the Company's service,
operating results benefit from this recurring revenue stream with minimal
requirements for incremental selling expenses or other fixed costs. The
Company's total revenues have increased by approximately 105% to $75.0 million
for the quarter ended September 30, 1997 from $36.6 million for the quarter
ended September 30, 1996. Overall, subscribers have increased by approximately
87% to more than 2.6 million at September 30, 1997 from 1.4 million at September
30, 1996.
The Company's average monthly paging service, rent and maintenance revenues
per unit ("ARPU") for the three-month periods ended September 30, 1996 and
September 30, 1997 was $7.95 and $8.17, respectively. The increase in ARPU is
primarily related to the merger with A+ Network in November 1996, the changing
distribution mix, described below, enhanced paging services and general rate
increases, partially offset by lower ARPU associated with the Page America
subscriber base. ARPU for the A+ Network markets averaged slightly more than
$10.00 per month causing an increase in the weighted-average ARPU for the
combined company after the A+ Network merger. In order to capitalize on the
anticipated growth of the paging and wireless messaging industries, the Company
has expanded its channels of distribution to include Company owned and operated
retail stores, strategic partnerships and alliances, and internet sales among
others. These channels focus on the sale rather than the lease of pagers. These
channels tend to have higher ARPU's than typical third-party resellers who
purchase service in quantity at wholesale rates. Furthermore, the Company has
been successful in marketing enhanced services, such as nationwide paging
services and voice mail, to its subscriber base.
The Company's growth and expansion into new markets, whether internal or
through acquisitions, require significant capital investment for the
installation of paging equipment and technical infrastructure. The Company also
purchases pagers for that portion of its subscriber base that leases pagers from
the Company. During the quarter ended September 30, 1997, the Company's capital
expenditures totaled approximately $21.9 million including approximately $11.4
million for pagers, representing an increase in pagers on hand, primarily in
connection with the Page America transaction and in anticipation of the upcoming
holiday selling season, and net increases and maintenance to the rental pager
base. The Company estimates total capital expenditures for 1997 to be
approximately $70.0 million.
16
<PAGE> 17
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated the percentage of
net revenues (total revenues less the net book value of products sold)
represented by certain items in the Company's Condensed Consolidated Statements
of Operations.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------- ----------------------
1996 1997 1996 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
REVENUES:
Service, rent and maintenance........... 96.8% 96.0% 95.7% 96.1%
Product sales........................... 19.0 15.3 23.1 15.1
--------- --------- --------- ---------
Total revenues..................... 115.8 111.3 118.8 111.2
Net book value of products sold......... (15.8) (11.3) (18.8) (11.2)
--------- --------- --------- ---------
100.0 100.0 100.0 100.0
OPERATING EXPENSES:
Service, rent and maintenance
expenses............................. 31.0 31.0 31.7 29.5
Selling and marketing................... 19.0 20.1 19.2 20.1
General and administrative.............. 24.2 21.8 24.5 23.4
Depreciation and amortization........... 48.3 34.8 48.6 35.2
--------- --------- --------- ---------
Total operating expenses........... 122.5 107.7 124.0 108.2
--------- --------- --------- ---------
Loss from operations............... (22.5) (7.7) (24.0) (8.2)
Interest and other income................. (6.9) (0.3) 0.4 --
Interest expense.......................... (16.4) (14.6) (16.4) (13.5)
--------- --------- --------- ---------
Loss before income tax benefit............ (45.8) (22.6) (40.0) (21.7)
Income tax benefit........................ 0.6 2.0 0.3 1.8
--------- --------- --------- ---------
Net loss........................... (45.2) (20.6) (39.7) (19.9)
Preferred dividends....................... -- (3.2) -- (2.8)
--------- --------- --------- ---------
Loss attributable to common
stockholders.................... (45.2)% (23.8)% (39.7)% (22.7)%
========= ========= ========= =========
Units in service (end of period).......... 1,405,933 2,633,544 1,405,933 2,633,544
EBITDA (in thousands)(1).................. $ 8,170 $ 18,264 $ 20,404 $ 51,443
Ratio of EBITDA to net revenues(1)........ 25.8% 27.1% 24.6% 27.0%
ARPU(2)................................... $ 7.95 $ 8.17 $ 7.86 $ 8.30
Average monthly operating cost per
unit(3)................................. $ 6.09 $ 6.34 $ 6.20 $ 6.45
</TABLE>
- ---------------
(1) EBITDA (earnings before interest, taxes, depreciation and amortization),
while not a measure under generally accepted accounting principles ("GAAP"),
is a standard measure of financial performance in the paging industry;
EBITDA should not be considered in isolation or as an alternative to net
income (loss), income (loss) from operations, cash flows from operating
activities or any other measure of performance under GAAP. EBITDA is,
however, an approximation of the primary financial measure by which the
Company's covenants are calculated under its indenture relating to its
senior subordinated notes and its credit facility. See "-- Liquidity and
Capital Resources" for a discussion of significant capital requirements and
commitments.
(2) ARPU (average monthly paging revenue per unit) is calculated by dividing (a)
paging service, rent and maintenance revenues for the period by (b) the
average number of units in service for the period. The calculation of ARPU
excludes revenues derived from non-paging services such as telemessaging,
long distance and cellular telephone.
(3) Average monthly operating expense per unit is calculated by dividing (a)
total recurring paging operating expenses before depreciation and
amortization for the period by (b) the average number of units in service
for the period. The calculation of average monthly operating expense per
unit excludes costs associated with the telemessaging operations.
17
<PAGE> 18
THREE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED WITH 1996
Total revenues increased approximately $38.4 million, or approximately
105%, from $36.6 million for the three months ended September 30, 1996 (the
"1996 quarter") to $75.0 million for the three months ended September 30, 1997
(the "1997 quarter"). Net revenues increased approximately $35.8 million, or
113%, from $31.6 million in the 1996 quarter to $67.4 million in the 1997
quarter. The increase is attributable to greater service revenues due primarily
to the growth of pagers in service from 1,405,933 at September 30, 1996, to
2,633,544 at September 30, 1997. Acquisitions completed in the period from
September 30, 1996 to September 30, 1997, including Satellite, A+ Network, RCC
and Page America, added approximately 971,000 subscribers to the Company's
subscriber base. Operations of acquired companies are included in the results of
operations from their respective acquisition dates. ARPU for paging services
increased from $7.95 per unit in the 1996 quarter to $8.17 per unit in the 1997
quarter due primarily to the merger with A+ Network in November 1996, the
changing distribution mix, enhanced paging services and general rate increases
partially offset by lower ARPU associated with Page America's subscriber base.
Factors affecting ARPU in future periods include distribution mix of new
subscribers, competition and new technologies, among others.
Product sales increased $4.3 million from $6.0 million in the 1996 quarter
to $10.3 million in the 1997 quarter and decreased as a percentage of net
revenues from 19.0% in the 1996 quarter to 15.3% in the 1997 quarter. Net book
value of products sold increased approximately $2.6 million from $5.0 million in
the 1996 quarter to $7.6 million in the 1997 quarter principally due to the
increase in product sales, partially offset by increased depreciation expense.
The gross margin on products sold increased from 16.9% in the 1996 quarter to
25.9% in the 1997 quarter.
Overall, the Company experienced an increase in average monthly operating
costs per unit in service (operating costs per unit before depreciation and
amortization) from the 1996 quarter to the 1997 quarter. Average monthly
operating cost per unit increased from $6.09 per unit for the 1996 quarter to
$6.34 per unit (excluding operating costs associated with non-paging operations,
primarily telemessaging) for the 1997 quarter. Each operating expense is
discussed separately below.
Service, rent and maintenance expenses increased approximately $11.1
million from $9.8 million in the 1996 quarter to $20.9 million in the 1997
quarter and was unchanged as a percentage of net revenues at 31.0% for the 1996
and 1997 quarters. Approximately $8.5 million of the overall increase in
service, rent and maintenance expense is estimated to be attributable to the
1996 and 1997 acquisitions. Additional increases are primarily attributable to
increased third-party carrier costs ($0.4 million), increased site rental costs
($0.8 million) and increased personnel and related costs ($0.8 million). Monthly
service, rent and maintenance expense per unit was $2.54 and $2.70 in the 1996
and 1997 quarters, respectively.
Selling and marketing expenses increased approximately $7.5 million from
$6.0 million in the 1996 quarter to $13.5 million in the 1997 quarter and
increased as a percentage of net revenues from 19.0% to 20.1% in the 1996 and
1997 quarters, respectively. The increase in selling and marketing expenses is
primarily associated with the companies acquired in 1996 and 1997, estimated to
be approximately $6.5 million in the 1997 quarter. Additional increases are
associated with the increased sales staff and related costs ($1.3 million),
partially offset by a reduction in advertising and promotional costs ($0.3
million). Monthly selling and marketing expense per unit has increased from
$1.56 per unit in the 1996 quarter to $1.74 per unit in the 1997 quarter, due
primarily to increasing the Company's sales force as a result of acquisitions in
new geographic areas for the Company. Selling and marketing expenses may
increase as a percentage of net revenues as the Company continues to increase
its presence in existing markets and expand geographic coverage. The Company is
reviewing the performance of acquired retail stores and may close some stores if
performance is inadequate.
General and administrative expenses increased $7.0 million from $7.7
million in the 1996 quarter compared to $14.7 million in the 1997 quarter, and
decreased as a percentage of net revenues from 24.2% in the 1996 quarter to
21.8% in the 1997 quarter. General and administrative expenses attributed to the
acquired companies are estimated to be approximately $4.5 million in the 1997
quarter. General and administrative expenses also increased primarily due to
additional administrative personnel and related costs ($1.0 million), expenses
for collection and billing activities ($0.8 million) and other administrative
functions. Monthly
18
<PAGE> 19
general and administrative expense per unit has decreased from $1.99 per unit in
the 1996 quarter to $1.90 per unit in the 1997 quarter.
Depreciation and amortization increased approximately $8.2 million from
$15.3 million in the 1996 quarter to $23.5 million in the 1997 quarter, and
decreased as a percentage of net revenues from 48.3% to 34.8% in the 1996 and
1997 quarters, respectively. The increase in total depreciation expense resulted
primarily from depreciation on increased subscriber paging equipment and on
other plant and operating equipment since September 30, 1996. Amortization
increased substantially during 1997 due to the amortization of goodwill and
other intangibles recorded in the 1996 and 1997 acquisitions.
Interest expense increased approximately $4.7 million, from $5.2 million in
the 1996 quarter to $9.9 million in the 1997 quarter. Interest expense increased
due to higher average level of debt during 1997 primarily associated with the
financing of the 1996 and 1997 acquisitions.
In November 1996, the Company issued 159,600 shares of Series A Convertible
Preferred Stock ("Series A Preferred") with a stated value of $250 per share for
total proceeds of $39.9 million. The Series A Preferred bears dividends at 14%
of the stated value per year. Dividends on the Series A Preferred may be paid in
either cash or additional shares of Series A Preferred, at the Company's option,
semiannually on May 15 and November 15. Effective May 15, 1997, the Company
issued dividends in the form of 11,172 additional shares of Series A Preferred.
Preferred dividends, including accretion of the value of warrants issued in
conjunction with the Series A Preferred, recorded on the Series A Preferred
during the 1997 quarter were approximately $1.7 million.
On July 1, 1997, the Company issued 1,500 shares of Series B Junior
Convertible Preferred Stock ("Series B Preferred") with a stated value of
$10,000 per share in connection with the Page America acquisition. The Series B
Preferred bears dividends at 14% of the stated value per year, payable on May 15
and November 15 in either cash or additional shares of Series B Preferred, at
the Company's option. Preferred dividends recorded on the Series B Preferred
were $525,000 during the 1997 quarter.
Loss attributable to common stockholders increased $1.7 million from $14.3
million in the 1996 quarter to $16.0 million in the 1997 quarter primarily due
to increased interest expense and preferred dividends partially offset by a
decrease in the loss from operations.
EBITDA increased approximately $10.1 million to $18.3 million in the 1997
quarter from $8.2 million in the 1996 quarter. As a percentage of net revenues,
EBITDA increased from 25.8% in the 1996 quarter to 27.1% in the 1997 quarter.
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED WITH 1996
Total revenues increased approximately $113.5 million from $98.6 million
for the nine months ended September 30, 1996 ("1996") to $212.1 million for the
nine months ended September 30, 1997 ("1997"). Net revenues increased
approximately $107.6 million in 1997 from $83.1 million in 1996 to $190.7
million in 1997. The increase in revenues is attributed to greater service
revenues due to the growth of pagers in service from 1,405,933 at September 30,
1996 to 2,633,544 at September 30, 1997. Monthly ARPU for paging services
increased from $7.86 per unit in 1996 to $8.30 per unit in 1997 due to the
merger with A+ Network in November 1996, the changing distribution mix, enhanced
paging services and general rate increases in 1997 partially offset by lower
ARPU associated with Page America's subscriber base. Factors affecting ARPU in
future periods include distribution mix of new subscribers, competition and new
technologies, among others.
Product sales increased $9.6 million from $19.2 million in 1996 to $28.8
million in 1997, and decreased as a percentage of total revenues from 23.1% in
1996 to 15.1% in 1997. Net book value of products sold increased approximately
$5.8 million from $15.5 million in 1996 to $21.3 million in 1997 principally due
to the increase in product sales, partially offset by increased depreciation
expense. The gross margin on products sold increased from 18.8% in 1996 to 26.0%
in 1997.
Overall, the Company experienced an increase in average monthly operating
costs per unit in service (operating costs per unit before depreciation and
amortization) from 1996 to 1997. Average monthly
19
<PAGE> 20
operating costs per unit increased from $6.20 per unit in 1996 to $6.45 per unit
in 1997. Each operating expense is discussed separately below.
Service, rent and maintenance expenses increased approximately $30.0
million from $26.3 million in 1996 to $56.3 million in 1997 and decreased as a
percentage of net revenues from 31.7% in 1996 to 29.5% in 1997. The Company
estimates service, rent and maintenance expenses increased by approximately
$23.5 million in 1997 due to the 1996 and 1997 acquisitions. Additional
increases are primarily attributable to increased third party carrier costs
($0.8 million), increased site and office rental costs ($2.6 million), and
increased personnel and related costs ($2.1 million). Monthly service, rent and
maintenance expense per unit was unchanged at $2.60 per unit in 1996 and 1997.
Selling and marketing expenses increased approximately $22.4 million, from
$16.0 million in 1996 to $38.4 million in 1997 and increased as a percentage of
net revenues from 19.2% in 1996 to 20.1% in 1997. The increase in selling and
marketing expenses is largely associated with the 1996 and 1997 acquisitions.
Selling and marketing expenses attributed to the acquired companies are
estimated to be approximately $18.7 million in 1997. Additional increases are
associated with increased sales staff and related costs ($3.4 million), and
increased advertising and promotional costs ($0.3 million). Monthly selling and
marketing expense per unit increased from $1.58 per unit in 1996 to $1.81 per
unit in 1997, due primarily to increasing the Company's sales force as a result
of acquisitions in new geographic areas for the Company. Selling and marketing
expenses may increase as a percentage of net revenues as the Company continues
to increase its presence in existing markets and expand geographic coverage. The
Company is reviewing the performance of acquired retail stores and may close
some stores if performance is inadequate.
General and administrative expenses increased $24.1 million from $20.4
million in 1996 to $44.5 million in 1997 and decreased as a percentage of net
revenues from 24.5% in 1996 to 23.4% in 1997. General and administrative
expenses attributable to acquired companies are estimated to be $15.8 million.
General and administrative expenses also increased due to increased expenses for
collection activities and billing services ($3.1 million), additional
operational personnel and related costs ($4.0 million) and taxes, licenses and
fees ($1.1 million). Monthly general and administrative expense per unit has
increased from $2.02 per unit in 1996 to $2.04 per unit in 1997.
Depreciation and amortization increased approximately $26.6 million from
$40.4 million in 1996 to $67.0 million in 1997 and decreased as a percentage of
net revenues from 48.6% in 1996 to 35.2% in 1997. The increase in total
depreciation expense resulted primarily from depreciation on increased
subscriber paging equipment and on other plant and operating equipment.
Amortization increased substantially during 1997 due to the amortization of
goodwill and other intangibles recorded in the 1996 and 1997 acquisitions.
Effective July 1, 1996, the Company changed the estimated useful lives of
certain intangibles acquired in 1994, including goodwill and regulatory licenses
issued by the FCC from 40 years to 15 years for goodwill and from 40 years to 25
years for FCC licenses. The impact of these changes was to increase amortization
expense for 1997 by approximately $1.95 million.
Interest expense increased approximately $12.2 million, from $13.6 million
in 1996 to $25.8 million in 1997. Interest expense increased due to higher
average level of debt during 1997 primarily associated with the financing of the
1996 and 1997 acquisitions.
In November 1996, the Company issued 159,600 shares of Series A Preferred
with a stated value of $250 per share for total proceeds of $39.9 million. The
Series A Preferred bears dividends at 14% of the stated value per year.
Dividends on the Series A Preferred may be paid in either cash or additional
shares of Series A Preferred, at the Company's option, payable on May 15 and
November 15. Preferred dividends, including accretion of the value of warrants
issued in conjunction with the Series A Preferred, recorded during the nine
months ended September 30, 1997 were approximately $4.8 million.
On July 1, 1997, the Company issued 1,500 shares of Series B Preferred with
a stated value of $10,000 per share in connection with the Page America
transaction. The Series B Preferred bears interest at 14% of the stated value
per year, payable on May 15 and November 15 in either cash or additional shares
of
20
<PAGE> 21
Series B Preferred, at the Company's option. Preferred dividends recorded on the
Series B Preferred were $525,000 from the date of issuance through September 30,
1997.
Loss attributable to common stockholders increased $10.2 million from $33.0
million in 1996 to $43.2 million in 1997 primarily due to increased interest
expense and preferred dividends partially offset by a decrease in loss from
operations.
EBITDA increased approximately $31.0 million to $51.4 million in 1997 from
$20.4 million in 1996. As a percentage of net revenues, EBITDA increased from
24.6% in 1996 to 27.0% in 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company's operations require substantial funds to finance the growth of
its existing operations and customer base, development and construction of
future wireless communications networks, expansion into new markets, and the
acquisition of other wireless communications companies. Further cash
requirements include debt service, working capital and general corporate
requirements.
The Company has financed its internal growth in 1997 through its operating
cash flow, available cash on hand and borrowings under the Company's credit
facility. Net cash provided by operating activities increased from $17.9 million
to $18.7 million for the nine months ended September 30, 1996 and 1997,
respectively.
At September 30, 1997, the Company had a working capital deficit of
approximately $1.1 million and such deficit may continue in future periods. The
Company attempts, whenever possible, to finance its growth through operating
cash flow and available cash balances rather than incurring additional
indebtedness. As a result, purchases of noncurrent assets, including pagers and
other network and transmission equipment, may be financed with current
liabilities (e.g. accounts payable), causing a deficit in working capital. At
September 30, 1997, the Company currently has sufficient borrowing capacity
available under its credit facility, discussed below, to fund estimated working
capital requirements.
Cash flows used in investing activities for the nine months ended September
30, 1997, were primarily to fund purchases of property and equipment and to fund
the Page America acquisition. Capital expenditures were approximately $58.5
million and $54.4 million for the nine months ended September 30, 1996 and 1997,
respectively. Capital expenditures for 1997 included approximately $31.8 million
for pagers, representing increases in pagers on hand and net increases and
maintenance to the rental subscriber base. The balance of capital expenditures
included $9.0 million for information systems and computer related equipment,
$10.2 million for network equipment, construction and development and $3.4
million for general purchases including leasehold improvements and office
equipment. Additionally, in 1997, the Company received proceeds of approximately
$11.0 million from the sale of the assets of its telemessaging operations
acquired in the A+ Network merger in November 1996.
Cash flows provided by financing activities for the nine months ended
September 30, 1997, included borrowings under the Company's credit facility of
$56.0 million primarily to fund working capital requirements, capital
expenditures and the cash portion of the Page America acquisition and related
costs. Total capital expenditures for the year ending December 31, 1997 are
estimated to be approximately $70.0 million primarily for the acquisition of
pagers, paging and transmission equipment and information systems enhancement.
This estimate does not include the cash consideration paid in the Page America
acquisition on July 1, 1997, or the related transaction costs, but does include
estimated capital expenditures related to the Page America operations after such
acquisition. The Company expects that its capital expenditures for the year
ending December 31, 1997, will be financed through a combination of operating
cash flow and borrowings. The Company expects that its capital expenditures for
1998 (including the effects of the ProNet merger) will be approximately $80
million. Projected capital expenditures are subject to change based on the
Company's internal growth, general business and economic conditions and
competitive pressures. Future cash requirements include debt service costs,
primarily interest.
There are no significant principal payments required under the Company's
debt agreements during the year ending 1997. Dividends on the Company's Series A
Preferred and Series B Preferred accrue at a rate of 14% of the stated value per
year. Dividends on the Series A Preferred and Series B Preferred may be paid in
either cash or additional shares of Series A Preferred and Series B Preferred,
respectively, at the Company's
21
<PAGE> 22
option. However, under certain circumstances, as defined in the certificate of
designation, the dividend rate on the Series A Preferred may increase to 16% per
year. Further, Metrocall is required to redeem all outstanding shares of Series
A Preferred and Series B Preferred (including dividend shares) in November 2008
and July 2009, respectively, unless the holders have previously converted such
shares to common stock. Accrued but unpaid dividends on the Series A Preferred
and Series B Preferred at September 30, 1997, were approximately $2.8 million.
SENIOR SUBORDINATED NOTES
On October 21, 1997, the Company sold $200.0 million aggregate principal
amount of 9 3/4% senior subordinated notes due 2007 (the "Notes") in a private
placement (the "Notes Offering"). The Notes bear interest, payable semi-annually
on January 15 and July 15, at a rate of 9.75% per year and mature on November 1,
2007. The Notes are callable beginning November 1, 2002. The Notes are unsecured
obligations of the Company, subordinated to all present and future senior
indebtedness of the Company. The Company used the net proceeds from the Notes
Offering, approximately $193.0 million, to repay outstanding indebtedness under
its credit facility. The Company has agreed to certain registration rights with
respect to the Notes. If the Notes are not exchanged for a registered series of
notes with identical terms, or a shelf registration statement does not become
effective with respect to such notes, by April 21, 1998, the interest on the
Notes will increase by .5% per annum until registration is completed.
The Notes contain various covenants that, among other restrictions, limit
the ability of the Company to incur additional indebtedness, pay dividends,
engage in certain transactions with affiliates, sell assets and engage in
mergers and consolidations except under certain circumstances.
The Notes may be redeemed, in whole or in part, at any time on or after
November 1, 2002, at the option of the Company. The following redemption prices,
plus any accrued and unpaid interest to, but not including, the applicable
redemption date, are applicable to any optional redemption of the Notes by the
Company during the 12-month period beginning on November 1 of the years
indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
------------------------------------------ ----------
<S> <C>
2002...................................... 104.8750%
2003...................................... 102.4375
2004 and thereafter....................... 100.0000
</TABLE>
In the event of a change of control of the Company, as defined, each holder
of the Notes will have the right, at such holder's option, to require the
Company to repurchase that holder's Notes at a purchase price equal to 101% of
the principal amount thereof, plus any accrued and unpaid interest to the date
of repurchase.
SENIOR SECURED CREDIT FACILITY
Concurrent with the Notes Offering discussed above, the Company and its
bank lenders executed an amended and restated credit agreement on October 21,
1997. In addition to restructuring available borrowings, the amended and
restated credit agreement includes approval of the ProNet merger discussed
below. Under the amended and restated credit agreement, subject to certain
conditions, the Company may borrow up to $300.0 million under two loan
facilities. The first facility is a $175.0 million reducing revolving credit
facility, and the second facility is a $125.0 million reducing credit facility
of which $75.0 million can be borrowed only to refinance ProNet bank debt in
connection with the ProNet merger. At October 21, 1997, after application of the
net proceeds from the Notes Offering, a total of approximately $50.9 million was
outstanding under the credit facility. Amounts available under the Company's
credit facility are subject to certain financial covenants and other
restrictions such that as of September 30, 1997, approximately $69.2 million of
additional borrowings were available to the Company under its credit facility.
The credit facility has a remaining term of seven years and is secured by
substantially all the assets of the Company. Required quarterly repayments begin
on March 31, 2000 through December 31, 2004.
22
<PAGE> 23
The amended and restated credit facility contains various covenants that,
among other restrictions, require the Company to maintain certain financial
ratios, including total debt to annualized operating cash flow (not to exceed
6.0 to 1.0 through December 31, 1998 and declining thereafter), senior debt to
annualized operating cash flow, annualized operating cash flow to pro forma debt
service, total sources of cash to total uses of cash and operating cash flow to
interest expense (in each cash, as such terms are defined in the agreement
relating to the amended and restated credit facility). The covenants also limit
additional indebtedness and future mergers and acquisitions without the approval
of the lenders and restrict the payment of cash dividends and other stockholder
distributions by the Company during the term of the credit facility. The credit
facility also prohibits certain changes in ownership control of the Company, as
defined, during the term of the credit facility.
In connection with amendments during the three-month period ended September
30, 1997, and the amended and restated credit facility, the Company paid fees to
its bank lenders of approximately $1.3 million. These fees have been deferred
and will be amortized over the remaining term of the credit facility as interest
expense.
Management believes that funds generated by the Company's operations,
together with those available under its credit facility after giving effect to
the proceeds of the Notes Offering, will be sufficient to finance estimated
capital expenditure requirements and to fund the Company's existing operations
for the foreseeable future. While the Company has no current outstanding
commitments, other than the ProNet merger discussed below, the Company will
continue to evaluate strategic acquisition targets in the future. Potential
future acquisitions would be evaluated on significant strategic opportunities
such as geographic coverage and regulatory licenses and other factors including
overall valuation, consideration and availability of financing. Such potential
acquisitions may result in substantial capital requirements for which additional
financing may be required. No assurance can be given that such additional
financing would be available on terms satisfactory to the Company.
RECENT AND PENDING ACQUISITIONS
Page America Group, Inc.
On July 1, 1997, the Company acquired substantially all of the assets of
Page America Group, Inc. and its subsidiaries ("Page America") and assumed
substantially all of Page America's accounts payable and certain obligations
under various office and equipment leases. Page America received (a)
approximately $25.0 million in cash, (b) 1,500 shares of Series B Preferred with
a liquidation value of $15.0 million and (c) 3,997,458 shares of the Company's
common stock (subsequently reduced to 3,911,856 shares). The Company financed
the cash portion of the purchase price, including transaction fees and expenses,
with borrowings under its credit facility. The Page America acquisition was
accounted for as a purchase for financial reporting purposes.
ProNet Inc.
The Company and ProNet Inc. entered into a merger agreement dated August 8,
1997, whereby ProNet will be merged with and into the Company. Under the terms
of the merger agreement, the Company will issue 0.90 shares of Metrocall common
stock for each share of ProNet common stock, subject to adjustment based on
certain defined operating performance criteria and debt and pager inventory
targets. In connection with the merger, the Company will assume ProNet's 11 7/8%
senior subordinated notes due 2005 totaling $100.0 million and expects to
refinance indebtedness outstanding under ProNet's credit facility with
borrowings under the Company's own credit facility. The Company expects the
merger will be accounted for as a purchase for financial reporting purposes. The
merger is subject to approval by the Federal Communications Commission and each
company's stockholders.
23
<PAGE> 24
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is subject to certain legal and regulatory matters in the
normal course of business. In the opinion of management, the outcome of such
assertions will not have a material adverse effect on the financial position or
the results of operations of the Company.
In April 1996, the Company entered into an agreement to purchase certain of
the assets of Source One Wireless, Inc. ("Source One") and placed $1.0 million
cash in escrow. On June 26, 1996, the Company advised Source One that Source One
had failed to meet certain conditions to complete the transaction and terminated
the agreement. On September 20, 1996, Source One filed an action in the Circuit
Court of Cook County, Illinois claiming that the Company had breached the
agreement and seeking specific performance of the purchase agreement or
unspecified damages in excess of $80.0 million. The Company removed this action
to the United States District Court for the Northern District of Illinois. The
Company intends to vigorously defend the claims in this action and believes it
has meritorious defenses to this action. The Company has denied the claim and
asserted affirmative defenses and counterclaims based on misrepresentations and
breaches of contract by Source One. The period for fact discovery has closed;
trial is not expected before January 1998.
ITEM 2. CHANGES IN SECURITIES
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 Required by Item 601 of Regulation S-K.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------- ------------------------------------------------------------------------------------
<S> <C>
2.1 Amended and Restated Asset Purchase Agreement by and among Page America Group, Inc.,
Page America of New York, Inc., Page America of Illinois, Inc., Page America
Communications of Indiana, Inc., Page America of Pennsylvania, Inc. (collectively
"Page America") and Metrocall, Inc. ("Metrocall") dated as of January 30, 1997.(a)
2.2 Amendment to Asset Purchase Agreement by and among Page America and Metrocall dated
as of March 28, 1997.(a)
2.3 Form of Certificate of Designation, Number, Powers, Preferences and Relative,
Participating, Optional and Other Rights of Series A Convertible Preferred Stock of
Metrocall(b)
2.4 Form of Certificate of Designation, Number, Powers, Preferences and Relative,
Participating, Optional and Other Rights of Series B Junior Convertible Preferred
Stock of Metrocall(c)
2.5 Option Agreement dated as of August 8, 1997, between Metrocall and ProNet Inc.(e)
2.6 Amendment to Option Agreement dated as of August 29, 1997, between Metrocall and
ProNet Inc.(f)
</TABLE>
24
<PAGE> 25
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------- ------------------------------------------------------------------------------------
<S> <C>
2.7 Stockholders Voting Agreement dated as of August 8, 1997, among ProNet Inc. and
certain stockholders of Metrocall listed therein.(e)
2.8 Agreement and Plan of Merger dated as of August 8, 1997, between Metrocall and
ProNet Inc.(e)
2.9 Registration Rights Agreement dated July 1, 1997 by and between Page America Group,
Inc. and Metrocall.(d)
2.10 Registration Rights Agreement dated July 1, 1997 by and among Page America and
Metrocall.(d)
2.11 Indemnity Escrow Agreement dated July 1, 1997 by and among Page America, Metrocall
and First Union National Bank of Virginia.(d)
3.1 Amended and Restated Certificate of Incorporation of Metrocall.(g)
3.2 Form of Certificate of Amendment of Certificate of Incorporation of Metrocall.(g)
3.3 Fifth Amended and Restated Bylaws of Metrocall.(g)
4.1 Indenture for 10 3/8% Senior Subordinated Notes due 2007 dated September 27, 1995
including form of Notes.(h)
4.2 Indenture for A+ Network, Inc. 11 7/8% Senior Subordinated Notes due 2005 ("A+
Notes") dated October 24, 1995.(i)
4.3 First Supplemental Indenture dated November 14, 1996, for A+ Notes.(j)
4.4 Second Supplemental Indenture dated November 15, 1996, for A+ Notes.(j)
4.5 Indenture for 9 3/4% Senior Subordinated Notes due 2007 dated October 21, 1997,
including form of Notes.(k)
10.1 Employment Agreement between Metrocall and William L. Collins, III.(l)
10.2 Employment Agreement between Metrocall and Steven D. Jacoby.(l)
10.3 Employment Agreement between Metrocall and Vincent D. Kelly.(l)
10.4 Change of Control Agreement between Metrocall and William L. Collins, III.(l)
10.5 Change of Control Agreement between Metrocall and Steven D. Jacoby.(l)
10.6 Change of Control Agreement between Metrocall and Vincent D. Kelly.(l)
10.7 Noncompetition Agreement dated as of August 8, 1997, between Metrocall and Jackie R.
Kimzey.(m)
10.8 Noncompetition Agreement dated as of August 8, 1997, between Metrocall and David J.
Vucina.(m)
10.9 Letter Agreement dated August 8, 1997, between Metrocall and Jackie R. Kimzey.(m)
10.10 Letter Agreement dated August 8, 1997, between Metrocall and David J. Vucina.(m)
10.11 Letter Agreement dated August 8, 1997, between Metrocall and Jan E. Gaulding.(m)
10.12 Letter Agreement dated August 8, 1997, between Metrocall and Mark A. Solls.(m)
10.13 Letter Agreement dated August 8, 1997, between Metrocall and Jeffery A. Owens.(m)
10.14 Amendment to Employment Agreement between Metrocall and William L. Collins, III.
10.15 Amendment to Employment Agreement between Metrocall and Steven D. Jacoby.
10.16 Amendment to Employment Agreement between Metrocall and Vincent D. Kelly.
10.17 Directors' Stock Option Plan, as amended.(n)
10.18 Metrocall 1996 Stock Option Plan, as amended.(n)
10.19 Metrocall Amended Employee Stock Purchase Plan.(g)
10.20 Variable Common Rights Agreement between Metrocall and First Union National Bank of
Virginia, Rights Agent, dated as of November 15, 1996, including Form of Certificate
representing Variable Common Rights.(o)
10.21 Unit Purchase Agreement dated as of November 15, 1996, among Metrocall and Certain
Purchasers.(p)
</TABLE>
25
<PAGE> 26
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------- ------------------------------------------------------------------------------------
<S> <C>
10.22 Warrant Agreement dated as of November 15, 1996, between Metrocall and the First
National Bank of Boston, Warrant Agent.(p)
10.23 Second Amended and Restated Loan Agreement dated as of October 21, 1997, among
Metrocall, the financial institutions signatory thereto, and Toronto-Dominion
(Texas), Inc., as Administrative Agent.(q)
11.1 Statement re computation of per share earnings.
27.1 Financial Data Schedule.
</TABLE>
- ---------------
(a) Incorporated by reference to Metrocall's Registration Statement on Form
S-4, as amended (File No. 333-21231), initially filed with the Commission
on February 5, 1997.
(b) Incorporated by reference to Metrocall's Current Report on Form 8-K filed
with the Commission on November 21, 1996.
(c) Incorporated by reference to Metrocall's Registration Statement, Amendment
No. 1, on Form S-4 (File No. 333-21231) filed with the Commission on April
15, 1997.
(d) Incorporated by reference to Metrocall's Current Report on Form 8-K filed
with the Commission on July 14, 1997.
(e) Incorporated by reference to Metrocall's Current Report on Form 8-K filed
with the Commission on August 12, 1997.
(f) Incorporated by reference to Metrocall's Current Report on Form 8-K, as
amended, filed with the Commission on September 8, 1997.
(g) Incorporated by reference to Metrocall's Registration Statement, Amendment
No. 1, on Form S-4 (File No. 333-36079) filed with the Commission on
October 27, 1997.
(h) Incorporated by reference to Metrocall's Registration Statement on Form
S-1, as amended (File No. 33-96042), filed with the Commission on September
27, 1995.
(i) Incorporated by reference to the Registration Statement on Form S-1 of A+
Communications, Inc., as amended (File No. 33-95208), filed with the
Commission on September 18, 1995.
(j) Incorporated by reference to Metrocall's Annual Report on Form 10-K for the
year ended December 31, 1996, filed with the Commission on March 31, 1997.
(k) Incorporated by reference to Metrocall's Current Report on Form 8-K filed
with the Commission on October 23, 1997.
(l) Incorporated by reference to Metrocall's Registration Statement on Form
S-4, as amended (File No. 333-06919), filed with the Commission on June 27,
1996.
(m) Incorporated by reference to Metrocall's Registration Statement on Form S-4,
as amended (File No. 333-36079), filed with the Commission on September 22,
1997.
(n) Incorporated by reference to Metrocall's Proxy Statement filed for the
Annual Meeting of Stockholders held on May 7, 1997.
(o) Incorporated by reference to Metrocall's Annual Report on Form 10-K/A for
the year ended December 31, 1996, filed with the Commission on May 9, 1997.
(p) Incorporated by reference to Metrocall's Current Report on Form 8-K filed
with the Commission on November 21, 1996.
(q) Incorporated by reference to Metrocall's Registration Statement, Amendment
No. 2, on Form S-4 (File No. 333-36079) filed with the Commission on
November 5, 1997.
(b) Reports on Form 8-K
On July 16, 1996, the Company filed a Report on Form 8-K reporting
the completion of the acquisition of substantially all the assets of
Page America Group, Inc. and its subsidiaries on July 1, 1997.
26
<PAGE> 27
On August 12, 1997, the Company filed a Report on Form 8-K reporting
the signing of an Agreement and Plan of Merger between the Company
and ProNet Inc. dated August 8, 1997.
On September 8, 1997, the Company filed a Report on Form 8-K
reporting an amendment to the Option Agreement executed in connection
with the Agreement and Plan of Merger between the Company and ProNet
Inc.
27
<PAGE> 28
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.
Date: November 14, 1997 METROCALL, INC.
/s/ VINCENT D. KELLY
--------------------------------------
Vincent D. Kelly
Chief Financial Officer,
Treasurer and Executive Vice President
28
<PAGE> 29
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------- ------------------------------------------------------------------------------------
<S> <C>
2.1 Amended and Restated Asset Purchase Agreement by and among Page America Group, Inc.,
Page America of New York, Inc., Page America of Illinois, Inc., Page America
Communications of Indiana, Inc., Page America of Pennsylvania, Inc. (collectively
"Page America") and Metrocall, Inc. ("Metrocall") dated as of January 30, 1997.(a)
2.2 Amendment to Asset Purchase Agreement by and among Page America and Metrocall dated
as of March 28, 1997.(a)
2.3 Form of Certificate of Designation, Number, Powers, Preferences and Relative,
Participating, Optional and Other Rights of Series A Convertible Preferred Stock of
Metrocall(b)
2.4 Form of Certificate of Designation, Number, Powers, Preferences and Relative,
Participating, Optional and Other Rights of Series B Junior Convertible Preferred
Stock of Metrocall(c)
2.5 Option Agreement dated as of August 8, 1997, between Metrocall and ProNet Inc.(e)
2.6 Amendment to Option Agreement dated as of August 29, 1997, between Metrocall and
ProNet Inc.(f)
2.7 Stockholders Voting Agreement dated as of August 8, 1997, among ProNet Inc. and
certain stockholders of Metrocall listed therein.(e)
2.8 Agreement and Plan of Merger dated as of August 8, 1997, between Metrocall and
ProNet Inc.(e)
2.9 Registration Rights Agreement dated July 1, 1997 by and between Page America Group,
Inc. and Metrocall.(d)
2.10 Registration Rights Agreement dated July 1, 1997 by and among Page America and
Metrocall.(d)
2.11 Indemnity Escrow Agreement dated July 1, 1997 by and among Page America, Metrocall
and First Union National Bank of Virginia.(d)
3.1 Amended and Restated Certificate of Incorporation of Metrocall.(g)
3.2 Form of Certificate of Amendment of Certificate of Incorporation of Metrocall.(g)
3.3 Fifth Amended and Restated Bylaws of Metrocall.(g)
4.1 Indenture for 10 3/8% Senior Subordinated Notes due 2007 dated September 27, 1995
including form of Notes.(h)
4.2 Indenture for A+ Network, Inc. 11 7/8% Senior Subordinated Notes due 2005 ("A+
Notes") dated October 24, 1995.(i)
4.3 First Supplemental Indenture dated November 14, 1996, for A+ Notes.(j)
4.4 Second Supplemental Indenture dated November 15, 1996, for A+ Notes.(j)
4.5 Indenture for 9 3/4% Senior Subordinated Notes due 2007 dated October 21, 1997,
including form of Notes.(k)
10.1 Employment Agreement between Metrocall and William L. Collins, III.(l)
10.2 Employment Agreement between Metrocall and Steven D. Jacoby.(l)
10.3 Employment Agreement between Metrocall and Vincent D. Kelly.(l)
10.4 Change of Control Agreement between Metrocall and William L. Collins, III.(l)
10.5 Change of Control Agreement between Metrocall and Steven D. Jacoby.(l)
10.6 Change of Control Agreement between Metrocall and Vincent D. Kelly.(l)
10.7 Noncompetition Agreement dated as of August 8, 1997, between Metrocall and Jackie R.
Kimzey.(m)
10.8 Noncompetition Agreement dated as of August 8, 1997, between Metrocall and David J.
Vucina.(m)
10.9 Letter Agreement dated August 8, 1997, between Metrocall and Jackie R. Kimzey.(m)
10.10 Letter Agreement dated August 8, 1997, between Metrocall and David J. Vucina.(m)
</TABLE>
<PAGE> 30
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------- ------------------------------------------------------------------------------------
<S> <C>
10.11 Letter Agreement dated August 8, 1997, between Metrocall and Jan E. Gaulding.(m)
10.12 Letter Agreement dated August 8, 1997, between Metrocall and Mark A. Solls.(m)
10.13 Letter Agreement dated August 8, 1997, between Metrocall and Jeffery A. Owens.(m)
10.14 Amendment to Employment Agreement between Metrocall and William L. Collins, III.
10.15 Amendment to Employment Agreement between Metrocall and Steven D. Jacoby.
10.16 Amendment to Employment Agreement between Metrocall and Vincent D. Kelly.
10.17 Directors' Stock Option Plan, as amended.(n)
10.18 Metrocall 1996 Stock Option Plan, as amended.(n)
10.19 Metrocall Amended Employee Stock Purchase Plan.(g)
10.20 Variable Common Rights Agreement between Metrocall and First Union National Bank of
Virginia, Rights Agent, dated as of November 15, 1996, including Form of Certificate
representing Variable Common Rights.(o)
10.21 Unit Purchase Agreement dated as of November 15, 1996, among Metrocall and Certain
Purchasers.(p)
10.22 Warrant Agreement dated as of November 15, 1996, between Metrocall and the First
National Bank of Boston, Warrant Agent.(p)
10.23 Second Amended and Restated Loan Agreement dated as of October 21, 1997, among
Metrocall, the financial institutions signatory thereto, and Toronto-Dominion
(Texas), Inc., as Administrative Agent.(q)
11.1 Statement re computation of per share earnings.
27.1 Financial Data Schedule.
</TABLE>
- ---------------
(a) Incorporated by reference to Metrocall's Registration Statement on Form
S-4, as amended (File No. 333-21231), initially filed with the Commission
on February 5, 1997.
(b) Incorporated by reference to Metrocall's Current Report on Form 8-K filed
with the Commission on November 21, 1996.
(c) Incorporated by reference to Metrocall's Registration Statement, Amendment
No. 1, on Form S-4 (File No. 333-21231) filed with the Commission on April
15, 1997.
(d) Incorporated by reference to Metrocall's Current Report on Form 8-K filed
with the Commission on July 14, 1997.
(e) Incorporated by reference to Metrocall's Current Report on Form 8-K filed
with the Commission on August 12, 1997.
(f) Incorporated by reference to Metrocall's Current Report on Form 8-K, as
amended, filed with the Commission on September 8, 1997.
(g) Incorporated by reference to Metrocall's Registration Statement, Amendment
No. 1, on Form S-4 (File No. 333-36079) filed with the Commission on
October 27, 1997.
(h) Incorporated by reference to Metrocall's Registration Statement on Form
S-1, as amended (File No. 33-96042), filed with the Commission on September
27, 1995.
(i) Incorporated by reference to the Registration Statement on Form S-1 of A+
Communications, Inc., as amended (File No. 33-95208), filed with the
Commission on September 18, 1995.
(j) Incorporated by reference to Metrocall's Annual Report on Form 10-K for the
year ended December 31, 1996, filed with the Commission on March 31, 1997.
(k) Incorporated by reference to Metrocall's Current Report on Form 8-K filed
with the Commission on October 23, 1997.
(l) Incorporated by reference to Metrocall's Registration Statement on Form
S-4, as amended (File No. 333-06919), filed with the Commission on June 27,
1996.
<PAGE> 31
(m) Incorporated by reference to Metrocall's Registration Statement on Form S-4,
as amended (File No. 333-36079), filed with the Commission on September 22,
1997.
(n) Incorporated by reference to Metrocall's Proxy Statement filed for the
Annual Meeting of Stockholders held on May 7, 1997.
(o) Incorporated by reference to Metrocall's Annual Report on Form 10-K/A for
the year ended December 31, 1996, filed with the Commission on May 9, 1997.
(p) Incorporated by reference to Metrocall's Current Report on Form 8-K filed
with the Commission on November 21, 1996.
(q) Incorporated by reference to Metrocall's Registration Statement, Amendment
No. 2, on Form S-4 (File No. 333-36079) filed with the Commission on
November 5, 1997.
<PAGE> 1
EXHIBIT 10.14
CONFIDENTIAL
|__| Collins' Copy
|__| Company's Copy
AMENDMENT TO
EMPLOYMENT AGREEMENT
To WILLIAM L. COLLINS, III:
By signing below, you agree to an amendment (the "Amendment") to your
Employment Agreement with Metrocall, Inc. (the "Company") dated as of May 15,
1996 (the "Employment Agreement"). The Amendment is effective as of January 1,
1997.
New language in the Employment Agreement is shown double underlined,
deleted language is shown in strikeout, and language that is unchanged is
indicated by plain text or an ellipsis (...); provided, however, that the
deleted language, double underlining, and ellipses are for convenience only and
are not part of the Employment Agreement as amended:
Section 4, as amended, reads:
4. Salary, Bonus, and Expenses.
(a) In consideration for the Executive's services, the
Company shall pay to the Executive an annual base
salary (the "Base Salary") from January 1, 1997 equal
to Three Hundred Seventy-Five Thousand Dollars
($375,000). . . .
(b) . . .
(f) Executive will be eligible for a fifty percent (50%)
of Base Salary target bonus for 1997.
The Employment Agreement, except as amended and modified above,
remains in effect.
METROCALL, INC.
Date: 9-2-97 By: /s/ Richard M. Johnston
--------------- -------------------------------------------
Richard M. Johnston
Chairman
Date: /s/ William L. Collins, III
--------------- -------------------------------------------
William L. Collins, III
<PAGE> 1
EXHIBIT 10.15
CONFIDENTIAL
|__| Jacoby's Copy
|__| Company's Copy
AMENDMENT TO
EMPLOYMENT AGREEMENT
To STEVEN D. JACOBY:
By signing below, you agree to an amendment (the "Amendment") to your
Employment Agreement with Metrocall, Inc. (the "Company") dated as of May 15,
1996 (the "Employment Agreement"). The Amendment is effective as of January 1,
1997.
New language in the Employment Agreement is shown double underlined,
deleted language is shown in strikeout, and language that is unchanged is
indicated by plain text or an ellipsis (...); provided, however, that the
deleted language, double underlining, and ellipses are for convenience only and
are not part of the Employment Agreement as amended:
Section 4, as amended, reads:
4. Salary, Bonus, and Expenses.
(a) In consideration for the Executive's services, the
Company shall pay to the Executive an annual base
salary (the "Base Salary") from January 1, 1997 equal
to Two Hundred Fifty Thousand Dollars ($250,000). . . .
(b) . . .
(e) Executive will be eligible for a fifty percent (50%)
of Base Salary target bonus for 1997.
The Employment Agreement, except as amended and modified above,
remains in effect.
METROCALL, INC.
Date: 9-2-97 By: /s/ Richard M. Johnston
-------------------- -------------------------------------
Richard M. Johnston
Chairman
Date: /s/ Steven D. Jacoby
-------------------- -------------------------------------
Steven D. Jacoby
<PAGE> 1
EXHIBIT 10.16
CONFIDENTIAL
|__| Kelly's Copy
|__| Company's Copy
AMENDMENT TO
EMPLOYMENT AGREEMENT
To VINCENT D. KELLY:
By signing below, you agree to an amendment (the "Amendment") to your
Employment Agreement with Metrocall, Inc. (the "Company") dated as of May 15,
1996 (the "Employment Agreement"). The Amendment is effective as of January 1,
1997.
New language in the Employment Agreement is shown double underlined,
deleted language is shown in strikeout, and language that is unchanged is
indicated by plain text or an ellipsis (...); provided, however, that the
deleted language, double underlining, and ellipses are for convenience only and
are not part of the Employment Agreement as amended:
Section 4, as amended, reads:
4. Salary, Bonus, and Expenses.
(a) In consideration for the Executive's services, the
Company shall pay to the Executive an annual base
salary (the "Base Salary") from January 1, 1997 equal
to Two Hundred Fifty Thousand Dollars ($250,000). . . .
(b) . . .
(e) Executive will be eligible for a fifty percent (50%)
of Base Salary target bonus for 1997.
The Employment Agreement, except as amended and modified above,
remains in effect.
METROCALL, INC.
Date: 9-2-97 By: /s/ Richard M. Johnston
-------------------- -------------------------------------
Richard M. Johnston
Chairman
Date: 8-21-97 /s/ Vincent D. Kelly
-------------------- -------------------------------------
Vincent D. Kelly
<PAGE> 1
EXHIBIT 11.1
METROCALL, INC.
STATEMENT RE COMPUTATION OF EARNINGS PER SHARE
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------ ------------------------
1996 1997 1996 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net loss...................................... $ (14,315) $ (13,836) $ (32,960) $ (37,888)
Preferred dividends......................... -- (2,184) -- (5,353)
---------- ---------- ---------- ----------
Net loss attributable to common
stockholders................................ $ (14,315) $ (16,020) $ (32,960) $ (43,241)
========= ========= ========= =========
Weighted-average shares outstanding:
Shares outstanding, beginning of period..... 14,626,255 24,521,135 14,626,255 24,521,135
Shares issued in acquisitions............... 521,356 4,443,932 175,054 1,776,462
Shares issued for exercise of stock
options.................................. 2,370 1,896 795 1,146
Shares issued in employee stock purchase
plan..................................... 11,942 109,747 4,010 60,037
---------- ---------- ---------- ----------
Weighted-average shares outstanding......... 15,161,923 29,076,710 14,806,114 26,358,780
========= ========= ========= =========
Loss per share attributable to common
stockholders................................ $ (0.94) $ (0.55) $ (2.23) $ (1.64)
========= ========= ========= =========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> APR-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 15,851
<SECURITIES> 0
<RECEIVABLES> 28,749
<ALLOWANCES> 2,461
<INVENTORY> 0
<CURRENT-ASSETS> 50,146
<PP&E> 268,387
<DEPRECIATION> 105,192
<TOTAL-ASSETS> 706,280
<CURRENT-LIABILITIES> 51,270
<BONDS> 152,534
51,566
0
<COMMON> 291
<OTHER-SE> 144,716
<TOTAL-LIABILITY-AND-EQUITY> 706,280
<SALES> 10,318
<TOTAL-REVENUES> 75,019
<CGS> 7,642
<TOTAL-COSTS> 72,581
<OTHER-EXPENSES> 2,305
<LOSS-PROVISION> 2,458
<INTEREST-EXPENSE> 9,856
<INCOME-PRETAX> 15,181
<INCOME-TAX> (1,345)
<INCOME-CONTINUING> (13,836)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (13,836)
<EPS-PRIMARY> (0.55)
<EPS-DILUTED> (0.55)
</TABLE>
