SECURITIES AND EXCHANGE COMMISSION
Form 10-Q
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE |
For The Quarterly Period Ended March 31, 2004
| o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE |
For The Transition Period from to
Commission File Number: 0-21924
METROCALL HOLDINGS, INC.
| Delaware |
54-1215634
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(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer
Identification No.) |
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6677 Richmond Highway, Alexandria,
Virginia
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22306
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(Address of Principal Executive
Offices)
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(Zip Code)
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| Registrant’s Telephone Number, including area code: (703) 660-6677 | ||
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 o
Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Rule 12(b-2) Yes x No o
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15 (d) of the Securities Exchange Act of 1934 subsequent to the distribution of Securities under a plan confirmed by a court. Yes x No o
Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date:
| Class | Outstanding at May 3, 2004 | |
| Common Stock, par value $0.01 | 5,462,285 |
METROCALL HOLDINGS, INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q
| Page | |||||||
| Number | |||||||
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PART I.
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FINANCIAL INFORMATION
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Item 1.
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Interim Condensed Consolidated Financial
Statements
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||||||
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Balance Sheets, March 31, 2004 and
December 31, 2003
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3 | ||||||
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Statements of Operations for the three months
ended March 31, 2004 and 2003
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4 | ||||||
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Statement of Stockholders’ Equity for the
three months ended March 31, 2004
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5 | ||||||
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Statements of Cash Flows for the three months
ended March 31, 2004 and 2003
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6 | ||||||
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Notes to Interim Condensed Consolidated Financial
Statements
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7 | ||||||
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Item 2.
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Management’s Discussion and Analysis of
Financial Condition and Results of Operations
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15 | |||||
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Item 3.
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Quantitative and Qualitative Disclosures About
Market Risk
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32 | |||||
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Item 4.
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Controls and Procedures
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32 | |||||
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PART II.
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OTHER INFORMATION
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||||||
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Item 1.
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Legal Proceedings
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32 | |||||
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Item 2.
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Changes in Securities
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32 | |||||
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Item 3.
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Defaults Upon Senior Securities
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32 | |||||
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Item 4.
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Submission of Matters to a Vote of Security
Holders
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32 | |||||
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Item 5.
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Other Information
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32 | |||||
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Item 6.
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Exhibits and Reports on
Form 8-K
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32 | |||||
| SIGNATURES | 34 | ||||||
2
PART I. FINANCIAL INFORMATION
ITEM 1. INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
METROCALL HOLDINGS, INC. AND SUBSIDIARIES
BALANCE SHEETS
| March 31, | December 31, | |||||||||
| 2004 | 2003 | |||||||||
| ASSETS | ||||||||||
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CURRENT ASSETS:
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||||||||||
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Cash and cash equivalents
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$ | 14,697 | $ | 35,602 | ||||||
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Restricted cash
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547 | 547 | ||||||||
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Accounts receivable, less allowance for doubtful
accounts of and $6,822 and $6,965 as of March 31, 2004 and
December 31, 2003, respectively
|
20,163 | 27,262 | ||||||||
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Prepaid expenses and other current assets
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10,019 | 11,431 | ||||||||
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Deferred tax assets, net of allowance
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2,782 | 2,592 | ||||||||
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Total current assets
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48,208 | 77,434 | ||||||||
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PROPERTY AND EQUIPMENT:
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||||||||||
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Land, buildings and leasehold improvements
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2,564 | 2,082 | ||||||||
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Furniture, office equipment and vehicles
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23,552 | 23,033 | ||||||||
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Paging and plant equipment
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75,479 | 72,589 | ||||||||
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Less — Accumulated depreciation and
amortization
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(44,106 | ) | (36,422 | ) | ||||||
| 57,489 | 61,282 | |||||||||
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INTANGIBLE ASSETS, net of accumulated
amortization of approximately $231 and $107 as of March 31,
2004 and December 31, 2003, respectively
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2,200 | 1,746 | ||||||||
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DEFERRED TAX ASSETS, net of allowance
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48,834 | 50,494 | ||||||||
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OTHER ASSETS
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4,772 | 4,805 | ||||||||
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TOTAL ASSETS
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$ | 161,503 | $ | 195,761 | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||
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CURRENT LIABILITIES:
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||||||||||
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Current maturities of long-term debt
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$ | 582 | $ | 815 | ||||||
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Current maturities of series A redeemable
preferred
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5,562 | 25,000 | ||||||||
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Accounts payable
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9,449 | 9,900 | ||||||||
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Accrued expenses and other current liabilities
|
25,451 | 26,496 | ||||||||
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Deferred revenue and subscriber deposits
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14,948 | 18,385 | ||||||||
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Total current liabilities
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55,992 | 80,596 | ||||||||
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CAPITAL LEASE AND OTHER LONG-TERM DEBT, less
current maturities
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17 | 41 | ||||||||
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OTHER LONG-TERM LIABILITIES
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3,599 | 3,492 | ||||||||
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SERIES A REDEEMABLE PREFERRED STOCK
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— | 18,351 | ||||||||
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Total liabilities
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59,608 | 102,480 | ||||||||
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COMMITMENTS AND CONTINGENCIES:
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||||||||||
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STOCKHOLDERS’ EQUITY
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||||||||||
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Common stock, par value $.01 per share; 7,500,000
shares authorized; 5,462,285 shares and 5,461,160 shares issued
and outstanding at March 31, 2004 and December 31,
2003, respectively
|
55 | 55 | ||||||||
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Additional paid-in capital
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81,283 | 80,661 | ||||||||
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Unearned compensation
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— | (458 | ) | |||||||
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Retained earnings
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20,557 | 13,023 | ||||||||
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Total stockholders’ equity
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101,895 | 93,281 | ||||||||
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TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
|
$ | 161,503 | $ | 195,761 | ||||||
See notes to interim condensed consolidated financial statements.
3
METROCALL HOLDINGS, INC. AND SUBSIDIARIES
STATEMENTS OF OPERATIONS
| Three Months Ended | ||||||||||
| March 31, | ||||||||||
| 2004 | 2003 | |||||||||
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REVENUES:
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||||||||||
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Service, rent and maintenance revenues
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$ | 86,810 | $ | 82,848 | ||||||
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Product sales
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3,903 | 4,541 | ||||||||
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Total revenues
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90,713 | 87,389 | ||||||||
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OPERATING EXPENSES:
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Cost of products sold (exclusive of depreciation
and amortization shown separately below)
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940 | 979 | ||||||||
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Service, rent and maintenance (exclusive of
depreciation and amortization shown separately below)
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28,827 | 23,474 | ||||||||
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Selling and marketing (exclusive of depreciation
and amortization shown separately below)
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9,283 | 11,982 | ||||||||
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General and administrative (exclusive of
depreciation and amortization shown separately below)
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26,826 | 26,768 | ||||||||
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Restructuring expense
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— | 5,726 | ||||||||
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Depreciation
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8,300 | 9,770 | ||||||||
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Amortization
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119 | 1,898 | ||||||||
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Total operating expenses
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74,295 | 80,597 | ||||||||
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Income from operations
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16,418 | 6,792 | ||||||||
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INTEREST EXPENSE
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(137 | ) | (2,149 | ) | ||||||
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INTEREST EXPENSE — DIVIDENDS AND
ACCRETION OF SERIES A PREFERRED
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(3,214 | ) | — | |||||||
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INTEREST AND OTHER INCOME (EXPENSE), NET
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(58 | ) | 231 | |||||||
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INCOME BEFORE INCOME TAXES
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13,009 | 4,874 | ||||||||
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INCOME TAX PROVISION
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(5,475 | ) | (1,912 | ) | ||||||
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Net income
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7,534 | 2,962 | ||||||||
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PREFERRED DIVIDENDS AND ACCRETION
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— | (2,985 | ) | |||||||
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Income/(loss) available to common stockholders
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$ | 7,534 | $ | (23 | ) | |||||
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Basic earnings/(loss) available to common
stockholders
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$ | 1.38 | $ | (0.00 | ) | |||||
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Diluted earnings/(loss) available to common
stockholders
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$ | 1.31 | $ | (0.00 | ) | |||||
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Basic weighted-average common shares outstanding
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5,462,013 | 4,956,990 | ||||||||
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Diluted weighted-average common shares outstanding
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5,762,208 | 4,956,990 | ||||||||
See notes to interim condensed consolidated financial statements.
4
METROCALL HOLDINGS, INC. AND SUBSIDIARIES
STATEMENT OF STOCKHOLDERS’ EQUITY
| Common Stock | ||||||||||||||||||||||||
| Additional | ||||||||||||||||||||||||
| Shares | Par | Paid-in | Unearned | Retained | ||||||||||||||||||||
| Outstanding | Value | Capital | Compensation | Earnings | Total | |||||||||||||||||||
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BALANCE, December 31, 2003
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5,461,160 | $ | 55 | $ | 80,661 | $ | (458 | ) | $ | 13,023 | $ | 93,281 | ||||||||||||
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Exercise of stock options
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1,125 | — | — | — | — | — | ||||||||||||||||||
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Compensation related to stock option grants
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— | — | 622 | — | — | 622 | ||||||||||||||||||
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Amortization of unearned compensation
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— | — | — | 458 | — | 458 | ||||||||||||||||||
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Net income
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— | — | — | — | 7,534 | 7,534 | ||||||||||||||||||
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BALANCE, March 31, 2004
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5,462,285 | $ | 55 | $ | 81,283 | $ | — | $ | 20,557 | $ | 101,895 | |||||||||||||
See notes to interim condensed consolidated financial statements.
5
METROCALL HOLDINGS, INC. AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS
| Three Months Ended | ||||||||||
| March 31, | ||||||||||
| 2004 | 2003 | |||||||||
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CASH FLOWS FROM OPERATING ACTIVITIES:
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Net income
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$ | 7,534 | $ | 2,962 | ||||||
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Adjustments to reconcile net income to net cash
provided by operating activities Depreciation and amortization
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8,419 | 11,668 | ||||||||
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Amortization of unearned compensation
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458 | 780 | ||||||||
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Stock-based compensation
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622 | — | ||||||||
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Accretion on issuance of PIK Note
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— | 924 | ||||||||
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Interest expense — accretion of
series A preferred
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2,211 | — | ||||||||
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Interest expense — accretion on
long-term liabilities
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120 | 701 | ||||||||
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Deferred income tax provision
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1,469 | 1,912 | ||||||||
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Cash provided by (used in) changes in assets and
liabilities:
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||||||||||
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Restricted cash
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— | (1,865 | ) | |||||||
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Accounts receivable
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6,745 | 2,923 | ||||||||
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Prepaid expenses and other current assets
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1,412 | (1,157 | ) | |||||||
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Accounts payable
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(451 | ) | (594 | ) | ||||||
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Deferred revenue and subscriber deposits
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(3,437 | ) | (901 | ) | ||||||
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Accrued expenses and other current liabilities
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(1,045 | ) | 2,479 | |||||||
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Other assets and long-term liabilities
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20 | (254 | ) | |||||||
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Net cash provided by operating activities
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24,077 | 19,578 | ||||||||
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CASH FLOWS FROM INVESTING ACTIVITIES:
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||||||||||
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Capital expenditures
|
(4,725 | ) | (1,515 | ) | ||||||
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Net cash used in investing activities
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(4,725 | ) | (1,515 | ) | ||||||
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CASH FLOWS FROM FINANCING ACTIVITIES:
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||||||||||
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Repayment of long-term debt
|
(257 | ) | (50,227 | ) | ||||||
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Redemption of series A preferred
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(40,000 | ) | — | |||||||
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Net cash used in financing activities
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(40,257 | ) | (50,227 | ) | ||||||
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NET DECREASE IN CASH AND CASH EQUIVALENTS
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(20,905 | ) | (32,164 | ) | ||||||
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CASH AND CASH EQUIVALENTS, beginning of period
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35,602 | 47,530 | ||||||||
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CASH AND CASH EQUIVALENTS, end of period
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$ | 14,697 | $ | 15,366 | ||||||
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Supplemental Disclosures of Cash Flow
Information:
|
||||||||||
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Cash payments for interest
|
$ | — | $ | 491 | ||||||
|
Cash payments for income taxes
|
$ | 68 | $ | — | ||||||
|
Cash payments for series A preferred dividends
(interest)
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$ | 1,003 | $ | — | ||||||
|
Supplemental Disclosure of Non-Cash Investing
and Financing Items:
|
||||||||||
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Preferred stock dividends and accretion
|
$ | — | $ | 2,985 | ||||||
See notes to interim condensed consolidated financial statements.
6
METROCALL HOLDINGS, INC.
1. Organization
The accompanying unaudited interim condensed consolidated financial statements included herein have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (SEC). The interim condensed consolidated financial statements include the consolidated accounts of Metrocall Holdings, Inc. and our majority owned subsidiaries (collectively, the Company or 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 that are used when accounting for revenues, allowance for uncollectible receivables, telecommunications expenses, restructuring expenses, and depreciation and amortization. Actual results could differ from those estimates. The results of operations for the three-month period ended March 31, 2004, are not necessarily indicative of the results to be expected for the full year. Some information and footnote disclosures normally included in financial statements or notes thereto prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such SEC rules and regulations. We believe, however, that the disclosures are adequate to make the information presented not misleading. These interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our 2003 Annual Report on Form 10-K.
On October 8, 2002, (the “Effective Date”), Metrocall, Inc. together with its licensing and operating subsidiaries Metrocall USA Inc. (Metrocall USA), Advanced Nationwide Messaging Corporation Inc. (ANMC), MSI Inc. (MSI), McCaw RCC Communications, Inc. (McCaw), and Mobilfone Service, LP (Mobilfone), (collectively, the “Debtors”) emerged from chapter 11 of the U.S. Bankruptcy Code pursuant to a Joint Plan of Reorganization (the “Plan”) that was confirmed by the U.S. Bankruptcy Court for the District of Delaware, (the “Bankruptcy Court”) by an order entered on September 26, 2002.
2. Significant Accounting Policies
Basis of Presentation
The accompanying condensed consolidated financial statements include the accounts of Metrocall Holdings, Inc. and its wholly-owned subsidiaries Metrocall, Inc; Metrocall Ventures, Inc. (“Ventures”), and Metrocall USA, Inc. (MUSA) a non-operating wholly-owned subsidiary that holds certain regulatory licenses issued by the Federal Communications Commission and other intellectual property. Intercompany transactions have been eliminated in consolidation.
Revenue Recognition
We recognize revenue under service, rental and maintenance agreements with customers as the related services are performed. We lease (as lessor) pagers and messaging devices under operating leases. A majority of these leases are on a month-to-month basis. Advance billings for services are deferred and recognized as revenue when earned. Sales of one-way paging and ancillary equipment are recognized upon delivery. Beginning July 1, 2003, we adopted the provisions of EITF 00-21, Accounting for Revenue Arrangements with Multiple Deliverables.
Under EITF 00-21, we concluded that revenues associated with two-way messaging device sales and the provision of related messaging services represented separable units of accounting. Accordingly, we began to recognize two-way service revenue over the period the service is performed and revenue from two-way device sales upon delivery. Prior to its adoption, we had bundled the sale of two-way messaging devices with the related airtime or messaging service and recognized the revenue over the estimated customer relationship. The impact from the adoption of EITF 00-21 was not material to the three months ended March 31, 2004.
7
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Cash and Cash Equivalents
Cash and cash equivalents consist primarily of investments, all having maturities of ninety days or less when purchased. The carrying amount reported in the accompanying balance sheets for each equivalents approximates fair value due to the short-term maturity of these instruments.
Reserve for Doubtful Accounts
Estimates are used in determining the reserve for doubtful accounts and are based on historical collection experience, current trends and a percentage of the accounts receivable aging categories. In determining these percentages we review historical write-offs, including comparisons of write-offs to provisions for doubtful accounts as a percentage of total revenues. We also compare the ratio of the reserve to gross receivables to historical levels and monitor collection amounts and statistics.
Property and Equipment
Property and equipment was stated at fair value as of the Effective Date of the Plan. Depreciation is computed using the straight-line method over the following estimated useful lives:
| Years | ||||
|
Buildings and leasehold improvements
|
2 | |||
|
Furniture and office equipment
|
5–7 | |||
|
Vehicles
|
3 | |||
|
Subscriber paging equipment
|
2 | |||
|
Transmission and plant equipment
|
7 | |||
New pagers and advanced messaging devices are depreciated using the half-year convention upon acquisition. Costs to refurbish pagers are charged to service, rent and maintenance expense. Subscriber equipment sold is recorded in the consolidated statement