<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1999
[ ] 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
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 AUGUST 2, 1999
----- -----------------------------
<S> <C>
Common Stock, $.01 par value 41,861,908
</TABLE>
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<PAGE> 2
METROCALL, INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
PAGE
NUMBER
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<S> <C> <C>
PART I FINANCIAL INFORMATION
Item 1 Interim Condensed Consolidated Financial Statements
Balance Sheets, December 31, 1998 and June 30, 1999......... 3
Statements of Operations for the three and six months ended
June 30, 1998 and 1999...................................... 4
Statement of Stockholders' Equity/(Deficit) for the six
months ended June 30, 1999.................................. 5
Statements of Cash Flows for the six months ended June 30,
1998 and 1999............................................... 6
Notes to Interim Condensed Consolidated Financial
Statements.................................................. 7
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 10
Item 3 Quantitative and Qualitative Disclosures About Market
Risk........................................................ 24
PART II OTHER INFORMATION
Item 1 Legal Proceedings........................................... 25
Item 2 Changes in Securities....................................... 25
Item 3 Defaults Upon Senior Securities............................. 25
Item 4 Submission of Matters to a Vote of Security Holders......... 25
Item 5 Other Information........................................... 26
Item 6 Exhibits and Reports on Form 8-K............................ 26
SIGNATURES................................................................. 27
</TABLE>
2
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PART I. FINANCIAL INFORMATION
ITEM 1. INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
METROCALL, INC. AND SUBSIDIARIES
BALANCE SHEETS
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
<TABLE>
<CAPTION>
DECEMBER 31,
1998 JUNE 30,
(AS RESTATED) 1999
-------------- ----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 8,436 $ 15,396
Accounts receivable, less allowance for doubtful accounts
of $6,196 as of December 31, 1998 and $6,609 as of June
30, 1999................................................ 44,694 52,176
Prepaid expenses and other current assets................. 8,843 9,321
---------- ----------
Total current assets................................ 61,973 76,893
---------- ----------
PROPERTY AND EQUIPMENT:
Land, buildings and leasehold improvements................ 15,079 15,310
Furniture, office equipment and vehicles.................. 64,438 70,571
Paging and plant equipment................................ 380,313 373,129
Less -- Accumulated depreciation and amortization......... (168,067) (161,987)
---------- ----------
291,763 297,023
---------- ----------
INTANGIBLE ASSETS, net of accumulated amortization of
approximately $219,960 as of December 31, 1998 and
$326,956 as of June 30, 1999.............................. 894,707 789,352
OTHER ASSETS................................................ 2,595 3,959
---------- ----------
TOTAL ASSETS................................................ $1,251,038 $1,167,227
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY/(DEFICIT)
CURRENT LIABILITIES:
Current maturities of long-term debt...................... $ 771 $ 600
Accounts payable.......................................... 37,533 36,248
Accrued expenses and other current liabilities............ 37,728 45,031
Deferred revenues and subscriber deposits................. 27,769 28,748
---------- ----------
Total current liabilities........................... 103,801 110,627
---------- ----------
CAPITAL LEASE OBLIGATIONS, less current maturities.......... 3,575 3,298
CREDIT FACILITY AND OTHER LONG-TERM DEBT, less current
maturities................................................ 40,444 84,410
SENIOR SUBORDINATED NOTES................................... 698,544 698,521
DEFERRED INCOME TAX LIABILITY............................... 209,642 177,926
MINORITY INTEREST IN PARTNERSHIP............................ 510 510
---------- ----------
Total liabilities................................... 1,056,516 1,075,292
---------- ----------
COMMITMENTS AND CONTINGENCIES
SERIES A CONVERTIBLE PREFERRED STOCK, 14% cumulative; par
value $.01 per share; 810,000 shares authorized; 209,203
and 223,847 shares issued and outstanding as of December
31, 1998 and June 30, 1999, respectively, and a
liquidation preference of $53,216 and $56,941 at December
31, 1998 and June 30, 1999, respectively.................. 45,441 49,560
SERIES B JUNIOR CONVERTIBLE PREFERRED STOCK, 14% cumulative,
par value $.01 per share; 9,000 shares authorized; 1,808
shares and 0 shares issued and outstanding at December 31,
1998 and June 30, 1999, respectively, and a liquidation
preference of $18,391 and $0 at December 31, 1998 and June
30, 1999, respectively.................................... 18,391 --
SERIES C CONVERTIBLE PREFERRED STOCK, 8% cumulative; par
value $.01 per share; 25,000 shares authorized; 9,595 and
9,979 shares issued and outstanding as of December 31,
1998 and June 30, 1999, and a liquidation preference of
$96,910 and $100,786 at December 31, 1998 and June 30,
1999, respectively........................................ 96,910 100,786
STOCKHOLDERS' EQUITY/(DEFICIT):
Common stock, par value $.01 per share; authorized
100,000,000 shares; 41,583,403 and 41,670,693 shares
issued and outstanding as of December 31, 1998 and June
30, 1999, respectively.................................. 416 417
Additional paid-in capital................................ 340,249 340,624
Accumulated deficit....................................... (306,885) (399,452)
---------- ----------
Total stockholders' equity/(deficit)................ 33,780 (58,411)
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY/(DEFICIT)........ $1,251,038 $1,167,227
========== ==========
</TABLE>
See notes to interim condensed consolidated financial statements.
3
<PAGE> 4
METROCALL, INC. AND SUBSIDIARIES
STATEMENTS OF OPERATIONS
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
THREE MONTHS ENDED JUNE 30,
JUNE 30, ---------------------------
------------------------- 1998
1998 1999 (AS RESTATED) 1999
----------- ----------- ------------- -----------
<S> <C> <C> <C> <C>
REVENUES:
Service, rent and maintenance
revenues............................. $ 93,098 $ 138,949 $ 185,135 $ 279,403
Product sales........................... 10,156 16,681 21,449 31,257
----------- ----------- ----------- -----------
Total revenues.................. 103,254 155,630 206,584 310,660
Net book value of products sold......... (7,428) (9,897) (14,459) (19,712)
----------- ----------- ----------- -----------
95,826 145,733 192,125 290,948
----------- ----------- ----------- -----------
OPERATING EXPENSES:
Service, rent and maintenance
expenses............................. 21,659 41,621 47,159 81,615
Selling and marketing................... 16,269 24,639 32,642 49,664
General and administrative.............. 29,144 42,816 57,688 84,168
Depreciation............................ 16,982 23,602 33,539 46,654
Amortization............................ 35,426 52,831 71,013 105,502
----------- ----------- ----------- -----------
119,480 185,509 242,041 367,603
----------- ----------- ----------- -----------
Loss from operations............ (23,654) (39,776) (49,916) (76,655)
INTEREST EXPENSE.......................... (16,123) (21,121) (31,024) (41,821)
INTEREST AND OTHER INCOME, NET............ 292 212 612 228
----------- ----------- ----------- -----------
LOSS BEFORE INCOME TAX BENEFIT............ (39,485) (60,685) (80,328) (118,248)
INCOME TAX BENEFIT........................ 10,751 15,974 21,270 31,524
----------- ----------- ----------- -----------
Net loss........................ (28,734) (44,711) (59,058) (86,724)
PREFERRED DIVIDENDS....................... (2,423) (4,048) (4,771) (8,051)
GAIN ON REPURCHASE OF PREFERRED STOCK..... -- -- -- 2,208
----------- ----------- ----------- -----------
Loss attributable to common
stockholders.................. $ (31,157) $ (48,759) $ (63,829) $ (92,567)
=========== =========== =========== ===========
BASIC AND DILUTED LOSS PER SHARE
ATTRIBUTABLE TO COMMON STOCKHOLDERS..... $ (0.76) $ (1.17) $ (1.56) $ (2.22)
=========== =========== =========== ===========
Weighted-average common shares
outstanding............................. 40,866,548 41,670,693 40,866,548 41,670,693
=========== =========== =========== ===========
</TABLE>
See notes to interim condensed consolidated financial statements.
4
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METROCALL, INC. AND SUBSIDIARIES
STATEMENT OF STOCKHOLDERS' EQUITY/(DEFICIT)
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK
------------------- ADDITIONAL
SHARES PAR PAID-IN ACCUMULATED
OUTSTANDING VALUE CAPITAL DEFICIT TOTAL
----------- ----- ---------- ----------- --------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1998................. 41,583,403 $416 $340,249 $(306,885) $ 33,780
Issuance of shares in employee stock
purchase plan............................ 87,290 1 375 -- 376
Preferred dividends........................ -- -- -- (8,051) (8,051)
Gain on repurchase of Series B Preferred... -- -- -- 2,208 2,208
Net loss................................... -- -- -- (86,724) (86,724)
---------- ---- -------- --------- --------
BALANCE, June 30, 1999..................... 41,670,693 $417 $340,624 $(399,452) $(58,411)
========== ==== ======== ========= ========
</TABLE>
See notes to interim condensed consolidated financial statements.
5
<PAGE> 6
METROCALL, INC. AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
------------------------
1998
(AS RESTATED) 1999
------------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................. $(59,058) $(86,724)
Adjustments to reconcile net loss to net cash provided by
operating activities--
Depreciation and amortization.......................... 104,552 152,156
Amortization of debt financing costs and discount...... 881 1,581
Decrease in deferred income taxes...................... (21,270) (31,715)
Cash provided by (used in) changes in assets and
liabilities:
Accounts receivable.................................... (4,838) (8,319)
Prepaid expenses and other current assets.............. (204) (478)
Accounts payable....................................... (25,899) (1,285)
Accrued expenses and other current liabilities......... 895 7,304
Deferred revenues and subscriber deposits.............. 222 979
-------- --------
Net cash (used) provided by operating
activities...................................... (4,719) 33,499
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures, net................................. (31,591) (51,914)
Other..................................................... 133 (1,779)
-------- --------
Net cash used in investing activities............. (31,458) (53,693)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under credit facility...................... 16,000 44,000
Repurchase of Series B Preferred.......................... -- (16,240)
Deferred debt financing costs............................. -- (390)
Principal payments on long-term debt...................... (468) (592)
Net proceeds from issuance of common stock................ 205 376
-------- --------
Net cash provided by financing activities......... 15,737 27,154
-------- --------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS........ (20,440) 6,960
CASH AND CASH EQUIVALENTS, beginning of period.............. 24,896 8,436
-------- --------
CASH AND CASH EQUIVALENTS, end of period.................... $ 4,456 $ 15,396
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash payments for interest................................ $ 22,742 $ 32,348
======== ========
Cash payments for income taxes............................ $ -- $ 206
======== ========
</TABLE>
See notes to interim condensed consolidated financial statements.
6
<PAGE> 7
METROCALL INC. AND SUBSIDIARIES
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
1. GENERAL
The accompanying unaudited interim condensed consolidated financial
statements included herein have been prepared in accordance with the rules and
regulations of the SEC. The interim condensed consolidated financial statements
include the consolidated accounts of Metrocall, Inc. and its majority owned
subsidiaries (collectively, "Metrocall"). In the opinion of management, all
adjustments (consisting of normal recurring adjustments) necessary for a fair
statement of the financial position, results of operations and cash flows for
the interim periods presented have been made. The preparation of the financial
statements includes estimates. Actual results could differ from those estimates.
The results of operations for the six-month period ended June 30, 1999 are not
necessarily indicative of the results to be expected for the full year. Some
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to SEC rules and regulations. Metrocall believes,
however, that its disclosures are adequate to make the information presented not
misleading. You should read these interim condensed consolidated financial
statements in conjunction with the consolidated financial statements and notes
to those consolidated financial statements included in Metrocall's 1998 Annual
Report on Form 10-K/A, filed on July 2, 1999.
During 1996 and 1997 Metrocall was billed for local transport charges by a
number of Regional Bell Operating Companies (RBOCs) and the largest independent
telephone company. Metrocall has disputed these billings under the
Telecommunications Act of 1996 (the "1996 Act") (see Note 6). When Metrocall
identified that it had paid these local transport charges, it recorded such
payments made for these disputed billings as receivables. In June 1999, after
discussions with the staff of the SEC in connection with its review of
registration statements Metrocall had filed, Metrocall restated its financial
statements to reflect amounts paid in 1996 and 1997 as an expense in the period
incurred and not as a receivable. Collection of amounts is contingent upon a
successful FCC ruling (see Note 6). If amounts are collected from the RBOCs and
the largest independent telephone company for reimbursement of amounts paid by
Metrocall, Metrocall will recognize the collections as a reduction of service,
rent and maintenance expense in the statement of operations in the period
received.
The impact of this restatement affected Metrocall's net loss, net loss
attributable to common stockholders and basic and diluted loss per share
attributable to common stockholders as follows:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30, 1998
-------------
<S> <C>
Net loss--previously reported............................... $(56,934)
Net loss--as restated....................................... (59,058)
Loss attributable to common stockholders--previously
reported.................................................. (61,705)
Loss attributable to common stockholders--as restated....... (63,829)
Basic and diluted loss per share attributable to common
stockholders--previously reported......................... $ (1.51)
Basic and diluted loss per share attributable to common
stockholders--as restated................................. (1.56)
</TABLE>
The restatement did not impact amounts reported for the three-month period
ended June 30, 1998.
2. RISKS AND OTHER IMPORTANT FACTORS
Metrocall sustained net losses of $60.3 million and $129.1 million for
fiscal years 1997 and 1998 and $86.7 million for the six-month period ended June
30, 1999. Those losses were significantly attributable to its consolidation and
growth strategies and capital expenditure requirements. Metrocall cannot assure
you that it
7
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METROCALL INC. AND SUBSIDIARIES
NOTES TO INTERIM CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)
2. RISKS AND OTHER IMPORTANT FACTORS -- (CONTINUED)
can reverse such losses in the future. At June 30, 1999, Metrocall had an
accumulated deficit of approximately $399.5 million and a deficit in working
capital of $33.7 million. Metrocall's business requires substantial funds for
capital expenditures and acquisitions, both of which result in significant
depreciation and amortization expenses. Additionally, Metrocall has substantial
levels of borrowing, which result in significant interest expense, expected to
be outstanding in the foreseeable future. Metrocall therefore expects to
continue to incur losses from operations. Metrocall cannot assure you that it
will achieve profitability in the future.
Metrocall's operations require the availability of substantial funds to
finance the maintenance and growth of its existing paging operations and
subscriber base, development and construction of future wireless communications
networks, expansion into new markets, and the acquisition of other wireless
communications companies. At June 30, 1999, Metrocall had approximately $786.8
million outstanding under its credit facility, senior subordinated notes,
capital leases and other long-term debt. Amounts available under its credit
facility are subject to certain financial covenants and other restrictions. At
June 30, 1999, Metrocall was in compliance with each of the covenants under its
credit facility. Metrocall's ability to borrow additional amounts in the future,
including amounts currently available under the credit facility is dependent on
Metrocall's ability to comply with the provisions of its credit facility as well
as the availability of financing in the capital markets. At June 30, 1999,
Metrocall had $92.9 million of borrowings available under its credit facility
based on its total leverage coverage covenant under which total debt cannot
exceed six-times annualized operating cash flow, as defined, as of the end of
the most recently completed fiscal quarter.
Metrocall is also subject to additional risks and uncertainties including,
but not limited to, changes in technology, business integration, competition,
regulation, litigation and subscriber turnover.
3. SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition
Metrocall recognizes revenue under service, rental and maintenance
agreements with customers as the related services are performed. Sales of
equipment are recognized upon delivery.
Long-Lived Assets
Long-lived assets and identifiable intangibles to be held and used are
reviewed for impairment on a periodic basis and whenever events or changes in
circumstances indicate that the carrying amount should be reviewed. Impairment
is 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.
4. CAPITAL STOCK
On January 7, 1999, Metrocall repurchased and retired all of the
outstanding shares of the Series B Junior Convertible Preferred Stock (Series B
Preferred) plus accrued dividends, for $16.2 million, representing a discount of
$2.2 million from its carrying value. Metrocall financed the repurchase with
borrowings under its credit facility.
5. EMPLOYEE STOCK OPTION AND OTHER BENEFIT PLANS
Stock Option Plans
During the six months ended June 30, 1999, Metrocall's Board of Directors
granted options to purchase 1,717,500 shares of common stock with exercise
prices ranging from $3.22 to $5.63 per share, equal to the fair market value of
the Metrocall's common stock on the date of grant.
8
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METROCALL INC. AND SUBSIDIARIES
NOTES TO INTERIM CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)
5. EMPLOYEE STOCK OPTION AND OTHER BENEFIT PLANS -- (CONTINUED)
Employee Stock Purchase Plan
Metrocall issued 87,290 and 191,215 shares of common stock on January 1,
1999 and July 1, 1999, respectively, under the Metrocall, Inc. Employee Stock
Purchase Plan with purchase prices of approximately $4.31 and $2.34 per share,
respectively.
6. CONTINGENCIES
Legal and Regulatory Matters
Metrocall is subject to legal and regulatory matters in the normal course
of business. Metrocall does not expect that the outcome of those matters will
have a material adverse effect on its financial position or results of
operations.
Interconnect Complaint
Metrocall has filed complaints with the FCC against a number of RBOCs and
the largest independent telephone company for violations of the FCC's
interconnection and local transport rules and the 1996 Act. The complaints
allege that these local telephone companies are unlawfully charging Metrocall
for local transport of the telephone companies' local traffic. Metrocall has
petitioned the FCC to rule that these local transport charges are unlawful and
to award Metrocall a reimbursement or credit for any past charges assessed by
the respective carriers since November 1, 1996, the effective date of the FCC's
transport rules. The briefing schedule for these complaint proceedings ended in
September 1998. The complaints remain pending before the FCC. Since 1996, Bell
Atlantic and NYNEX have voluntarily ceased charging Metrocall for
interconnection.
On January 25, 1999, the U.S. Supreme Court concluded that the FCC had the
authority under the Communications Act to adopt rules necessary to carry out
Sections 251 and 252 of the 1996 Act, including the authority to preempt any
state or local tariffs or interconnection agreements contrary to those rules.
The Supreme Court did not disturb the portion of the appellate court's decision
upholding the FCC's authority over interconnection between local exchange
carriers (LECs) and Commercial Mobile Radio Service (CMRS) carriers. Metrocall
believes that the Supreme Court's decision lends further support to Metrocall's
complaints. Metrocall also believes the Supreme Court's ruling appears to
validate the FCC's "proxy" pricing rules for LEC/CMRS interconnection, and will
provide support for Metrocall to obtain reciprocal compensation for terminating
LEC-originated traffic.
9
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis of financial
condition and results of operations of Metrocall together with the financial
statements and the notes to the financial statements which appear elsewhere in
this quarterly report and Metrocall's Annual Report on Form 10-K/A for the year
ended December 31, 1998.
Forward-looking Statements
This Quarterly Report on Form 10-Q includes forward-looking statements. We
have based these forward-looking statements on our current expectations and
projections about future events. These forward-looking statements are subject to
risks, uncertainties and assumptions, which include:
- our high leverage and need for substantial capital;
- our ability to service debt;
- our history of net operating losses;
- the restrictive covenants governing our indebtedness;
- the amortization of our intangible assets;
- our ability to integrate the acquisition of the Advanced Messaging
Division of AT&T Wireless, the paging operations of AT&T.
- the risk associated with our ability to implement our business
strategies;
- the impact of competition and technological developments;
- satellite transmission failures;
- subscriber turnover;
- our ability to implement our Year 2000 readiness plan;
- litigation;
- regulatory changes;
- dependence on key suppliers; and,
- reliance on key personnel.
Other matters set forth in this Quarterly Report on Form 10-Q may also
cause actual results to differ materially from those described in the
forward-looking statements. We undertake no obligation to update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise. In light of these risks, uncertainties and assumptions, the
forward-looking events discussed in this Quarterly Report on Form 10-Q may not
occur.
OVERVIEW
Metrocall is a leading provider of local, regional, and national paging and
other wireless messaging services. Metrocall has a nationwide network through
which it provides messaging services to over 1,000 U.S. cities, including the
100 largest metropolitan areas. Since 1993, Metrocall's subscriber base has
increased from less than 250,000 in 1993 to more than 5.8 million. Metrocall has
achieved this growth through a combination of internal growth and a program of
mergers and acquisitions. As of June 30, 1999, Metrocall was the third largest
paging and wireless-messaging company in the United States based on number of
subscribers.
Metrocall 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 Metrocall's services,
operating results benefit from this recurring revenue stream with minimal
requirements
10
<PAGE> 11
for incremental selling expenses or other fixed costs. Metrocall's total
revenues have increased by approximately 50.7% and 50.4% to $155.6 million and
$310.7 million for the three month and six month periods ended June 30, 1999,
respectively, compared to $103.3 million and $206.6 million for the three month
and six month periods ended June 30, 1998, respectively. Overall, subscribers
have increased by approximately 1.6 million or approximately 38% to 5.8 million
at June 30, 1999 from 4.2 million at June 30, 1998. Approximately 23% of the
growth in the subscriber base was generated through internal distribution
channels while 77% of the increase was attributable to the subscriber base
acquired through the acquisition of the Advanced Messaging Division (AMD) of
AT&T Wireless, the paging operations of AT&T, on October 2, 1998.
Metrocall's growth, whether internal or through acquisitions, requires
significant capital investment for paging equipment and technical
infrastructure. Metrocall also purchases paging equipment for that portion of
its subscriber base to which it leases pagers. During the three and six month
periods ended June 30, 1999, capital expenditures totaled $26.4 million and
$51.9 million, respectively. This includes approximately $14.9 million and $34.8
million for the three and six month periods ended June 30, 1999, respectively,
for pagers, representing an increase in pagers on hand and net increases and
maintenance to the rental pager base. Capital expenditures were funded through a
combination of cash generated from operations and borrowings under the credit
facility.
For the remainder of 1999, Metrocall's business strategy will be focused on
increasing stockholder value by expanding the subscriber base and increasing
revenues, cost efficiencies and operating cash flow. This focus will include the
following:
- Managing capital requirements and increasing free cash flow by:
-- continuing to focus on selling, rather than leasing, paging units in
order to reduce capital expenditure requirements per subscriber;
-- increasing revenues and cash flows through sales of value-added
advanced messaging and information services which generate higher
average monthly revenue per unit (ARPU) than standard messaging or
paging services; and
-- further increasing the utilization of the nationwide network to serve
more customers per frequency and expand presence in existing markets
with minimal capital outlay.
- Managing and lowering operating costs through cost containment
initiatives;
- Maximizing internal growth potential by continuing to broaden Metrocall's
distribution network and expanding target markets to capitalize on the
growing appeal of messaging and other wireless products; and
- Completing the integration of the operations of AMD.
Metrocall may continue to expand its geographic penetration and subscriber
base through future industry consolidation if potential candidates are
identified that satisfy certain criteria including: valuation, geographic
coverage, regulatory licenses, type of consideration, availability of financing,
and accretive and de-leveraging potential.
RESULTS OF OPERATIONS
The definitions below will be helpful in understanding the discussion of
Metrocall's results of operations.
- 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
cellular and long-distance services.
- ARPU means average monthly paging revenue per unit. ARPU is calculated
by dividing (a) service, rent and maintenance revenues for the period by
(b) the average number of units in service for the
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<PAGE> 12
period. The ARPU calculation excludes revenues derived from non-paging
services such as telemessaging, long distance and cellular telephone.
- 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 Metrocall's network systems and
customer support centers.
- Selling and marketing expenses: include salaries, commissions and
administrative costs for Metrocall'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.
THREE MONTHS ENDED JUNE 30, 1999 COMPARED WITH 1998
The following table sets forth the amounts of revenues and the percentages
of net revenues (defined as total revenues less the net book value of products
sold) represented by certain items in Metrocall's Interim Condensed Consolidated
Statements of Operations and certain other information for the three months
ended June 30, 1998 and 1999:
<TABLE>
<CAPTION>
JUNE 30, % OF JUNE 30, % OF INCREASE OR
1998 REVENUES 1999 REVENUES (DECREASE)
---------- -------- ---------- -------- -----------
<S> <C> <C> <C> <C> <C>
REVENUES
Service, rent and maintenance........ $ 93,098 97.2 $ 138,949 95.3 $ 45,851
Product sales........................ 10,156 10.6 16,681 11.4 6,525
---------- ----- ---------- ----- ----------
Total revenues............... 103,254 107.8 155,630 106.7 52,376
Net book value of products sold...... 7,428 (7.8) 9,897 (6.7) 2,469
---------- ----- ---------- ----- ----------
Net revenues......................... $ 95,826 100.0 $ 145,733 100.0 $ 49,907
========== ===== ========== ===== ==========
ARPU................................... $ 7.23 $ 7.92 $ 0.69
Number of subscribers.................. 4,223,980 5,811,705 1,587,725
</TABLE>
Total revenues increased approximately $52.3 million, or approximately
50.7%, from $103.3 million for the three months ended June 30, 1998 ("1998") to
$155.6 million for the three months ended June 30, 1999 ("1999"). Net revenues
increased approximately $49.9 million, or 52.1%, from $95.8 million in 1998 to
$145.7 million in 1999. The increase in net revenues is the result of the
increase in subscriber growth due to internal growth through broadened
distribution channels and the increase in the subscriber base due to the AMD
acquisition. ARPU for paging services increased from $7.23 per unit in 1998 to
$7.92 per unit in 1999. The increase in ARPU was the result of internal growth
in our distribution channels, selected service rate increases, continued
migration of subscribers to alphanumeric devices and the impact of the
subscriber base acquired in the AMD acquisition. The AMD acquisition added
approximately 1.2 million premium subscribers to Metrocall's existing subscriber
base. Factors affecting ARPU in future periods include distribution mix of new
subscribers, competition and new technologies, among others. There can be no
assurance that ARPU will not decline in future periods.
Product sales, which consist primarily of sales of paging equipment,
increased approximately $6.5 million or 64.2% from $10.2 million in 1998 to
$16.7 million in 1999 and increased as a percentage of net revenues from 10.6%
in 1998 to 11.4% in 1999. Net book value of products sold increased
approximately $2.5 million or 33.2% from $7.4 million in 1998 to $9.9 million in
1999 principally due to the increase in product sales, offset by increased
depreciation expense. Pagers are classified as property and depreciated over
three years from their date of acquisition.
12
<PAGE> 13
The following tables set forth the amounts of operating expenses and
related percentages of net revenues represented by certain items in Metrocall's
Interim Condensed Consolidated Statements of Operations and certain other
information for the three months ended June 30, 1998 and 1999:
<TABLE>
<CAPTION>
JUNE 30, % OF JUNE 30, % OF INCREASE OR
1998 REVENUES 1999 REVENUES (DECREASE)
-------- -------- ------------- -------- -----------
<S> <C> <C> <C> <C> <C>
OPERATING EXPENSES
Service, rent and maintenance.............. $ 21,659 22.6 $ 41,621 28.6 $19,962
Selling and marketing...................... 16,269 17.0 24,639 16.9 8,370
General and administrative................. 29,144 30.4 42,816 29.4 13,672
Depreciation............................... 16,982 17.7 23,602 16.2 6,620
Amortization............................... 35,426 37.0 52,831 36.3 17,405
-------- ----- -------- ----- -------
$119,480 124.7 $185,509 127.4 $66,029
======== ===== ======== ===== =======
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, JUNE 30,
1998 1999 INCREASE
-------- -------- --------
<S> <C> <C> <C>
OPERATING EXPENSES PER UNIT IN SERVICE
Monthly service, rent and maintenance....................... $1.73 $2.40 $0.67
Monthly selling and marketing............................... 1.30 1.42 0.12
Monthly general and administrative.......................... 2.33 2.47 0.14
----- ----- -----
Average monthly operating costs............................. $5.36 $6.29 $0.93
</TABLE>
Overall, Metrocall experienced an increase in average monthly operating
costs per unit in service (operating costs per unit before depreciation and
amortization) from 1998 to 1999. Average monthly operating cost per unit
increased from $5.36 per unit for 1998 to $6.29 per unit for 1999. Each
operating expense is discussed separately below.
Service, rent and maintenance expenses increased approximately $19.9
million from $21.7 million in 1998 to $41.6 million in 1999 and increased as a
percentage of net revenues from 22.6% in 1998 to 28.6% in 1999. Approximately
$14.2 million of this increase is the result of expenses incurred by the
operations of AMD, which was acquired in October 1998 and therefore not included
in Metrocall's operating results until the fourth quarter of 1998. Other
increases were attributable to increased costs of subscriber services ($2.5
million), personnel costs ($1.2 million) and tower site rents ($0.8 million).
Monthly service, rent and maintenance expense per unit increased from $1.73 per
unit in 1998 to $2.40 per unit in 1999 as a result of the above events.
Metrocall expects its service, rent and maintenance expenses to decrease as a
percentage of revenues and per subscriber unit in future periods as it
renegotiates certain of its telecommunications and third party services
contracts and decommissions redundant transmitter and tower sites. Metrocall
expects such expense savings to be partially offset by an increase in rental
costs for other transmitter and tower sites as the Company enhances its
nationwide presence, particularly in the West and Midwest United States.
Selling and marketing expenses increased approximately $8.3 million from
$16.3 million in 1998 to $24.6 million in 1999 and decreased slightly as a
percentage of net revenues from 17.0% in 1998 to 16.9% in 1999. Approximately
$5.6 million of the increase in selling and marketing expenses is attributable
to the operations of AMD. Exclusive of this acquisition, the remaining expense
increase was primarily the result of increases in personnel costs ($1.8 million)
related to an increase in the employee sales base and advertising costs ($0.6
million) related to further penetration in existing markets. Monthly selling and
marketing expense per unit increased from $1.30 per unit in 1998 to $1.42 per
unit in 1999 as a result of these events. Selling and marketing expenses may
continue to increase as a percentage of net revenues as Metrocall continues to
increase its presence in existing markets and expand geographic coverage.
General and administrative expenses increased $13.7 million from $29.1
million in 1998 compared to $42.8 million in 1999, and decreased as a percentage
of net revenues from 30.4% in 1998 to 29.4% in 1999. The increase in general and
administrative expenses is primarily attributable to the AMD acquisition ($9.3
million) and increased expenses for office rents and facility costs ($1.2
million), allowances for accounts
13
<PAGE> 14
receivable ($0.9 million) and a variety of professional services ($0.9 million),
including consulting costs for year 2000 readiness efforts. Monthly general and
administrative expense per unit increased from $2.33 per unit in 1998 to $2.47
per unit in 1999 as a result of these events. Metrocall expects general and
administrative expenses to continue to decrease as a percentage of revenues as
remaining operating redundancies are eliminated from acquired companies.
Depreciation expense increased approximately $6.6 million from $17.0
million in 1998 to $23.6 million in 1999. The increase in depreciation expense
resulted primarily from depreciation expense on subscriber equipment and other
capitalized assets acquired mainly in the AMD acquisition ($5.5 million) and
also from the depreciation of additions to other property, plant and equipment
and computer hardware and software.
Amortization increased $17.4 million from $35.4 million in 1998 to $52.8
million in 1999 primarily as a result of the amortization of intangibles
recorded in connection with the AMD acquisition ($16.5 million.)
<TABLE>
<CAPTION>
JUNE 30, JUNE 30, INCREASE
1998 1999 (DECREASE)
-------- -------- ----------
<S> <C> <C> <C>
OTHER
Interest and other income, net.............................. $ 292 $ 212 $ (80)
Interest expense............................................ (16,123) (21,121) 4,998
Income tax benefit.......................................... 10,751 15,974 5,223
Net loss.................................................... (28,734) (44,711) 15,977
Preferred dividends......................................... (2,423) (4,048) 1,625
EBITDA...................................................... 28,754 36,657 7,903
</TABLE>
Interest expense increased approximately $5.0 million from $16.1 million in
1998 to $21.1 million in 1999. Interest expense increased due to higher average
debt balances outstanding during 1999. Average debt balances were $171.3 million
greater in 1999 than in 1998 as a result of debt incurred related to the AMD
acquisition in October 1998, the repurchase of the Series B Preferred in January
1999, capital expenditure and working capital requirements.
Metrocall's net loss increased approximately $16.0 million from $28.7
million in 1998 to $44.7 million in 1999. The increase in net loss was primarily
the result of increased depreciation and amortization and other operating
expenses associated with the acquisition of AMD, whose results were not included
in Metrocall's results of operations for the three months ended June 30, 1998.
This was offset partially by increases in net revenues related to an increase in
Metrocall's subscriber base as a result of internal growth and the AMD
acquisition. Metrocall expects net losses to continue in future periods.
Preferred dividends increased approximately $1.6 million from $2.4 million
in 1998 to $4.0 million in 1999. The increase was the result of higher dividends
paid to the holders of the Series A Convertible Preferred Stock (Series A
Preferred) and the Series C Convertible Preferred Stock (Series C Preferred) in
1999 due to the compounding nature of the Series A Preferred and the Series C
Preferred. This increase was partially offset by the cessation of dividends on
the Series B Preferred, which Metrocall repurchased in January 1999.
EBITDA means earnings before interest, taxes, depreciation and
amortization. While not a measure under generally accepted accounting principles
(GAAP), EBITDA is a standard measure of financial performance in the paging
industry and may not be comparable to similarly titled measures reported by
other companies since all companies do not calculate EBITDA in the same manner.
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 as defined by Metrocall is
used in its credit facility and senior subordinated note indentures as part of
the tests to determine its ability to incur debt and make restricted payments.
EBITDA increased approximately $7.9 million to $36.7 million in 1999 from $28.8
million in 1998. As a percentage of net revenues, EBITDA decreased from 30.0% in
1998 to 25.2% in 1999.
14
<PAGE> 15
SIX MONTHS ENDED JUNE 30, 1999 COMPARED WITH 1998
The following table sets forth the amounts of revenues and the percentages
of net revenues (defined as total revenues less the net book value of products
sold) represented by certain items in Metrocall's Interim Condensed Consolidated
Statements of Operations and certain other information for the six months ended
June 30, 1998 and 1999.
<TABLE>
<CAPTION>
JUNE 30, % OF JUNE 30, % OF INCREASE OR
1998 REVENUES 1999 REVENUES (DECREASE)
--------- -------- --------- -------- -----------
<S> <C> <C> <C> <C> <C>
REVENUES
Service, rent and maintenance.............. $185,135 96.4 $279,403 96.0 $ 94,268
Product sales.............................. 21,449 11.2 31,257 10.7 9,808
-------- ----- -------- ----- --------
Total revenues................... 206,584 107.6 310,660 106.7 104,076
Net book value of products sold............ 14,459 (7.6) 19,712 (6.7) 5,253
-------- ----- -------- ----- --------
Net revenues............................... $192,125 100.0 $290,948 100.0 $ 98,823
======== ===== ======== ===== ========
ARPU....................................... $ 7.25 $ 8.03 $ 0.78
Number of subscribers...................... 4,223,980 5,811,705 1,587,725
</TABLE>
Total revenues increased approximately $104.1 million, or approximately
50.4%, from $206.6 million for the six months ended June 30, 1998 ("1998") to
$310.7 million for the six months ended June 30, 1999 ("1999"). Net revenues
increased approximately $98.8 million, or 51.4%, from $192.1 million in 1998 to
$290.9 million in 1999. The increase in net revenues is the result of the
increase in subscriber growth due to internal growth through broadened
distribution channels and the increase in the subscriber base due to the AMD
acquisition. ARPU for paging services increased from $7.25 per unit in 1998 to
$8.03 per unit in 1999. The increases in ARPU was the result of internal growth
in our distribution channels, selected service rate increases, continued
migration of subscribers to alphanumeric devices and the impact of the
subscriber base acquired in the AMD acquisition. The AMD acquisition added
approximately 1.2 million premium subscribers to Metrocall's existing subscriber
base. Factors affecting ARPU in future periods include distribution mix of new
subscribers, competition and new technologies, among others. There can be no
assurance that ARPU will not decline in future periods.
Product sales, which consist primarily of sales of paging equipment,
increased approximately $9.9 million or 45.7% from $21.4 million in 1998 to
$31.3 million in 1999 and decreased as a percentage of net revenues from 11.2%
in 1998 to 10.7% in 1999. Net book value of products sold increased
approximately $5.2 million or 36.3% from $14.5 million in 1998 to $19.7 million
in 1999 principally due to the increase in product sales, offset by increased
depreciation expense. Pagers are classified as property and depreciated over
three years from their date of acquisition.
15
<PAGE> 16
The following tables set forth the amounts of operating expenses and
related percentages of net revenues represented by certain items in Metrocall's
Interim Condensed Consolidated Statements of Operations and certain other
information for the six months ended June 30, 1998 and 1999.
<TABLE>
<CAPTION>
JUNE 30, % OF JUNE 30, % OF INCREASE OR
1998 REVENUES 1999 REVENUES (DECREASE)
-------- -------- -------- -------- -----------
<S> <C> <C> <C> <C> <C>
OPERATING EXPENSES
Service, rent and maintenance............... $ 47,159 24.5 $ 81,615 28.1 $ 34,456
Selling and marketing....................... 32,642 17.0 49,664 17.1 17,022
General and administrative.................. 57,688 30.0 84,168 28.9 26,480
Depreciation................................ 33,539 17.5 46,654 16.0 13,115
Amortization................................ 71,013 37.0 105,502 36.3 34,489
-------- ----- -------- ----- --------
$242,041 126.0 $367,603 126.4 $125,562
======== ===== ======== ===== ========
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, JUNE 30,
1998 1999 INCREASE
-------- -------- --------
<S> <C> <C> <C>
OPERATING EXPENSES PER UNIT IN SERVICE
Monthly service, rent and maintenance....................... $1.91 $2.37 $0.46
Monthly selling and marketing............................... 1.32 1.44 0.12
Monthly general and administrative.......................... 2.33 2.44 0.11
----- ----- -----
Average monthly operating costs............................. $5.56 $6.25 $0.69
===== ===== =====
</TABLE>
Overall, Metrocall experienced an increase in average monthly operating
costs per unit in service (operating costs per unit before depreciation and
amortization) from 1998 to 1999. Average monthly operating cost per unit
increased from $5.56 per unit for 1998 to $6.25 per unit for 1999. Each
operating expense is discussed separately below.
Service, rent and maintenance expenses increased approximately $34.4
million from $47.2 million in 1998 to $81.6 million in 1999 and increased as a
percentage of net revenues from 24.5% in 1998 to 28.1% in 1999. Approximately
$29.4 million of this increase is the result of expenses incurred by the
operations of AMD, which was acquired in October 1998 and therefore not included
in Metrocall's operating results until the fourth quarter of 1998. Other
increases were attributable to increased personnel costs ($2.1 million) and
tower site rents ($1.9 million). Monthly service, rent and maintenance expense
per unit increased from $1.91 per unit in 1998 to $2.37 per unit in 1999 as a
result of the above events. In future periods, Metrocall, expects its service,
rent and maintenance expenses to begin to decrease as a percentage of revenues
and per subscriber unit as it renegotiates certain of its telecommunications and
third party services contracts and decommissions redundant transmitter and tower
sites. Metrocall expects such expense savings to be partially offset by an
increase in rental costs for other transmitter and tower sites as it enhances
its nationwide presence, particularly in the West and Midwest United States.
Selling and marketing expenses increased approximately $17.1 million from
$32.6 million in 1998 to $49.7 million in 1999 and increased slightly as a
percentage of net revenues from 17.0% in 1998 to 17.1% in 1999. Approximately
$11.5 million of the increase in selling and marketing expenses is attributable
to the operations of AMD. Exclusive of this acquisition, the remaining expense
increase was primarily the result of increases in personnel costs ($2.7 million)
related to an increase in the employee sales base and advertising costs ($1.9
million) related to further penetration in existing markets. Monthly selling and
marketing expense per unit increased from $1.32 per unit in 1998 to $1.44 per
unit in 1999 as a result of these events. Selling and marketing expenses may
continue to increase as a percentage of net revenues as Metrocall continues to
increase its presence in existing markets and expand geographic coverage.
General and administrative expenses increased $26.5 million from $57.7
million in 1998 compared to $84.2 million in 1999, and decreased as a percentage
of net revenues from 30.0% in 1998 to 28.9% in 1999. The increase in general and
administrative expenses was primarily attributable to the AMD acquisition ($20.1
million) and increased expenses for personnel costs ($1.2 million), office rents
and facility costs
16
<PAGE> 17
($1.2 million), allowance for accounts receivables ($1.0 million) and a variety
of professional services ($1.9 million), including consulting costs for year
2000 readiness efforts. As a result of these events, monthly general and
administrative expense per unit increased from $2.33 per unit in 1998 to $2.44
per unit in 1999. Metrocall expects general and administrative expenses to
continue to decrease as a percentage of revenues and per subscriber unit as
remaining operating redundancies are eliminated from acquired companies.
Depreciation expense increased approximately $13.2 million from $33.5
million in 1998 to $46.7 million in 1999. The increase in depreciation expense
resulted primarily from depreciation expense on subscriber equipment and other
capitalized assets acquired mainly in the AMD acquisition ($10.3 million) and
also from the depreciation of additions to other property, plant and equipment
and computer hardware and software.
Amortization increased $34.5 million from $71.0 million in 1998 to $105.5
million in 1999 primarily as a result of the amortization of intangibles
recorded in connection with the AMD acquisition ($32.9 million.)
<TABLE>
<CAPTION>
JUNE 30, JUNE 30, INCREASE
1998 1999 (DECREASE)
-------- -------- ----------
<S> <C> <C> <C>
OTHER
Interest and other income, net.............................. $ 612 $ 228 $ (384)
Interest expense............................................ (31,024) (41,821) 10,797
Income tax benefit.......................................... 21,270 31,524 10,254
Net loss.................................................... (59,058) (86,724) 27,666
Preferred dividends......................................... (4,771) (8,051) 3,280
Gain on repurchase of preferred stock....................... -- 2,208 2,208
EBITDA...................................................... 54,636 75,501 20,865
</TABLE>
Interest expense increased approximately $10.8 million from $31.0 million
in 1998 to $41.8 million in 1999. Interest expense increased due to higher
average debt balances outstanding during 1999. Average debt balances were $169.2
million greater in 1999 than in 1998 as a result of debt incurred related to the
AMD acquisition in October 1998, the repurchase of the Series B Preferred in
January 1999, and working capital requirements.
Metrocall's net loss increased approximately $27.6 million from $59.1
million in 1998 to $86.7 million in 1999. The increase in net loss was primarily
the result of increased depreciation and amortization and other operating
expenses associated with the acquisition of AMD, whose results were not included
in Metrocall's results of operations for the six months ended June 30, 1998.
This was offset partially by increases in net revenues related to an increase in
Metrocall's subscriber base as a result of internal growth and the AMD
acquisition. Metrocall expects net losses to continue in future periods.
Preferred dividends increased approximately $3.3 million from $4.8 million
in 1998 to $8.1 million in 1999. The increase was the result of higher dividends
paid to the holders of the Series A Preferred and the Series C Preferred during
1999 due to the compounding nature of the preferred stock. This increase was
partially offset by the cessation of dividends on the Series B Preferred, which
Metrocall repurchased in January 1999.
On January 7, 1999, Metrocall repurchased and retired all of the
outstanding shares of its Series B Preferred for $16.2 million, representing a
$2.2 million discount from its carrying value. The $2.2 million has been
reflected as gain for purposes of determining Metrocall's loss attributable to
common stockholders.
EBITDA increased approximately $20.9 million to $75.5 million in 1999 from
$54.6 million in 1998. As a percentage of net revenues, EBITDA decreased from
28.4% in 1998 to 25.9% in 1999.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Cash Flows
For the six months ended June 30, 1999, Metrocall's cash provided by
operating activities increased by approximately $38.2 million from $(4.7)
million for the six months ended June 30, 1998 to $33.5 million for
17
<PAGE> 18
the six months ended June 30, 1999. The increase in cash provided by operating
activities was primarily the result of an improvement in operating cash flow
defined as net loss plus adjustments to reconcile net loss to net cash provided
by operating activities including the non-cash items of depreciation and
amortization expenses and deferred income taxes. This amount increased by $10.2
million from $25.1 million for the six months ended June 30, 1998 to $35.3
million for the six months ended June 30, 1999. This increase was primarily as a
result of the AMD acquisition. The remaining increase in cash provided by
operating activities was the result of a net increase in accounts payable and
accrued expenses for the six months ended June 30, 1999 compared to June 30,
1998, which was a result of higher operating expenses between periods. This
increase was offset by an increase in accounts receivable for the six months
ended June 30, 1999 compared to June 30, 1998, which was the result of higher
revenues between periods.
Net cash used in investing activities increased approximately $22.2 million
from $31.5 million for the six months ended June 30, 1998 to $53.7 million for
the six months ended June 30, 1999. The increase in net cash used for investing
activities was primarily the result of an increase in purchases of property and
equipment. Capital expenditures were approximately $31.6 million and $51.9
million for the six months ended June 30, 1998 and 1999, respectively. Capital
expenditures for the six months ended June 30, 1999 included approximately $34.8
million for pagers, representing increases in pagers on hand and net increases
and maintenance to the rental subscriber base. The balance of capital
expenditures was primarily for network construction and development and
information systems and computer related equipment. Total capital expenditures
for fiscal year 1999 are expected to approximate $90.0 million. Metrocall
expects to finance its capital expenditures for the last half of fiscal year
1999 through a combination of operating cash flow and borrowings under its
credit facility. Projected capital expenditures are subject to change based on
the progress of internal growth, general business and economic conditions and
competitive pressures.
Net cash provided by financing activities increased approximately $11.5
million from $15.7 million for the six months ended June 30, 1998 to $27.2
million for the six months ended June 30, 1999. The increase was primarily the
result of additional borrowings under Metrocall's credit facility offset by the
repurchase of the Series B Preferred. During the six months ended June 30, 1999,
Metrocall borrowed an additional $44.0 million under its credit facility
primarily to fund the repurchase of the Series B Preferred ($16.2 million) and
for other working capital requirements and capital expenditures. Metrocall has
not increased its borrowings outstanding under the credit facility since April
1, 1999.
Working Capital
At June 30, 1999, Metrocall's working capital deficit (current liabilities
exceeded current assets) had decreased by $8.1 million to approximately $33.7
million from December 31, 1998. Metrocall has experienced such deficits in prior
periods and believes such deficits are likely to continue. Metrocall 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.
Metrocall is currently considering a program with a major financial
institution that would enable it to provide paging and other wireless messaging
equipment to customers under leases to be provided by a third party entity. It
is intended that if the program is implemented, the leased equipment and
associated debt financing would not be included on its balance sheet or
reflected as a capital expenditure because Metrocall would not retain a
substantial risk of ownership in the equipment. However, if Metrocall retains
substantial risk of ownership in the messaging equipment, the equipment and the
associated debt financing would be reflected on Metrocall's balance sheet and as
a capital expenditure. Although the program is expected to be focused toward
higher priced equipment users that generate higher ARPU, it is anticipated that
it will be offered across all of Metrocall's direct distribution channels. There
can be no assurance that Metrocall will be successful in implementing this
program, as intended.
18
<PAGE> 19
Long-Term Debt
At December 31, 1998 and June 30, 1999, long-term debt consisted of:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30, INCREASE OR
1998 1999 (DECREASE)
------------ -------- -----------
<S> <C> <C> <C>
Borrowings under the credit facility........................ $ 40,000 $ 84,000 $44,000
Senior subordinated notes................................... 698,544 698,521 (23)
Capital leases and other debt............................... 4,790 4,308 (482)
-------- -------- -------
Total long-term debt................................... $743,334 $786,829 $43,495
======== ======== =======
</TABLE>
Borrowings and repayments under the credit facility. During the six months
ended June 30, 1999, Metrocall increased its net borrowings outstanding under
its credit facility by approximately $44.0 million from December 31, 1998.
During the six months ended June 30, 1999, Metrocall borrowed approximately
$65.0 million, which was used to fund the repurchase of the Series B Preferred
and also for other working capital requirements and repaid approximately $21.0
million from cash generated from operating activities. At June 30, 1999, $84.0
million was outstanding under the credit facility.
Subject to certain conditions, Metrocall may borrow up to $200.0 million
under its credit facility. Under the credit facility, Metrocall is required to
comply with or maintain certain financial and operating covenants including
certain financial ratios, such as total debt to annualized operating cash flow,
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 case, as such terms are defined
in the credit facility agreement). 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 Metrocall. The credit facility agreement also prohibits certain
changes in control of Metrocall, as defined. At June 30, 1999, Metrocall was in
compliance with all of these covenants. The credit facility also includes a
material adverse effect clause under which the credit facility could be in
default if there is any material adverse effect upon the business, assets,
liabilities, financial condition, results of operations, properties or business
of Metrocall. Metrocall believes that the declaration of a material adverse
effect default by its lenders is remote. At June 30, 1999, Metrocall had $92.9
million of borrowings available under its credit facility based on its leverage
covenant.
Senior subordinated notes. There are no significant principal payments
required under the senior subordinated notes indentures during fiscal year 1999.
On August 2, 1999, Metrocall issued $250 million aggregate principal amount of
11% senior subordinated notes due 2008 that were registered under the Securities
Act of 1933, as amended. Metrocall exchanged these notes for 11% senior
subordinated notes issued in a private placement in December 1998,
Access to Future Capital
Since Metrocall had a significant net loss for the three months ended June
30, 1999, its fixed charges, which include primarily interest expenses related
to long term debt and operating leases, were in excess of earnings for the
period by approximately $118.2 million. Metrocall expects that its net losses
and deficiency of earnings to fixed charges will continue in the future.
Metrocall's business also requires substantial funds for capital
expenditures for paging and other wireless messaging equipment leased to its
customers. Additionally Metrocall has substantial levels of borrowing, which
results in significant interest expenses. Given these and the above factors,
Metrocall may be required to incur additional borrowings from time to time.
Metrocall does not believe it will require additional borrowings from its credit
facility during the third quarter of 1999 although it may be required to borrow
up to an additional $15.0 million in the fourth quarter of 1999. There can be no
assurance that these borrowings will be required.
Metrocall's ability to access borrowings under the credit facility and to
meet its debt service and other obligations (including compliance with financial
covenants) will be dependent upon its future performance
19
<PAGE> 20
and its cash flows from operations, which will be subject to financial, business
and other factors, certain of which are beyond Metrocall's control, such as
prevailing economic conditions. Metrocall cannot assure you that, in the event
it was to require additional financing, such additional financing would be
available on terms permitted by agreements relating to existing indebtedness or
otherwise satisfactory to it. Metrocall believes that funds generated by its
operations, together with those available under its credit facility, will be
sufficient to finance estimated capital expenditure requirements and to fund its
existing operations for the foreseeable future.
While there are no current outstanding commitments, Metrocall may continue
to evaluate strategic industry consolidation candidates in the future. Potential
future consolidations would be evaluated on significant strategic opportunities
such as geographic coverage and regulatory licenses held and other factors
including overall valuation, consideration to be given and the availability of
financing. Such potential transactions 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
Metrocall.
Metrocall's shares of common stock have traded on the Nasdaq National
Market since Metrocall's initial public offering in July 1993. The Nasdaq
National Market listing maintenance standards require that, among other things,
either (1) Metrocall maintain net tangible assets of $4.0 million or (2)
Metrocall's common stock maintain a minimum bid price of at least $5.00 per
share. Metrocall is currently out of compliance with these maintenance
standards. The Nasdaq staff has determined to delist Metrocall from the Nasdaq
National Market. Metrocall has appealed the staff's decision. Metrocall's appeal
before the Nasdaq is scheduled for a hearing August 26, 1999. The staff's
decision will be stayed until the appeal is decided. If Metrocall's appeal is
not successful, it will ask the Nasdaq to permit it to effect the one-share for
two and one-half-share reverse stock split its stockholders authorized at
Metrocall's annual stockholder's meeting in May 1999 or transfer its listing to
the Nasdaq SmallCap Market or another exchange.
YEAR 2000 READINESS DISCLOSURE
The year 2000 issue generally refers to the issue of whether a company's
hardware, software or other computer technologies can correctly process, provide
and/or receive data after December 31, 1999. Metrocall utilizes software and
related computer technologies essential to its operations that may be affected
by the year 2000 issue. Accordingly, Metrocall has implemented an
enterprise-wide program aimed at mitigating any adverse effects caused by the
year 2000 issue. This program is supervised by an executive oversight committee,
which is chaired by Metrocall's Chief Financial Officer. Metrocall's plan
consists of the following phases:
I. Identification and Assessment of Potential Problem Areas
II. Remediation of Identified Problem Areas.
III. Validation.
IV. Implementation
V. Third Party Dependencies
VI. Contingency Planning
The following describes each phase and the status of each phase in
Metrocall's Plan:
I. IDENTIFICATION AND ASSESSMENT OF POTENTIAL PROBLEM AREAS. Metrocall has
reviewed its computer hardware and software technologies and the embedded
systems contained in its plant and facilities and related infrastructure for the
year 2000 issue. Metrocall has identified its critical and non-critical systems
and whether or not such systems are year 2000 compliant. Metrocall's critical
systems include: paging infrastructure and pagers, billing systems, telephone
services, financial systems and operating systems and hardware. For each of
these systems, Metrocall has identified the required steps that will need to be
taken for the critical systems to be year 2000 compliant. Metrocall has also
developed remediation and/or validation plans to address year 2000 concerns
associated with each critical system.
20
<PAGE> 21
II. REMEDIATION OF IDENTIFIED PROBLEM AREAS. The remediation phase includes
correcting identified problem areas which may include hardware and software
revisions, developing replacement systems and eliminating non-functional
applications or system components. Metrocall is in various stages of remediation
for its critical and non-critical systems. Metrocall's goal is to complete the
substantial majority of its remediation efforts by September 1999.
III. VALIDATION. As Metrocall makes changes to applications and components
of its systems, it intends to validate and test those changes for year 2000
compliance. Metrocall plans to perform validation and testing on a system-wide
basis to ensure that any changes made are compatible with interfacing systems.
Metrocall may also conduct acceptance testing, which is another technique to
confirm that proposed changes can be implemented, where it deems it to be
necessary. Metrocall is currently undertaking this phase on many of its
applications.
IV. IMPLEMENTATION. This phase involves integrating the systems changes
made in the remediation stage once they have been appropriately validated. As
Metrocall implements and integrates such changes, it may determine it systems
include both year 2000 compliant and non-compliant applications and components.
Metrocall intends to develop appropriate contingency recovery plans to reduce
potential impacts from non-compliant applications. Metrocall has begun this
phase for many of its systems and applications, and its goal is to achieve
completion of the entire phase by December 1999.
V. THIRD PARTY DEPENDENCIES. Much of the technology employed in Metrocall's
critical systems was purchased from third parties. Accordingly, Metrocall is
dependent on those third parties to provide information to it with regard to the
impact of the year 2000 issue on the technology that they have supplied and to
take necessary corrective actions. In addition, it is possible that many of
Metrocall's telecommunications providers, energy suppliers and other primary
vendors will have year 2000 issues that may also affect them. Metrocall has
sought and will continue to seek confirmation from these parties that they are
developing and implementing plans to become year 2000 compliant in the event
that the year 2000 issue will affect them. Metrocall intends to validate system
processes that require interaction with vendor hardware or software in an effort
to ensure system readiness by December 31, 1999. Information Metrocall has
received from third parties to date indicate that the respondents are in the
process of implementing remediation plans in an effort to bring their systems
into year 2000 compliance. Metrocall's ability to complete the phases in its
remediation plan by the target dates and avoid disruption of paging and other
service depends on whether its suppliers can make necessary modifications to
their products by the projected delivery dates.
VI. CONTINGENCY PLANNING. Metrocall is in the process of determining
contingency plans for each of its critical systems if such systems are not year
2000 compliant. The contingency plans will address "likely" worst case scenarios
for each critical system. The contingency plans will also take into account, to
the extent Metrocall believe necessary, ways to address certain potential third
party non-compliance. Metrocall has completed contingency plans for several of
its critical systems and has outlined plans for its remaining systems. These
plans are subject to change as additional remediation and testing is performed
to correct and validate identified issues or as third parties provide additional
details about their year 2000 compliance.
The following briefly describes each of Metrocall's critical systems and
their year 2000 readiness.
- PAGING INFRASTRUCTURE AND PAGERS. Metrocall has an extensive paging
infrastructure that provides messaging services to its customers over a
number of different frequencies. Metrocall provides these services
through a network of paging terminals, telephones, and transmitters. A
message may originate in a number of different ways. The Public Switched
Telephone Network (PSTN) is the source of most messaging requests. The
Telco Year 2000 Forum is handling year 2000 issues with the PSTN. The
Telco Year 2000 Forum is comprised of the RBOCs, major independent LECs
and interexchange carriers. In addition, Metrocall is also identifying
alternative means of providing service to ensure that there is no
interruption in the service provided to customers.
Metrocall has identified and performed certain year 2000 readiness
assessment activities with regard to its paging software and hardware,
and is working with its primary vendor that provides software for its
paging terminals. In June 1999, this manufacturer released a software
upgrade to address year 2000
21
<PAGE> 22
issues that affect the existing switch software in Metrocall's paging
terminals. Metrocall began to install this software version on its
effected paging terminals in July 1999 and expects to install the
software on all of its remaining paging terminals by November 1999.
Metrocall has developed several different contingency plans that address
potential non-compliance issues in the event that it is unable to install
this software version on all effected paging terminals by the end of
1999. These plans include an acceleration of the upgrade schedule in
order that the "new" software may be installed on all of its effected
paging terminals by November 1999. In addition, Metrocall believes, based
on its own lab environment testing, that if it continues to use the
existing "older" version of this manufacturer's paging software currently
on many of its paging terminals, Metrocall can continue to provide
uninterrupted or disrupted paging and messaging services to its
customers. This manufacturer has not certified this older software
version, but has performed year 2000 assessment testing which shows that
the software has no issues that would affect paging services.
The transmitters and the transmitter control systems that Metrocall
utilizes have passed year 2000 testing performed by their manufacturers.
In addition, the satellites Metrocall uses have been year 2000 certified
by their manufacturers. Redundant, backup, and alternative systems of
messaging and networking are now being evaluated to ensure continuing and
reliable service to Metrocall's customers. Some hardware units will
require upgrade to support the required paging terminal software and will
be upgraded at the same time the software upgrades are performed.
Metrocall systems are interconnected with numerous networks and systems
operated by third parties, including:
- Landline telecommunications networks
- Long-distance networks
- The networks of other wireless service providers
- Networks operated by utilities
The ability of Metrocall systems to operate, including the ability to
provide paging and other wireless messaging services, is dependent upon
these third-party networks and systems being year 2000 compliant. The
operators of these networks are responsible for addressing the year 2000
issue in their own systems.
Metrocall has taken an active role in working with industry groups to
develop procedures to test for year 2000 compliance. Metrocall is working
closely with the Personal Communications Industry Association (PCIA)
which is coordinating year 2000 testing for the paging industry and its
infrastructure vendors. PCIA's Year 2000 Readiness Program for Paging
Charter is as follows: member companies have agreed to share information
about their products and services within the PCIA group, in an effort to
ensure year 2000 readiness for the paging industry. Metrocall believes
this sharing of year 2000 readiness status for equipment, systems and
services should shorten the amount of time to make elements critical to
the paging industry year 2000 compliant.
Metrocall expects to incur approximately $5 million during the remainder
of 1999 to support these paging infrastructure initiatives.
- PAGERS. Metrocall does not manufacture paging devices and therefore
depends on the manufacturers of such paging equipment to ensure that the
devices are year 2000 compliant. Metrocall has contacted these
manufacturers to ensure that these manufacturers are addressing year 2000
compliance issues relating to such paging equipment. Based on the
information provided by such manufacturers, Metrocall believes that the
substantial majority of the paging devices currently in its inventory or
supplied by the manufacturers is year 2000 compliant. Certain of the
pager models carried by Metrocall will require manual resetting of the
calendar function on March 1, 2000, but the functionality of these paging
devices, including the ability of these devices to receive messages
through Metrocall's network, will not be impacted.
22
<PAGE> 23
- BILLING SYSTEMS. Metrocall currently utilizes three different billing
platforms that are used for the recordation and processing of customer
invoices. Two of these platforms are commercial software applications.
Metrocall have received vendor certification with respect to these
platforms' hardware, databases and the substantial majority of the
software. The third platform was developed by the former AT&T Wireless
Services, Inc. -- Messaging Division (AMD). Its year 2000 readiness was
previously tested and warranted by AMD's prior corporate owner. Metrocall
have scheduled upgrades to certain operating systems to promote proper
integration for the third and early fourth quarters 1999. Once the
upgrades have been completed, Metrocall will move forward with testing of
the platforms and their interfaces to the paging and financial systems.
Metrocall expects to incur approximately $1.0 million during the
remainder of 1999 on these initiatives.
- TELEPHONE SERVICES. Metrocall's ability to provide paging and messaging
services is directly linked to its ability to accept and direct telephone
traffic over an extended network. In addition, its ability to sell
products, administer customer calls and communicate between offices is
dependent on its telephone network. Metrocall is currently in various
phases of the remediation and validation stages for its internal
telephone network. Approximately 45% of its remediation efforts have been
completed. Metrocall's goal is to complete this phase by December 1999
with validation and implementation completed by December 31, 1999. The
cost for these initiatives for the remainder of 1999 is expected to be
approximately $0.8 million. Metrocall is actively contacting its external
telephone service providers to determine their level of year 2000
readiness.
- FINANCIAL SYSTEMS. Metrocall's financial systems, which include its
accounts payable, general ledger, fixed asset, purchase and inventory
systems, have been vendor-certified for year 2000 compliance. Metrocall
is in the process of testing the financial systems for functionality and
data integrity between interfaces. Metrocall expects to have all testing
completed by the end of the third quarter of 1999. Consulting resources
have been retained to assist with performing the testing and evaluating
the results related to year 2000 readiness for these financial systems.
Metrocall does not expect to incur any additional significant costs
related to year 2000 readiness for its financial systems.
- OPERATING SYSTEMS AND HARDWARE. Metrocall has identified and performed
year 2000 assessment activities with regard to its network operating
systems. Certain of such systems are scheduled for software upgrades that
will improve their functionality. Approximately 99% of its Netware
locations, 99% of its NT Systems and 80% of its UNIX systems have been
remediated. The remaining remediation efforts are expected to be
completed during the third quarter of 1999. Metrocall also has identified
personal computers that are not year 2000 compliant, which it intends to
replace by December 31, 1999. Metrocall expects the cost of these
initiatives to be approximately $1.0 million for the remainder of 1999.
Metrocall is utilizing both internal and external resources to remediate
and test its systems for year 2000 compliance. Metrocall continues to incur
internal labor costs as well as consulting and other expenses related to
infrastructure and facilities enhancements necessary to prepare its systems.
Although it is Metrocall's goal that its systems be year 2000 compliant on or
before December 31, 1999, there can be no assurance that Metrocall's year 2000
program will be successful or that its interconnect carriers and primary vendors
will also successfully address their year 2000 issues. Metrocall is unable to
predict the potential impact on its financial condition and results of
operations in the event its year 2000 program is not successful.
23
<PAGE> 24
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Metrocall is exposed to risks associated with interest rate changes. We do
not foresee any significant changes in our exposure to fluctuations in interest
rates in the near future. At June 30, 1999, our total outstanding debt consisted
of five issues of fixed rate, senior subordinated notes and our credit facility,
which had a variable interest rate:
FIXED RATE DEBT:
<TABLE>
<CAPTION>
EFFECTIVE
INTEREST INTEREST
PRINCIPAL BALANCE FAIR VALUE RATE MATURITY PAYMENTS DUE
----------------- -------------- --------- -------- -------------
<S> <C> <C> <C> <C>
$100.0 million............................... $ 88.0 million 13.50% 2005 Semi-Annually
$ 0.2 million............................... $ 0.2 million 11.88% 2005 Semi-Annually
$150.0 million............................... $114.0 million 13.67% 2007 Semi-Annually
$200.0 million............................... $148.0 million 13.18% 2007 Semi-Annually
$250.0 million............................... $195.0 million 14.10% 2008 Semi-Annually
</TABLE>
No principal repayments are due under these notes until maturity. If at
maturity we refinanced these notes at interest rates that are 1/4 percentage
point higher than their stated rates, our per annum interest costs would
increase by $1.8 million. Based on the outstanding balances at June 30, 1999, a
hypothetical immediate 1/4 percentage point change in interest rates would
change the value of our fixed rate obligations by approximately $9.0 million.
VARIABLE RATE DEBT:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE INTEREST
PRINCIPLE BALANCE INTEREST RATE MATURITY PAYMENTS DUE
----------------- ---------------- -------- ------------
<S> <C> <C> <C>
$84.0 million........................................ 7.83% 2004 Quarterly
</TABLE>
Our credit facility bears interest at floating rates and has a maturity of
2004. As of June 30, 1999, there was $84.0 million outstanding under the credit
facility and had approximately $92.9 million of borrowings available. Based on
weighted average borrowings outstanding under the credit facility during fiscal
year 1999, a 1/4 percentage point change in our weighted average interest rate
would have caused interest expense to increase or decrease by approximately $0.2
million. Repayments under the credit facility may be made at anytime without
penalty.
24
<PAGE> 25
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
LEGAL AND REGULATORY MATTERS
Metrocall is subject to legal and regulatory matters in the normal course
of business. Metrocall does not expect, that the outcome of those matters will
have a material adverse effect on its financial position or results of
operations.
INTERCONNECT COMPLAINT
Metrocall has filed complaints with the FCC against a number of RBOCs and
the largest independent telephone company for violations of the FCC's
interconnection and local transport rules and the 1996 Act. The complaints
allege that these local telephone companies are unlawfully charging Metrocall
for local transport of the telephone companies' local traffic. Metrocall has
petitioned the FCC to rule that these local transport charges are unlawful and
to award Metrocall a reimbursement or credit for any past charges assessed by
the respective carriers since November 1, 1996, the effective date of the FCC's
transport rules. The briefing schedule for these complaint proceedings ended in
September 1998. The complaints remain pending before the FCC.
On January 25, 1999, the U.S. Supreme Court concluded that the FCC had the
authority under the Communications Act to adopt rules necessary to carry out
Sections 251 and 252 of the 1996 Act, including the authority to preempt any
state or local tariffs or interconnection agreements contrary to those rules.
The Supreme Court did not disturb the portion of the appellate court's decision
upholding the FCC's authority over interconnection between local exchange
carriers (LECs) and Commercial Mobile Radio Service (CMRS) carriers. Metrocall
believes that the Supreme Court's decision lends further support to Metrocall's
complaints. Metrocall also believes the Supreme Court's ruling appears to
validate the FCC's "proxy" pricing rules for LEC/CMRS interconnection, and will
provide support for Metrocall to obtain reciprocal compensation for terminating
LEC-originated traffic.
ITEM 2. CHANGE IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At Metrocall's Annual Meeting of Stockholders held on May 5, 1999 the
following proposals were adopted by the vote specified below:
<TABLE>
<CAPTION>
WITHHELD/ BROKER
PROPOSAL FOR AGAINST ABSTAIN NONVOTES
-------- ---------- ---------- ------- --------
<S> <C> <C> <C> <C>
Election of three directors:
1. Harry L. Brock.................................. 31,773,972 2,457,712 -- N/A
2. Jackie R. Kimzey................................ 31,773,972 2,457,712 -- N/A
3. Richard M. Johnston............................. 31,773,972 2,457,712 -- N/A
Ratification of Arthur Andersen LLP as independent
public accountants............................... 33,999,034 156,973 75,677 N/A
Amendment to the Metrocall 1996 Stock Option
Plan............................................. 21,480,685 12,401,451 349,548 N/A
Amendment to the Restated Certificate of
Incorporation of Metrocall, Inc. ................ 33,404,946 695,200 131,538 N/A
</TABLE>
25
<PAGE> 26
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
- ------- -------------------
<C> <S>
10.1 Third Amendment to Employment Agreement between Metrocall
and William L. Collins, III.
10.2 Third Amendment to Employment Agreement between Metrocall
and Steven D. Jacoby.
10.3 Third Amendment to Employment Agreement between Metrocall
and Vincent D. Kelly.
11.1 Statement re: computation of per share earnings.
27.1 Financial Data Schedule.
</TABLE>
(b) Reports on Form 8-K.
Metrocall did not file any reports on Form 8-K during the three months
ended June 30, 1999.
26
<PAGE> 27
SIGNATURE
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: August 13, 1999 METROCALL, INC.
By: /s/ VINCENT D. KELLY
------------------------------------
Vincent D. Kelly
Chief Financial Officer, Treasurer
and Executive Vice President
27
<PAGE> 28
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------- -------------------
<C> <S>
10.1 Third Amendment to Employment Agreement between Metrocall
and William L. Collins, III.
10.2 Third Amendment to Employment Agreement between Metrocall
and Steven D. Jacoby.
10.3 Third Amendment to Employment Agreement between Metrocall
and Vincent D. Kelly.
11.1 Statement re: computation of per share earnings.
27.1 Financial Data Schedule.
</TABLE>
<PAGE> 1
EXHIBIT 10.1
CONFIDENTIAL
|__| Collins' Copy
|__| Company's Copy
THIRD 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") as amended January 1, 1997 and 1998. The Third Amendment
is effective as of January 1, 1999.
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, **1999** [1998] equal to
Five Hundred Thousand Dollars ($500,000). . . .
(b) . . .
(f) Executive will be eligible for a fifty percent (50%) of
Base Salary target bonus for [1998] **1999, plus an
additional One Hundred Seventy-Five Thousand Dollars
($175,000) performance bonus for 1998**.
The Employment Agreement, except as amended and modified above, remains
in effect.
METROCALL, INC.
Date: July 19, 1999 By: /s/ Richard M. Johnston
--------------------------- -------------------------------
Richard M. Johnston
Chairman
Date: July 7, 1999 /s/ William L. Collins, III
---------------------------- -------------------------------
William L. Collins, III
For Edgar Purposes the "Strike Out" language is represented by brackets [ ]
and the "Double Underlined" language is represented by asterisks**
<PAGE> 1
EXHIBIT 10.2
CONFIDENTIAL
|__| Jacoby's Copy
|__| Company's Copy
THIRD AMENDMENT TO
EMPLOYMENT AGREEMENT
To STEVEN D. JACOBY:
By signing below, you agree to an amendment (the "Amendment") to your Employment
Agreement with Metrocall, Inc. (the "Company") dated as of May 15, 1996 (the
"Employment Agreement") as amended January 1, 1997 and 1998. The Third Amendment
is effective as of January 1, 1999.
New language in the Employment Agreement is shown **double
underlined**, deleted language is shown in [strikeout], and language that is
unchanged is indicated by plain text or an ellipsis (...); provided, however,
that the deleted language, double underlining, and ellipses are for convenience
only and are not part of the Employment Agreement as amended:
Section 4, as amended, reads:
4. Salary, Bonus, and Expenses.
(a) In consideration for the Executive's services, the Company
shall pay to the Executive an annual base salary (the
"Base Salary") from January 1, **1999** [1998] equal to
**Three Hundred Seventy-Five** [Three Hundred Twenty
Five] Thousand Dollars ($**375,000** [325,0000]). . . .
(b) . . .
(e) Executive will be eligible for a fifty percent (50%) of
Base Salary target bonus for [1998] **1999, plus an
additional One Hundred Sixty-Two Thousand Dollars
($162,000) performance bonus for 1998**.
The Employment Agreement, except as amended and modified above, remains
in effect.
METROCALL, INC.
Date: July 19, 1999 By: /s/ Richard M. Johnston
----------------------------- ----------------------------
Richard M. Johnston
Chairman
Date: July 15, 1999 /s/ Steven D. Jacoby
------------------------------ ----------------------------
Steven D. Jacoby
For Edgar Purposes the "Strike Out" language is represented by brackets [ ]
and the "Double Underlined" language is represented by asterisks**
<PAGE> 1
EXHIBIT 10.3
CONFIDENTIAL
|__| Kelly's Copy
|__| Company's Copy
THIRD AMENDMENT TO
EMPLOYMENT AGREEMENT
To VINCENT D. KELLY:
By signing below, you agree to an amendment (the "Amendment") to your Employment
Agreement with Metrocall, Inc. (the "Company") dated as of May 15, 1996 (the
"Employment Agreement") as amended January 1, 1997 and 1998. The Third Amendment
is effective as of January 1, 1999.
New language in the Employment Agreement is shown **double
underlined**, deleted language is shown in [strikeout], and language that is
unchanged is indicated by plain text or an ellipsis (...); provided, however,
that the deleted language, double underlining, and ellipses are for convenience
only and are not part of the Employment Agreement as amended:
Section 4, as amended, reads:
4. Salary, Bonus, and Expenses.
(a) In consideration for the Executive's services, the Company
shall pay to the Executive an annual base salary (the
"Base Salary") from January 1, [1998] **1999** equal to
**Three Hundred Seventy-Five** [Three Hundred Twenty-Five]
Thousand Dollars ($**375,000** [325,000]). . . .
(b) . . .
(e) Executive will be eligible for a fifty percent (50%) of
Base Salary target bonus for [1998] **1999, plus an
additional One Hundred Sixty-Two Thousand Dollars
($162,000) performance bonus for 1998**.
The Employment Agreement, except as amended and modified above, remains
in effect.
METROCALL, INC.
Date: July 19, 1999 By: /s/ Richard M. Johnston
-------------------------- ------------------------------
Richard M. Johnston
Chairman
Date: July 15, 1999 /s/ Vincent D. Kelly
--------------------------- -----------------------------
Vincent D. Kelly
For Edgar Purposes the "Strike Out" language is represented by brackets [ ]
and the "Double Underlined" language is represented by asterisks**
<PAGE> 1
EXHIBIT 11.1
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
---------------------------- --------------------------
1998 1999 1998(a) 1999
---- ---- ------- ----
<S> <C> <C> <C> <C>
Net loss.................................... $ (28,734) $ (44,711) $ (59,058) $ 86,724
Preferred dividends....................... (2,423) (4,048) (4,771) (8,051)
Gain on redemption of preferred stock..... -- -- -- 2,208
---------- ---------- ---------- ----------
Net loss attributable to common
stockholders.............................. $ (31,157) $ (48,759) $ (63,829) $ (92,567)
========== ========== ========== ==========
Weighted-average shares outstanding:
Shares outstanding, beginning of period... 40,548,414 41,670,693 40,548,414 41,583,403
Shares issued in settlement of
litigation............................. 270,000 -- 270,000 --
Shares issued in employee stock purchase
plan................................... 48,134 -- 48,134 87,290
---------- ---------- ---------- ----------
Weighted-average shares outstanding......... 40,866,548 41,670,693 40,866,548 41,670,693
========== ========== ========== ==========
Loss per share attributable to common
stockholders.............................. $ (0.76) $ (1.17) $ (1.56) $ (2.22)
========== ========== ========== ==========
</TABLE>
- ---------------
(a) As restated.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 15,396
<SECURITIES> 0
<RECEIVABLES> 58,785
<ALLOWANCES> 6,609
<INVENTORY> 1,883
<CURRENT-ASSETS> 76,893
<PP&E> 459,010
<DEPRECIATION> 161,987
<TOTAL-ASSETS> 1,167,227
<CURRENT-LIABILITIES> 110,627
<BONDS> 786,829
150,346
0
<COMMON> 417
<OTHER-SE> (58,828)
<TOTAL-LIABILITY-AND-EQUITY> 1,167,227
<SALES> 31,257
<TOTAL-REVENUES> 310,660
<CGS> 19,712
<TOTAL-COSTS> 367,603
<OTHER-EXPENSES> (228)
<LOSS-PROVISION> 8,234
<INTEREST-EXPENSE> 41,821
<INCOME-PRETAX> (118,248)
<INCOME-TAX> (31,524)
<INCOME-CONTINUING> (86,724)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (92,567)
<EPS-BASIC> (2.22)
<EPS-DILUTED> (2.22)
</TABLE>
