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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, 2004

o 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 HOLDINGS, INC.

(Exact Name of Registrant as Specified in its Charter)
     
Delaware  
54-1215634
(State or other jurisdiction of
incorporation or organization)		  
(I.R.S. Employer
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

      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 12b-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 August 2, 2004
Common Stock, $.01 par value   5,630,670

 

METROCALL HOLDINGS, INC. AND SUBSIDIARIES

INDEX TO FORM 10-Q

               
Page
Number
PART I.
  
FINANCIAL INFORMATION
        
 
Item 1.
  
Financial Statements (Interim Condensed Consolidated)
        
   
Balance Sheets, June 30, 2004 and December 31, 2003
    3  
   
Income Statements for the three and six months ended June 30, 2004 and 2003
    4  
   
Statement of Stockholders’ Equity for the six months ended June 30, 2004
    5  
   
Statements of Cash Flows for the six months ended June 30, 2004 and 2003
    6  
   
Notes to Interim Condensed Consolidated Financial Statements
    7  
 
Item 2.
  
Management’s Discussion and Analysis of Financial Condition and Results of Operations
     15  
 
Item 3.
  
Quantitative and Qualitative Disclosures About Market Risk
     39  
 
Item 4.
  
Controls and Procedures
     39  
PART II.
  
OTHER INFORMATION
        
 
Item 1.
  
Legal Proceedings
     39  
 
Item 2.
  
Changes in Securities, and Use of Proceeds and Issuer Purchases of Equity Securities
     39  
 
Item 3.
  
Defaults Upon Senior Securities
     39  
 
Item 4.
  
Submission of Matters to a Vote of Security Holders
     39  
 
Item 5.
  
Other Information
     39  
 
Item 6.
  
Exhibits and Reports on Form 8-K
     40  
SIGNATURES     41  

2

 

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS (INTERIM CONDENSED CONSOLIDATED)

METROCALL HOLDINGS, INC. AND SUBSIDIARIES

BALANCE SHEETS

(Unaudited)
(In thousands, except share and per share information)
                     
June 30, December 31,
2004 2003
ASSETS
CURRENT ASSETS:
               
 
Cash and cash equivalents
  $ 26,659     $ 35,602  
 
Restricted cash
    —       547  
 
Accounts receivable, less allowance for doubtful accounts of and $6,223 and $6,965 as of June 30, 2004 and December 31, 2003, respectively
    21,984       27,262  
 
Prepaid expenses and other current assets
    3,761       11,431  
 
Deferred tax assets, net of allowance
    2,782       2,592  
   
   
 
   
Total current assets
    55,186       77,434  
   
   
 
PROPERTY AND EQUIPMENT:
               
 
Land, buildings and leasehold improvements
    2,611       2,082  
 
Furniture, office equipment and vehicles
    24,328       23,033  
 
Paging and plant equipment
    70,715       72,589  
 
Less — Accumulated depreciation and amortization
    (43,657 )     (36,422 )
   
   
 
      53,997       61,282  
   
   
 
INTANGIBLE ASSETS, net of accumulated amortization of approximately $473 and $107 as of June 30, 2004 and December 31, 2003, respectively
    2,302       1,746  
DEFERRED TAX ASSETS, net of allowance
    45,412       50,494  
OTHER ASSETS
    5,003       4,805  
   
   
 
   
TOTAL ASSETS
  $ 161,900     $ 195,761  
   
   
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
               
 
Current maturities of long-term debt
  $ 339     $ 815  
 
Current maturities of series A redeemable preferred
    —       25,000  
 
Accounts payable
    7,978       9,900  
 
Accrued expenses and other current liabilities
    22,968       26,496  
 
Deferred revenue and subscriber deposits
    14,005       18,385  
   
   
 
   
Total current liabilities
    45,290       80,596  
CAPITAL LEASE AND OTHER LONG-TERM DEBT, less current maturities
    15       41  
OTHER LONG-TERM LIABILITIES
    3,780       3,492  
SERIES A REDEEMABLE PREFERRED STOCK
    —       18,351  
   
   
 
   
Total liabilities
    49,085       102,480  
COMMITMENTS AND CONTINGENCIES
               
STOCKHOLDERS’ EQUITY:
               
 
Common stock, par value $.01 per share; 7,500,000 shares authorized; 5,592,285 shares and 5,461,160 shares issued and outstanding at June 30, 2004 and December 31, 2003
    56       55  
 
Additional paid-in capital
    85,012       80,661  
 
Unearned compensation
    —       (458 )
 
Retained earnings
    27,747       13,023  
   
   
 
   
Total stockholders’ equity
    112,815       93,281  
   
   
 
   
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
  $ 161,900     $ 195,761  
   
   
 

See notes to interim condensed consolidated financial statements.

3

 

METROCALL HOLDINGS, INC. AND SUBSIDIARIES

INCOME STATEMENTS

(Unaudited)
(In thousands, except share and per share information)
                                     
Three Months Ended Six Months Ended
June 30, 2004 June 30, 2003 June 30, 2004 June 30, 2003
REVENUES:
                               
 
Service, rent and maintenance revenues
  $ 82,742     $ 78,953     $ 169,552     $ 161,801  
 
Product sales
    4,375       3,832       8,278       8,373  
   
   
   
   
 
   
Total revenues
    87,117       82,785       177,830       170,174  
   
   
   
   
 
OPERATING EXPENSES:
                               
 
Cost of products sold (exclusive of depreciation and amortization shown separately below)
    1,343       952       2,283       1,931  
 
Service, rent and maintenance (exclusive of depreciation and amortization shown separately below)
    27,554       23,330       56,380       46,804  
 
Selling and marketing
    8,718       10,026       18,002       22,008  
 
General and administrative (exclusive of stock-based and other compensation shown separately below)
    24,984       23,296       50,361       49,284  
 
Stock-based and other compensation
    902       121       2,351       901  
 
Restructuring expenses
    —       —       —       5,726  
 
Depreciation
    8,552       9,091       16,852       18,861  
 
Amortization
    242       1,923       361       3,821  
   
   
   
   
 
   
Total operating expenses
    72,295       68,739       146,590       149,336  
   
   
   
   
 
   
Income from operations
    14,822       14,046       31,240       20,838  
INTEREST EXPENSE
    (136 )     (3,750 )     (273 )     (5,899 )
INTEREST EXPENSE — DIVIDENDS AND ACCRETION OF SERIES A PREFERRED
    (1,265 )     —       (4,479 )     —  
INTEREST AND OTHER INCOME (EXPENSE), NET
    24       1       (34 )     232  
   
   
   
   
 
INCOME BEFORE INCOME TAXES
    13,445       10,297       26,454       15,171  
INCOME TAX PROVISION
    (6,255 )     (3,900 )     (11,730 )     (5,812 )
   
   
   
   
 
   
Net income
    7,190       6,397       14,724       9,359  
PREFERRED DIVIDENDS AND ACCRETION
    —       (3,107 )     —       (6,092 )
   
   
   
   
 
   
Income available to common stockholders
  $ 7,190     $ 3,290     $ 14,724     $ 3,267  
   
   
   
   
 
Basic earnings available to common stockholders
  $ 1.30     $ 0.66     $ 2.68     $ 0.66  
   
   
   
   
 
Diluted earnings available to common stockholders
  $ 1.24     $ 0.64     $ 2.55     $ 0.65  
   
   
   
   
 
Basic weighted-average common shares outstanding
    5,522,172       4,958,620       5,491,963       4,957,805  
   
   
   
   
 
Diluted weighted-average common shares outstanding
    5,783,906       5,128,610       5,772,927       5,042,800  
   
   
   
   
 

See notes to interim condensed consolidated financial statements.

4

 

METROCALL HOLDINGS, INC. AND SUBSIDIARIES

STATEMENT OF STOCKHOLDERS’ EQUITY

FOR THE SIX MONTHS ENDED JUNE 30, 2004
(Unaudited)
(In thousands, except share information.)
                                                 
Common Stock
Additional
Shares Par Paid-in Unearned Retained
Outstanding Value Capital Compensation Earnings Total
BALANCE, December 31, 2003
    5,461,160     $ 55     $ 80,661     $ (458 )   $ 13,023     $ 93,281  
Exercise of stock options
    131,125       1       73       —       —       74  
Tax benefit from exercise of stock options
    —       —       3,206       —       —       3,206  
Compensation related to stock option grants
    —       —       1,072       —       —       1,072  
Amortization of unearned compensation
    —       —       —       458       —       458  
Net income
    —       —       —       —       14,724       14,724  
   
   
   
   
   
   
 
BALANCE, June 30, 2004
    5,592,285     $ 56     $ 85,012     $ —     $ 27,747     $ 112,815  
   
   
   
   
   
   
 

See notes to interim condensed consolidated financial statements.

5

 

METROCALL HOLDINGS, INC. AND SUBSIDIARIES

STATEMENTS OF CASH FLOWS

(Unaudited)
(In Thousands)
                       
Six Months Ended
June 30,
2004 2003
CASH FLOWS FROM OPERATING ACTIVITIES:
               
 
Net income
  $ 14,724     $ 9,359  
 
Adjustments to reconcile net income to net cash provided by operating activities Depreciation and amortization
    17,213       22,682  
   
Amortization of unearned compensation
    458       843  
   
Stock-based compensation
    1,072       58  
   
Accretion on issuance of PIK Notes
    —       3,835  
   
Interest expense — accretion of series A preferred
    3,395       —  
   
Interest expense — accretion of long-term liabilities
    246       1,439  
   
Loss on sale of land held by partnership
    —       407  
   
Deferred income tax provision
    4,893       5,812  
 
Cash provided by changes in assets and liabilities:
               
   
Restricted cash
    547       1,328  
   
Accounts receivable
    5,147       5,368  
   
Prepaid expenses and other current assets
    7,670       (855 )
   
Accounts payable
    (1,923 )     (1,812 )
   
Tax benefit from exercise of stock options
    3,206       —  
   
Accrued expenses and other current liabilities
    (5,120 )     1,077  
   
Deferred revenues and subscriber deposits
    (4,380 )     (1,620 )
   
Other assets and long-term liabilities
    (339 )     1,095  
   
   
 
     
Net cash provided by operating activities
    46,809       49,016  
   
   
 
CASH FLOWS FROM INVESTING ACTIVITIES:
               
   
Capital expenditures
    (8,579 )     (3,170 )
   
   
 
     
Net cash used in investing activities
    (8,579 )     (3,170 )
   
   
 
CASH FLOWS FROM FINANCING ACTIVITIES:
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