UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
x | Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterly period ended September 30, 2012
¨ | 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: 001-32358
USA MOBILITY, INC.
(Exact name of registrant as specified in its charter)
DELAWARE | 16-1694797 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
6850 Versar Center, Suite 420 Springfield, Virginia |
22151-4148 (Zip Code) | |
(Address of principal executive offices) |
(800) 611-8488
(Registrants telephone number, including area code)
N/A
(Former name, former address and former fiscal year if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
¨ | Accelerated filer | x | Non-accelerated filer | ¨ | Smaller reporting company | ¨ | |||||||||||||||
(Do not check if a smaller reporting company) |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
21,940,360 shares of the registrants common stock ($0.0001 par value per share) were outstanding as of November 1, 2012.
QUARTERLY REPORT ON FORM 10-Q
INDEX
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, 2012 | December 31, 2011 | |||||||
(In thousands) | ||||||||
(Unaudited) | ||||||||
ASSETS | ||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 49,545 | $ | 53,655 | ||||
Accounts receivable, net |
21,356 | 20,523 | ||||||
Prepaid expenses and other |
4,244 | 4,338 | ||||||
Inventory |
3,222 | 2,268 | ||||||
Escrow receivables |
275 | 14,819 | ||||||
Deferred income tax assets, net |
5,062 | 8,617 | ||||||
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Total current assets |
83,704 | 104,220 | ||||||
Tax receivables |
| 213 | ||||||
Property and equipment, net |
20,777 | 22,421 | ||||||
Goodwill |
132,781 | 130,968 | ||||||
Other intangible assets, net |
35,346 | 38,757 | ||||||
Deferred income tax assets, net |
39,916 | 51,600 | ||||||
Deferred financing costs, net |
779 | 973 | ||||||
Other assets |
1,033 | 908 | ||||||
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TOTAL ASSETS |
$ | 314,336 | $ | 350,060 | ||||
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LIABILITIES AND STOCKHOLDERS EQUITY | ||||||||
Current liabilities: |
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Accounts payable and accrued liabilities |
$ | 12,916 | $ | 12,394 | ||||
Accrued compensation and benefits |
13,195 | 12,854 | ||||||
Consideration payable |
275 | 14,819 | ||||||
Customer deposits |
1,475 | 1,806 | ||||||
Deferred revenue |
16,369 | 14,693 | ||||||
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Total current liabilities |
44,230 | 56,566 | ||||||
Long-term debt |
| 28,250 | ||||||
Deferred revenue |
471 | 581 | ||||||
Other long-term liabilities |
9,809 | 12,223 | ||||||
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TOTAL LIABILITIES |
54,510 | 97,620 | ||||||
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Commitments and contingencies |
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Stockholders equity: |
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Preferred stock |
| | ||||||
Common stock |
2 | 2 | ||||||
Additional paid-in capital |
128,028 | 131,612 | ||||||
Retained earnings |
131,796 | 120,826 | ||||||
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TOTAL STOCKHOLDERS EQUITY |
259,826 | 252,440 | ||||||
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TOTAL LIABILITIES AND STOCKHOLDERS EQUITY |
$ | 314,336 | $ | 350,060 | ||||
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
2
CONDENSED CONSOLIDATED RESULTS OF OPERATIONS
For the Three Months Ended September 30, |
For the Nine Months Ended September 30, |
|||||||||||||||
2012 | 2011 | 2012 | 2011 | |||||||||||||
(In thousands, except share and per share amounts) | ||||||||||||||||
(Unaudited) | ||||||||||||||||
Revenues: |
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Service, rental and maintenance, net of service credits |
$ | 39,795 | $ | 46,006 | $ | 123,387 | $ | 145,484 | ||||||||
Product and related sales, net |
15,321 | 15,464 | 44,425 | 38,492 | ||||||||||||
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Total revenues |
55,116 | 61,470 | 167,812 | 183,976 | ||||||||||||
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Operating expenses: |
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Cost of products sold |
5,105 | 5,951 | 15,137 | 15,459 | ||||||||||||
Service, rental and maintenance |
13,731 | 15,217 | 41,926 | 47,869 | ||||||||||||
Selling and marketing |
6,043 | 5,927 | 17,615 | 17,439 | ||||||||||||
General and administrative |
12,466 | 13,077 | 38,129 | 42,485 | ||||||||||||
Severance and restructuring |
| 28 | 46 | 78 | ||||||||||||
Depreciation, amortization and accretion |
4,724 | 5,080 | 13,845 | 14,918 | ||||||||||||
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Total operating expenses |
42,069 | 45,280 | 126,698 | 138,248 | ||||||||||||
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Operating income |
13,047 | 16,190 | 41,114 | 45,728 | ||||||||||||
Interest expense, net |
(64) | (732) | (318) | (1,850) | ||||||||||||
Other income (expense), net |
52 | (1) | 426 | 7,820 | ||||||||||||
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Income before income tax (expense) benefit |
13,035 | 15,457 | 41,222 | 51,698 | ||||||||||||
Income tax (expense) benefit |
(4,987) | (5,010) | (16,265) | 17,995 | ||||||||||||
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Net income |
$ | 8,048 | $ | 10,447 | $ | 24,957 | $ | 69,693 | ||||||||
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Basic net income per common share |
$ | 0.37 | $ | 0.47 | $ | 1.13 | $ | 3.16 | ||||||||
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Diluted net income per common share |
$ | 0.36 | $ | 0.46 | $ | 1.11 | $ | 3.10 | ||||||||
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Basic weighted average common shares outstanding |
21,973,473 | 22,090,913 | 22,069,785 | 22,080,485 | ||||||||||||
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Diluted weighted average common shares outstanding |
22,399,934 | 22,573,064 | 22,534,127 | 22,487,374 | ||||||||||||
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Cash dividends declared per common share |
$ | 0.125 | $ | 0.250 | $ | 0.625 | $ | 0.750 | ||||||||
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
3
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended September 30, |
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2012 | 2011 | |||||||
(In thousands and unaudited) |
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Cash flows from operating activities: |
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Net income |
$ | 24,957 | $ | 69,693 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: |
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Depreciation, amortization and accretion |
13,845 | 14,918 | ||||||
Amortization of deferred financing costs |
194 | 521 | ||||||
Deferred income tax expense (benefit) |
15,239 | (19,072) | ||||||
Amortization of stock based compensation |
902 | 1,093 | ||||||
Provisions for doubtful accounts, service credits and other |
1,239 | 989 | ||||||
(Adjustments)/Settlement of transaction taxes |
(366) | 243 | ||||||
(Gain)/Loss on disposals of property and equipment |
(159) | 118 | ||||||
Gain on disposals of narrow band PCS licenses |
| (7,500) | ||||||
Changes in assets and liabilities: |
||||||||
Accounts receivable |
(2,062) | (518) | ||||||
Prepaid expenses, intangibles and other assets |
(531) | 6,752 | ||||||
Accounts payable and accrued liabilities |
(1,788) | (9,988) | ||||||
Customer deposits and deferred revenue |
1,235 | 3,578 | ||||||
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Net cash provided by operating activities |
52,705 | 60,827 | ||||||
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Cash flows from investing activities: |
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Purchases of property and equipment |
(7,135) | (5,134) | ||||||
Proceeds from disposals of property and equipment |
332 | 45 | ||||||
Proceeds from disposals of narrow band PCS licenses |
| 7,500 | ||||||
Acquisitions, net of cash acquired |
(3,000) | (134,217) | ||||||
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Net cash used in investing activities |
(9,803) | (131,806) | ||||||
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Cash flows from financing activities: |
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Issuance of debt |
| 24,044 | ||||||
Repayment of debt |
(28,250) | (23,697) | ||||||
Deferred financing costs |
| (1,408) | ||||||
Cash dividends to stockholders |
(13,829) | (16,591) | ||||||
Purchase of common stock |
(4,933) | | ||||||
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Net cash used in financing activities |
(47,012) | (17,652) | ||||||
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Net decrease in cash and cash equivalents |
(4,110) | (88,631) | ||||||
Cash and cash equivalents, beginning of period |
53,655 | 129,220 | ||||||
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Cash and cash equivalents, end of period |
$ | 49,545 | $ | 40,589 | ||||
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Supplemental disclosure: |
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Interest paid |
$ | 285 | $ | 1,198 | ||||
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Income taxes paid |
$ | 1,376 | $ | 1,658 | ||||
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Non-cash financing activities |
$ | | $ | 27,750 | ||||
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4
UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(1) Preparation of Interim Financial Statements The condensed consolidated financial statements of USA Mobility, Inc. and subsidiaries (USA Mobility or the Company) have been prepared in accordance with the rules and regulations of the United States Securities and Exchange Commission (the SEC). Amounts shown on the condensed consolidated results of operations within the operating expense categories of cost of products sold; service, rental and maintenance; selling and marketing; and general and administrative are recorded exclusive of severance and restructuring and depreciation, amortization and accretion. These items are shown separately on the condensed consolidated results of operations within operating expenses. Foreign currency translation adjustments were deemed immaterial and were not presented separately in our condensed consolidated balance sheets.
The financial information included herein, other than the condensed consolidated balance sheet as of December 31, 2011, has been prepared without audit. The condensed consolidated balance sheet at December 31, 2011 has been derived from, but does not include all the disclosures contained in the audited consolidated financial statements for the year ended December 31, 2011. In managements opinion, our unaudited statements include all adjustments and accruals that are necessary for a fair presentation of the results of all interim periods reported herein. Certain prior years amounts in our indirect wholly owned subsidiary, Amcom Software, Inc. (Amcom or software operations), have been reclassified to conform to the current years presentation.
These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and accompanying notes included in USA Mobilitys Annual Report on Form 10-K for the year ended December 31, 2011 (the 2011 Annual Report). The results of operations for the interim periods presented are not necessarily indicative of the results that may be expected for a full year.
The accompanying condensed consolidated financial statements include our accounts and the accounts of our wholly owned direct and indirect subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.
The preparation of financial statements in conformity with United States generally accepted accounting principles (GAAP) requires our management to make judgments, estimates and assumptions that affect the amounts reported in our condensed consolidated financial statements and accompanying notes. Actual results could differ materially from those estimates.
(2) Business USA Mobility, through its indirect wholly owned subsidiary, USA Mobility Wireless, Inc. (wireless operations) is a leading provider of wireless messaging, mobile voice and data and unified communications solutions in the United States. We provide one-way and two-way messaging services. One-way messaging consists of numeric and alphanumeric messaging services. Numeric messaging services enable subscribers to receive messages that are composed entirely of numbers, such as a phone number, while alphanumeric messages may include numbers and letters which enable subscribers to receive text messages. Two-way messaging services enable subscribers to send and receive messages to and from other wireless messaging devices, including pagers, personal digital assistants and personal computers. We also offer voice mail, personalized greeting, message storage and retrieval and equipment loss and/or maintenance protection to both one-way and two-way messaging subscribers. These services are commonly referred to as wireless messaging and information services.
In addition, the Company, through Amcom, provides mission critical unified communications solutions for contact centers, emergency management, mobile event notification and Smartphone messaging. The combined product offering is capable of addressing a customers mission critical communication needs. Amcom delivers software solutions, which enable seamless, critical communications. Amcoms unified communications suite (includes solutions for contact centers, emergency management, mobile event notification, and messaging) connects people across a changing complement of communication devices.
5
USA MOBILITY, INC.
UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(3) Risks and Other Important Factors See Item 1A. Risk Factors of Part II of this Quarterly Report on Form 10-Q (Quarterly Report) and the 2011 Annual Report, which describes key risks associated with our operations and industry.
Based on current and anticipated levels of operations, we believe that our net cash provided by operating activities, together with cash on hand, should be adequate to meet our cash requirements for the foreseeable future.
In the event that net cash provided by operating activities and cash on hand are not sufficient to meet future cash requirements, we may be required to reduce planned capital expenses, reduce or eliminate our cash dividends to stockholders, reduce or eliminate our common stock repurchase program, and/or sell assets or seek additional financing beyond the availability in our revolving credit facility. We can provide no assurance that reductions in planned capital expenses or proceeds from asset sales would be sufficient to cover shortfalls in available cash or that additional financing beyond the availability in our revolving credit facility would be available or, if available, offered on acceptable terms.
We believe that future fluctuations in our revenues and operating results may occur due to many factors, particularly the decreased demand for our messaging services. If the rate of decline for our messaging services exceeds our expectations, revenues may be negatively impacted, and such impact could be material. Our plan to consolidate our networks may also negatively impact revenues as customers may experience a reduction in, and possible disruptions of, service in certain areas. Under these circumstances, we may be unable to adjust spending in a timely manner to compensate for any future revenue shortfall. It is possible that, due to these fluctuations, our revenue or operating results may not meet the expectations of investors, which could reduce the value of our common stock and impact our ability to make future cash distributions to stockholders or repurchase shares of our common stock.
(4) Recent and New Accounting Pronouncements On July 27, 2012, the Financial Accounting Standards Board (the FASB) issued FASB Accounting Standards Update (ASU) 2012-02, Testing Indefinite-Lived Intangible Assets for Impairment, which amends the guidance in Accounting Standards Codification 350-30, Intangibles Other Than Goodwill, for testing indefinite-lived intangible assets, other than goodwill, for impairment. ASU 2012-02 allows an entity the option to perform a qualitative assessment before calculating the fair value of the asset in its impairment testing of its indefinite-lived intangible asset. ASU 2012-02 is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012 and early adoption is permitted. We do not anticipate that ASU 2012-02 will have any impact on our financial position or results of operations.
On August 22, 2012, the SEC approved a final ruling implementing Section 1502 of the Dodd-Frank Act. Section 1502 requires issuers to annually disclose a description of the measures used to exercise due diligence on the source and chain of custody of such conflict minerals that originate from the Democratic Republic of Congo (DRC) and adjoining countries. Under the final rule, registrants must file a newly created Form SD with the SEC on a calendar-year basis (regardless of their fiscal year-ends) beginning with the first calendar year ending December 31, 2013. Form SD is due on May 31, 2014 (and on May 31 each year thereafter). We are evaluating if this Section 1502 applies to our Company.
Other pronouncements issued or effective during the nine months ended September 30, 2012 were not applicable to us and are not anticipated to have an effect on our financial position or results of operations.
6
USA MOBILITY, INC.
UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(5) Prepaid Expenses and Other Prepaid expenses and other were as follows for the periods stated:
September 30, 2012 |
December 31, 2011 |
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(Dollars in thousands) | ||||||||
Other receivables |
$ | 847 | $ | 1,282 | ||||
Tax receivables |
190 | | ||||||
Deposits |
41 | 35 | ||||||
Prepaid insurance |
265 | 534 | ||||||
Prepaid rent |
226 | 230 | ||||||
Prepaid repairs and maintenance |
676 | 662 | ||||||
Prepaid taxes |
616 | 130 | ||||||
Prepaid commissions |
280 | 312 | ||||||
Prepaid inventory |
643 | 609 | ||||||
Prepaid expenses |
452 | 527 | ||||||
Other |
8 | 17 | ||||||
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Total prepaid expenses and other |
$ | 4,244 | $ | 4,338 | ||||
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(6) Inventory Inventory consisted of third party hardware and software held for resale. Included in inventory at September 30, 2012 was $0.2 million of labor costs associated with implementation services, software integration, and training services for contracts in progress as of September 30, 2012 related to our software operations. Such costs will be recognized as expense in the period the revenue is recognized. The consolidated balances consisted of the following for the periods stated:
September 30, 2012 |
December 31, 2011 |
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(Dollars in thousands) | ||||||||
Purchased hardware and software, net |
$ | 3,052 | $ | 2,093 | ||||
Work in process |
170 | 175 | ||||||
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Total inventory |
$ | 3,222 | $ | 2,268 | ||||
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(7) Depreciation, Amortization and Accretion The total depreciation, amortization and accretion expenses related to property and equipment, amortizable intangible assets, and asset retirement obligations for the three months ended September 30, 2012 and 2011 were $2.9 million and $3.4 million, respectively, and for the nine months ended September 30, 2012 and 2011 were $8.6 million and $11.1 million, respectively, for wireless operations; and $1.8 million and $1.7 million for the three months ended September 30, 2012 and 2011, respectively, and $5.2 million and $3.8 million for the nine months ended September 30, 2012 and 2011, respectively, for software operations. The consolidated balances consisted of the following for the periods stated:
For the Three Months Ended September 30, |
For the Nine Months Ended September 30, |
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2012 | 2011 | 2012 | 2011 | |||||||||||||
(Dollars in thousands) | ||||||||||||||||
Depreciation |
$ | 2,910 | $ | 3,323 | $ | 8,507 | $ | 10,573 | ||||||||
Amortization |
1,625 | 1,546 | 4,780 | 3,729 | ||||||||||||
Accretion |
189 | 211 | 558 | 616 | ||||||||||||
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Total depreciation, amortization and accretion |
$ | 4,724 | $ | 5,080 | $ | 13,845 | $ | 14,918 | ||||||||
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7
USA MOBILITY, INC.
UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(8) Goodwill and Amortizable Intangible Assets Goodwill at September 30, 2012 was $132.8 million which is all attributed to our software operations. During the second quarter of 2012, we increased goodwill by $1.6 million due to the acquisition of certain assets and technology from IMCO Technologies Corporation (IMCO). During the third quarter of 2012, we increased the carrying amount of the goodwill recognized as a result of the IMCO acquisition by an additional $0.2 million due to purchase accounting adjustments. Goodwill is not amortized but evaluated for impairment at least annually, or when events or circumstances suggest a potential impairment has occurred. We have selected the fourth quarter to perform this annual impairment test. We will evaluate goodwill for impairment between annual tests if indicators of impairment exist. GAAP requires the comparison of the fair value of the reporting unit to the carrying amount to determine if there is potential impairment. For this determination, our software segment is considered the reporting unit. If the fair value of the reporting unit is less than its carrying value, an impairment loss is required to be recorded to the extent that the implied value of goodwill within the reporting unit is less than its carrying value. The fair value of the reporting unit is determined based upon generally accepted valuation methodologies such as market capitalization, discounted cash flows or other methods as deemed appropriate.
Other intangible assets for wireless operations consisted of a non-compete agreement with a former executive which is being amortized over a three year period. Other intangible assets for software operations were recorded at fair value on the date of acquisition and are being amortized over periods ranging from two to fifteen years. During the second quarter of 2012, our software operations acquired amortizable intangible assets of $1.5 million from IMCO. During the third quarter of 2012, we reduced the carrying amount of the acquired intangible assets from IMCO by $0.1 million due to purchase accounting adjustments. The net intangible assets acquired of $1.4 million are being amortized over a four year period.
We will continue to identify potential adjustments to the purchase price and the fair value of the assets acquired from IMCO. We anticipate finalizing the purchase price as soon as practicable but no later than one-year from the acquisition date or May 2, 2013.
The gross carrying amount of amortizable intangible assets for the wireless operations was $0.4 million and $44.9 million for the software operations at September 30, 2012. The accumulated amortization for wireless operations was $0.3 million and $9.7 million for software operations at September 30, 2012. The net consolidated balance of amortizable intangible assets consisted of the following:
September 30, 2012 | ||||||||||||||
Useful Life | Gross Carrying Amount |
Accumulated Amortization |
Net Balance | |||||||||||
(In years) | (Dollars in thousands) | |||||||||||||
Customer relationships |
10 | $ | 25,002 | $ | (3,959) | $ | 21,043 | |||||||
Acquired technology |
2 - 4 | 8,453 | (3,324) | 5,129 | ||||||||||
Non-compete agreements |
3 - 5 | 6,182 | (2,108) | 4,074 | ||||||||||
Trademarks |
15 | 5,702 | (602) | 5,100 | ||||||||||
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Total amortizable intangible assets |
$ | 45,339 | $ | (9,993) | $ | 35,346 | ||||||||
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8
USA MOBILITY, INC.
UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Estimated amortization of intangible assets for future periods is as follows:
(Dollars in thousands) |
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For the remaining three months ending December 31, 2012 |
$ | 1,631 | ||
For the year ending December 31: |
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2013 |
6,093 | |||
2014 |
5,906 | |||
2015 |
4,628 | |||
2016 |
3,186 | |||
Thereafter |
13,902 | |||
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Total amortizable intangible assets |
$ | 35,346 | ||
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(9) Other Assets Other assets were as follows for the periods stated:
September 30, 2012 |
December 31, 2011 |
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(Dollars in thousands) | ||||||||
Deposits |
$ | 314 | $ | 432 | ||||
Prepaid royalties |
242 | | ||||||
Other assets |
477 | 476 | ||||||
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Total other assets |
$ | 1,033 | $ | 908 | ||||
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(10) Accounts Payable and Accrued Liabilities Accounts payable and accrued liabilities were as follows for the periods stated:
September 30, 2012 |
December 31, 2011 |
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(Dollars in thousands) | ||||||||
Accounts payable |
$ | 2,329 | $ | 1,793 | ||||
Accrued network costs |
1,312 | 1,530 | ||||||
Accrued taxes |
4,378 | 4,722 | ||||||
Asset retirement obligations |
381 | 794 | ||||||
Accrued outside services |
852 | 1,002 | ||||||
Accrued accounting and legal |
619 | 462 | ||||||
Accrued rewards and recognition |
300 | 320 | ||||||
Accrued interest |
| 156 | ||||||
Accrued other |
678 | 1,019 | ||||||
Deferred rent |
104 | 117 | ||||||
Escheat liability |
223 | 361 | ||||||
Lease incentive |
284 | 110 | ||||||
Dividends payable 2009 Long-Term Incentive Plan (LTIP) |
1,427 | | ||||||
Dividends payable Board of Directors |
8 | 8 | ||||||
Royalty payable |
21 | | ||||||
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Total accounts payable and accrued liabilities |
$ | 12,916 | $ | 12,394 | ||||
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|
Accrued taxes are based on our estimate of outstanding state and local taxes. This balance may be adjusted in the future as we settle with various taxing jurisdictions. Accrued taxes at September 30, 2012 include state
income tax liabilities which were reclassified from other long-term liabilities to accounts payable and accrued
9
USA MOBILITY, INC.
UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
liabilities in the first quarter of 2012 based on our assessment of the timing of payment of the liabilities. The issuance of the restricted stock units (RSUs) awarded under the 2009 LTIP is expected to be made during the first quarter of 2013. Therefore, the related dividends payable (the line item dividends payable 2009 LTIP) was reclassified from other long-term liabilities to accounts payable and accrued liabilities in 2012 based on the expected payment in the first quarter of 2013.
(11) Asset Retirement Obligations We recognize liabilities and corresponding assets for future obligations associated with the retirement of assets. We have paging equipment assets, principally transmitters, which are located on leased locations. The underlying leases generally require the removal of equipment at the end of the lease term; therefore, a future obligation exists.
At December 31, 2011, we had recognized cumulative asset retirement costs of $1.9 million. For the nine months ended September 30, 2012, we recorded a total increase of $0.2 million in asset retirement costs. The asset retirement cost additions during the nine months ended September 30, 2012 increased paging equipment assets and are being depreciated over the related estimated lives of 51 to 57 months. During the third quarter of 2012, we also recorded a reduction to asset retirement costs of $0.3 million due to the changes in the forecasted timing of removal of transmitters. As a result, the cumulative asset retirement costs were $1.8 million at September 30, 2012. The net reduction to the asset retirement cost for the nine months ended September 30, 2012 reflects a net decrease to paging equipment assets. The asset retirement costs and the corresponding liabilities that have been recorded to date generally relate to either current plans to consolidate networks or to the removal of assets at an estimated future terminal date.
The components of the changes in the asset retirement obligation liabilities are as follows:
Short-Term Portion |
Long-Term Portion |
Total | ||||||||||
(Dollars in thousands) | ||||||||||||
Balance at December 31, 2011 |
$ | 794 | $ | 7,557 | $ | 8,351 | ||||||
Accretion |
48 | 510 | 558 | |||||||||
Additions |
(61) | (61) | (122) | |||||||||
Reclassifications |
276 | (276) | | |||||||||
Amounts paid |
(676) | | (676) | |||||||||
|
|
|
|
|
|
|||||||
Balance at September 30, 2012 |
$ | 381 | $ | 7,730 | $ | 8,111 | ||||||
|
|
|
|
|
|
The balances above were included with accounts payable and accrued liabilities and other long-term liabilities, respectively, at September 30, 2012.
(12) Deferred Revenue Deferred revenue on a consolidated basis at September 30, 2012 was $16.3 million for the current portion and $0.5 million for the non-current portion. Deferred revenue at September 30, 2012 consisted primarily of unearned maintenance revenue and customer deposits for installation services. Unearned maintenance revenue represented a contractual liability to provide maintenance support over a defined period of time for which payment has generally been received. Customer deposits for installation represented a contractual liability to provide installation services for which payments have been received. At September 30, 2012, we had received $1.5 million in customer deposits for future installation services. We will recognize revenue when the service or software is provided or otherwise meets our revenue recognition criteria.
10
USA MOBILITY, INC.
UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table outlines the expected future recognition of deferred revenue at September 30, 2012:
(Dollars in thousands) |
||||
For the quarter ending: |
||||
December 31, 2012 |
$ | 8,734 | ||
March 31, 2013 |
4,248 | |||
June 30, 2013 |
2,457 | |||
September 30, 2013 |
930 | |||
Thereafter |
471 | |||
|
|
|||
Total deferred revenue |
$ | 16,840 | ||
|
|
(13) Long-Term Debt On November 8, 2011, we executed the First Amendment to our Amended and Restated Credit Agreement (Amended Credit Agreement) with Wells Fargo Capital Finance, LLC (Wells Fargo). The Amended Credit Agreement increased the amount of the revolving credit facility to $40.0 million. The maturity date for the revolving credit facility is September 3, 2015. We may make a London Interbank Offered Rate (LIBOR) rate election for any amount of our debt for a period of 1, 2 or 3 months at a time; however, we may not have more than 5 individual LIBOR rate loans in effect at any given time. We may only exercise the LIBOR rate election for an amount of at least $1.0 million.
The debt is secured by a lien on substantially all of our existing assets, interests in assets and proceeds owned or acquired by us.
On April 6, 2012, we repaid the $3.3 million that was outstanding under the Amended Credit Agreement. As of September 30, 2012, the Amended Credit Agreement remains in effect with approximately $40.0 million of available borrowing capacity subject to maintaining a minimum liquidity threshold of $25.0 million and to reductions for outstanding letters of credit (LOC). The $25.0 million liquidity threshold can be satisfied by maintaining cash on hand or borrowing capacity under the Amended Credit Agreement.
We are exposed to changes in interest rates should we have borrowings under the Amended Credit Agreement. The floating interest rate debt exposes us to interest rate risk, with the primary interest rate exposure resulting from changes in LIBOR. As of September 30, 2012, we have no debt outstanding or derivative financial instruments outstanding to manage our interest rate risk.
We are subject to certain financial covenants on a quarterly basis under the terms of the Amended Credit Agreement. These financial covenants consist of a leverage ratio and a fixed charge coverage ratio. We are in compliance with all of the required financial covenants as of September 30, 2012.
We have also established control agreements with the financial institutions that maintain our cash and investment accounts. These agreements permit Wells Fargo to exercise control over our cash and investment accounts should we default under provisions of the Amended Credit Agreement. We are not in default under the Amended Credit Agreement and do not anticipate that Wells Fargo would need to exercise its rights under these control agreements during the term of the Amended Credit Agreement.
11
USA MOBILITY, INC.
UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(14) Other Long-Term Liabilities Other long-term liabilities consisted of the following for the periods stated:
September 30, 2012 |
December 31, 2011 |
|||||||
(Dollars in thousands) | ||||||||
Asset retirement obligations |
$ | 7,730 | $ | 7,557 | ||||
Cash award 2009 LTIP |
| 2,106 | ||||||
Dividends payable |
156 | 1,424 | ||||||
Escheat liability |
968 | 387 | ||||||
Lease incentive |
159 | 208 | ||||||
Deferred rent |
360 | 448 | ||||||
State income tax |
| 93 | ||||||
Royalty payable |
436 | | ||||||
|
|
|
|
|||||
Total other long-term liabilities |
$ | 9,809 | $ | 12,223 | ||||
|
|
|
|
Cash award 2009 LTIP was reclassified to accrued compensation and benefits from other long-term liabilities in 2012 since the award is expected to be paid during the first quarter of 2013. The RSUs awarded under the 2009 LTIP are also expected to be issued during the first quarter of 2013. Therefore, the related dividends payable was also reclassified in 2012 to accounts payable and accrued liabilities from other long-term liabilities based on the expected payment in the first quarter of 2013. State income tax was reclassified to accounts payable and accrued liabilities from other long-term liabilities in the first quarter of 2012 based on our assessment of the timing of payment of the liabilities.
(15) Stockholders Equity Our authorized capital stock consists of 75 million shares of common stock, par value $0.0001 per share, and 25 million shares of preferred stock, par value $0.0001 per share.
Changes in Stockholders Equity. Changes in stockholders equity for the nine months ended September 30, 2012 consisted of:
(Dollars in thousands) |
||||
Balance at January 1, 2012 |
$ | 252,440 | ||
Net income for the nine months ended September 30, 2012 |
24,957 | |||
Cash dividends declared |
(13,987) | |||
Purchase of common stock |
(4,933) | |||
Amortization of stock based compensation |
902 | |||
Net issuance of common stock for Short-Term Incentive Plan (STIP) award and other |
447 | |||
|
|
|||
Balance at September 30, 2012 |
$ | 259,826 | ||
|
|
General. At September 30, 2012 and December 31, 2011, there were 21,714,551 and 22,108,233 shares of common stock outstanding, respectively, and no shares of preferred stock outstanding.
At September 30, 2012, we had no stock options outstanding.
We established the USA Mobility, Inc. Equity Incentive Award Plan (the 2004 Equity Plan) in connection with and prior to the November 2004 merger of Arch Wireless, Inc. (Arch) and Metrocall Holdings, Inc. (Metrocall) and subsidiaries. Under the 2004 Equity Plan, we had the ability to issue up to 1,878,976 shares of our common stock to eligible employees and non-executive members of the Board of Directors in the form of shares of common stock, stock options, shares of restricted common stock (restricted stock), RSUs or stock
grants. Restricted stock granted under the 2004 Equity Plan entitled the stockholder to all rights of common stock ownership except that the restricted stock may not be sold, transferred, exchanged, or otherwise disposed of
12
USA MOBILITY, INC.
UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
during the restriction period, which will be determined by the Compensation Committee of the Board of Directors. RSUs are generally convertible into shares of common stock pursuant to the Restricted Stock Unit Agreement when the appropriate vesting conditions have been satisfied.
The following table summarizes the activities under the 2004 Equity Plan from inception through May 16, 2012:
Activity | ||||
Equity securities approved |
1,878,976 | |||
Less: Equity securities awarded to eligible employees |
||||
2005 LTIP |
(103,937) | |||
2006 LTIP(1) |
(183,212) | |||
2009 LTIP |
(338,834) | |||
2011 LTIP |
(211,587) | |||
STIP(2) |
(159,573) | |||
Less: Equity securities granted to non-executive members of the Board of Directors |
||||
Restricted stock |
(86,086) | |||
Common stock(3) |
(28,696) | |||
Add: Equity securities forfeited by eligible employees |
||||
2005 LTIP |
22,488 | |||
2006 LTIP |
21,358 | |||
2009 LTIP |
80,104 | |||
Add: Restricted stock forfeited by the non-executive members of the Board of Directors |
3,985 | |||
Transfer of available equity securities to 2012 Equity Plan |
(894,986) | |||
|
|
|||
Total available at May 16, 2012 |
| |||
|
|
(1) | On November 14, 2008, our Board of Directors approved an additional award of 7,129 shares of restricted stock under the 2006 LTIP Initial Target Award to eligible employees. In March 2009, our Board of Directors approved an additional award of 43,511 shares of common stock as an Additional Target Award under the 2006 LTIP to eligible employees. |
(2) | Pursuant to his employment agreement, Mr. Vincent D. Kelly, our CEO, received 50 percent of his STIP award in our common stock. In relation to his 2009 STIP award, on March 4, 2010 Mr. Kelly received 60,799 shares of common stock based on the closing stock price on February 26, 2010 of $11.26 per share. In relation to his 2010 STIP award, on March 4, 2011 Mr. Kelly received 47,455 shares of common stock based on the closing stock price on February 25, 2011 of $15.21 per share. In relation to his 2011 STIP award, on March 2, 2012 Mr. Kelly received 51,319 shares of common stock based on the closing stock price on February 24, 2012 of $14.10 per share. |
(3) | 19,605 existing RSUs were converted into shares of our common stock and granted to the non-executive members of our Board of Directors on March 17, 2008. In addition, 9,091 shares of common stock have been granted in lieu of cash payments to the non-executive members of our Board of Directors for services performed. |
On March 23, 2012, our Board of Directors adopted the USA Mobility, Inc. 2012 Equity Incentive Award Plan (the 2012 Equity Plan) subject to our stockholders approval. On May 16, 2012, our stockholders approved the 2012 Equity Plan. The 2012 Equity Plan is intended to replace the 2004 Equity Plan. No further grants will be made under the 2004 Equity Plan. However, the 2004 Equity Plan will continue to govern all outstanding awards thereunder. Any shares which were available for grant under the 2004 Equity Plan including awards that were forfeited or lapsed unexercised as of the date of stockholders approval will be available for grant under the 2012 Equity Plan. As of May 16, 2012, 894,986 shares available under the 2004 Equity Plan will be available for grant under the 2012 Equity Plan along with 1,300,000 shares for which stock awards may be
13
USA MOBILITY, INC.
UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
granted under the 2012 Equity Plan. As of May 16, 2012, the maximum number of shares available for grant under the 2012 Equity Plan (excluding any shares that are subsequently forfeited or lapse unexercised under the 2004 Equity Plan, which shares will again be available for grant under 2012 Equity Plan) is 2,194,986. The shares available for grant under the 2012 Equity Plan were registered with the SEC on June 29, 2012.
Awards under the 2012 Equity Plan may be in the form of stock options, restricted common stock (restricted stock), RSUs, performance awards (a cash bonus award, a stock bonus award, a performance award or an incentive award that is paid in cash), dividends equivalents, stock payment awards, deferred stock, deferred stock units, or stock appreciation rights.
The following table summarizes the activities under the 2012 Equity Plan from May 16, 2012 through September 30, 2012:
Activity | ||||
Equity securities approved |
1,300,000 | |||
Transfer of: Equity securities available under the 2004 Equity Plan |
894,986 | |||
Add: Equity securities forfeited by eligible employees under the 2011 LTIP |
101,294 | |||
Less: Equity securities awarded to eligible employees 2011 LTIP(1) |
(94,057) | |||
Less: Equity securities granted to non-executive members of the Board of Directors |
(4,084) | |||
|
|
|||
Total equity securities available at September 30, 2012 |
2,198,139 | |||
|
|
(1) | On July 1, 2012, our Board of Directors approved an additional award of 36,795 shares of RSUs under the 2011 LTIP to the Chief Operating Officer (COO) of Amcom and the Executive Vice President, Selling and Marketing of Amcom based on the closing stock price on June 29, 2012 of $12.86 per share. On September 12, 2012, our Board of Directors awarded 6,664 RSUs to the Vice President, Development of Amcom based on the closing stock price on September 11, 2012 of $11.75 per share. On September 19, 2012, our Board of Directors awarded 50,598 RSUs to the President of Amcom based on the closing stock price on September 18, 2012 of $11.85 per share. |
2009 LTIP. On January 6, 2009, our Board of Directors approved a long-term incentive program that included a cash component and a stock component in the form of RSUs based upon achievement of expense reduction and earnings before interest, taxes, depreciation, amortization and accretion goals during our 2012 calendar year and continued employment with the Company. RSUs were granted under the 2004 Equity Plan pursuant to a Restricted Stock Unit Agreement based upon the closing price per share of our common stock on January 15, 2009 of $12.01. Our Board of Directors awarded 329,416 RSUs to certain eligible employees and also approved that future cash dividends related to the existing RSUs will be set aside and paid in cash to each eligible employee when the RSUs are converted into shares of common stock. Existing RSUs would be converted into shares of common stock on the earlier of a change in control of the Company (as defined in the 2004 Equity Plan) or on or after the third business day following the day that we file our 2012 Annual Report on Form 10-K (2012 Annual Report) with the SEC but in no event later than December 31, 2013.
Any unvested RSUs awarded under the 2009 LTIP and the related cash dividends are forfeited if the participant terminates employment with USA Mobility. As of December 31, 2011 a total of 80,104 RSUs have been forfeited offset by new grants of 9,418 RSUs resulting in an outstanding balance of 258,730 RSUs as of September 30, 2012. There were no forfeitures or additional grants during the nine months ended September 30, 2012.
We used the fair-value based method of accounting for the 2009 LTIP and are amortizing $3.1 million to expense over the 48-month vesting period. A total of $0.2 million was included in stock based compensation
14
USA MOBILITY, INC.
UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
expense for each of the three months ended September 30, 2012 and 2011, respectively, and a total of $0.7 million and $0.5 million was included in stock based compensation expense for the nine months ended September 30, 2012 and 2011, respectively, in relation to the 2009 LTIP.
Also on January 6, 2009, we provided for long-term cash performance awards to the same certain eligible employees under the 2009 LTIP. Similar to the RSUs, the vesting period for these long-term cash performance awards is 48 months upon attainment of the established performance goals and would be paid on the earlier of a change in control of the Company (as defined in the 2004 Equity Plan); or on or after the third business day following the day that we file our 2012 Annual Report with the SEC but in no event later than December 31, 2013.
We are ratably recognizing $3.0 million to expense over the 48-month vesting period. A total of $0.3 million and $0.2 million was included in payroll and related expense for the three months ended September 30, 2012 and 2011, respectively, and a total of $0.7 million and $0.6 million was included in payroll and related expense for the nine months ended September 30, 2012 and 2011, respectively, for these long-term cash performance awards. Any unvested long-term cash performance awards are forfeited if the participant terminates employment with USA Mobility.
2011 LTIP. On March 15, 2011, our Board of Directors adopted a long-term incentive program that included a stock component in the form of RSUs. The 2011 LTIP provides eligible employees the opportunity to earn RSUs based upon achievement of performance goals, established by our Board of Directors for our revenue and operating cash flows (including software operations) during the period from January 1, 2011 through December 31, 2014 (the performance period), and continued employment with the Company. As it relates to software operations, the performance period is considered as April 1, 2011 through December 31, 2014. On April 7, 2011, our Board of Directors granted eligible employees from Amcom RSUs under the 2004 Equity Plan pursuant to a Restricted Stock Unit Agreement based upon the closing price per share of our common stock on April 6, 2011 of $15.41. Our Board of Directors awarded 211,587 RSUs to certain eligible employees at Amcom and also approved that future cash dividends related to the existing RSUs will be set aside and paid in cash to each eligible employee when the RSUs are converted into shares of common stock. Existing RSUs would be converted into shares of common stock on the earlier of a change in control of the Company (as defined in the 2004 Equity Plan for RSUs granted before May 16, 2012 or the 2012 Equity Plan for future grants on or after May 16, 2012) or on or after the third business day following the day that we file our 2014 Annual Report on Form 10-K (2014 Annual Report) with the SEC but in no event later than December 31, 2015.
Any unvested RSUs awarded under the 2011 LTIP and the related cash dividends are forfeited if the participant terminates employment with USA Mobility. During the second quarter of 2012, 101,294 RSUs and the related cash dividends were forfeited by two former executives resulting in an outstanding balance of 110,293 RSUs as of June 30, 2012. On July 1, 2012, our Board of Directors awarded an additional grant of 36,795 RSUs to certain eligible employees based on the closing price per share of our common stock on June 29, 2012 of $12.86. On September 12, 2012, our Board of Directors awarded a grant of 6,664 RSUs to an employee based on the closing price per share of our common stock on September 11, 2012 of $11.75. On September 19, 2012, our Board of Directors awarded a grant of 50,598 RSUs to an employee based on the closing price per share of our common stock on September 18, 2012 of $11.85. The outstanding RSUs under the 2011 LTIP as of September 30, 2012 were 204,350 RSUs. On October 15, 2012, our Board of Directors awarded a grant of 18,221 RSUs to an employee based on the closing price per share of our common stock on October 12, 2012 of $11.66 resulting in a net total of 222,571 RSUs outstanding as of October 15, 2012. Our Board of Directors also approved that future cash dividends relating to these RSUs will be set aside and paid in cash to each eligible employee when the RSUs are converted into shares of common stock.
We used the fair-value based method of accounting for the 2011 LTIP and are amortizing $1.5 million (after the effect of estimated forfeitures) to expense over the 45-month vesting period beginning on April 1, 2011 for the April 1, 2011 grant of RSUs, $0.4 million (after the effect of estimated forfeitures) to expense over the 30-month
15
USA MOBILITY, INC.
UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
vesting period beginning on July 1, 2012 for the additional grant of RSUs awarded on July 1, 2012, and $0.6 million (after the effect of estimated forfeitures) to expense over the 28-month vesting period beginning in September 2012 for the grants of RSUs awarded in September 2012. A total of $0.2 million was included in stock based compensation expense for each of the three months ended September 30, 2012 and 2011, respectively, and a total of $0.1 million and $0.4 million was included in stock based compensation expense for the nine months ended September 30, 2012 and 2011, respectively, in relation to the 2011 LTIP. Stock based compensation expense for the nine months ended September 30, 2012 included a net one-time benefit of $0.4 million for forfeitures under the 2011 LTIP associated with the departure of two former executives in our software operations.
Board of Directors Equity Compensation. On August 1, 2007, for periods of service beginning on July 1, 2007, our Board of Directors approved that, in lieu of RSUs, each non-executive director will be granted in arrears on the first business day following the quarter of service, restricted stock under the 2004 Equity Plan or the 2012 Equity Plan for their service on the Board of Directors and committees thereof. The restricted stock will be granted quarterly based upon the closing price per share of our common stock at the end of each quarter, such that each non-executive director will receive $40,000 per year of restricted stock ($50,000 for the Chair of the Audit Committee). The restricted stock will vest on the earlier of a change in control of the Company (as defined in the 2004 Equity Plan for restricted stock granted before May 16, 2012 or the 2012 Equity Plan for future grants on or after May 16, 2012) or one year from the date of grant, provided, in each case, that the non-executive director maintains continuous service on the Board of Directors. Future cash dividends related to the restricted stock will be set aside and paid in cash to each non-executive director on the date the restricted stock vests. In addition to the quarterly restricted stock grants, the non-executive directors will be entitled to cash compensation of $40,000 per year ($50,000 for the Chair of the Audit Committee), also payable quarterly. These sums are payable, at the election of the non-executive director, in the form of cash, shares of common stock, or any combination thereof.
The following table details information on the restricted stock vested or granted to our non-executive directors in 2011 and 2012:
Service for the |
Grant Date | Price Per Share(1) |
Restricted Stock Granted |
Restricted Stock Vested |
Vesting Date | Restricted Stock Granted and Outstanding |
Cash Dividends Paid(2) |
|||||||||||||||||
December 31, 2010 |
January 3, 2011 | $ | 17.77 | 2,955 | (2,955) | January 3, 2012 | | $ | 2,955 | |||||||||||||||
March 31, 2011 |
April 1, 2011 | 14.48 | 3,627 | (3,627) | April 2, 2012 | | 3,627 | |||||||||||||||||
June 30, 2011 |
July 1, 2011 | 15.26 | 3,439 | (3,439) | July 2, 2012 | | 3,439 | |||||||||||||||||
September 30, 2011 |
October 3, 2011 | 13.20 | 3,979 | (3,979) | October 1, 2012 | | 3,979 | |||||||||||||||||
December 31, 2011 |
January 3, 2012 | 13.87 | 3,785 | | January 2, 2013 | 3,785 | | |||||||||||||||||
March 31, 2012 |
April 2, 2012 | 13.93 | 3,769 | | April 1, 2013 | 3,769 | | |||||||||||||||||
June 30, 2012 |
July 2, 2012 | 12.86 | 4,084 | | July 1, 2013 | 4,084 | | |||||||||||||||||
September 30, 2012 |
October 1, 2012 | 11.87 | 5,263 | | October 1, 2013 | 5,263 | | |||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||||
Total |
30,901 | (14,000) | 16,901 | $ | 14,000 | |||||||||||||||||||
|
|
|
|
|
|
|
|
(1) | The quarterly restricted stock granted is based on the price per share of our common stock on the last trading day prior to the quarterly grant date. |
(2) | Amount excludes interest earned and paid upon vesting of shares of restricted stock. |
The shares of restricted stock will vest one year from the date of grant and the related cash dividends on the vested restricted stock will be paid to our non-executive directors at vesting. Grants of shares of restricted stock made after May 16, 2012 will reduce the number of shares eligible for future issuance under the 2012 Equity Plan.
We used the fair-value based method of accounting for the equity awards. A total of $0.1 million was included in stock based compensation expense for each of the three months ended September 30, 2012 and 2011, respectively, and
16
USA MOBILITY, INC.
UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
a total of $0.2 million was included in stock based compensation expense for each of the nine months ended September 30, 2012 and 2011, respectively, in relation to the restricted stock granted to our non-executive directors.
The following table details information on the cash dividends declared in 2012 relating to the restricted stock granted to our non-executive directors:
Year |
Declaration Date | Record Date | Payment Date | Per Share Amount | Total Amount | |||||||||||||||
2012 | February 22 | March 16 | March 30 | $ | 0.250 | $ | 3,708 | |||||||||||||
May 3 | May 18 | June 22 | 0.250 | 3,743 | ||||||||||||||||
July 30 | August 17 | September 7 | 0.125 | 1,952 | ||||||||||||||||
|
|
|
|
|||||||||||||||||
Total | $ | 0.625 | $ | 9,403 | ||||||||||||||||
|
|
|
|
Board of Directors Common Stock. As of September 30, 2012, a cumulative total of 9,091 shares of common stock have been granted under the 2004 Equity Plan in lieu of cash payments to the non-executive directors for services performed. These shares of common stock reduced the number of shares eligible for future issuance under the 2004 Equity Plan. No directors have elected common stock in lieu of cash payments for their services during the nine months ended September 30, 2012.
Cash Dividends to Stockholders. Cash dividends paid as disclosed in the statements of cash flows for the nine months ended September 30, 2012 and 2011 include previously declared cash dividends on shares of vested restricted stock issued to our non-executive directors. Cash dividends on RSUs and restricted stock have been accrued and are paid when the applicable vesting conditions are met. Accrued cash dividends on forfeited RSUs and restricted stock are also forfeited.
On July 30, 2012, our Board of Directors reset the quarterly dividend distribution rate to $0.125 per share of common stock from $0.25 per share of common stock. The following table details our cash dividend payments made in 2012:
Year |
Declaration Date | Record Date | Payment Date | Per Share Amount | Total Payment(1) | |||||||||
(Dollars in thousands) | ||||||||||||||
2012 |
February 22 | March 16 | March 30 | $ | 0.250 | $ | 5,535 | |||||||
May 3 | May 18 | June 22 | 0.250 | 5,540 | ||||||||||
July 30 | August 17 | September 7 | 0.125 | 2,754 | ||||||||||
|
|
|
|
|||||||||||
Total |
$ | 0.625 | $ | 13,829 | ||||||||||
|
|
|
|
(1) | The total payment reflects the cash dividends paid in relation to common stock and vested restricted stock. |
Future Cash Dividends to Stockholders. On November 1, 2012, our Board of Directors declared a regular quarterly dividend of $0.125 per share of common stock, with a record date of November 16, 2012 and a payment date of December 7, 2012. This dividend of approximately $2.8 million will be paid from available cash on hand.
Common Stock Repurchase Program. On July 31, 2008, our Board of Directors approved a program to repurchase up to $50.0 million of our common stock in the open market during the twelve-month period commencing on or about August 5, 2008. As discussed below, this program has been extended. Credit Suisse Securities (USA) LLC will administer such purchases. We used available cash on hand and net cash provided by operating activities to fund the common stock repurchase program.
The Companys stock repurchase program has been extended at various dates between 2009 through 2012 by our Board of Directors. On July 24, 2012, our Board of Directors approved a fifth supplement to the common stock repurchase program effective August 1, 2012 which reset the repurchase authority to $25.0 million as of August 1, 2012 and extended the purchase period through December 31, 2013. This repurchase authority allows, at managements discretion, to selectively repurchase shares of our common stock from time to time in the open market depending upon market price and other factors. Without exceeding the $25.0 million repurchase authority
17
USA MOBILITY, INC.
UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
during the purchase period (August 1, 2012 through December 31, 2013), the maximum repurchase authority for the period August 1, 2012 through December 31, 2012 is $13.5 million and the maximum repurchase authority for the calendar year 2013 is $19.1 million.
During the third quarter of 2012, we purchased 434,982 shares of our common stock for approximately $4.9 million (excluding commissions). From the inception of the common stock repurchase program through September 30, 2012, we repurchased a total of 5,991,313 shares of our common stock for approximately $56.6 million (excluding commissions). Repurchased shares of our common stock were accounted for as a reduction to common stock and additional paid-in-capital in the period in which the repurchase occurred. All repurchased shares of common stock were returned to the status of authorized but unissued shares of the Company. There was approximately $20.1 million of common stock repurchase authority remaining under the program as of September 30, 2012.
Additional Paid-in Capital. For the nine months ended September 30, 2012, additional paid-in capital decreased by $3.6 million. The decrease in 2012 was due primarily to the common stock repurchase program, partially offset by the amortization of stock based compensation (net of benefits recorded for forfeitures under the 2011 LTIP) and a net issuance of common stock under the 2011 STIP to our CEO after purchase of common stock from the CEO for his tax withholdings.
Net Income per Common Share. Basic net income per common share is computed on the basis of the weighted average common shares outstanding. Diluted net income per common share is computed on the basis of the weighted average common shares outstanding plus the effect of all potentially dilutive common shares including outstanding restricted stock using the treasury stock method plus the effect of outstanding RSUs, which are treated as contingently issuable shares. During the first quarter of 2012, we acquired a total of 21,657 shares of our common stock from our CEO in payment of required tax withholdings for the common stock awarded to him on March 2, 2012 related to the 2011 STIP. These shares of common stock acquired were retired and excluded from our reported outstanding share balance as of September 30, 2012. During the third quarter of 2012, 434,982 shares of common stock were repurchased under our common stock repurchase program. These shares of common stock acquired were retired and excluded from our reported outstanding share balance as of September 30, 2012. For the three months ended and nine months ended September 30, 2012, the effect of 171 and 159 potential dilutive common shares, respectively, was not included in the calculation for diluted net income per share as the impact was anti-dilutive. For the three months and nine months ended September 30, 2011, the effect of 155 and 151 of potential dilutive common shares, respectively, was not included in the calculation for diluted net income per share as the impact was anti-dilutive. The components of basic and diluted net income per common share were as follows for the periods stated:
For the Three Months Ended September 30, |
For the Nine Months Ended September 30, |
|||||||||||||||
2012 | 2011 | 2012 | 2011 | |||||||||||||
(Dollars in thousands, except share and per share amounts) | ||||||||||||||||
Net income |
$ | 8,048 | $ | 10,447 | $ | 24,957 | $ | 69,693 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Weighted average shares of common stock outstanding |
21,973,473 | 22,090,913 | 22,069,785 | 22,080,485 | ||||||||||||
Dilutive effect of restricted stock and RSUs |
426,461 | 482,151 | 464,342 | 406,889 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Weighted average shares of common stock and common stock equivalents |
22,399,934 | 22,573,064 | 22,534,127 | 22,487,374 | ||||||||||||
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|
|
|
|||||||||
Net income per common share |
||||||||||||||||
Basic(1) |
$ | 0.37 | $ | 0.47 | $ | 1.13 | $ | 3.16 | ||||||||
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Diluted(1) |
$ | 0.36 | $ | 0.46 | $ | 1.11 | $ | 3.10 | ||||||||
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18
USA MOBILITY, INC.
UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(1) | Basic and diluted net income per common share is computed independently for each period presented. As a result, the sum of the quarterly basic and diluted net income per common share for the nine months ended September 30, 2012 and 2011 may not equal the total computed for the nine months. |
(16) Stock Based Compensation Compensation expense associated with RSUs and restricted stock is recognized based on the fair value of the instruments, over the instruments vesting period. Stock based compensation expense for wireless operations was $0.3 million and $0.2 million for the three months ended September 30, 2012 and 2011, respectively, and $0.8 million and $0.7 million for the nine months ended September 30, 2012 and 2011, respectively. Stock based compensation expense for software operations was $0.2 million for each of the three months ended September 30, 2012 and 2011, respectively, and $0.1 million and $0.4 million for the nine months ended September 30, 2012 and 2011, respectively. Stock based compensation expense for software operations for the nine months ended September 30, 2012 included a benefit of $0.4 million for forfeitures under the 2011 LTIP associated with the departure of two former executives. The following table reflects the results of operations line items for stock based compensation expense for the periods stated:
For the Three
Months Ended September 30, |
For the Nine
Months Ended September 30, |
|||||||||||||||
Operating Expense Category |
2012 | 2011 | 2012 | 2011 | ||||||||||||
(Dollars in thousands) | ||||||||||||||||
Service, rental and maintenance |
$ | 6 | $ | 6 | $ | 18 | $ | 17 | ||||||||
Selling and marketing |
19 | 16 | 53 | 49 | ||||||||||||
General and administrative |
435 | 392 | 831 | 1,027 | ||||||||||||
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Total stock based compensation |
$ | 460 | $ | 414 | $ | 902 | $ | 1,093 | ||||||||
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(17) Research and Product Development Research and product development costs are expensed as incurred and are reflected in service, rental and maintenance expenses. Costs eligible for capitalization were not material to the consolidated financial statements.
(18) Advertising Costs Advertising costs are charged to operations when incurred because they occur in the same period as the benefit is derived. These costs are included in selling and marketing. We do not incur any direct response advertising costs. Advertising expenses were $3,700 and $7,200 for the three months ended September 30, 2012 and 2011, respectively, and $21,700 and $19,600 for the nine months ended September 30, 2012 and 2011, respectively, for wireless operations. Advertising expenses were $0.2 million and $0.1 million for the three months ended September 30, 2012 and 2011, respectively, and $0.5 million and $0.2 million for the nine months ended September 30, 2012 and 2011, respectively, for software operations.
(19) Income Taxes We file our income tax returns as prescribed by the tax laws of the jurisdictions in which we operate. Our Federal income tax returns have been examined by the IRS through the year ended December 31, 2008. Amcoms separate Federal income tax returns have been audited through the fiscal year ended March 31, 2010 (2009 return). Amcoms final separate company Federal income tax return was filed for the stub period ended on March 2, 2011 (2010 return) on August 15, 2011.
We are required to evaluate the recoverability of our deferred income tax assets. The assessment is required to determine whether based on all available evidence, it is more likely than not (i.e., greater than a 50% probability) whether all or some portion of the deferred income tax assets will be realized in the future. At September 30, 2012, we had total deferred income tax assets of $160.7 million and a valuation allowance of $115.7 million resulting in an estimated recoverable amount of deferred income tax assets of $45.0 million. This reflected a change from the December 31, 2011 balance of deferred income tax assets of $175.9 million and a valuation allowance of $115.7 million resulting in an estimated recoverable amount of $60.2 million. The change reflected the expected usage of the deferred income tax assets based on the estimates of 2012 taxable income.
19
USA MOBILITY, INC.
UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
We consider both positive and negative evidence when evaluating the recoverability of our deferred income tax assets. During the fourth quarter of each year, we prepare a five year forecast of taxable income for our wireless and software operations. The wireless operations have experienced a continuing decline in revenues and taxable income as subscribers switch to other solutions. The software operations have been impacted by the past economic slowdown resulting in customers deferring purchases. The wireless and software forecasts of taxable income for the next five years are not sufficient to result in the full realization of our deferred income tax assets.
At both September 30, 2012 and December 31, 2011, the balance of the valuation allowance was $115.7 million. Included in the valuation allowance were $0.6 million and $0.7 million for foreign operations at September 30, 2012 and December 31, 2011, respectively.
The anticipated effective income tax rate is expected to continue to differ from the Federal statutory rate of 35% due to the effect of changes to the deferred income tax asset valuation allowance, the effect of state income taxes, foreign rate differential, permanent differences between book and taxable income, and certain discrete items.
As of January 1, 2012, we had approximately $428.2 million of Federal net operating losses (NOLs) available to offset future taxable income. Of this amount, approximately $61.0 million is limited by an Internal Revenue Code Section 382 (IRC Section 382) limitation. The IRC Section 382 limited NOLs may be used at a rate of $6.1 million per year. The remainder of our NOLs carryforwards of $367.2 million is not subject to a limitation. The IRC Section 382 limited NOLs will fully expire at December 31, 2021 and the unlimited NOLs begin expiring in 2023 and will fully expire in 2029.
(20) Related Party Transactions A member of our Board of Directors also served as a director for an entity that leases transmission tower sites to our Company. For the three months ended September 30, 2012 and 2011, we paid that entity $1.0 million and $1.7 million, respectively, and for the nine months ended September 30, 2012 and 2011, we paid that entity $3.3 million and $6.3 million, respectively, in site rent expenses for wireless operations that were included in service, rental and maintenance expenses.
Beginning in April 2012, a family member of our CEO is employed as COO at Teleperformance USA, Inc. (TPUSA), a third party provider of customer service support for our wireless operations. We paid TPUSA $0.6 million and $0.8 million for the three months ended September 30, 2012 and 2011, respectively, and $1.9 million and $2.5 million for the nine months ended September 30, 2012 and 2011, respectively, in outside service expenses for wireless operations that were included in general and administrative expenses. Our payments to TPUSA represent less than 1% of the 2011 consolidated revenue for TPUSA. We had used the services of TPUSA since March 10, 2003, prior to the family member of the CEO becoming an employee of TPUSA in April 2012.
(21) Commitments and Contingencies In May 2012, we contracted with a managed service-hosting provider for certain computer support services over a three-year contract term for $0.5 million.
A series of decisions by the Federal Communications Commission (FCC) and related amendments to interconnection agreements with local exchange carriers (LECs) have largely resolved the uncertainty and liability exposure once faced by the Company with respect to interconnection commitments. Specifically, FCC rules now make clear that we are not required to pay reciprocal compensation or switched access charges to LECs. Although we are required under certain interconnection agreements to pay transit charges i.e., charges for telecommunications traffic that originates on a third-party carriers network and traverses the network of a LEC with which we interconnect we pay immaterial amounts for such transit services and make the required payments as billed in the ordinary course of business. We have only one live billing dispute with a LEC relating to transit charges, and the amount in dispute is immaterial. As a result, any liability to which we are exposed as a result of outstanding charges for transit service (including service charges and late fees) is not material.
20
USA MOBILITY, INC.
UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
We have various LOCs outstanding with multiple state agencies. The LOCs have one to three-year contract requirements and contain automatic renewal terms. The deposits related to the LOCs are included within other assets on the condensed consolidated balance sheets.
During the third quarter, we established a one year $0.2 million LOC for an international sale. This LOC has reduced our available borrowing capacity under our Amended Credit Agreement.
We are involved, from time to time, in lawsuits arising in the normal course of business. We believe these pending lawsuits will not have a material adverse impact on our financial results or operations.
The following amends and restates the description of previously reported legal contingencies in the 2011 Annual Report for which there has been a material development during the nine months ended September 30, 2012.
Filed Litigation. On June 25, 2012, Mr. and Mrs. Andre C. Franco (collectively the Plaintiffs) filed a lawsuit in the Circuit Court for Montgomery County, Maryland against Metrocall, Inc. (now USA Mobility Wireless, Inc. Wireless), and an employee of Wireless (collectively the Defendants). The lawsuit arose from a vehicle accident involving the employee in December 2009. The Plaintiffs seek damages of $21.0 million jointly and severally from the Defendants. As of September 30, 2012, the Plaintiffs and the Company are currently in discussion regarding mediation.
We are fully insured for these damages and our defense against this claim has been assumed by the insurance carrier who has designated legal counsel to handle this lawsuit on our behalf. We do not expect the monetary settlement of this lawsuit, if any, would have a material impact on our financial condition or results of operations.
(22) Segment Reporting With the acquisition of Amcom on March 3, 2011, we currently have two reportable operating segments: a Wireless segment and a Software segment. These segments are operated and managed as strategic business units and are organized by products and services. We measure and evaluate our segments based on segment operating income, consistent with the chief operating decision makers assessment of segment performance.
Our segments and their principal activities consist of the following:
Wireless |
Provides local, regional and nationwide one-way paging and advanced two-way messaging services and mobile voice and data services through third party providers. | |
Software |
Provides mission critical unified communications solutions for contact centers, emergency management, mobile event notification and messaging. |
We use a non-GAAP financial measure as a key element in determining performance for purposes of incentive compensation under our annual STIP. That non-GAAP financial measure is operating cash flow (OCF) defined as earnings before interest, taxes, depreciation, amortization and accretion (EBITDA) less purchases of property and equipment. (EBITDA is defined as operating income plus depreciation, amortization and accretion, each determined in accordance with GAAP). Purchases of property and equipment are also determined in accordance with GAAP.
21
USA MOBILITY, INC.
UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table presents the key financial metrics of our segments for the periods stated:
For the Three Months Ended September 30, |
For the Nine Months Ended September 30, |
|||||||||||||||
2012 | 2011 | 2012 | 2011(1) | |||||||||||||
(Dollars in thousands) | ||||||||||||||||
Revenues: |
||||||||||||||||
Wireless |
$ | 41,440 | $ | 48,541 | $ | 128,488 | $ | 153,168 | ||||||||
Software |
13,676 | 12,929 | 39,324 | 30,808 | ||||||||||||
|
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|
|
|
|
|
|
|||||||||
Total revenues |
55,116 | 61,470 | 167,812 | 183,976 | ||||||||||||
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|
|
|||||||||
Operating expenses: |
||||||||||||||||
Wireless |
28,079 | 32,014 | 86,538 | 106,945 | ||||||||||||
Software |
13,990 | 13,266 | 40,160 | 31,303 | ||||||||||||
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|
|
|
|
|||||||||
Total operating expenses |
42,069 | 45,280 | 126,698 | 138,248 | ||||||||||||
|
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|
|||||||||
Operating income (loss): |
||||||||||||||||
Wireless |
13,361 | 16,527 | 41,950 | 46,223 | ||||||||||||
Software |
(314) | (337) | (836) | (495) | ||||||||||||
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|
|
|
|
|||||||||
Total operating income |
$ | 13,047 | $ | 16,190 | $ | 41,114 | $ | 45,728 | ||||||||
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|
|||||||||
EBITDA (as defined by the Company): |
||||||||||||||||
Wireless |
$ | 16,305 | $ | 19,934 | $ | 50,563 | $ | 57,280 | ||||||||
Software |
1,466 | 1,336 | 4,396 | 3,366 | ||||||||||||
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|
|
|
|
|
|
|
|||||||||
Total EBITDA |
17,771 | 21,270 | 54,959 | 60,646 | ||||||||||||
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|
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|
|||||||||
% of revenue |
32.2% | 34.6% | 32.8% | 33.0% | ||||||||||||
Capital expenditures: |
||||||||||||||||
Wireless |
2,658 | 1,758 | 7,031 | 4,973 | ||||||||||||
Software |
38 | 21 | 104 | 161 | ||||||||||||
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|
|||||||||
Total capital expenditures |
2,696 | 1,779 | 7,135 | 5,134 | ||||||||||||
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|
|||||||||
OCF (as defined by the Company): |
||||||||||||||||
Wireless |
13,647 | 18,176 | 43,532 | 52,307 | ||||||||||||
Software |
1,428 | 1,315 | 4,292 | 3,205 | ||||||||||||
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|
|||||||||
Total OCF |
$ | 15,075 | $ | 19,491 | $ | 47,824 | $ | 55,512 | ||||||||
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|
|||||||||
% of revenue |
27.4% | 31.7% | 28.5% | 30.2% |
(1) | Software operations reflect financial results from March 3, 2011 to September 30, 2011 and are net of reductions to maintenance revenue as required by acquisition accounting to reflect fair value. |
Segment information for total assets is not presented as such information is not used in measuring segment performance or allocating resources among segments.
22
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
This Quarterly Report on Form 10-Q (Quarterly Report) contains forward-looking statements and information relating to USA Mobility, Inc. and its subsidiaries (USA Mobility or the Company) that set forth anticipated results based on managements current plans, known trends and assumptions. These statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Statements that are predictive in nature, that depend upon or refer to future events or conditions, or that include words such as anticipate, believe, estimate, expect, intend, will, target, forecast and similar expressions, as they relate to USA Mobility are forward-looking statements.
Although these statements are based upon current plans, known trends and assumptions that management considers reasonable, they are subject to certain risks, uncertainties and assumptions, including but not limited to those discussed below and under the captions Business, Managements Discussion and Analysis of Financial Condition and Results of Operations (MD&A), and Part I Item 1A Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2011, filed with the United States Securities and Exchange Commission (the SEC) on February 23, 2012 (the 2011 Annual Report). Should known or unknown risks or uncertainties materialize, known trends change, or underlying assumptions prove inaccurate, actual results or outcomes may differ materially from past results and those described herein as anticipated, believed, estimated, expected or intended. Investors are cautioned not to place undue reliance on these forward-looking statements.
The Company undertakes no obligation to update forward-looking statements. Investors are advised to consult all further disclosures the Company makes in its subsequent reports on Form 10-Q and Form 8-K that it will file with the SEC. Also note that, in the risk factors, the Company provides a cautionary discussion of risks, uncertainties and possibly inaccurate assumptions relevant to its business. These are factors that, individually or in the aggregate, could cause the Companys actual results to differ materially from past results as well as those results that may be forecasted, anticipated, believed, estimated, expected or intended. It is not possible to predict or identify all such risk factors. Consequently, investors should not consider the risk factor discussion to be a complete discussion of all of the potential risks or uncertainties that could affect USA Mobilitys business, results of operations or financial condition, subsequent to the filing of this Quarterly Report.
Overview
The following MD&A is intended to help the reader understand the results of operations and financial condition of USA Mobility. The MD&A is provided as a supplement to, and should be read in conjunction with, our 2011 Annual Report and our condensed consolidated financial statements and accompanying notes.
USA Mobility, a holding company, which, acting through our indirect wholly-owned subsidiary, USA Mobility Wireless, Inc. (wireless operations), is a leading provider of wireless messaging, mobile voice and data and unified communications solutions in the United States. In addition, through our indirect wholly-owned subsidiary, Amcom Software, Inc. (Amcom or software operations), we provide mission critical unified communications solutions for contact centers, emergency management, mobile event notification, and Smartphone messaging. Our combined product offerings are capable of addressing a customers mission critical communications needs. We offer our services and products in the United States and abroad primarily to three major market segments: healthcare, government and large enterprise. The key market segments for the wireless operations include healthcare, government and large enterprise, while the software operations also have a presence in hospitality, in addition to these three segments. For the wireless operations, the government business has been trending downward over the last several years as state and local governments have been struggling with budget constraints. At the same time, our wireless (paging) services tend to be a reliable and low cost communication alternative when budgets are constrained and therefore paging services can be positioned well against other communication tools. Large enterprise customers have been trending away from paging to cell/smart phones for a number of years and we expect that trend to continue in future years. Our software operations leverage these trends with more advanced critical messaging offerings for smart phones and more advanced
23
unified communication tools. The trend toward more advanced/smart communications devices has been ongoing in large enterprise and is emerging in healthcare and government.
We generate revenue by providing paging services, developing, licensing, and supporting a wide range of software products and services. Our most significant expenses are related to compensating employees, site rents, telecommunications and income taxes.
Wireless Operations
Our wireless operations provide one-way and advanced two-way wireless messaging services including information services throughout the United States. We also offer voice mail, personalized greeting, message storage and retrieval, and equipment loss and/or maintenance protection to both one-way and two-way messaging subscribers. We market and distribute these wireless messaging and information services through a direct sales force and a small indirect sales channel.
Direct. The direct sales force rents or sells products and messaging services directly to customers ranging from small and medium-sized businesses to companies in the Fortune 1000, healthcare and related businesses, and Federal, state and local government agencies. We intend to continue to market to commercial enterprises utilizing our direct sales force as these commercial enterprises have typically disconnected service at a lower rate than individual consumers. Our sales personnel maintain a sales presence throughout the United States. In addition, we maintain several corporate sales groups focused on medical sales, Federal government accounts, large enterprises, advanced wireless services, emergency/mass notification services, and other product offerings.
Indirect. Within the indirect channel, we contract with and invoice an intermediary for airtime services (which includes telemetry services). The intermediary or reseller in turn markets, sells, and provides customer service to the end user. Generally, there is no contractual relationship that exists between us and the end subscriber. Therefore, operating costs per unit to provide these services are lower than those required in the direct distribution channel. Indirect units in service typically have lower average revenue per unit (ARPU) than direct units in service. The rate at which subscribers disconnect service in the indirect distribution channel has generally been higher than the rate experienced with direct customers, and we expect this trend to continue in the foreseeable future.
The following table summarizes the breakdown of our direct and indirect units in service at specified dates:
As of September 30, 2012 |
As of June 30, 2012 |
As of September 30, 2011 |
||||||||||||||||||||||
Distribution Channel |
Units | % of Total | Units | % of Total | Units | % of Total | ||||||||||||||||||
(Units in thousands) | ||||||||||||||||||||||||
Direct |
1,445 | 93.5% | 1,477 | 93.3% | 1,603 | 93.1% | ||||||||||||||||||
Indirect |
101 | 6.5% | 106 | 6.7% | 118 | 6.9% | ||||||||||||||||||
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|
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|
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Total |
1,546 | 100.0% | 1,583 | 100.0% | 1,721 | 100.0% | ||||||||||||||||||
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As noted above in the Overview, our key market segments are healthcare, government and large enterprise. The following table indicates the percentage of our units in service by key market segments for the periods stated and illustrates the relative significance of these market segments to our operations.
As of September 30, | ||||||||
Market Segment |
2012 | 2011 | ||||||
Healthcare |
65.9% | 61.7% | ||||||
Government |
10.8% | 12.3% | ||||||
Large enterprise |
8.6% | 9.6% | ||||||
Other |
8.1% | 9.5% | ||||||
|
|
|
|
|||||
Total Direct |
93.4% | 93.1% | ||||||
Total Indirect |
6.6% | 6.9% | ||||||
|
|
|
|
|||||
Total |
100.0% | 100.0% | ||||||
|
|
|
|
24
The following table indicates the revenue by key market segments for the periods stated and illustrates the relative significance of these market segments to our operations.
For the Three Months Ended September 30, | For the Nine Months Ended September 30, | |||||||||||||||||||||||||||||||
Market Segment |
2012 | % of Total | 2011 | % of Total | 2012 | % of Total | 2011 | % of Total | ||||||||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||||||||||
Healthcare |
$ | 25,340 | 61.1% | $ | 27,713 | 57.1% | $ | 77,065 | 60.0% | $ | 84,920 | 55.4% | ||||||||||||||||||||
Government |
3,722 | 9.0% | 4,724 | 9.7% | 11,773 | 9.1% | 15,480 | 10.1% | ||||||||||||||||||||||||
Large enterprise |
5,074 | 12.3% | 6,264 | 12.9% | 16,074 | 12.6% | 19,844 | 13.0% | ||||||||||||||||||||||||
Other |
5,502 | 13.3% | 7,284 | 15.0% | 17,695 | 13.7% | 24,251 | 15.8% | ||||||||||||||||||||||||
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|
|||||||||||||||||
Total Direct |
39,638 | 95.7% | 45,985 | 94.7% | 122,607 | 95.4% | 144,495 | 94.3% | ||||||||||||||||||||||||
Total Indirect |
1,802 | 4.3% | 2,556 | 5.3% | 5,881 | 4.6% | 8,673 | 5.7% | ||||||||||||||||||||||||
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|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Total |
$ | 41,440 | 100.0% | $ | 48,541 | 100.0% | $ | 128,488 | 100.0% | $ | 153,168 | 100.0% | ||||||||||||||||||||
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|
The following table sets forth information on our direct units in service by account size for the periods stated:
As of September 30, 2012 |
As of June 30, 2012 |
As of September 30, 2011 |
||||||||||||||||||||||
Account Size |
Units | % of Total | Units | % of Total | Units | % of Total | ||||||||||||||||||
(Units in thousands) | ||||||||||||||||||||||||
1 to 3 Units |
55 | 3.8% | 58 | 3.9% | 69 | 4.3% | ||||||||||||||||||
4 to 10 Units |
33 | 2.3% | 35 | 2.3% | 42 | 2.6% | ||||||||||||||||||
11 to 50 Units |
78 | 5.4% | 82 | 5.6% | 99 | 6.2% | ||||||||||||||||||
51 to 100 Units |
50 | 3.5% | 52 | 3.6% | 61 | 3.8% | ||||||||||||||||||
101 to 1000 Units |
343 | 23.7% | 356 | 24.1% | 399 | 24.9% | ||||||||||||||||||
> 1000 Units |
886 | 61.3% | 894 | 60.5% | 933 | 58.2% | ||||||||||||||||||
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|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total direct units in service |
1,445 | 100.0% | 1,477 | 100.0% | 1,603 | 100.0% | ||||||||||||||||||
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|
Customers may subscribe to one-way or two-way messaging services for a periodic (monthly, quarterly, semi-annual, or annual) service fee which is generally based upon the type of service provided, the geographic area covered, the number of devices provided to the customer and the period of commitment. Voice mail, personalized greeting, and equipment loss and/or maintenance protection may be added to either one-way or two-way messaging services, as applicable, for an additional monthly fee. Equipment loss protection allows subscribers who lease devices to limit their cost of replacement upon loss or destruction of a messaging device. Maintenance services are offered to subscribers who own their device.
A subscriber to one-way messaging services may select coverage on a local, regional or nationwide basis to best meet their messaging needs. Local coverage generally allows the subscriber to receive messages within a small geographic area, such as a city. Regional coverage allows a subscriber to receive messages in a larger area, which may include a large portion of a state or sometimes groups of states. Nationwide coverage allows a subscriber to receive messages in major markets throughout the United States. The monthly fee generally increases with the size of the coverage area. Two-way messaging is generally offered on a nationwide basis.
25
The following table summarizes the breakdown of our one-way and two-way units in service at specified dates:
As of September 30, 2012 |
As of June 30, 2012 |
As of September 30, 2011 |
||||||||||||||||||||||
Service Type |
Units | % of Total | Units | % of Total | Units | % of Total | ||||||||||||||||||
(Units in thousands) | ||||||||||||||||||||||||
One-way messaging |
1,421 | 91.9% | 1,453 | 91.8% | 1,578 | 91.7% | ||||||||||||||||||
Two-way messaging |
125 | 8.1% | 130 | 8.2% | 143 | 8.3% | ||||||||||||||||||
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|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total |
1,546 | 100.0% | 1,583 | 100.0% | 1,721 | 100.0% | ||||||||||||||||||
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|
|
The demand for one-way and two-way messaging services declined at each specified date and we believe demand will continue to decline for the foreseeable future. Demand for our services has also been impacted by the weak United States economy and high unemployment rates nationwide. To the extent that unemployment rates may remain high or increase for the remainder of 2012, we anticipate an unfavorable impact on the level of subscriber cancellations.
We provide wireless messaging services to subscribers for a periodic fee, as described above. In addition, subscribers either lease a messaging device from us for an additional fixed monthly fee or they own a device, having purchased it either from us or from another vendor. We also sell devices to resellers who lease or resell devices to their subscribers and then sell messaging services utilizing our networks.
We derive the majority of our revenues from fixed monthly or other periodic fees, charged to subscribers for wireless messaging services. Such fees are not generally dependent on usage. As long as a subscriber maintains service, operating results benefit from recurring payment of these fees. Revenues are generally based upon the number of units in service and the monthly charge per unit. The number of units in service changes based on subscribers added, referred to as gross placements, less subscriber cancellations, or disconnects. The net of gross placements and disconnects is commonly referred to as net gains or losses of units in service or net disconnect rate. The absolute number of gross placements as well as the number of gross placements relative to average units in service in a period, referred to as the gross placement rate, is monitored on a monthly basis. Disconnects are also monitored on a monthly basis. The ratio of units disconnected in a period to average units in service for the same period, called the disconnect rate, is an indicator of our success at retaining subscribers, which is important in order to maintain recurring revenues and to control operating expenses.
The following table sets forth our gross placements and disconnects for the periods stated:
For the Three Months Ended | ||||||||||||||||||||||||
September 30, 2012 | June 30, 2012 | September 30, 2011 | ||||||||||||||||||||||
Distribution Channel |
Gross Placements |
Disconnects | Gross Placements |
Disconnects | Gross Placements |
Disconnects | ||||||||||||||||||
(Units in thousands) | ||||||||||||||||||||||||
Direct |
48 | 80 | 53 | 84 | 55 | 108 | ||||||||||||||||||
Indirect |
1 | 6 | 2 | 5 | 3 | 8 | ||||||||||||||||||
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Total |
49 | 86 | 55 | 89 | 58 | 116 | ||||||||||||||||||
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26
The following table sets forth information on the direct net disconnect rate by account size for our direct customers for the periods stated:
For the Three Months Ended | ||||||||||||
Account Size |
September 30, 2012 |
June 30, 2012 |
September 30, 2011 |
|||||||||
1 to 3 Units |
(5.3%) | (5.7%) | (5.9%) | |||||||||
4 to 10 Units |
(4.8%) | (6.2%) | (6.4%) | |||||||||
11 to 50 Units |
(4.8%) | (4.1%) | (6.4%) | |||||||||
51 to 100 Units |
(3.9%) | (2.4%) | (10.4%) | |||||||||
101 to 1000 Units |
(3.8%) | (4.7%) | (2.9%) | |||||||||
> 1000 Units |
(1.0%) | (0.3%) | (2.1%) | |||||||||
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Total direct net unit loss % |
(2.2%) | (2.0%) | (3.2%) | |||||||||
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The other factor that contributes to revenue, in addition to the number of units in service, is the monthly charge per unit. As previously discussed, the monthly charge per unit is dependent on the subscribers service, extent of geographic coverage, whether the subscriber leases or owns the messaging device and the number of units the customer has in the account. The ratio of revenues for a period to the average units in service for the same period, commonly referred to as ARPU, is a key revenue measurement as it indicates whether charges for similar services and distribution channels are increasing or decreasing. ARPU by distribution channel and messaging service are monitored regularly.
The following table sets forth ARPU by distribution channel for the periods stated:
ARPU For the Three Months Ended | ||||||||||||
Distribution Channel |
September 30, 2012 |
June 30, 2012 |
September 30, 2011 |
|||||||||
Direct |
$ | 8.54 | $ | 8.62 | $ | 8.77 | ||||||
Indirect |
5.77 | 5.97 | 6.22 | |||||||||
Consolidated |
8.36 | 8.45 | 8.59 |
While ARPU for similar services and distribution channels is indicative of changes in monthly charges and the revenue rate applicable to new subscribers, this measurement on a consolidated basis is affected by several factors, including the mix of units in service and the pricing of the various components of our services. We expect future sequential annual revenues to decline in line with recent trends. The change in ARPU in the direct distribution channel is the most significant indicator of rate-related changes in our revenues. The decrease in consolidated ARPU for the quarter ended September 30, 2012 from the previous quarters was due to the change in composition of our customer base as the percentage of units in service attributable to larger customers continues to increase. These larger customers benefit from lower pricing associated with their larger number of units-in-service. We believe that without further price adjustments, ARPU would trend lower for both the direct and indirect distribution channels in 2012 and that price increases could mitigate, but not completely offset, the expected declines in both ARPU and revenues.
The following table sets forth information on direct ARPU by account size for the periods stated:
For the Three Months Ended | ||||||||||||
Account Size |
September 30, 2012 |
June 30, 2012 |
September 30, 2011 |
|||||||||
1 to 3 Units |
$ | 15.43 | $ | 15.49 | $ | 15.62 | ||||||
4 to 10 Units |
14.42 | 14.40 | 14.52 | |||||||||
11 to 50 Units |
12.11 | 12.24 | 12.30 | |||||||||
51 to 100 Units |
10.48 | 10.35 | 10.59 | |||||||||
101 to 1000 Units |
8.97 | 9.01 | 8.90 | |||||||||
> 1000 Units |
7.28 | 7.34 | 7.42 | |||||||||
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Total direct ARPU |
$ | 8.54 | $ | 8.62 | $ | 8.77 | ||||||
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27
Software Operations
Our primary business in the software operations is the sale of software, professional services (consulting and training), equipment sales (to be used in conjunction with the software) and post-contract support (on-going maintenance). The software is licensed to end users under an industry standard software license agreement. Our software products are considered to be off-the-shelf software with the software marketed as a stock item that customers can use with little or no customization. Such sales generate license fees (or revenues). In addition to the license fees, we generate revenue through the delivery of implementation services and training, annual maintenance revenues and the sale of third party equipment for use with the software.
Specifically, we develop, sell, and support enterprise-wide systems for hospitals and other organizations needing to automate, centralize, and standardize mission critical communications. These solutions are used for contact centers, emergency management, mobile event notification and messaging. We are focused on marketing these solutions primarily to the healthcare sector and to a lesser extent the government, large enterprise and hospitality sectors. These areas of market focus compliment the market focus of our wireless operations outlined above. We have a sales presence and customer base both domestically and internationally, specifically in Europe, Australia and Asia.
Our software operations are organized as follows to support this business:
Marketing. We have a centralized marketing function which is focused on supporting our software products and vertical sales efforts by strengthening our Amcom brand, generating sales leads, and facilitating the sales process. These marketing functions are accomplished through targeted email campaigns, webinars, regional and national user conferences, monthly newsletters, and participation at industry trade shows.
Sales. We sell our software products through a direct and channel sales force. The direct sales effort is geographically focused with the exception of dedicated government and certain large enterprise sales specialists. The direct sales force targets unified communication executives such as chief information officers, information technology directors, telecommunications directors and contact center managers. The timing for a direct sale from initial contact to final sale ranges from 6 to 18 months depending on the type of software solution.
The direct sales force is complemented by a channel sales force consisting of a dedicated team of managers. These managers coordinate relationships with telecommunication focused alliance partners who provide sales introductions for our direct sales force.
Professional Services. We offer implementation services for our software products. These implementation services are provided by a dedicated group of professional service employees. Our professional services staff uses a branded, consistent methodology that provides a comprehensive phased work plan for both new software installations and/or upgrades. In support of our implementation methodology, we manage the various aspects of the process through a professional services automation tool. A typical implementation process ranges from 60 to 90 days depending on the type of implementation.
Customer Support. To support our software products, we have established a dedicated customer support organization. Due to the mission critical nature of our software products, we provide 24 hours a day, 7 days a week, 365 days a year customer support that customers can access via telephone, email or the Internet.
Product Development. We maintain a product development group focused on developing new software products and enhancing existing products. Our product development group, supported by a limited group of external developers, uses a methodology that balances enhancement requests from a number of sources including customers, the professional services staff, customer support incidents, known defects, market and technology trends, and competitive requirements. These requests are reviewed and prioritized based on criteria that include the potential for increased revenues, customer/employee satisfaction, possible cost savings and development time and expense.
We recognize operations revenue when the application is installed and operational at the customer location. It consists of software license revenue, professional services revenue and equipment sales. Maintenance revenue is for ongoing support of a software application and is recognized ratably over the period of coverage, typically
28
one year. The maintenance renewal rates for the three months ended September 30, 2012 and 2011 were 97.6% and 99.6%, respectively. Revenue from software operations is included in product and related sales, net in the condensed consolidated results of operations and reflects results from March 3, 2011, the acquisition date. The detailed breakout of revenues by component from software operations was as follows for the periods stated below. Revenue from software operations for the three months and nine months ended September 30, 2011 included a reduction of $1.5 million and $5.1 million, respectively, required by acquisition accounting to reflect fair value.
Revenue |
For the Three
Months Ended September 30, |
For the Nine Months Ended September 30, |
||||||||||||||
2012 | 2011 (1) | 2012 | 2011 (2) | |||||||||||||
(Dollars in thousands) | ||||||||||||||||
Software licenses |
$ | 2,771 | $ | 3,094 | $ | 7,238 | $ | 9,386 | ||||||||
Professional services |
2,918 | 2,949 | 7,937 | 7,087 | ||||||||||||
Equipment sales |
1,415 | 2,270 | 4,681 | 5,639 | ||||||||||||
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|
|
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|
|
|||||||||
Total operations revenue |
7,104 | 8,313 | 19,856 | 22,112 | ||||||||||||
Maintenance revenue |
6,572 | 4,616 | 19,468 | 8,696 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total revenue |
$ | 13,676 | $ | 12,929 | $ | 39,324 | $ | 30,808 | ||||||||
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|
|
(1) | Maintenance revenues for the three months ended September 30, 2011 included a reduction of $1.5 million required by acquisition accounting to reflect fair value. |
(2) | Software operations revenue reflected results from March 3, 2011 to September 30, 2011. Maintenance revenues for the nine months ended September 30, 2011 included a reduction of $5.1 million required by acquisition accounting to reflect fair value. |
As noted above in the Overview, our software operations focus primarily on the healthcare, government and large enterprise market segments. Hospitality is included in the other market segment. The relative importance of these market segments to our operations is identified below. We expect to continue to focus our efforts primarily in the healthcare market segment.
For the Three Months Ended September 30, | For the Nine Months Ended September 30, | |||||||||||||||||||||||||||||||
Market Segment |
2012 | % of Total | 2011(2) | % of Total | 2012 | % of Total | 2011(3) | % of Total | ||||||||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||||||||||
Healthcare |
$ | 9,082 | 66.4% | $ | 7,981 | 61.7% | $ | 25,408 | 64.6% | $ | 19,706 | 64.0% | ||||||||||||||||||||
Government |
1,175 | 8.6% | 1,061 | 8.2% | 3,748 | 9.5% | 2,296 | 7.5% | ||||||||||||||||||||||||
Large enterprise |
583 | 4.3% | 985 | 7.6% | 1,766 | 4.5% | 1,660 | 5.4% | ||||||||||||||||||||||||
Other(1) |
908 | 6.6% | 785 | 6.1% | 2,362 | 6.0% | 1,898 | 6.2% | ||||||||||||||||||||||||
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|
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|
|
|||||||||||||||||
Total Direct |
11,748 | 85.9% | 10,812 | 83.6% | 33,284 | 84.6% | 25,560 | 83.0% | ||||||||||||||||||||||||
Total Indirect |
1,928 | 14.1% | 2,117 | 16.4% | 6,040 | 15.4% | 5,248 | 17.0% | ||||||||||||||||||||||||
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|
|
|
|
|
|||||||||||||||||
Total |
$ | 13,676 | 100.0% | $ | 12,929 | 100.0% | $ | 39,324 | 100.0% | $ | 30,808 | 100.0% | ||||||||||||||||||||
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(1) | Other includes hospitality, resort and billable travel revenue. |
(2) | Revenue is net of maintenance revenue reductions of $1.5 million required by acquisition accounting to reflect fair value. |
(3) | Revenue reflects results from March 3, 2011 (the acquisition date) to September 30, 2011. Revenue is net of maintenance revenue reductions of $5.1 million required by acquisition accounting to reflect fair value. |
29
Each month our software operations receive purchase orders from customers (irrespective of revenue type). These purchase orders are reported as bookings. The following table summarizes total bookings for the periods stated:
For the Three
Months Ended September 30, |
For the Nine Months Ended September 30, |
|||||||||||||||
Bookings |
2012 | 2011 | 2012 | 2011 (1) | ||||||||||||
(Dollars in thousands) | ||||||||||||||||
Operations revenue |
$ 9,476 | $ 8,507 | $ 23,771 | $ 18,647 | ||||||||||||
Maintenance renewals |
6,194 | 5,681 | 19,402 | 14,026 | ||||||||||||
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|
|
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|
|
|||||||||
Total bookings |
$ 15,670 | $ 14,188 | $ 43,173 | $ 32,673 | ||||||||||||
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|
|
(1) | Bookings reflected operations from March 3, 2011 to September 30, 2011. |
Software operations reported a backlog of $26.4 million at September 30, 2012, which represented all purchase orders received from customers not yet recognized as revenue. The following table reconciles our reported backlog at September 30, 2012:
Backlog |
September 30, 2012 |
|||
(Dollars in thousands) |
||||
Beginning balance at January 1, 2012 |
$ 23,712 | |||
Operations bookings for nine months |
23,771 | |||
Maintenance renewals for nine months |
19,402 | |||
|
|
|||
Available backlog |
$66,885 | |||
Operations revenue for nine months |
(19,856) | |||
Maintenance revenue for nine months |
(19,468) | |||
Other (1) |
(1,113) | |||
|
|
|||
Total backlog at September 30, 2012 |
$ 26,448 | |||
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|
(1) | Other reflects cancellations and other adjustments. |
Operations Consolidated
Our operating expenses are presented in functional categories. Certain of our functional categories are especially important to overall expense control and management; these operating expenses are categorized as follows:
| Cost of product sold. These are expenses associated with costs for pagers for the wireless operations and hardware, third-party software, professional services, payroll and related expenses, and various other expenses associated with the software operations. |
| Service, rental, and maintenance. These are expenses associated with the operation of our networks and the provision of messaging services. Expenses consist largely of site rent expenses for transmitter locations, telecommunication expenses to deliver messages over our networks, and payroll and related expenses for our engineering and pager repair functions. Expenses related to the development and maintenance of our software products are included in this category. |
| Selling and marketing. These are expenses associated with our direct sales force and indirect sales channel and marketing expenses in support of those sales groups. This classification consists primarily of payroll and related expenses and commission expenses. These expenses also include expenses associated with selling and marketing our software products. |
| General and administrative. These are expenses associated with customer service, inventory management, billing, collections, bad debt, and other administrative functions. This classification consists |
30
primarily of payroll and related expenses, facility rent expenses, tax, license and permit expenses, and outside service expenses. |
We review the percentages of these operating expenses to revenues on a regular basis. Even though the operating expenses are classified as described above, expense control and management are also performed by expense category. Approximately 70% of the operating expenses referred to above were incurred in payroll and related expenses, site and facility rent expenses and telecommunication expenses for both the three months and nine months ended September 30, 2012 and 2011, respectively.
Payroll and related expenses include wages, incentives, employee benefits and related taxes. On a monthly basis, we review the number of employees in major functional categories such as direct sales, engineering and technical staff, customer service, collections and inventory. We also review the design and physical locations of functional groups to continuously improve efficiency, to simplify organizational structures, and to minimize the number of physical locations for the wireless operations. We have reduced our wireless employee base by approximately 13.0% to 396 full-time equivalent employees (FTEs) at September 30, 2012 from 455 FTEs at September 30, 2011. We anticipate continued staffing reductions in 2012 for wireless operations, consistent with the subscriber and revenue trends, and we have accrued post-employment benefits for these anticipated staffing reductions. We expect staffing increases associated with our software operations to support our software revenue growth. The software operations had 280 FTEs at September 30, 2012, an increase of 12.0% from 250 FTEs at September 30, 2011.
Site rent expenses for transmitter locations are largely dependent on our paging networks. We operate local, regional, and nationwide one-way and two-way paging networks. These networks each require locations on which to place transmitters, receivers, and antennae. Generally, site rent expenses are incurred for each transmitter location. Therefore, site rent expenses for transmitter locations are highly dependent on the number of transmitters, which in turn is dependent on the number of networks. In addition, these expenses generally do not vary directly with the number of subscribers or units in service, which is detrimental to our operating margins as revenues decline. In order to reduce these expenses, we have an active program to consolidate the number of networks, and thus transmitter locations, which we refer to as network rationalization. We have reduced the number of active transmitters by 5.8% to 4,769 active transmitters at September 30, 2012 from 5,061 active transmitters at September 30, 2011.
Telecommunication expenses are incurred to interconnect our paging networks and to provide telephone numbers for customer use, points of contact for customer service, and connectivity among our offices. These expenses for wireless operations are dependent on the number of units in service and the number of office and network locations that we maintain. The dependence on units in service is related to the number of telephone numbers provided to customers and the number of telephone calls made to our call centers, though this is not always a direct dependency. For example, the number or duration of telephone calls to call centers may vary from period to period based on factors other than the number of units in service, which could cause telecommunication expenses to vary regardless of the number of units in service. In addition, certain phone numbers we provide to our customers may have a usage component based on the number and duration of calls to the subscribers messaging device. Telecommunication expenses do not necessarily vary in direct relationship to units in service. Therefore, based on the factors discussed above, efforts are underway to review and reduce telephone circuit inventories for wireless operations. Telecommunication expenses are also incurred for our offices and call centers for software operations.
31
Results of Operations
Comparison of Revenues and Selected Operating Expenses for the Three Months Ended September 30, 2012 and 2011
For the Three Months Ended September 30, | Change Between 2012 and 2011 |
|||||||||||||||||||||||||||||||
2012 | 2011 | |||||||||||||||||||||||||||||||
Wireless | Software | Total | Wireless | Software(1) | Total | Total | % | |||||||||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||||||||||
Revenues: |
||||||||||||||||||||||||||||||||
Service, rental and maintenance, net |
$ | 39,795 | $ | | $ | 39,795 | $ | 46,006 | $ | | $ | 46,006 | $ | (6,211) | (13.5%) | |||||||||||||||||
Product and related sales, net |
1,645 | 13,676 | 15,321 | 2,535 | 12,929 | 15,464 | (143) | (0.9%) | ||||||||||||||||||||||||
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|||||||||||||||||
Total |
$ | 41,440 | $ | 13,676 | $ | 55,116 | $ | 48,541 | $ | 12,929 | $ | 61,470 | $ | (6,354) | (10.3%) | |||||||||||||||||
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|||||||||||||||||
Selected operating expenses: |
||||||||||||||||||||||||||||||||
Cost of products sold |
$ | 187 | $ | 4,918 | $ | 5,105 | $ | 423 | $ | 5,528 | $ | 5,951 | $ | (846) | (14.2%) | |||||||||||||||||
Service, rental and maintenance |
11,239 | 2,492 | 13,731 | 13,194 | 2,023 | 15,217 | (1,486) | (9.8%) | ||||||||||||||||||||||||
Selling and marketing |
2,774 | 3,269 | 6,043 | 3,412 | 2,515 | 5,927 | 116 | 2.0% | ||||||||||||||||||||||||
General and administrative |
10,935 | 1,531 | 12,466 | 11,550 | 1,527 | 13,077 | (611) | (4.7%) | ||||||||||||||||||||||||
Severance and restructuring |
| | | 28 | | 28 | (28) | (100.0%) | ||||||||||||||||||||||||
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|||||||||||||||||
Total |
$ | 25,135 | $ | 12,210 | $ | 37,345 | $ | 28,607 | $ | 11,593 | $ | 40,200 | $ | (2,855) | (7.1%) | |||||||||||||||||
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|||||||||||||||||
FTEs |
396 | 280 | 676 | 455 | 250 | 705 | (29) | (4.1%) | ||||||||||||||||||||||||
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Active transmitters |
4,769 | | 4,769 | 5,061 | | 5,061 | (292) | (5.8%) | ||||||||||||||||||||||||
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(1) | Software operations are net of a reduction to maintenance revenue required by acquisition accounting to reflect fair value. |
32
Revenues Wireless
Our total revenues were $41.4 million and $48.5 million for the three months ended September 30, 2012 and 2011, respectively. Service, rental and maintenance revenues, net of $39.8 million and $46.0 million for the three months ended September 30, 2012 and 2011, respectively, consist primarily of recurring fees associated with the provision of messaging services and rental of leased units and is net of a provision for service credits. Product and related sales, net of $1.6 million and $2.5 million for the three months ended September 30, 2012 and 2011, respectively, consist primarily of revenues associated with the sale of devices and charges for leased devices that are not returned and are net of anticipated credits. The decrease in revenues reflected the decrease in demand for our wireless services. The table below details total service, rental and maintenance revenues, net for the periods stated:
For the Three Months Ended September 30, |
||||||||
2012 | 2011 | |||||||
(Dollars in thousands) | ||||||||
Service, rental and maintenance revenues, net: |
||||||||
Paging: |
||||||||
Direct: |
||||||||
One-way messaging |
$ | 32,464 | $ | 36,687 | ||||
Two-way messaging |
4,974 | 6,175 | ||||||
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|
|
|||||
$ | 37,438 | $ | 42,862 | |||||
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|
|||||
Indirect: |
||||||||
One-way messaging |
$ | 1,202 | $ | 1,524 | ||||
Two-way messaging |
595 | 735 | ||||||
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|
|||||
$ | 1,797 | $ | 2,259 | |||||
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|
|||||
Total paging: |
||||||||
One-way messaging |
$ | 33,666 | $ | 38,211 | ||||
Two-way messaging |
5,569 | 6,910 | ||||||
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|
|||||
Total paging revenue |
39,235 | 45,121 | ||||||
Non-paging revenue |
560 | 885 | ||||||
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|
|||||
Total service, rental and maintenance revenues, net |
$ | 39,795 | $ | 46,006 | ||||
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The table below sets forth units in service and service revenues, the changes in each between the three months ended September 30, 2012 and 2011 and the changes in revenues associated with differences in ARPU and the number of units in service:
Units in Service | Revenues | |||||||||||||||||||||||||||||||
As of September 30, | For the Three Months Ended September 30, | Change Due To: | ||||||||||||||||||||||||||||||
2012 | 2011 | Change | 2012(1) | 2011(1) | Change | ARPU | Units | |||||||||||||||||||||||||
(Units in thousands) | (Dollars in thousands) | |||||||||||||||||||||||||||||||
One-way messaging |
1,421 | 1,578 | (157) | $ | 33,666 | $ | 38,211 | $ | (4,545) | $ | (541) | $ | (4,004) | |||||||||||||||||||
Two-way messaging |
125 | 143 | (18) | 5,569 | 6,910 | (1,341) | (524) | (817) | ||||||||||||||||||||||||
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Total |
1,546 | 1,721 | (175) | $ | 39,235 | $ | 45,121 | $ | (5,886) | $ | (1,065) | $ | (4,821) | |||||||||||||||||||
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(1) | Amounts shown exclude non-paging and product and related sales. |
As previously discussed, demand for messaging services has declined over the past several years and we anticipate that it will continue to decline for the foreseeable future, which will result in reductions in service, rental and maintenance revenues, net due to the lower number of subscribers and related units in service.
33
Revenues Software
Product and related sales for software operations were $13.7 million and $12.9 million for the three months ended September 30, 2012 and 2011, respectively, which reflect software license revenue, professional services revenue, equipment sales, and maintenance revenue. Operations revenue from software licenses, professional services, and equipment sales was $7.1 million and $8.3 million for the three months ended September 30, 2012 and 2011, respectively. Maintenance revenue for software operations is recognized as earned over the maintenance contract period. Maintenance revenue was $6.6 million and $4.6 million for the three months ended September 30, 2012 and 2011, respectively. For the three months ended September 30, 2011, maintenance revenue was reduced by $1.5 million to reflect the reduction to fair value as required by acquisition accounting. The table below details total product and related sales, net for software operations for the periods stated:
For the Three Months Ended September 30, |
||||||||
Revenue |
2012 | 2011 (1) | ||||||
(Dollars in thousands) | ||||||||
Software licenses |
$ | 2,771 | $ | 3,094 | ||||
Professional services |
2,918 | 2,949 | ||||||
Equipment sales |
1,415 | 2,270 | ||||||
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Total operations revenue |
7,104 | 8,313 | ||||||
Maintenance revenue |
6,572 | 4,616 | ||||||
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Total revenue |
$ | 13,676 | $ | 12,929 | ||||
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(1) | Revenue is net of a reduction of $1.5 million to maintenance revenue required by acquisition accounting to reflect fair value. |
Operating Expenses Consolidated
Cost of Products Sold. Cost of products sold consisted primarily of the following significant items:
For the Three Months Ended September 30, | Change Between 2012 and 2011 |
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2012 | 2011 | |||||||||||||||||||||||||||||||
Wireless | Software | Total | Wireless | Software | Total | Total | % | |||||||||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||||||||||
Payroll and related |
$ | | $ | 2,427 | $ | 2,427 | $ | | $ | 2,537 | $ | 2,537 | $ | (110) | (4.3%) | |||||||||||||||||
Cost of sales |
187 | 2,008 | 2,195 | 423 | 2,709 | 3,132 | (937) | (29.9%) | ||||||||||||||||||||||||
Other |
| 483 | 483 | | 282 | 282 | 201 | 71.3% | ||||||||||||||||||||||||
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Total cost of products sold |
$ | 187 | $ | 4,918 | $ | 5,105 | $ | 423 | $ | 5,528 | $ | 5,951 | $ | (846) | (14.2%) | |||||||||||||||||
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FTEs |
| 113 | 113 | | 113 | 113 | | | ||||||||||||||||||||||||
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As illustrated in the table above, cost of products sold for the three months ended September 30, 2012 decreased $0.8 million from the same period in 2011 due to the following variances:
| Payroll and related The decrease of $0.1 million in payroll and related expenses was due to installation costs associated with the software operations. Total FTEs who performed software installations as of September 30, 2012 and 2011 were 113 FTEs for both periods. |
| Cost of sales The decrease of $0.9 million in cost of sales was mainly due to lower cost basis of devices sold to or lost by wireless operations customers of $0.2 million and lower cost of sales of hardware and third-party software of $0.7 million in line with the reduction in equipment revenue for software operations. |
| Other The increase of $0.2 million in other expenses was primarily due to higher miscellaneous expenses associated with installation services in the software operations. |
34
Service, Rental and Maintenance. Service, rental and maintenance expenses consisted primarily of the following significant items:
For the Three Months Ended September 30, | Change Between 2012 and 2011 |
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2012 | 2011 | |||||||||||||||||||||||||||||||
Wireless | Software | Total | Wireless | Software | Total | Total | % | |||||||||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||||||||||
Site rent |
$ | 4,326 | $ | | $ | 4,326 | $ | 5,438 | $ | | $ | 5,438 | $ | (1,112) | (20.4%) | |||||||||||||||||
Telecommunications |
2,257 | | 2,257 | 2,721 | 11 | 2,732 | (475) | (17.4%) | ||||||||||||||||||||||||
Payroll and related |
3,464 | 1,845 | 5,309 | 3,896 | 1,682 | 5,578 | (269) | (4.8%) | ||||||||||||||||||||||||
Stock based compensation |
6 | | 6 | 6 | | 6 | | | ||||||||||||||||||||||||
Other |
1,186 | 647 | 1,833 | 1,133 | 330 | 1,463 | 370 | 25.3% | ||||||||||||||||||||||||
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Total service, rental and maintenance |
$ | 11,239 | $ | 2,492 | $ | 13,731 | $ | 13,194 | $ | 2,023 | $ | 15,217 | $ | (1,486) | (9.8%) | |||||||||||||||||
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FTEs |
152 | 65 | 217 | 169 | 57 | 226 | (9) | (4.0%) | ||||||||||||||||||||||||
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As illustrated in the table above, service, rental and maintenance expenses for the three months ended September 30, 2012 decreased $1.5 million or 9.8% from the same period in 2011 due to the following variances:
| Site rent The decrease of $1.1 million in site rent expenses was primarily due to the rationalization of our networks, which has decreased the number of transmitters required to provide service to our customers. The reduction in transmitters has, in turn, reduced the number of lease locations for the wireless operations. Active transmitters declined 5.8% in 2012 from the same period in 2011. |
| Telecommunications The decrease of $0.5 million in telecommunication expenses was due to the consolidation of our networks. We believe continued reductions in these expenses will occur as our networks continue to be consolidated as anticipated throughout 2012 for our wireless operations. |
| Payroll and related Payroll and related expenses for wireless operations were incurred largely for field technicians, their managers, and in-house repair personnel, and payroll and related expenses for software operations were incurred for product development and technical support personnel. The decrease in payroll and related expenses of $0.3 million was due primarily to the reduction of $0.4 million in payroll and related costs for wireless operations due to headcount reductions of 17 FTEs to 152 FTEs at September 30, 2012 from 169 FTEs at September 30, 2011, partially offset by an increase of $0.1 million of payroll and related costs for software operations. Software operations FTEs increased by 8 FTEs to 65 FTEs at September 30, 2012 from 57 FTEs at September 30, 2011. |
| Stock based compensation Stock based compensation expenses during the three months ended September 30, 2012 were consistent with the same period in 2011. Stock based compensation expenses represented amortization of compensation expense for the restricted stock units (RSUs) awarded to certain eligible employees under the 2009 Long-Term Incentive Plan (LTIP). |
| Other The increase of $0.4 million in other expenses was primarily due to an increase of $0.1 million in outside service expenses for external product development support for software operations and an increase of $0.3 million in miscellaneous expenses associated with product development in the software operations. |
35
Selling and Marketing. Selling and marketing expenses consisted of the following major items:
For the Three Months Ended September 30, | Change Between 2012 and 2011 |
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2012 | 2011 | |||||||||||||||||||||||||||||||
Wireless | Software | Total | Wireless | Software | Total | Total | % | |||||||||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||||||||||
Payroll and related |
$ | 1,757 | $ | 1,747 | $ | 3,504 | $ | 2,122 | $ | 1,471 | $ | 3,593 | $ | (89) | (2.5%) | |||||||||||||||||
Commissions |
730 | 605 | 1,335 | 873 | 570 | 1,443 | (108) | (7.5%) | ||||||||||||||||||||||||
Stock based compensation |
19 | | 19 | 16 | | 16 | 3 | 18.8% | ||||||||||||||||||||||||
Other |
268 | 917 | 1,185 | 401 | 474 | 875 | 310 | 35.4% | ||||||||||||||||||||||||
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Total selling and marketing |
$ | 2,774 | $ | 3,269 | $ | 6,043 | $ | 3,412 | $ | 2,515 | $ | 5,927 | $ | 116 | 2.0% | |||||||||||||||||
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FTEs |
83 | 68 | 151 | 107 | 51 | 158 | (7) | (4.4%) | ||||||||||||||||||||||||
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As indicated in the table above, selling and marketing expenses for the three months ended September 30, 2012 increased by $0.1 million, or 2.0%, from the same period in 2011. Selling and marketing expenses consisted primarily of payroll and related expenses, which decreased by $0.1 million for the three months ended September 30, 2012 compared to the same period in 2011 primarily due to a reduction of $0.4 million in payroll and related costs for wireless operations due to headcount reductions of 24 FTEs to 83 FTEs at September 30, 2012 from 107 FTEs at September 30, 2011, offset by an increase of payroll and related costs of $0.3 million for software operations. Software operations FTEs increased by 17 FTEs to 68 FTEs at September 30, 2012 from 51 FTEs at September 30, 2011. The sales and marketing staff are all involved in selling our paging and software products and services domestically and internationally, as well as reselling other wireless products and services such as cellular phones and e-mail devices under authorized agent agreements. These expenses support our efforts to maintain gross placements of units in service, which mitigated the impact of disconnects on our revenue base for wireless operations, and to identify business opportunities for additional or future software sales. We have a centralized marketing function which is focused on supporting our software products and vertical sales efforts by strengthening our brand, generating sales leads and facilitating the sales process. These marketing functions are accomplished through targeted email campaigns, webinars, regional and national user conferences, monthly newsletters and participation at industry trade shows. We sell our software products through a direct and channel sales force that consists of a dedicated team of managers. Due to the longer sales cycle for our software products we have increased the number of software sales and marketing staff with the intention of increasing our potential sales opportunities. We have reduced the overall cost of our selling and marketing activities on the wireless operations by focusing on the most productive sales and marketing employees.
Commission expenses decreased by $0.1 million for the three months ended September 30, 2012 compared to the same period in 2011 due primarily to a reduction of commission expenses for wireless operations in line with the revenue and subscriber erosion. Stock based compensation expenses increased slightly due to higher amortization of compensation expense for the RSUs awarded to certain eligible employees under the 2009 LTIP. The increase of $0.3 million in other expenses for the three months ended September 30, 2012 compared to the same period in 2011 was primarily due to an increase in travel and entertainment expenses of $0.2 million, advertising expenses of $0.1 million and other miscellaneous selling expenses of $0.1 million in our software operations, partially offset by a reduction in rewards and recognition expenses of $0.1 million in our wireless operations.
36
General and Administrative. General and administrative expenses consisted of the following significant items:
For the Three Months Ended September 30, | Change Between 2012 and 2011 |
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2012 | 2011 | |||||||||||||||||||||||||||||||
Wireless | Software | Total | Wireless | Software | Total | Total | % | |||||||||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||||||||||
Payroll and related |
$ | 4,892 | $ | 959 | $ | 5,851 | $ | 5,115 | $ | 663 | $ | 5,778 | $ | 73 | 1.3% | |||||||||||||||||
Stock based compensation |
268 | 167 | 435 | 218 | 174 | 392 | 43 | 11.0% | ||||||||||||||||||||||||
Bad debt |
168 | 107 | 275 | 276 | 70 | 346 | (71) | (20.5%) | ||||||||||||||||||||||||
Facility rent |
548 | 355 | 903 | 701 | 340 | 1,041 | (138) | (13.3%) | ||||||||||||||||||||||||
Telecommunications |
301 | 89 | 390 | 401 | 93 | 494 | (104) | (21.1%) | ||||||||||||||||||||||||
Outside services |
2,202 | 151 | 2,353 | 2,335 | 161 | 2,496 | (143) | (5.7%) | ||||||||||||||||||||||||
Taxes, licenses and permits |
1,185 | 64 | 1,249 | 1,327 | | 1,327 | (78) | (5.9%) | ||||||||||||||||||||||||
Other |
1,371 | (361) | 1,010 | 1,177 | 26 | 1,203 | (193) | (16.0%) | ||||||||||||||||||||||||
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Total general and administrative |
$ | 10,935 | $ | 1,531 | $ | 12,466 | $ | 11,550 | $ | 1,527 | $ | 13,077 | $ | (611) | (4.7%) | |||||||||||||||||
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FTEs |
162 | 34 | 196 | 179 | 29 | 208 | (12) | (5.8%) | ||||||||||||||||||||||||
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As illustrated in the table above, general and administrative expenses for the three months ended September 30, 2012 decreased $0.6 million, or 4.7%, from the same period in 2011 due primarily to lower outside service expenses, facility rent, and telecommunication expenses. Total general and administrative expenses decreased for the three months ended September 30, 2012 compared to the same period in 2011 due to the following variances:
| Payroll and related Payroll and related expenses were incurred mainly for employees in customer service, information technology, inventory, collections, finance and other support functions as well as executive management. Payroll and related expenses increased by $0.1 million due primarily to higher payroll and related expenses of $0.3 million for software operations, partially offset by lower payroll and related expenses of $0.2 million for wireless operations reflecting headcount reductions of 17 FTEs to 162 FTEs at September 30, 2012 from 179 FTEs at September 30, 2011 for wireless operations. Software operations FTEs increased by 5 FTEs to 34 FTEs at September 30, 2012 from 29 FTEs at September 30, 2011. |
| Stock based compensation Stock based compensation expenses consisted primarily of amortization of compensation expense associated with RSUs awarded to certain eligible employees for both wireless and software operations and amortization of compensation expense for restricted stock granted to non-executive members of our Board of Directors under the Equity Plans. Stock based compensation expenses increased slightly primarily due to higher amortization of compensation expense under the 2009 LTIP, partially offset by lower amortization of compensation expense related to the 2011 LTIP during the three months ended September 30, 2012. |
| Bad debt The decrease of $0.1 million in bad debt expenses was primarily due to a reduction in bad debt expenses for wireless operations, which reflected our bad debt experience due to the change in the composition of the wireless operations customer base to accounts with a large number of units in service. |
| Facility rent The decrease of $0.1 million in facility rent expenses was primarily due to lower facility rent expenses related to the closure of office facilities in the wireless operations as we continue to rationalize our operating requirements to meet lower revenue and customer demand for the wireless operations. |
| Telecommunications The decrease of $0.1 million in telecommunication expenses reflected continued office and staffing reductions as we continue to streamline our operations and reduce our telecommunication requirements for the wireless operations. |
37
| Outside services Outside service expenses consisted primarily of costs associated with printing and mailing invoices, outsourced customer service, temporary help, and various professional fees. The decrease of $0.1 million in outside service expenses was primarily due to lower customer service expenses for wireless operations for the three months ended September 30, 2012 compared to the same period in 2011. |
| Taxes, licenses and permits Tax, license and permit expenses consist of property, franchise, gross receipts and transactional taxes. The decrease in tax, license and permit expenses of $0.1 million was primarily due to lower universal service fee expense and property taxes for wireless operations for the three months ended September 30, 2012 compared to the same period in 2011. |
| Other The decrease of $0.2 million in other expenses was due to a reduction of $0.4 million in miscellaneous expenses for the software operations for shared costs which have been allocated to cost of products sold, service, rental and maintenance and selling and marketing categories. This was partially offset by a net increase of $0.2 million in other expenses for wireless operations (recruiting and relocation expenses increased by $0.3 million during the three months ended September 30, 2012 compared to the same period in 2011, partially offset by a reduction of $0.1 million in repairs and maintenance expenses). |
Severance and Restructuring. There were no severance and restructuring expenses for the three months ended September 30, 2012 compared to $28,000 of severance and restructuring expenses for the same period in 2011, which consisted of lease restructuring costs associated with the terminations of certain lease agreements for transmitter locations for wireless operations.
Depreciation, Amortization and Accretion. Depreciation, amortization and accretion expenses were $4.7 million for the three months ended September 30, 2012 compared to $5.1 million for the same period in 2011. There were $0.3 million in lower depreciation expense for the period from fully depreciated paging infrastructure and other assets and $0.2 million in lower depreciation expense on paging devices resulting from fewer purchases of paging devices and from fully depreciated paging devices; partially offset by an increase of $0.1 million in amortization expenses for the software operations for the three months ended September 30, 2012 compared to the same period in 2011. Depreciation, amortization and accretion expenses for software operations represented $1.8 million of the total $4.7 million in depreciation, amortization and accretion expenses for the three months end September 30, 2012 and $1.7 million of the total $5.1 million in depreciation, amortization and accretion expenses for the three months ended September 30, 2011.
Interest Expense, Net; Other Income (Expense), Net and Income Tax Expense
Interest Expense, Net. Net interest expense decreased to $0.1 million for the three months ended September 30, 2012 compared to $0.7 million for the same period in 2011. This decrease was primarily due to minimal interest on debt for the three months ended September 30, 2012 associated with the Amcom acquisition as the debt was completely repaid on April 6, 2012. As of September 30, 2012, we have no debt outstanding.
Other Income (Expense), Net. Net other income increased to $52,000 for the three months ended September 30, 2012 from $1,000 of other expense, net for the same period in 2011.
38
Income Tax Expense. Income tax expense for both the three months ended September 30, 2012 and 2011 was $5.0 million. The following is the effective tax rate reconciliation for the three months ended September 30, 2012 and 2011, respectively:
For the Three Months Ended September 30, | ||||||||||||||||
2012 | 2011 | |||||||||||||||
(Dollars in thousands) | ||||||||||||||||
Income before income tax expense |
$ | 13,035 | $ | 15,457 | ||||||||||||
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Income tax expense at the Federal statutory rate |
$ | 4,562 | 35.00% | $ | 5,410 | 35.00% | ||||||||||
State income taxes, net of Federal benefit |
448 | 3.44% | 538 | 3.48% | ||||||||||||
Change in valuation allowance |
(16) | (0.12%) | (2,209) | (14.29%) | ||||||||||||
State income tax audit |
(57) | (0.44%) | | | ||||||||||||
Other |
50 | 0.38% | 1,271 | 8.22% | ||||||||||||
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Income tax expense |
$ | 4,987 | 38.26% | $ | 5,010 | 32.41% | ||||||||||
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Results of Operations
Comparison of Revenues and Selected Operating Expenses for the Nine Months Ended September 30, 2012 and 2011
For the Nine Months Ended September 30, | Change Between | |||||||||||||||||||||||||||||||
2012 | 2011 | 2012 and 2011 | ||||||||||||||||||||||||||||||
Wireless | Software | Total | Wireless | Software(1) | Total | Total | % | |||||||||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||||||||||
Revenues: |
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Service, rental and maintenance, net |
$ | 123,387 | $ | | $ | 123,387 | $ | 145,484 | $ | | $ | 145,484 | $ | (22,097) | (15.2%) | |||||||||||||||||
Product and related sales, net |
5,101 | 39,324 | 44,425 | 7,684 | 30,808 | 38,492 | 5,933 | 15.4% | ||||||||||||||||||||||||
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Total |
$ | 128,488 | $ | 39,324 | $ | 167,812 | $ | 153,168 | $ | 30,808 | $ | 183,976 | $ | (16,164) | (8.8%) | |||||||||||||||||
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Selected operating expenses: |
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Cost of products sold |
$ | 516 | $ | 14,621 | $ | 15,137 | $ | 2,257 | $ | 13,202 | $ | 15,459 | $ | (322) | (2.1%) | |||||||||||||||||
Service, rental and maintenance |
34,737 | 7,189 | 41,926 | 43,221 | 4,648 | 47,869 | (5,943) | (12.4%) | ||||||||||||||||||||||||
Selling and marketing |
8,794 | 8,821 | 17,615 | 11,191 | 6,248 | 17,439 | 176 | 1.0% | ||||||||||||||||||||||||
General and administrative |
33,869 | 4,260 | 38,129 | 39,141 | 3,344 | 42,485 | (4,356) | (10.3%) | ||||||||||||||||||||||||
Severance and restructuring |
9 | 37 | 46 | 78 | | 78 | (32) | (41.0%) | ||||||||||||||||||||||||
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Total |
$ | 77,925 | $ | 34,928 | $ | 112,853 | $ | 95,888 | $ | 27,442 | $ | 123,330 | $ | (10,477) | (8.5%) | |||||||||||||||||
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FTEs |
396 | 280 | 676 | 455 | 250 | 705 | (29) | (4.1%) | ||||||||||||||||||||||||
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Active transmitters |
4,769 | | 4,769 | 5,061 | | 5,061 | (292) | (5.8%) | ||||||||||||||||||||||||
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(1) | Software operations reflect financial results from March 3, 2011 to September 30, 2011 and are net of the reduction to maintenance revenue required by acquisition accounting to reflect fair value. |
39
Revenues Wireless
Our total revenues were $128.5 million and $153.2 million for the nine months ended September 30, 2012 and 2011, respectively. Service, rental and maintenance revenues, net of $123.4 million and $145.5 million for the nine months ended September 30, 2012 and 2011, respectively, consist primarily of recurring fees associated with the provision of messaging services and rental of leased units and is net of a provision for service credits. Product and related sales, net of $5.1 million and $7.7 million for the nine months ended September 30, 2012 and 2011, respectively, consist primarily of revenues associated with the sale of devices and charges for leased devices that are not returned and are net of anticipated credits. The decrease in revenues reflected the decrease in demand for our wireless services. The table below details total service, rental and maintenance revenues, net for the periods stated:
For the Nine Months Ended September 30, |
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2012 | 2011 | |||||||
(Dollars in thousands) | ||||||||
Service, rental and maintenance revenues, net: |
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Paging: |
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Direct: |
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One-way messaging |
$ 100,079 | $ 114,247 | ||||||
Two-way messaging |
15,798 | 19,541 | ||||||
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$115,877 | $133,788 | |||||||
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Indirect: |
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One-way messaging |
$3,913 | $4,976 | ||||||
Two-way messaging |
1,868 | 2,304 | ||||||
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$5,781 | $7,280 | |||||||
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Total paging: |
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One-way messaging |
$103,992 | $119,223 | ||||||
Two-way messaging |
17,666 | 21,845 | ||||||
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Total paging revenue |
121,658 | 141,068 | ||||||
Non-paging revenue |
1,729 | 4,416 | ||||||
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Total service, rental and maintenance revenues, net |
$123,387 | $145,484 | ||||||
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The table below sets forth units in service and service revenues, the changes in each between the nine months ended September 30, 2012 and 2011 and the changes in revenues associated with differences in ARPU and the number of units in service:
Units in Service | Revenues | |||||||||||||||||||||||||||||||
As of September 30, | For the Nine Months Ended September 30, | Change Due To: | ||||||||||||||||||||||||||||||
2012 | 2011 | Change | 2012(1) | 2011(1) | Change | ARPU | Units | |||||||||||||||||||||||||
(Units in thousands) | (Dollars in thousands) | |||||||||||||||||||||||||||||||
One-way messaging |
1,421 | 1,578 | (157) | $ | 103,992 | $ | 119,223 | $ | (15,231) | $ | (2,801) | $ | (12,430) | |||||||||||||||||||
Two-way messaging |
125 | 143 | (18) | 17,666 | 21,845 | (4,179) | (566) | (3,613) | ||||||||||||||||||||||||
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Total |
1,546 | 1,721 | (175) | $ | 121,658 | $ | 141,068 | $ | (19,410) | $ | (3,367) | $ | (16,043) | |||||||||||||||||||
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(1) | Amounts shown exclude non-paging and product and related sales. |
As previously discussed, demand for messaging services has declined over the past several years and we anticipate that it will continue to decline for the foreseeable future, which would result in reductions in service, rental and maintenance revenues, net due to the lower number of subscribers and related units in service.
40
Revenues Software
Product and related sales for software operations were $39.3 million and $30.8 million for the nine months ended September 30, 2012 and 2011, respectively, which reflect software license revenue, professional services revenue, equipment sales, and maintenance revenue. Revenue recognized for the software operations in 2011 reflects results from March 3, 2011, the date of acquisition, through September 30, 2011. Operations revenue from software licenses, professional services, and equipment sales was $19.9 million and $22.1 million for the nine months ended September 30, 2012 and 2011, respectively. Operations revenue decreased by $2.2 million during the nine months ended September 30, 2012 compared to the same period in 2011 primarily due to one significant sale that was recognized during the nine months ended September 30, 2011. Maintenance revenue for software operations is recognized as earned over the maintenance contract period. Maintenance revenue was $19.5 million and $8.7 million for the nine months ended September 30, 2012 and 2011, respectively. For the nine months ended September 30, 2011, maintenance revenue was reduced by $5.1 million to reflect the reduction to fair value as required by acquisition accounting. The table below details total product and related sales, net for software operations for the periods stated:
Revenue |
For the Nine Months Ended September 30, |
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2012 | 2011 (1) | |||||||
(Dollars in thousands) | ||||||||
Software licenses |
$ | 7,238 | $ | 9,386 | ||||
Professional services |
7,937 | 7,087 | ||||||
Equipment sales |
4,681 | 5,639 | ||||||
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Total operations revenue |
19,856 | 22,112 | ||||||
Maintenance revenue |
19,468 | 8,696 | ||||||
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Total revenue |
$ | 39,324 | $ | 30,808 | ||||
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(1) | Software operations revenue reflects results from March 3, 2011 to September 30, 2011. Revenue is net of a reduction to maintenance revenue of $5.1 million required by acquisition accounting to reflect fair value. |
Operating Expenses Consolidated
General. Software operations results for the nine months ended September 30, 2011 reflect operations from March 3, 2011 to September 30, 2011.
Cost of Products Sold. Cost of products sold consisted primarily of the following significant items:
For the Nine Months Ended September 30, | ||||||||||||||||||||||||||||||||
2012 | 2011 | Change Between 2012 and 2011 |
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Wireless | Software | Total | Wireless | Software | Total | Total | % | |||||||||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||||||||||
Payroll and related |
$ | | $ | 7,119 | $ | 7,119 | $ | | $ | 5,370 | $ | 5,370 | $ | 1,749 | 32.6% | |||||||||||||||||
Cost of sales |
516 | 6,150 | 6,666 | 2,257 | 6,674 | 8,931 | (2,265) | (25.4%) | ||||||||||||||||||||||||
Other |
| 1,352 | 1,352 | | 1,158 | 1,158 | 194 | 16.8% | ||||||||||||||||||||||||
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Total cost of products sold |
$ | 516 | $ | 14,621 | $ | 15,137 | $ | 2,257 | $ | 13,202 | $ | 15,459 | $ | (322) | (2.1%) | |||||||||||||||||
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FTEs |
| 113 | 113 | | 113 | 113 | | 0.0% | ||||||||||||||||||||||||
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As illustrated in the table above, cost of products sold for the nine months ended September 30, 2012 decreased $0.3 million from the same period in 2011 due to the following variances:
| Payroll and related The increase of $1.7 million in payroll and related expenses was due to installation costs associated with the software operations. Total FTEs who performed software installations as of September 30, 2012 and 2011 were 113 FTEs for both periods. |
41
| Cost of sales The decrease of $2.3 million in cost of sales was due to $1.7 million reduction to wireless operations costs due to the lower cost basis of devices sold to or lost by wireless operations customers and $0.6 million reduction in cost of sales of hardware and third-party software in line with the reduction in equipment revenue for software operations. |
| Other The increase of $0.2 million in other expenses was primarily due to higher miscellaneous expenses associated with installation services in the software operations. |
Service, Rental and Maintenance. Service, rental and maintenance expenses consisted primarily of the following significant items:
For the Nine Months Ended September 30, | Change Between 2012 and 2011 |
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2012 | 2011 | |||||||||||||||||||||||||||||||
Wireless | Software | Total | Wireless | Software | Total | Total | % | |||||||||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||||||||||
Site rent |
$ | 13,538 | $ | | $ | 13,538 | $ | 18,281 | $ | | $ | 18,281 | $ | (4,743) | (25.9%) | |||||||||||||||||
Telecommunications |
6,915 | | 6,915 | 8,688 | 26 | 8,714 | (1,799) | (20.6%) | ||||||||||||||||||||||||
Payroll and related |
10,908 | 5,290 | 16,198 | 12,313 | 3,596 | 15,909 | 289 | 1.8% | ||||||||||||||||||||||||
Stock based compensation |
18 | | 18 | 17 | | 17 | 1 | 5.9% | ||||||||||||||||||||||||
Other |
3,358 | 1,899 | 5,257 | 3,922 | 1,026 | 4,948 | 309 | 6.2% | ||||||||||||||||||||||||
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Total service, rental and maintenance |
$ | 34,737 | $ | 7,189 | $ | 41,926 | $ | 43,221 | $ | 4,648 | $ | 47,869 | $ | (5,943) | (12.4%) | |||||||||||||||||
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FTEs |
152 | 65 | 217 | 169 | 57 | 226 | (9) | (4.0%) | ||||||||||||||||||||||||
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As illustrated in the table above, service, rental and maintenance expenses for the nine months ended September 30, 2012 decreased $5.9 million or 12.4% from the same period in 2011 due to the following variances:
| Site rent The decrease of $4.7 million in site rent expenses was primarily due to the rationalization of our networks, which has decreased the number of transmitters required to provide service to our customers. The reduction in transmitters has, in turn, reduced the number of lease locations for the wireless operations. Active transmitters declined 5.8% in 2012 from the same period in 2011. |
| Telecommunications The decrease of $1.8 million in telecommunication expenses was primarily due to the consolidation of our networks. We believe continued reductions in these expenses will occur as our networks continue to be consolidated as anticipated throughout 2012 for our wireless operations. |
| Payroll and related Payroll and related expenses for wireless operations were incurred largely for field technicians, their managers, and in-house repair personnel, and payroll and related expenses for software operations were incurred for product development and technical support personnel. The increase in payroll and related expenses of $0.3 million was due primarily to the increase of $1.7 million of payroll and related costs for software operations, partially offset by a reduction of $1.4 million in payroll and related costs for wireless operations due to headcount reductions of 17 FTEs to 152 FTEs at September 30, 2012 from 169 FTEs at September 30, 2011. Software operations FTEs increased by 8 FTEs to 65 FTEs at September 30, 2012 from 57 FTEs at September 30, 2011. |
| Stock based compensation Stock based compensation expenses increased slightly due to higher amortization of compensation expense for the RSUs awarded to certain eligible employees under the 2009 LTIP. |
| Other The increase of $0.3 million in other expenses was due to an increase of $0.9 million in other expenses for software operations, partially offset by lower other expenses of $0.6 million for wireless operations. The increase of $0.9 million for software operations consisted of increases in outside service expenses of $0.6 million, training expenses of $0.1 million and various other expenses, net of $0.2 million. The decrease in other expenses of $0.6 million for wireless operations was due primarily to reductions in office expenses of $0.5 million and repairs and maintenance expenses of $0.1 million. |
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Selling and Marketing. Selling and marketing expenses consisted of the following major items:
For the Nine Months Ended September 30, | Change Between 2012 and 2011 |
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2012 | 2011 | |||||||||||||||||||||||||||||||
Wireless | Software | Total | Wireless | Software | Total | Total | % | |||||||||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||||||||||
Payroll and related |
$ | 5,729 | $ | 4,878 | $ | 10,607 | $ | 6,909 | $ | 3,155 | $ | 10,064 | $ | 543 | 5.4% | |||||||||||||||||
Commissions |
2,276 | 1,655 | 3,931 | 3,160 | 1,645 | 4,805 | (874) | (18.2%) | ||||||||||||||||||||||||
Stock based compensation |
53 | | 53 | 49 | | 49 | 4 | 8.2% | ||||||||||||||||||||||||
Other |
736 | 2,288 | 3,024 | 1,073 | 1,448 | 2,521 | 503 | 20.0% | ||||||||||||||||||||||||
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Total selling and marketing |
$ | 8,794 | $ | 8,821 | $ | 17,615 | $ | 11,191 | $ | 6,248 | $ | 17,439 | $ | 176 | 1.0% | |||||||||||||||||
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FTEs |
83 | 68 | 151 | 107 | 51 | 158 | (7) | (4.4%) | ||||||||||||||||||||||||
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As indicated in the table above, selling and marketing expenses for the nine months ended September 30, 2012 increased by $0.2 million, or 1.0%, from the same period in 2011. Selling and marketing expenses consisted primarily of payroll and related expenses, which increased $0.5 million or 5.4% for the nine months ended September 30, 2012 compared to the same period in 2011 primarily due to the increase of payroll and related costs of $1.7 million for software operations, partially offset by a reduction of $1.2 million in payroll and related costs for wireless operations due to headcount reductions of 24 FTEs to 83 FTEs at September 30, 2012 from 107 FTEs at September 30, 2011. Software operations FTEs increased by 17 FTEs to 68 FTEs at September 30, 2012 from 51 FTEs at September 30, 2011. The sales and marketing staff are all involved in selling our paging and software products and services domestically and internationally, as well as reselling other wireless products and services such as cellular phones and e-mail devices under authorized agent agreements. These expenses support our efforts to maintain gross placements of units in service, which mitigated the impact of disconnects on our revenue base for wireless operations, and to identify business opportunities for additional or future software sales. We have a centralized marketing function which is focused on supporting our software products and vertical sales efforts by strengthening our brand, generating sales leads and facilitating the sales process. These marketing functions are accomplished through targeted email campaigns, webinars, regional and national user conferences, monthly newsletters and participation at industry trade shows. We sell our software products through a direct and channel sales force that consists of a dedicated team of managers. Due to the longer sales cycle for our software products we have increased the number of software sales and marketing staff with the intention of increasing our potential sales opportunities. We have reduced the overall cost of our selling and marketing activities on the wireless operations by focusing on the most productive sales and marketing employees.
Commission expenses decreased by $0.9 million for the nine months ended September 30, 2012 compared to the same period in 2011 due primarily to a reduction of commission expenses for wireless operations of $0.9 million in line with the revenue and subscriber erosion. Stock based compensation expenses increased slightly due to higher amortization of compensation expense for the RSUs awarded to certain eligible employees under the 2009 LTIP. The increase of $0.5 million in other expenses for the nine months ended September 30, 2012 compared to the same period in 2011 was primarily due to increases in travel and entertainment expenses of $0.4 million, advertising expenses of $0.2 million, outside service expenses of $0.1 million and miscellaneous expenses of $0.1 million in our software operations, partially offset by reductions in travel and entertainment expenses of $0.1 million, outside service expenses of $0.1 million and rewards and recognition expenses of $0.1 million in our wireless operations.
43
General and Administrative. General and administrative expenses consisted of the following significant items:
For the Nine Months Ended September 30, | Change Between 2012 and 2011 |
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2012 | 2011 | |||||||||||||||||||||||||||||||
Wireless | Software | Total | Wireless | Software | Total | Total | % | |||||||||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||||||||||
Payroll and related |
$ | 15,335 | $ | 2,978 | $ | 18,313 | $ | 16,189 | $ | 2,442 | $ | 18,631 | $ | (318) | (1.7%) | |||||||||||||||||
Stock based compensation |
741 | 90 | 831 | 636 | 391 | 1,027 | (196) | (19.1%) | ||||||||||||||||||||||||
Bad debt |
516 | 263 | 779 | 519 | 163 | 682 | 97 | 14.2% | ||||||||||||||||||||||||
Facility rent |
1,547 | 1,030 | 2,577 | 2,150 | 749 | 2,899 | (322) | (11.1%) | ||||||||||||||||||||||||
Telecommunications |
983 | 262 | 1,245 | 1,238 | 216 | 1,454 | (209) | (14.4%) | ||||||||||||||||||||||||
Outside services |
6,867 | 391 | 7,258 | 9,948 | 309 | 10,257 | (2,999) | (29.2%) | ||||||||||||||||||||||||
Taxes, licenses and permits |
4,040 | 136 | 4,176 | 4,849 | | 4,849 | (673) | (13.9%) | ||||||||||||||||||||||||
Other |
3,840 | (890) | 2,950 | 3,612 | (926) | 2,686 | 264 | 9.8% | ||||||||||||||||||||||||
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Total general and administrative |
$ | 33,869 | $ | 4,260 | $ | 38,129 | $ | 39,141 | $ | 3,344 | $ | 42,485 | $ | (4,356) | (10.3%) | |||||||||||||||||
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FTEs |
162 | 34 | 196 | 179 | 29 | 208 | (12) | (5.8%) | ||||||||||||||||||||||||
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As illustrated in the table above, general and administrative expenses for the nine months ended September 30, 2012 decreased $4.4 million, or 10.3%, from the same period in 2011 due primarily to lower outside service expenses and tax, license and permit expenses. The 2011 outside service expenses included one-time acquisition related costs of $2.7 million for wireless operations. Total general and administrative expenses decreased for the nine months ended September 30, 2012 compared to the same period in 2011 due to the following variances:
| Payroll and related Payroll and related expenses were incurred mainly for employees in customer service, information technology, inventory, collections, finance and other support functions as well as executive management. Payroll and related expenses decreased by $0.3 million primarily due to lower payroll and related expenses of $0.8 million for wireless operations reflecting headcount reductions of 17 FTEs to 162 FTEs at September 30, 2012 from 179 FTEs at September 30, 2011 for wireless operations, partially offset by higher payroll and related expenses of $0.5 million for software operations. Software operations FTEs increased by 5 FTEs to 34 FTEs at September 30, 2012 from 29 FTEs at September 30, 2011. Payroll and related expenses during the nine months ended September 30, 2012 for software operations included a one-time benefit of $0.3 million for forfeitures under the 2012 Short-Term Incentive Plan (STIP) associated with the departure of two former executives. |
| Stock based compensation Stock based compensation expenses consisted primarily of amortization of compensation expense associated with RSUs awarded to certain eligible employees for both wireless and software operations and amortization of compensation expense for restricted stock granted to non-executive members of our Board of Directors under the Equity Plans. Stock based compensation expenses decreased by $0.2 million primarily due to a net one-time benefit of $0.4 million during the nine months ended September 30, 2012 for forfeitures under the 2011 LTIP associated with the departure of two former executives in our software operations, partially offset by higher amortization of compensation expenses for both the 2009 LTIP and 2011 LTIP during the nine months ended September 30, 2012 compared to the same period in 2011. |
| Bad debt The increase of $0.1 million in bad debt expenses was primarily due to an increase in bad debt expenses in our software operations during the nine months ended September 30, 2012 compared to the same period in 2011. |
44
| Facility rent The decrease of $0.3 million in facility rent expenses was primarily due to lower facility rent expenses of $0.6 million related to the closure of office facilities, as we continue to rationalize our operating requirements to meet lower revenue and customer demand for the wireless operations, offset by an increase in facility rent expenses for software operations of $0.3 million. |
| Telecommunications The decrease of $0.2 million in telecommunication expenses reflected continued office and staffing reductions as we continue to streamline our operations and reduce our telecommunication requirements for the wireless operations. |
| Outside services Outside service expenses consisted primarily of costs associated with printing and mailing invoices, outsourced customer service, temporary help, and various professional fees. The decrease of $3.0 million in outside service expenses was due primarily to lower external accounting and legal service expenses for the nine months ended September 30, 2012 compared to the same period in 2011 due to acquisition and integration related costs of $2.7 million in 2011 and lower customer service expenses of $0.5 million for wireless operations during the nine months ended September 30, 2012 compared to the same period in 2011. These decreases were partially offset by increases in external tax support services and other services net of $0.2 million for wireless operations. |
| Taxes, licenses and permits Tax, license and permit expenses consist of property, franchise, gross receipts and transactional taxes. The decrease in tax, license and permit expenses of $0.7 million was primarily due to resolution of various state and local tax audits for wireless operations for the nine months ended September 30, 2011 at amounts higher than the originally estimated liabilities. |
| Other The increase of $0.3 million in other expenses was primarily due to increases in recruiting and relocation expenses of $0.3 million and financial service expenses of $0.2 million, partially offset by a reduction in office expenses of $0.2 million for wireless operations. |
Severance and Restructuring. Severance and restructuring expenses decreased to $46,000 for the nine months ended September 30, 2012 compared to $78,000 for the same period in 2011, which consisted of lease restructuring costs associated with the terminations of certain lease agreements for transmitter locations for wireless operations. Severance and restructuring expenses of $46,000 for the nine months ended September 30, 2012 consisted of $37,000 of severance expenses for software operations due to involuntary terminations and $9,000 of restructuring expenses for wireless operations.
Depreciation, Amortization and Accretion. Depreciation, amortization and accretion expenses were $13.8 million for the nine months ended September 30, 2012 compared to $14.9 million for the same period in 2011. There were $1.0 million in lower depreciation expense for the period from fully depreciated paging infrastructure and other assets, $1.0 million in lower depreciation expense on paging devices resulting from fewer purchases of paging devices and from fully depreciated paging devices and $0.1 million reduction in accretion expenses, partially offset by an increase of $1.0 million in amortization expense due to the increase in intangible assets associated with our software operations. Depreciation, amortization and accretion expenses for software operations represented $5.2 million of the total $13.8 million in depreciation, amortization and accretion expenses for the nine months end September 30, 2012 and $3.9 million of the total $14.9 million in depreciation, amortization and accretion expenses for the nine months ended September 30, 2011.
Interest Expense, Net; Other Income, Net and Income Tax Expense (Benefit)
Interest Expense, Net. Net interest expense decreased to $0.3 million for the nine months ended September 30, 2012 from $1.9 million for the same period in 2011. This decrease was primarily due to minimal interest on debt for the nine months ended September 30, 2012 associated with the Amcom acquisition as the debt was completely repaid on April 6, 2012. As of September 30, 2012, we have no debt outstanding.
Other Income, Net. Net other income decreased to $0.4 million for the nine months ended September 30, 2012 from $7.8 million of net other income for the same period in 2011. The other income recorded during the nine months ended September 30, 2011 was primarily related to the gain on the sale of narrowband personal communications service licenses to Sensus USA, Inc. (Sensus) in 2011 of $7.5 million.
45
Income Tax Expense (Benefit). Income tax expense for the nine months ended September 30, 2012 was $16.3 million, an increase of $34.3 million from the $18.0 million income tax benefit for the nine months ended September 30, 2011. The increase in income tax expense and the effective tax rate reflects no adjustment to the deferred income tax asset valuation allowance in 2012. The benefit associated with the change in the deferred income tax asset valuation account in 2011 reflected the expected additional taxable income associated with the acquisition of Amcom. The following is the effective tax rate reconciliation for the nine months ended September 30, 2012 and 2011, respectively:
For the Nine Months Ended September 30, | ||||||||||||||||
2012 | 2011 | |||||||||||||||
(Dollars in thousands) | ||||||||||||||||
Income before income tax expense |
$ | 41,222 | $ | 51,698 | ||||||||||||
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Income tax expense at the Federal statutory rate |
$ | 14,428 | 35.00% | $ | 18,094 | 35.00% | ||||||||||
State income taxes, net of Federal benefit |
1,344 | 3.26% | 1,696 | 3.28% | ||||||||||||
Change in valuation allowance |
(43) | (0.10%) | (39,458) | (76.32%) | ||||||||||||
State income tax audit |
191 | 0.46% | | | ||||||||||||
Other |
345 | 0.84% | 1,673 | 3.23% | ||||||||||||
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Income tax expense (benefit) |
$ | 16,265 | 39.46% | $ | (17,995) | (34.81%) | ||||||||||
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Liquidity and Capital Resources Consolidated
Cash and Cash Equivalents
At September 30, 2012, we had cash and cash equivalents of $49.5 million. This available cash and cash equivalents are held in accounts managed by third-party financial institutions and consist of invested cash and cash in our operating accounts. The invested cash is invested in interest bearing funds managed by third-party financial institutions. These funds invest in direct obligations of the government of the United States. To date, we have experienced no loss or lack of access to our invested cash or cash equivalents; however, we can provide no assurance that access to our invested cash and cash equivalents will not be impacted by adverse conditions in the financial markets.
At any point in time, we have approximately $3.0 to $5.0 million in our operating accounts that are with third-party financial institutions. While we monitor daily the cash balances in our operating accounts and adjust the cash balances as appropriate, these cash balances could be impacted if the underlying financial institutions fail or are subject to other adverse conditions in the financial markets. To date, we have experienced no loss or lack of access to cash in our operating accounts.
We intend to use our cash on hand to provide working capital, to support operations, and to return value to stockholders by cash dividends and repurchases of our common stock. We may also consider using cash to fund acquisitions of assets of other businesses that we believe will provide a measure of growth or revenue stability while supporting our operating structure.
Overview
Based on current and anticipated levels of operations, we anticipate net cash provided by operating activities, together with the available cash on hand at September 30, 2012, should be adequate to meet anticipated cash requirements for both our wireless and software businesses for the foreseeable future.
In the event that net cash provided by operating activities and cash on hand are not sufficient to meet future cash requirements, we may be required to reduce planned capital expenses, reduce or eliminate our cash dividends to stockholders, reduce or eliminate our common stock repurchase program, and/or sell assets or seek additional financing beyond the availability in our revolving credit facility. We can provide no assurance that reductions in planned capital expenses or proceeds from asset sales would be sufficient to cover shortfalls in available cash or that additional financing beyond the availability in our revolving credit facility would be
46
available on acceptable terms. As of September 30, 2012, our available cash on hand was $49.5 million and our available borrowing capacity under our revolving credit facility was approximately $40.0 million (see Borrowings below).
The following table sets forth information on our net cash flows from operating, investing, and financing activities for the periods stated:
For
the Nine Months Ended September 30, |
Change Between 2012 and 2011 |
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2012 | 2011 | |||||||||||
(Dollars in thousands) | ||||||||||||
Net cash provided by operating activities |
$ 52,705 | $ 60,827 | $ (8,122) | |||||||||
Net cash used in investing activities |
(9,803) | (131,806) | (122,003) | |||||||||
Net cash used in financing activities |
(47,012) | (17,652) | 29,360 |
Net Cash Provided by Operating Activities. As discussed above, we are dependent on cash flows from operating activities to meet our cash requirements. Cash from operations varies depending on changes in various working capital items including deferred revenues, accounts payable, accounts receivable, prepaid expenses and various accrued expenses. The following table includes the significant cash receipt and expenditure components of our cash flows from operating activities for the periods indicated, and sets forth the change between the indicated periods:
For
the Nine Months Ended September 30, |
Change Between 2012 and 2011 |
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2012 | 2011 | |||||||||||
(Dollars in thousands) | ||||||||||||
Cash received from customers |
$ 167,734 | $ 187,680 | $(19,946) | |||||||||
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Cash paid for |
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Payroll and related expenses |
55,837 | 58,523 | (2,686) | |||||||||
Site rent expenses |
13,640 | 18,493 | (4,853) | |||||||||
Telecommunication expenses |
7,890 | 9,387 | (1,497) | |||||||||
Interest expenses |
129 | 1,341 | (1,212) | |||||||||
Other operating expenses |
37,533 | 39,109 | (1,576) | |||||||||
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115,029 | 126,853 | (11,824) | ||||||||||
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Net cash provided by operating activities |
$ 52,705 | $ 60,827 | $ (8,122) | |||||||||
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Net cash provided by operating activities decreased $8.1 million for the nine months ended September 30, 2012 compared to the same period in 2011. Cash received from customers decreased $20.0 million for the nine months ended September 30, 2012 from the same period in 2011. Cash received from customers consisted of revenues and direct taxes billed to customers adjusted for changes in accounts receivable, deferred revenue and tax withholding amounts. The decrease was due to lower revenue of $16.2 million, lower deferred revenue of $3.6 million, partially offset by higher customer deposits, accounts receivable and accrued sales tax of $0.2 million.
The decline in cash received from customers was offset by the reductions in cash paid for operating activities as follows:
| Cash payments for payroll and related expenses decreased $2.7 million due primarily to reductions in payroll and related expenses for wireless operations. |
| Cash payments for site rent expenses decreased $4.9 million. This decrease was due primarily to lower site rent expenses for leased locations as we rationalized our network and incurred lower payments in 2012 for wireless operations. |
| Cash payments for telecommunication expenses decreased $1.5 million. This decrease was due primarily to the consolidation of our networks and reflects continued office and staffing reductions to support our smaller customer base for wireless operations. |
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| Cash payments for interest expenses decreased $1.2 million primarily due to less interest on debt associated with the Amcom acquisition as principal payments were paid to eliminate the debt amount. |
| Cash payments for other operating expenses decreased $1.6 million. The decrease was due primarily to lower outside service expenses of $1.5 million (primarily related to acquisition and integration costs in 2011) and lower tax, license and permit expenses of $0.7 million (primarily due to resolution of various state and local tax audits for wireless operations for the nine months ended September 30, 2011 at amounts higher than the originally estimated). These decreases were partially offset by increases in facility rent expenses of $0.4 million for software operations and various other expenses, net of $0.2 million for wireless operations (primarily due to higher recruiting and relocation expenses in 2012). |
Net Cash Used In Investing Activities. Net cash used in investing activities decreased $122.0 million for the nine months ended September 30, 2012 compared to the same period in 2011 due primarily to the consideration paid, net of cash acquired related to the Amcom acquisition in the first quarter of 2011 of $134.2 million. This decrease was partially offset by $7.5 million of proceeds received from Sensus in 2011 for the sale of the narrow band PCS license, an increase in consideration paid in 2012 for the IMCO acquisition of $3.0 million and an increase in capital expenditures net of proceeds from disposal of property and equipment in 2012 compared to 2011 of $1.7 million.
Net Cash Used In Financing Activities. Net cash used in financing activities increased $29.4 million for the nine months ended September 30, 2012 from the same period in 2011 due to $4.9 million in stock repurchases and higher repayments of debt of $4.6 million, partially offset by lower cash dividends paid to stockholders of $2.8 million during the nine months ended September 30, 2012 compared to the same period in 2011. In addition, issuance of debt in 2011 associated with the Amcom acquisition of $24.0 million was partially offset by $1.3 million in deferred financing costs related to the debt recorded in the first quarter of 2011.
Cash Dividends to Stockholders. For the nine months ended September 30, 2012 we paid a total of $13.8 million (or $0.625 per share of common stock) in cash dividends compared to $16.6 million (or $0.75 per share of common stock) in cash dividends for the same period in 2011.
Future Cash Dividends to Stockholders. On November 1, 2012, our Board of Directors declared a regular quarterly dividend of $0.125 per share of common stock, with a record date of November 16, 2012 and a payment date of December 7, 2012. This dividend of approximately $2.8 million will be paid from available cash on hand.
Common Stock Repurchase Program. On July 31, 2008, our Board of Directors approved a program for us to repurchase our common stock in the open market. Credit Suisse Securities (USA) LLC will administer such purchases. We expect to use available cash on hand and net cash provided by operating activities to fund the common stock repurchase program.
During 2011 our common stock repurchase program was suspended due to the acquisition of our software operations. On July 24, 2012, our Board of Directors approved a fifth supplement to the common stock repurchase program effective August 1, 2012 and extended the purchase period through December 31, 2013. This repurchase authority allows, at managements discretion, to selectively repurchase shares of our common stock from time to time in the open market depending upon market price and other factors. Without exceeding the $25.0 million repurchase authority during the purchase period (August 1, 2012 through December 31, 2013), the maximum repurchase authority for the period August 1, 2012 through December 31, 2012 is $13.5 million and the maximum repurchase authority for the calendar year 2013 is $19.1 million. (See Note 15 of Unaudited Notes to Condensed Consolidated Financial Statements for further discussion on our common stock repurchase program.)
Borrowings. On November 8, 2011 we executed the First Amendment to our Amended and Restated Credit Agreement (Amended Credit Agreement) with Wells Fargo Capital Finance, LLC (Wells Fargo). The Amended Credit Agreement increased the amount of the revolving credit facility to $40.0 million. The maturity date for the revolving credit facility is September 3, 2015. The Amended Credit Agreement also revised the London Interbank Offered Rate (LIBOR) definition to eliminate the LIBOR floor and reduced the interest rate
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margin to 3.25%. The debt is secured by a lien on substantially all of the existing assets, interests in assets and proceeds owned or acquired by us.
On April 6, 2012, we repaid the $3.3 million that was outstanding under the Amended Credit Agreement. As of September 30, 2012, the Amended Credit Agreement remains in effect with approximately $40.0 million of available borrowing capacity subject to maintaining a minimum liquidity threshold of $25.0 million and to reductions for outstanding LOCs. The $25.0 million liquidity threshold can be satisfied by maintaining cash on hand or borrowing capacity under the Amended Credit Agreement. As of September 30, 2012, we had no debt outstanding. (See Note 13 of Unaudited Notes to Condensed Consolidated Financial Statements for further discussion on our long-term debt.)
We are subject to certain financial covenants on a quarterly basis under the terms of the Amended Credit Agreement. These financial covenants consist of a leverage ratio and a fixed charge coverage ratio. We are in compliance with all of the required financial covenants as of September 30, 2012.
Commitments and Contingencies
Operating Leases. We have operating leases for office and transmitter locations. Substantially all of these leases have lease terms ranging from one month to six years. We continue to review our office and transmitter locations, and intend to replace, reduce or consolidate leases, where possible. Total rent expense under operating leases for the wireless operations for the three months ended September 30, 2012 and 2011 was approximately $4.6 million and $5.9 million, respectively; and approximately $14.4 million and $19.7 million for the nine months ended September 30, 2012 and 2011, respectively. Total rent expense under operating leases for the software operations for each of the three months ended September 30, 2012 and 2011 was $0.3 million, respectively, and for the nine months ended September 30, 2012 and 2011 was $1.0 million and $0.7 million, respectively.
Other Commitments. See Note 21 of Unaudited Notes to Condensed Consolidated Financial Statements for the status of other commitments during the quarter ended September 30, 2012.
Off-Balance Sheet Arrangements. We do not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. As such, we are not exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in such relationships.
Contingencies. We are involved, from time to time, in lawsuits arising in the normal course of business. We believe these pending lawsuits will not have a material adverse impact on our financial results or operations.
See Note 21 of Unaudited Notes to Condensed Consolidated Financial Statements for legal proceedings during the quarter ended September 30, 2012.
Application of Critical Accounting Policies
The preceding discussion and analysis of financial condition and results of operations are based on our condensed consolidated financial statements, which have been prepared in conformity with United States generally accepted accounting principles (GAAP). The preparation of these condensed consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosures. On an on-going basis, we evaluate estimates and assumptions, including but not limited to those related to the impairment of long-lived assets and intangible assets subject to amortization and goodwill, accounts receivable allowances, revenue recognition, depreciation expense, asset retirement obligations, severance and restructuring and income taxes. We base our estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
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There have been no changes to the critical accounting policies reported in the 2011 Annual Report that affect our more significant judgments and estimates used in the preparation of our condensed consolidated financial statements.
Non-GAAP Financial Measures
We use a non-GAAP financial measure as a key element in determining performance for purposes of incentive compensation under our annual STIP for our wireless and software operations. That non-GAAP financial measure is operating cash flow (OCF) defined as earnings before interest, taxes, depreciation, amortization and accretion (EBITDA) less purchases of property and equipment. (EBITDA is defined as operating income plus depreciation, amortization and accretion, each determined in accordance with GAAP). Purchases of property and equipment are also determined in accordance with GAAP. For purposes of STIP performance, OCF was as follows for the periods stated:
For the Three Months Ended September 30, | ||||||||||||||||||||||||
2012 | 2011 | |||||||||||||||||||||||
Wireless | Software | Total | Wireless | Software (1) | Total | |||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||
Operating income (loss) |
$ | 13,361 | $ | (314) | $ | 13,047 | $ | 16,527 | $ | (337) | $ | 16,190 | ||||||||||||
Plus: Depreciation, amortization and accretion |
2,944 | 1,780 | 4,724 | 3,407 | 1,673 | 5,080 | ||||||||||||||||||
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EBITDA (as defined by the Company) |
16,305 | 1,466 | 17,771 | 19,934 | 1,336 | 21,270 | ||||||||||||||||||
Less: Purchases of property and equipment |
(2,658) | (38) | (2,696) | (1,758) | (21) | (1,779) | ||||||||||||||||||
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OCF (as defined by the Company) |
$ | 13,647 | $ | 1,428 | $ | 15,075 | $ | 18,176 | $ | 1,315 | $ | 19,491 | ||||||||||||
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(1) | Software operations are net of maintenance revenue reductions required by acquisition accounting to reflect fair value. |
For the Nine Months Ended September 30, | ||||||||||||||||||||||||
2012 | 2011 | |||||||||||||||||||||||
Wireless | Software | Total | Wireless | Software (1) | Total | |||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||
Operating income (loss) |
$ | 41,950 | $ | (836) | $ | 41,114 | $ | 46,223 | $ | (495) | $ | 45,728 | ||||||||||||
Plus: Depreciation, amortization and accretion |
8,613 | 5,232 | 13,845 | 11,057 | 3,861 | 14,918 | ||||||||||||||||||
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EBITDA (as defined by the Company) |
50,563 | 4,396 | 54,959 | 57,280 | 3,366 | 60,646 | ||||||||||||||||||
Less: Purchases of property and equipment |
(7,031) | (104) | (7,135) | (4,973) | (161) | (5,134) | ||||||||||||||||||
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OCF (as defined by the Company) |
$ | 43,532 | $ | 4,292 | $ | 47,824 | $ | 52,307 | $ | 3,205 | $ | 55,512 | ||||||||||||
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(1) | Software operations reflect financial results from March 3, 2011 to September 30, 2011 and are net of maintenance revenue reductions required by acquisition accounting to reflect fair value. |
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Long-term Debt
On April 6, 2012, we repaid the remaining $3.3 million of the debt outstanding. As of September 30, 2012, we had no debt outstanding. The Amended Credit Agreement remains in effect with approximately $40.0 million of available borrowing capacity. We will be exposed to changes in interest rates should we undertake new borrowings under the Amended Credit Agreement (see Note 13 of Unaudited Notes to Condensed Consolidated Financial Statements for further discussion on our long-term debt). The floating interest rate debt exposes us to interest rate risk, with the primary interest rate exposure resulting from changes in LIBOR.
The definitive extent of the interest rate risk is not quantifiable or predictable because of the variability of future interest rates and business financing requirements. We do not customarily use derivative instruments to
50
manage our interest rate risk profile. As of September 30, 2012, we have no derivative financial instruments outstanding to manage our interest rate risk.
We conduct a limited amount of business outside the United States. Currently, all transactions are billed and denominated in United States dollars and, consequently, we do not currently have any material exposure to the risk of foreign exchange rate fluctuations.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management carried out an evaluation, as required by Rule 13a-15(b) of the Securities Exchange Act of 1934 (the Exchange Act), with the participation of our President and Chief Executive Officer (CEO), our principal executive officer, and Chief Accounting Officer and Chief Financial Officer (CFO), our principal financial officer, of the effectiveness of our disclosure controls and procedures, as of the end of our last fiscal quarter. Based upon this evaluation, the CEO and the CFO concluded that our disclosure controls and procedures were effective as of the end of the period covered by this Quarterly Report on Form 10-Q, such that the information relating to us required to be disclosed in our Exchange Act reports filed with the SEC (i) is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and (ii) is accumulated and communicated to our management, including the CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting
In addition, our management carried out an evaluation, as required by Rule 13a -15(d) of the Exchange Act, with the participation of the CEO and CFO, of changes in our internal control over financial reporting. Effective January 3, 2012, we converted our software operations general ledger and related systems to the same systems currently utilized by wireless operations. Except as described above, the CEO and CFO concluded that there were no other changes in our internal control over financial reporting that occurred during the last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. We believe that our disclosure controls and procedures were operating effectively as of September 30, 2012.
We are involved, from time to time, in lawsuits arising in the normal course of business. We believe these pending lawsuits will not have a material adverse impact on our financial results or operations.
Information regarding reportable legal proceedings is contained in Part I Item 3 Legal Proceedings in the 2011 Annual Report. The following amends and restates the description of previously reported legal contingencies in the 2011 Annual Report for which there has been a material development during the nine months ended September 30, 2012.
Filed Litigation. On June 25, 2012, Mr. and Mrs. Andre C. Franco (collectively the Plaintiffs) filed a lawsuit in the Circuit Court for Montgomery County, Maryland against Metrocall, Inc. (now USA Mobility Wireless, Inc. Wireless), and an employee of Wireless (collectively the Defendants). The lawsuit arose from a vehicle accident involving the employee in December 2009. The Plaintiffs seek damages of $21.0 million jointly and severally from the Defendants. As of September 30, 2012, the Plaintiffs and the Company are currently in discussion regarding mediation.
We are fully insured for these damages and our defense against this claim has been assumed by the insurance carrier who has designated legal counsel to handle this lawsuit on our behalf. We do not expect the monetary settlement of this lawsuit, if any, would have a material impact on our financial condition or results of operations.
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The risk factors included in Part I Item 1A Risk Factors of the 2011 Annual Report have not materially changed during the quarter ended September 30, 2012.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The following table presents information with respect to stock purchased by us during the three months ended September 30, 2012.
Period |
Total Number of Shares Purchased(1) |
Average Price Paid Per Share(2) |
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs |
Approximate Dollar Value of Shares That May Yet Be Purchased Under the Publicly Announced Plans or Programs(3) |
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(Dollars in thousands) |
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Beginning Balance |
$ | 25,000 | ||||||||||||||
July 1 through July 31, 2012 |
| $ | | | 25,000 | |||||||||||
August 1 through August 31, 2012 |
275,869 | 11.05 | 275,869 | 21,952 | ||||||||||||
September 1 through September 30, 2012 |
159,113 | 11.73 | 159,113 | 20,085 | ||||||||||||
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Total |
434,982 | $ | 11.30 | 434,982 | ||||||||||||
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(1) | The total number of shares purchased includes shares purchased pursuant to the common stock repurchase program described in footnote 3 below. |
(2) | Average price paid per share excludes commissions. |
(3) | During 2011 our common stock repurchase program was suspended due to the acquisition of our software operations. On July 24, 2012 and effective August 1, 2012, our Board of Directors approved a fifth supplement to the common stock repurchase program and reset the repurchase authority to $25.0 million as of August 1, 2012. The purchase period was extended through December 31, 2013. Without exceeding the $25.0 million repurchase authority during the purchase period (August 1, 2012 through December 31, 2013), the maximum repurchase authority for the period through December 31, 2012 is $13.5 million and the maximum repurchase authority for the calendar year 2013 is $19.1 million. |
Item 5. Other Information
Mr. Colin Balmforth serves as President of Amcom pursuant to an offer letter agreement with the Company dated July 27, 2012 attached hereto as Exhibit 10.1, and Mrs. Lynn M. Danko serves as Chief Financial Officer of Amcom pursuant to an offer letter agreement with the Company dated September 27, 2012 attached hereto as Exhibit 10.2.
Our Board of Directors approved an annual base salary increase for Mr. Shawn E. Endsley, CFO, effective September 30, 2012 from $200,000 to $250,000. Mr. Endsley will participate in the annual STIP based upon his prorated annual salary for 2012. Mr. Endsley will participate in the 2009 LTIP at his current level.
The Company has a Code of Business Conduct and Ethics (Code) which contains general guidelines for conducting our business consistent with the highest standards of business ethics. This Code applies to all of our directors, officers and employees. On October 30, 2012, the Company approved certain amendments to the Code, mainly the addition of sections on conflicts of interest and employment of relatives. The updated Code is attached hereto as Exhibit 14.1.
52
10.1 | Offer Letter, dated as of July 31, 2012, between USA Mobility, Inc. and Colin Balmforth(1) | |
10.2 | Offer Letter, dated as of September 28, 2012, between Amcom Software, Inc. and Lynn M. Danko(1) | |
14.1 | Code of Business Conduct and Ethics of USA Mobility, Inc., Restated October 19, 2012(1) | |
31.1 | Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended, dated November 2, 2012(1) | |
31.2 | Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended, dated November 2, 2012(1) | |
32.1 | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350 dated November 2, 2012(1) | |
32.2 | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350 dated November 2, 2012(1) | |
101 | XBRL Instance Document(1) |
(1) | Filed herewith. |
53
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.
USA MOBILITY, INC. | ||||||
Dated: November 2, 2012 | /s/ Shawn E. Endsley | |||||
Name: Shawn E. Endsley | ||||||
Title: Chief Financial Officer |
54
EXHIBIT INDEX
Exhibit No. |
Description | |
10.1 | Offer Letter, dated as of July 31, 2012, between USA Mobility, Inc. and Colin Balmforth(1) | |
10.2 | Offer Letter, dated as of September 28, 2012, between Amcom Software, Inc. and Lynn M. Danko(1) | |
14.1 | Code of Business Conduct and Ethics of USA Mobility, Inc., Restated October 19, 2012(1) | |
31.1 | Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended, dated November 2, 2012(1) | |
31.2 | Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended, dated November 2, 2012(1) | |
32.1 | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350 dated November 2, 2012(1) | |
32.2 | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350 dated November 2, 2012(1) | |
101 | XBRL Instance Document(1) |
(1) | Filed herewith. |
55
Exhibit 10.1
Vincent D. Kelly
Chief Executive Officer
July 27, 2012
Colin Balmforth
P.O. Box 7399
Breckenridge, CO 80424
Dear Colin:
We are pleased to offer you the position of President of Amcom Software, Inc., a subsidiary of USA Mobility, Inc. In this role, you will be responsible for the leadership and direction of the software business with the objective of providing effective and profitable operation and growth. Your responsibilities include accountability for profit/loss and overall organizational performance in terms of sales, operational, financial and customer satisfaction goals. This offer of employment is contingent upon successful completion of a background check, your signature on the attached Amcom Employee Agreement, your relocation to Minneapolis and your acceptance of this letter.
Your overall responsibilities include, but are not limited to:
| Sales to new and existing customers, product development of new and upgraded existing products, managing the human capital of the organization, technical support, professional services, financial planning and budgets. |
| Developing an intimate understanding of the companys current and future capabilities, customer requirements, existing resources, systems and human capital. |
| Initiating the development of a plan that will set the future direction of Amcom within the greater healthcare software arena, fully utilizing the benefits that USA Mobility affords. |
| Leading the merger and acquisition efforts for the company in conjunction with the CEO and other parent company resources. This includes setting the strategy, soliciting prospective acquisitions, evaluating prospective acquisitions, communicating the rationale and background to the CEO and board, consummating the deal and managing the integration. |
| Continuously evaluating the overall effectiveness of the Amcom organization and digging in when necessary to determine the root cause of performance issues. Provide status reports and progress updates to employees, customers, and other functional partners within Amcom. Proactive communication is a must. |
| Leading the positive and encouraging Amcom culture, recognizing that the dedication and loyalty of the members of the Amcom team means everything to the ultimate success of the company. |
| Growing Amcom to become an increasingly larger and critical business unit under the USA Mobility umbrella. |
In this position, you will report to the Chief Executive Officer of USA Mobility and work closely with other members of the executive management team to achieve our goals, including the attainment of our long-term objectives.
USA Mobility, Inc., 6850 Versar Center, Suite 420 Springfield, VA 22151 Phone: (703)-269-6950 www.usamobility.com
The terms of this offer are outlined below.
1) | Base Salary: $13,461.53 paid bi-weekly ($350,000 annually) |
2) | Bonus: You are eligible to earn 75% of base salary ($262,500) paid annually. Bonus payment will be based upon accomplishment of pre-determined goals and objectives, as set and agreed upon by the Board of Directors of USA Mobility. |
3) | Benefits: You have the option of participating in the companys benefit programs as detailed in the Company handbook, including health, prescription, dental and vision insurance; cafeteria plan and flexible spending accounts; short and long term disability plans, life insurance and 401(k) retirement plan participation will be available to you on the same terms as made available to other USA Mobility employees. |
4) | Paid Time Off: You will accrue paid time off at a rate of 20 days per year. In addition, you will be eligible for nine paid holidays per calendar year. |
5) | Expenses: Business related expenses including travel, lodging, meals and incidentals, (i.e., telephone expenses) associated with work-related travel will be reimbursed to you, following the submission of receipts consistent with policy. |
6) | Equity Incentive Package: You will have the opportunity to participate in the Board/Management equity incentive plan at a level below the CEO of USA Mobility but commensurate with your position as determined by the Board. Subject to the terms of the plan, you will be eligible for an award based upon three times your annual bonus amount or the equivalent of your target bonus amount for each of the three years of participation in the plan. |
7) | Relocation Assistance: You will receive relocation assistance (net of taxes) in the amount of $75,000.00 which represents the maximum sum to be paid in relocation expenses. In order for relocation expenses to be tax deductible, you must submit receipts with an expense report. |
8) | Severance; Non-Competition, Non-Solicitation & Release and Change in Control: You will be provided with a separate agreement with respect to severance payments in the event of your involuntary termination for reasons other than cause and in the event of your termination following a change of control. In the event of your involuntary termination for reasons other than cause and absent a change in control, you will be provided with a benefit equal to a minimum of 26 weeks of compensation plus an additional 2 weeks for each year of service, up to a maximum benefit equal to 52 weeks of compensation, subject to your compliance with the confidentiality, noncompete and non-solicitation provisions of the separate severance and change in control agreement. |
In the event of your involuntary termination for reasons other than cause following a change in control event as defined by the USA Mobility, and in lieu of the severance payment described above, you will be provided with a severance benefit equal to one year of your final base salary plus your target annual bonus at 100%, a cash payment equal to your final base salary, continuation of life, accident and health insurance for up to 18 months, and one additional year of service toward vesting, eligibility and benefit accrual under the 401(k) plan and long-term incentive plan in effect at that time, to the extent permitted by law, and subject to your compliance with the confidentiality, noncompete and non-solicitation provisions of the separate severance and change in control agreement.
9) | At Will Employment: Employment with Amcom Software will be at will and, thus, may be terminated at any time by the CEO and/or Board of Directors of Amcom Software and/or Board of Directors of USA Mobility, Inc. |
USA Mobility, Inc., 6850 Versar Center, Suite 420 Springfield, VA 22151 Phone: (703)-269-6950 www.usamobility.com
2
10) | Governing Law: The terms of this letter agreement shall be governed by the laws of the Commonwealth of Virginia. |
Please sign and return one copy of this letter indicating your acceptance of this employment offer. We would like your start date to be September 19, 2012 so that you might attend your first meeting with the Amcom Software executive team at the office in Minneapolis.
Colin, Amcom is continually growing and we believe your talent, experience and enthusiasm will help accelerate that growth. I look forward to you becoming a part of our leadership team.
Sincerely, | ||||
/s/ Vincent D. Kelly |
||||
Vincent D. Kelly | ||||
President & CEO | ||||
USA Mobility, Inc. |
Accepted: | ||||
/s/ Colin Balmforth |
July 31, 2012 | |||
Colin Balmforth | Date |
cc: Human Resources, Personnel file
USA Mobility, Inc., 6850 Versar Center, Suite 420 Springfield, VA 22151 Phone: (703)-269-6950 www.usamobility.com
3
Exhibit 10.2
Colin Balmforth
President
September 27, 2012
Lynn M. Danko
1207 Duckwood Trail
Eagan, MN 55123
Dear Lynn:
We are pleased to offer you the position of Chief Financial Officer (CFO) of Amcom Software, Inc., a subsidiary of USA Mobility, Inc. In this role you will be accountable for the direction, control, coordination, and recordkeeping of the financial activities and accounting practices of Amcom Software, Inc. Your responsibilities include developing, and maintaining a process of identifying, measuring, accumulating, analyzing, preparing, interpreting and communicating financial information to be used to plan, evaluate and control the companys resources, consistent with regulation, law and the Code of Business Conduct. This position reports to the President of Amcom Software, Inc.
This offer of employment is contingent upon successful completion of a background check, your signature on the attached Amcom Employee Agreement and your acceptance of this letter.
Your overall responsibilities include, but are not limited to:
| Leading the positive and encouraging Amcom culture in your areas of responsibility, recognizing that the dedication and loyalty of the members of the Amcom team means everything to the ultimate success of the company. |
| Assisting in growing Amcom to become an increasingly larger and critical business unit under the USA Mobility umbrella. |
| Providing direction to the various departments involved in finance, purchasing, capital equipment, SOX program management. Collaborates with the USMO CFO for the purpose of reporting, analysis & forecasting of the subsidiarys financial results. |
| Planning and developing the Amcoms basic systems of accounting and financial control for the subsidiary, ensuring alignment with Corporate financial controls and objectives; taking appropriate action to ensure the uniform and consistent recording and reporting of all fiscal transactions and to properly present the subsidiarys financial position. |
| Providing direction in the preparation and presentation of Amcoms financial forecasts. Reporting companys financial activities and results to senior management, Amcoms President, the USA Mobility CFO and USA Mobility CEO. May participate in reporting results to the board of directors. |
| Participating in the formulation of the subsidiarys near term and long-range goals and objectives, and the plans and programs directed toward their achievement. |
| Developing the subsidiarys system of budgetary control; providing for the interpretation of financial results against goals. |
Amcom Software, Inc., 10400 Yellow Circle Drive, Suite 100, Eden Prairie, MN 55343 Phone: (952-230-5343 www.amcomsoft.com
| Collaborating with corporate in directing the administration of the subsidiarys tax accounting activity; and assists the corporate tax department in ensuring that the subsidiarys tax returns and reports are filed in a timely manner. |
| Ensuring effective Sarbanes-Oxley, Section 404 internal controls and compliance with financial requirements established by law or regulation in an on-going manner in the subsidiary. |
| Collaborating with the Corporate CFO, providing information required for preparation of financial statements and quarterly and annual report filings with the SEC. |
| Assisting the President, Amcom in merger/acquisition activities. Oversees integration of accounting functions of acquired companies, as required. |
| Collaborating with the President in establishing the pricing of new customer contracts. |
In this position, you will report to the President of Amcom Software and work closely with other members of the executive management team to achieve our goals, including the attainment of our long-term objectives.
The terms of this offer are outlined below.
1) | Base Salary: $9,230.77 paid bi-weekly ($240,000 annually) |
2) | Bonus: You are eligible to earn 40% of base salary ($96,000) paid annually. Bonus payment will be based upon accomplishment of pre-determined goals and objectives, as set and agreed upon by the Board of Directors of USA Mobility. |
3) | Benefits: You have the option of participating in the companys benefit programs as detailed in the Company handbook, including health, prescription, dental and vision insurance; cafeteria plan and flexible spending accounts; short and long term disability plans, life insurance and 401(k) retirement plan participation will be available to you on the same terms as made available to other USA Mobility employees. |
4) | Paid Time Off: You will accrue paid time off at a rate of 20 days per year. In addition, you will be eligible for nine paid holidays per calendar year. |
5) | Expenses: Business related expenses including travel, lodging, meals and incidentals, (i.e., telephone expenses) associated with work-related travel will be reimbursed to you, following the submission of receipts consistent with policy. |
6) | Equity Incentive Package: You will have the opportunity to participate in the Board/Management equity incentive plan at a level below the President of Amcom Software but commensurate with your position as determined by the Board. Subject to the terms of the plan, you will be eligible for an award based upon three times your annual bonus amount or the equivalent of your target bonus amount for each of the three years of participation in the plan. |
7) | Severance; Non-Competition, Non-Solicitation & Release and Change in Control: In the event of your involuntary termination for reasons other than cause, you will be provided with a severance payment in accordance with terms that will be set forth in a separate agreement, providing a benefit equal to a minimum of 26 weeks of compensation plus an additional 2 weeks for each year of service, up to a maximum benefit equal to 52 weeks of compensation, subject to your compliance with the confidentiality, noncompete and non-solicitation provisions thereof. In general, in order to be eligible for the severance payment you must agree to not compete with Amcom Software or USA Mobility or divulge trade secrets or |
Amcom Software, Inc., 10400 Yellow Circle Drive, Suite 100, Eden Prairie, MN 55343 Phone: (952-230-5343 www.amcomsoft.com
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confidential information, including customer information, for the period of one year following termination of employment. In addition, you must agree not to solicit employees of Amcom Software or USA Mobility for employment for the same one-year period. Further, you must agree to release Amcom Software and USA Mobility from any liability that might arise from your employment consistent with the terms set forth in the severance agreement and release in effect at that time. In the event of your involuntary termination for reasons other than cause following a change in control event as defined by the USA Mobility, you would be eligible for a severance benefit equal to one year of your final base salary plus your target annual bonus at 100%, a cash payment equal to your final base salary, continuation of life, accident and health insurance for up to 18 months, and one additional year of service toward vesting, eligibility and benefit accrual, as permitted by law, and in accordance with terms that will be set forth in a Severance and Change in Control agreement. |
8) | At Will Employment: Employment with Amcom Software will be at will and, thus, may be terminated at any time by the President, CEO and/or Board of Directors of Amcom Software and/or Board of Directors of USA Mobility, Inc. |
9) | Governing Law: The terms of this letter agreement shall be governed by the laws of the Commonwealth of Virginia. |
Please sign and return one copy of this letter indicating your acceptance of this employment offer. This offer of employment expires on September 30, 2012. We would like your start date to be Monday, October 15, 2012.
Lynn, Amcom is continually growing and we believe your talent, experience and enthusiasm will help accelerate that growth. We look forward to you becoming a part of our leadership team.
Sincerely, |
![]() |
Colin Balmforth |
President |
Amcom Software, Inc. |
Accepted: | ||||
/s/ Lynn Danko |
September 28, 2012 | |||
Lynn Danko | Date |
cc: Human Resources, Personnel file
Amcom Software, Inc., 10400 Yellow Circle Drive, Suite 100, Eden Prairie, MN 55343 Phone: (952-230-5343 www.amcomsoft.com
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Exhibit 14.1
USA MOBILITY
CODE OF BUSINESS CONDUCT AND ETHICS
OF
USA MOBILITY, INC.
(Restated as of October 19, 2012)
I. | INTRODUCTION |
Purpose
This Code of Business Conduct and Ethics contains general guidelines for conducting the business of USA Mobility, Inc, including its primary operating subsidiaries, USA Mobility Wireless, Inc. and Amcom Software, Inc. (collectively the Company) consistent with the highest standards of business ethics. Furthermore, the Company is committed to maintaining a workplace that is free from harassment, discrimination, violence, and the use and presence of illegal substances. This Code of Business Conduct and Ethics (the Code) summarizes the values, principles and business practices that guide our Company; however, this Code does not provide a detailed description of all employee policies. Employees should familiarize yourself with the Companys policies and our Employee Handbook published on the Intranet to which you are subject.
This Code applies to all of our directors, officers and employees. We refer to all persons covered by this Code as Company employees or simply employees. We also refer to our Chief Executive Officer, our Chief Financial Officer and Chief Accounting Officer and our Controller as our principal financial officers. We refer to our Chief Compliance officer, currently our parent companys Executive Vice President of Human Resources.
Seeking Help and Information
This Code is not intended to be a comprehensive rulebook and cannot address every situation that you may face. If you feel uncomfortable about a situation or have any doubts about whether it is consistent with the Companys ethical standards, seek help. We encourage you to contact your supervisor for help first. If your supervisor cannot answer your question or if you do not feel comfortable contacting your supervisor there are several other resources available to you. These include contacting our Chief Compliance Officer at 703-269-6740 and/or our Corporate Secretary at 703-269-6905.
Reporting Violations of the Code
All employees have a duty to report any known or suspected violation of this Code, including any violation of the laws, rules, regulations or policies that apply to the Company. If you know of or suspect a violation of this Code, immediately report the conduct to your supervisor. Your supervisor will contact the Chief Compliance Officer or other appropriate designee, who will work with you and your supervisor to investigate your concern. If you do not feel comfortable reporting the conduct to your supervisor, you may contact our Chief
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Compliance Officer Directly at 703-269-6740. You may also report known or suspected violations of the Code on the Ethics Hotline that is available to Company employees 24 hours a day, 7 days a week by dialing (1-888-353-5701) from the U.S.; (08-000328483) from the UK; (0800-0226174) from the Netherlands, or (1-800-339276) from Australia. A report may also be submitted via any computer with Internet access by accessing the website www.EthicsPoint.com and clicking on File a New Report. You may remain anonymous and will not be required to reveal your identity to the Ethics Hotline, although providing your identity may assist the Company in investigating your concern. All reports of known or suspected violations of the law or this Code will be handled sensitively and with discretion. Your supervisor, the Human Resources Department and the Company will protect your confidentiality to the extent possible, in accord with applicable law and as determined by the Company on a case by case basis consistent with the Companys need to investigate your concern . Details regarding the Ethics Hotline including frequently asked questions are available in your employee handbook and on the Company Intranet or you may contact our corporate Human Resources Department in Springfield, VA for more information. Keep in mind that the fraud Hotline and website are not intended to replace the Companys complaint and reporting procedures for employee relations, human resources and/or customer service issues; they are specifically intended to provide for the reporting of incidents related to financial fraud or mismanagement.
The Company is regulated by a number of U.S. governmental agencies, including but not limited to the Securities and Exchange Commission (SEC), the Federal Communications Commission (FCC) and the Federal Aviation Administration (FAA). The SEC has adopted procedures by which an individual may share in monetary recoveries if they provide original information in connection with an actual violation that in fact actually results in a monetary recovery. However, in weighing whether a person reporting such a violation would be entitled to share a portion of any recovery, the SEC will look to see whether that person first complied with internal reporting procedures at their employer. It is the Companys policy that all perceived violations of this Code be reported first to the employees supervisor, thus enabling the Company to take appropriate corrective action, if any.
Addressing Violations of this Code
It is Company policy that any employee who violates this Code will be subject to appropriate discipline, which may include termination of employment. This determination will be based upon the facts and circumstances of each particular situation. An employee accused of violating this Code will be given an opportunity to present his or her version of the events at issue prior to any determination of appropriate discipline. Employees who violate the law or this Code may expose themselves to substantial civil damages, criminal fines and prison terms. The Company may also face substantial fines and penalties and many incur damage to its reputation and standing in the community. Your conduct as a representative of the Company, if it does not comply with the law or with this Code, can result in serious consequences for both you and the Company.
Policy Against Retaliation
The Company prohibits retaliation against an employee who, in good faith, seeks help or reports known or suspected violations. Any reprisal or retaliation against an employee because
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the employee, in good faith, sought help or filed a report will be subject to disciplinary action, including potential termination of employment. If you have questions, or know of, or suspect that retaliation has occurred, contact the Chief Compliance Officer.
Waivers of the Code
Any waiver of this Code for our directors, executive officers or other principal financial officers may be made only by our Board of Directors and will be disclosed to the public as required by law. Waivers of this Code for other employees may be made only by the Chief Executive Officer.
II. | CONFLICTS OF INTEREST |
Identifying Potential Conflicts of Interest
The Company expects employees to support and adhere to the high standards of the business ethics that we have sought to develop and maintain. The Company does not intend to arbitrarily restrict employees personal activities; rather, we want to make it clear that no conflict of interest should exist that could conceivably influence employees judgment in handling Company business or that might present an unfair advantage to our customers and business partners.
As an employee of the Company, you have an ethical and legal responsibility to put the interests of the Company ahead of any other business or commercial interests that you may have as an individual. A conflict of interest exists when other business or commercial interests compete with your obligation to serve the interests of the Company. Even the perception of a conflict of interest can cause harm to the Company and to the employee involved.
A conflict of interest exists whenever there is a proposed transaction of the Company in which an employee has any actual or potential involvement, interest or relationship, either directly or indirectly. An employee is deemed to have an indirect interest in a proposed transaction if:
| the other party to the transaction is related to the employee; |
| such other party is an entity in which the employee has a material financial interest; or |
| the employee is an officer, director or general partner of such other party. |
A conflict of interest may also exist when the interests or concerns of any employee, or such employees immediate family, or any party, group or organization to which such employee has allegiance, may be seen as competing with the interests or concerns of the Company.
Identifying potential conflicts of interest may not always be clear-cut. If you have any questions, you should consult your supervisor or our Chief Compliance Officer.
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Disclosure of Conflicts of Interest
The Company requires that employees disclose any situations that reasonably would be expected to give rise to a conflict of interest. If you suspect that you have a conflict of interest, or something that others could reasonably perceive as a conflict of interest, you must report it to your supervisor or our Chief Compliance Officer. Your supervisor and our corporate Human Resources Department will work with you to determine whether you have a conflict of interest and, if so, how best to address it. In addition, at the time of hire, and annually during employment, all employees will be required to complete a report identifying all relationships that could be perceived as a conflict of interest or stating that the employee has no such relationships. Although conflicts of interest are not automatically prohibited, they are not desirable and may only be waived as described in Waivers of the Code above.
III. | EMPLOYMENT OF RELATIVES |
The Company considers applicants who are relatives of current employees on the same basis as all other applicants and uses the same screening, pre-employment interviewing, selecting and hiring practices as are used for non-relative applicants.
For the purpose of this policy, relatives are defined as your parent, grandparent, spouse or domestic partner, child, brother, sister, uncle, aunt, nephew or niece, first cousin, parent-in-law, brother or sister-in-law, son or daughter-in-law, stepmother, stepfather, or step-child.
The Company reserves the right to make unilateral decisions concerning the placement or supervision of a relative in order to avoid problems of reporting relationships, safety, security, morale and conflict of interest. Where the relative is a spouse or a domestic partner, decisions concerning placement and supervision will be made on a case-by-case basis.
Authorization by Human Resources is required for:
| Relatives to supervise each other |
| Relatives to work in the same department. |
At the time of hire, and annually during employment, all employees will be required to complete a report identifying all relatives that work for the Company or stating that the employee has no relatives that work for the Company
IV. | CORPORATE OPPORTUNITIES |
As an employee of the Company, you have an obligation to advance the Companys interests when the opportunity to do so arises. If you discover or are presented with a business opportunity through the use of corporate property, information or because of your position with the Company, you should first present the business opportunity to the Company before pursuing the opportunity in your individual capacity. No employee may use corporate property, information or his or her position with the Company for personal gain or to compete with the Company.
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Confidential Information
Employees have access to a variety of confidential information while employed at the Company. Confidential information includes intellectual property, financial information, business plans, operational information, technical data, client information and/or medical information, and all non-public information about Company products and services that might be of use to competitors, but does not include information related to wages, hours, and terms and conditions of employment. Employees have a duty to safeguard all confidential information of the Company or third parties with which the Company conducts business, except when disclosure is authorized or legally mandated. The obligation of employees to protect the Companys Confidential Information applies to proprietary information including intellectual property such as trade secrets, patents, trademarks, and copyrights, as well as business, marketing and service plans, engineering and manufacturing ideas, designs, databases, records, customer and employee account information, salary information and any unpublished financial data and reports.
An employees obligation to protect confidential information continues after he or she leaves the Company. Unauthorized disclosure of confidential information could cause competitive harm to the Company or its customers and could result in legal liability to you and the Company.
V. | COMPETITION AND FAIR DEALING |
All employees should endeavor to deal fairly with fellow employees and with the Companys customers, suppliers and competitors. Employees should not take unfair advantage of anyone through manipulation, concealment, abuse of privileged information, misrepresentation of material facts or any other unfair-dealing practice.
Anti-corruption laws including the U.S. Foreign Corrupt Practices Act (FCPA) and international anti-corruption laws including the Anti-Bribery Act of the United Kingdom, are designed to eliminate corrupt practices and ensure that when doing business anywhere in the world, neither the Company nor any person or entity associated with the Company or any other third party acting on behalf of the Company, shall offer, pay, promise, authorize or receive any bribe, kickback or other illicit payment or benefit in violation of the FCPA or the anti-corruption laws of any other nation in which we do business. Employees, agents, vendors, representatives and other third parties involved in sales, marketing, purchasing, and contract negotiations are responsible for ensuring that their actions on behalf of the Company are honest and ethical and comply with the Companys anti-corruption policies and the anti-corruption laws of any nation in which we do business.
Relationships with Suppliers
The Company deals fairly and honestly with its suppliers. This means that our relationships with current or potential suppliers are based on price, quality, service and reputation, among other factors relevant to business considerations. Employees dealing with suppliers or potential suppliers should carefully guard both their objectivity and the appearance of objectivity. Specifically, no employee should accept or solicit any personal benefit from a supplier or potential supplier that might compromise, or appear to compromise, their objective assessment of the suppliers products and prices.
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Relationships with Competitors
The Company is committed to free and open competition in the marketplace. Employees should avoid actions that would be contrary to laws governing competitive practices in the marketplace, including federal and state antitrust laws. Such actions include misappropriation and/or misuse of a competitors confidential information or making false statements about the competitors business and business practices. For a further discussion of appropriate and inappropriate business conduct with competitors, see Compliance with Antitrust Laws below.
VI. | PROTECTION AND USE OF COMPANY ASSETS |
Employees should protect the Companys assets and ensure their efficient use for legitimate business purposes only. Theft, carelessness and waste have a direct impact on the Companys profitability. The use of Company funds or assets, whether or not for personal gain, for any unlawful or improper purpose is prohibited.
To ensure the protection and proper use of the Companys assets, you should exercise reasonable care in preventing theft, damage or misuse of Company property and report all acts to your supervisor. Employees should be aware that Company property includes all data and communications transmitted or received to or by, or contained in, the Companys electronic or telephonic systems. Company property also includes all written communications. Employees and other users of this property should have no expectation of privacy with respect to these communications and data. To the extent permitted by law, the Company has the ability, and reserves the right, to monitor all electronic and telephonic communication. These communications may also be subject to disclosure to law enforcement or government officials.
VII. | GIFTS AND ENTERTAINMENT |
The giving and receiving of reasonable and customary gifts and entertainment (such as theatre or game tickets, business meals or a round of golf) are common business courtesies, and are designed to build relationships and understanding among business partners. However, it is not always appropriate or advisable to offer or accept them, and you should not be in a position of deriving direct or indirect personal benefit from anyone dealing with the Company. For example, if accepting a gift or entertainment would compromise, or even appear to compromise, your ability to make objective and fair business decisions, it should politely be declined. Likewise, it would not be appropriate to accept a gift from a vendor who is participating in a competitive contract bidding process. It is never appropriate to solicit gifts or money, securities or special discounts, or cause another person to do so on your behalf.
It is your responsibility to use good judgment in this area. No employee may give gifts to, or receive gifts from, customers or suppliers unless the gift would not be viewed as an inducement to or reward for any particular business decision. The gift should be consistent with customary business practices and should not violate any applicable laws or regulations. You should not attend activities that would reflect poorly on the Company or violate other provisions in this Code of Conduct. All gifts and entertainment expenses should be properly accounted for on an expense reports with the recipients and attendees detailed.
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If you conduct business in other countries, you must be particularly careful that gifts and entertainment are not construed as bribes, kickbacks or other improper payments. See The Foreign Corrupt Practices Act and Other Laws Governing Our Business Internationally for a more detailed discussion of our policies regarding giving or receiving gifts related to business transactions in other countries.
VIII. | INTERACTIONS WITH THE GOVERNMENT |
The Company conducts business with the U.S., federal, state and local governments and the governments of other countries. It is important to remember that the government is a broad term and also extends to other public entities and their employees. The Company is committed to conducting its business with all governments and their representatives with the highest standards of business ethics and in compliance with all applicable laws and regulations, including the special requirements that apply to government contracts and government transactions. If your job responsibilities include interacting with the government, you are expected to understand and comply with the special laws, rules and regulations that apply to your job position, including any local restrictions on providing entertainment and gifts to government officials
IX. | POLITICAL CONTRIBUTIONS AND ACTIVITIES |
The Company encourages its employees to participate in the political process as individuals and on their own time. However, federal, state and local contribution and lobbying laws severely limit the contributions the Company can make to political parties or candidates. It is Company policy that no employee may commit to, and no Company funds or assets may be used to make a political contribution on behalf of the Company to any political party or candidate, unless our Corporate Secretary has given prior approval.
The Company may sometimes express its views on local, national and international issues that affect its operations. In such cases, Company funds and resources may be used, but only when permitted by law and by our strict Company policies. The Company may also make limited contributions to political parties or candidates in jurisdictions where it is legal and customary to do so.
These guidelines are intended to ensure that any political activity you pursue is done voluntarily and on your own resources and time. Please contact the Corporate Secretary if you have any questions about political contributions.
X. | CHARITABLE DONATIONS AND GIFTS TO LABOR UNIONS/MEMBERS |
Charitable donations, gifts or contributions to Labor Unions or Members of Labor Unions to promote the Companys business interests are prohibited unless approved in advance by the Chief Executive Officer. Federal law requires that gifts or donations made to labor unions or members of labor unions must be reported by the Company each year to the U.S. Department of Labor. Employees must report to the Chief Compliance Officer annually any donations made to labor organizations to ensure accurate reporting by the Company.
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XI. | THE FOREIGN CORRUPT PRACTICES ACT AND OTHER LAWS GOVERNING OUR BUSINESS INTERNATIONALLY |
Foreign Corrupt Practices Act
The Foreign Corrupt Practices Act (the FCPA) prohibits the Company and its employees and agents from offering or giving money or any other item of value to win or retain business or to influence any act or decision of any governmental official, political party, candidate for political office or official of a public international organization. Stated more concisely, the FCPA prohibits the payment of bribes, kickbacks or other inducements to foreign officials. This prohibition also extends to payments to a sales representative or agent if there is reason to believe that the payment will be used indirectly for a prohibited payment to foreign officials. Violation of the FCPA is a crime that can result in severe fines and criminal penalties, as well as disciplinary action by the Company, up to and including termination of employment.
Anti-Bribery and Anti-Corruption Laws
The various states and countries in which we operate have laws prohibiting bribery generally, including bribes or corrupt payments to customers or their employees and agents to win business or other favors. These laws may apply with respect to any transfers of value to private citizens as well as to public employees. The Anti-Bribery Act of the United Kingdom, for example, prohibits giving money or other items of value, beyond reasonable and appropriate hospitality, to persons employed by or acting on behalf of our customers, and there is no requirement that such person be a government official. Even small payments as a means to grease assistance or to a return favor by such person are prohibited. It is Company policy never to make such payments or transfer items of value to persons to curry favor, or win business.
Other Laws Governing our Business
The Companys business may be subject to various U.S. and international trade control regulations, including licensing, shipping documentation, import documentation and reporting and record retention requirements. Employees with significant responsibilities relating to our international business have an additional responsibility to understand and comply with such applicable laws. These employees are expected to have a working knowledge of the laws and regulations applicable to their job positions. Questions and requests for assistance regarding the Companys policy on Anti-Bribery and Anti-Corruption laws should be directed to our Chief Compliance Officer.
XII. | COMPANY RECORDS |
Accurate and reliable records are crucial to our business. Our records are the basis of our earnings statements, financial reports and other disclosures to the public and guide our business decision-making and strategic planning. Company records include booking information, payroll, timecards, travel and expense reports, e-mails, accounting and financial data, measurement and performance records, electronic data files and all other records maintained in the ordinary course of our business.
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All Company records must be complete, accurate and reliable in all material respects. Undisclosed or unrecorded funds, payments or receipts are inconsistent with our business practices and are prohibited. You are responsible for understanding and complying with our record keeping policy. Ask your supervisor if you have any questions.
The Company has a formal document retention policy that each employee must follow with respect to Company records within such employees control. Please contact your supervisor or the Corporate Secretary for a copy of the retention policy.
XIII. | FINANCIAL REPORTS AND OTHER PUBLIC DISCLOSURES |
As a company with publicly traded securities, we are subject to various securities laws, regulations and reporting obligations. Both federal law and our policies require the disclosure of accurate and complete information regarding the Companys business, financial condition and results of operations. Inaccurate, incomplete or untimely reporting will not be tolerated and can severely damage the Company and result in legal liability.
The Companys principal financial officers and other employees working in the Accounting/Finance Departments have a responsibility to ensure that all of our financial disclosures are full, fair, accurate, timely and understandable. These employees must understand and strictly comply with generally accepted accounting principles and all standards, laws and regulations for accounting and financial reporting of transactions, estimates and forecasts. No officer or director, or any other person acting under his or her direction, may fraudulently induce, coerce, manipulate or mislead any independent auditor engaged to perform an audit of the Companys financial statements for the purpose of rendering such statements materially misleading or violate other applicable laws, rules and regulations.
XIV. | COMPLIANCE WITH LAWS, REGULATIONS AND COMPANY POLICY |
Each employee has an obligation to comply with all laws, rules and regulations applicable to the Company. These include, without limitation, laws covering bribery and kickbacks, copyrights, trademarks and trade secrets, information privacy, illegal political contributions, antitrust prohibitions, foreign corrupt practices, offering or receiving gratuities, environmental hazards, employment discrimination or harassment, occupational health and safety, false or misleading financial information or misuse of corporate assets. You are expected to understand and comply with all laws, rules and regulations that apply to your position. In addition, you are expected to comply with all Company policies. If any doubt exists about whether a course of action is consistent with Company policy, you should seek advice from our Chief Compliance Officer. If doubt exists about whether an action is legal or a legal opinion is necessary, contact the Corporate Secretary.
XV. | COMPLIANCE WITH INSIDER TRADING LAWS |
Company employees are prohibited from trading the shares of the Companys common stock or other securities of USA Mobility, Inc. while in possession of material, nonpublic
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information about the Company or recommending, tipping or suggesting that anyone else trade in the common stock or other securities of USA Mobility, Inc. on the basis of such information. In addition, Company employees who obtain material nonpublic information about another company in the course of their employment are prohibited from trading in the common stock or securities of the other company while in possession of such information or tipping others to trade on the basis of such information. Violation of insider trading laws can result in severe fines and criminal penalties, as well as disciplinary action by the Company, up to and including termination of employment. Employees should refer to the Companys Insider Trading Policy Statement, which contains more detailed policies and rules relating to these transactions. If you have questions on Insider Trading, please consult the Corporate Secretary.
XVI. | COMPLIANCE WITH ANTITRUST LAWS |
Antitrust laws of the U.S. and other countries are designed to protect consumers and competitors against unfair business practices and to promote and preserve competition. Our policy is to compete vigorously and ethically while complying with all antitrust, monopoly, competition or cartel laws in all countries, states or localities in which the Company conducts business.
In general, U.S. antitrust laws forbid agreements or actions in restraint of trade. All employees should be familiar with the general principles of the U.S. antitrust law.
Meetings with Competitors
Employees should exercise caution in meetings with competitors. Any meeting with a competitor may give rise to the appearance of impropriety. As a result, if you are required to meet with a competitor for any reason, you should notify your supervisor. You should try to meet with competitors in a closely monitored, controlled environment for a limited period of time. The contents of your meeting should be fully documented. You should avoid any communications with a competitor regarding the sales, marketing and financial information of the Company.
Professional Organizations and Trade Associations
Employees should be cautious when attending meetings of professional organizations and trade associations at which competitors are present. Attending meetings of professional organizations and trade associations is both legal and proper, if such meetings have a legitimate business purpose. At such meetings, you should not discuss pricing policy or other competitive terms, plans for new or expanded offerings or any other proprietary, competitively sensitive information.
Seeking Assistance or Advice
Violations of antitrust laws carry severe consequences and may expose the Company and employees to substantial civil damages, criminal fines and, in the case of individuals, prison terms. Whenever a question exists as to the Companys policy related to a particular action or arrangement, it is your responsibility to contact our Chief Compliance Officer for review and assistance in resolving your question. If a legal opinion is required on an antitrust matter, contact the Corporate Secretary.
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XVII. | CONCLUSION |
This Code contains general guidelines for conducting the business of the Company consistent with the highest standards of business ethics. We expect all Company employees to adhere to these standards and our Company policies.
This Code and the matters contained herein are neither a contract of employment nor a guarantee of continuing Company policy. We reserve the right to amend, supplement or discontinue this Code and the matters addressed herein, without prior notice, at any time. Each employee of the Company shall certify annually that they have read, understand and agree to comply with the Code as a condition of employment and provide evidence of such certification to our Human Resources Department upon request.
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Exhibit 31.1
CERTIFICATIONS
I, Vincent D. Kelly, certify that:
1. | I have reviewed this Quarterly Report on Form 10-Q of USA Mobility, Inc.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrants other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b. | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c. | Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d. | Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. | The registrants other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the Audit Committee of the registrants Board of Directors (or persons performing the equivalent functions): |
a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and |
b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
Dated: November 2, 2012 | /s/ Vincent D. Kelly | |||||
Vincent D. Kelly | ||||||
President and Chief Executive Officer |
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Exhibit 31.2
CERTIFICATIONS
I, Shawn E. Endsley, certify that:
1. | I have reviewed this Quarterly Report on Form 10-Q of USA Mobility, Inc.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrants other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b. | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c. | Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d. | Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an Annual Report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. | The registrants other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the Audit Committee of the registrants Board of Directors (or persons performing the equivalent functions): |
a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and |
b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
Dated: November 2, 2012 | /s/ Shawn E. Endsley | |||||
Shawn E. Endsley | ||||||
Chief Financial Officer |
57
Exhibit 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Pursuant to 18 U.S.C. ss. 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officers of USA Mobility, Inc. (the Company) hereby certify, to such officers knowledge, that:
(i) | the accompanying Quarterly Report on Form 10-Q of the Company for the period ended September 30, 2012 (the Report) fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and |
(ii) | the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Dated: November 2, 2012 | /s/ Vincent D. Kelly | |||||||
Vincent D. Kelly | ||||||||
President and Chief Executive Officer |
58
Exhibit 32.2
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Pursuant to 18 U.S.C. ss. 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officers of USA Mobility, Inc. (the Company) hereby certify, to such officers knowledge, that:
(i) | the accompanying Quarterly Report on Form 10-Q of the Company for the period ended September 30, 2012 (the Report) fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and |
(ii) | the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Dated: November 2, 2012 | /s/ Shawn E. Endsley | |||||||
Shawn E. Endsley | ||||||||
Chief Financial Officer |
59
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Segment Reporting (Tables)
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9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2012
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Summary of Financial Metrics of Operating Segments | The following table presents the key financial metrics of our segments for the periods stated:
|
Long-Term Debt - Additional Information (Detail) (USD $)
|
0 Months Ended | 9 Months Ended | |||
---|---|---|---|---|---|
Apr. 06, 2012
|
Sep. 30, 2012
SecurityLoan
|
Sep. 30, 2011
|
Mar. 31, 2012
|
Nov. 08, 2011
|
|
Debt Instrument [Line Items] | |||||
Maximum amount of the revolving credit facility | $ 40,000,000 | ||||
Maturity date for the revolving credit facility | Sep. 03, 2015 | ||||
Period for which LIBOR rate election for amount of debt made | 1, 2 or 3 months at a time | ||||
Maximum number of individual LIBOR rate loan | 5 | ||||
Minimum amount required for LIBOR rate election | 1,000,000 | ||||
Total debt outstanding | 3,300,000 | ||||
Repayment of debt | 3,300,000 | 28,250,000 | 23,697,000 | ||
Minimum liquidity hurdle maintained for available borrowing capacity | 25,000,000 | ||||
Derivative Financial Instruments and Debt Outstanding | $ 0 |
Other Assets (Detail) (USD $)
In Thousands, unless otherwise specified |
Sep. 30, 2012
|
Dec. 31, 2011
|
---|---|---|
Other Current Assets By Type [Line Items] | ||
Deposits | $ 314 | $ 432 |
Prepaid royalties | 242 | |
Other assets | 477 | 476 |
Total other assets | $ 1,033 | $ 908 |
Commitments and Contingencies - Additional Information (Detail) (USD $)
In Millions, unless otherwise specified |
1 Months Ended | 3 Months Ended | 9 Months Ended |
---|---|---|---|
May 31, 2012
|
Sep. 30, 2012
|
Sep. 30, 2012
|
|
Commitments And Contingencies [Line Items] | |||
Contract term of managed service hosting provider | 3 years | ||
Cost of contract with managed service hosting provider | $ 0.5 | ||
Reduced LOC | 0.2 | ||
Potential Lawsuits | $ 21.0 | ||
Minimum [Member]
|
|||
Commitments And Contingencies [Line Items] | |||
LOC contract period requirement | 1 year | ||
Maximum [Member]
|
|||
Commitments And Contingencies [Line Items] | |||
LOC contract period requirement | 3 years |
Other Long-Term Liabilities (Detail) (USD $)
In Thousands, unless otherwise specified |
Sep. 30, 2012
|
Dec. 31, 2011
|
---|---|---|
Other Long Term Liabilities [Line Items] | ||
Asset retirement obligations | $ 7,730 | $ 7,557 |
Cash award - 2009 LTIP | 2,106 | |
Dividends payable | 156 | 1,424 |
Escheat liability | 968 | 387 |
Lease incentive | 159 | 208 |
Deferred rent | 360 | 448 |
State income tax | 93 | |
Royalty payable | 436 | |
Total other long-term liabilities | $ 9,809 | $ 12,223 |
Net Consolidated Balance of Amortizable Intangible Assets (Detail) (USD $)
In Thousands, unless otherwise specified |
9 Months Ended | 9 Months Ended | 9 Months Ended | |||||||
---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2012
|
Dec. 31, 2011
|
Sep. 30, 2012
Customer Relationships [Member]
|
Sep. 30, 2012
Acquired Technology [Member]
|
Sep. 30, 2012
Acquired Technology [Member]
Minimum [Member]
|
Sep. 30, 2012
Acquired Technology [Member]
Maximum [Member]
|
Sep. 30, 2012
Non-Compete Agreements [Member]
|
Sep. 30, 2012
Non-Compete Agreements [Member]
Minimum [Member]
|
Sep. 30, 2012
Non-Compete Agreements [Member]
Maximum [Member]
|
Sep. 30, 2012
Trademarks [Member]
|
|
Finite-Lived Intangible Assets [Line Items] | ||||||||||
Useful Life (In years) | 10 years | 2 years | 4 years | 3 years | 5 years | 15 years | ||||
Gross Carrying Amount, amortizable intangible assets | $ 45,339 | $ 25,002 | $ 8,453 | $ 6,182 | $ 5,702 | |||||
Accumulated Amortization, amortizable intangible assets | (9,993) | (3,959) | (3,324) | (2,108) | (602) | |||||
Net Balance, amortizable intangible assets | $ 35,346 | $ 38,757 | $ 21,043 | $ 5,129 | $ 4,074 | $ 5,100 |
Accounts Payable and Accrued Liabilities (Tables)
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9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2012
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Components of Accounts Payable and Accrued Liabilities | Accounts payable and accrued liabilities were as follows for the periods stated:
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Changes in Stockholders' Equity (Detail) (USD $)
In Thousands, unless otherwise specified |
3 Months Ended | 9 Months Ended | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2012
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Sep. 30, 2011
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Jun. 30, 2011
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Mar. 31, 2011
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Dec. 31, 2010
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Sep. 30, 2012
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Sep. 30, 2011
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Partners Capital And Distributions [Line Items] | ||||||||||||||
Balance at January 1, 2012 | $ 252,440 | |||||||||||||
Net income for the nine months ended September 30, 2012 | 8,048 | 10,447 | 24,957 | 69,693 | ||||||||||
Cash dividends declared | (3,979) | [1] | (3,439) | [1] | (3,627) | [1] | (2,955) | [1] | (13,987) | [1] | ||||
Purchase of common stock | (4,900) | (4,933) | ||||||||||||
Amortization of stock based compensation | 902 | |||||||||||||
Net issuance of common stock for Short-Term Incentive Plan ("STIP") award and other | 447 | |||||||||||||
Balance at September 30, 2012 | $ 259,826 | $ 259,826 | ||||||||||||
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Segment Reporting - Additional Information (Detail)
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9 Months Ended |
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Sep. 30, 2012
Segment
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Operating Statistics [Line Items] | |
Number of reportable operating segments | 2 |
Period of financial results | March 3, 2011 to September 30, 2011 |
Commitments and Contingencies
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9 Months Ended |
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Sep. 30, 2012
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Commitments and Contingencies | (21) Commitments and Contingencies — In May 2012, we contracted with a managed service-hosting provider for certain computer support services over a three-year contract term for $0.5 million. A series of decisions by the Federal Communications Commission (“FCC”) and related amendments to interconnection agreements with local exchange carriers (“LECs”) have largely resolved the uncertainty and liability exposure once faced by the Company with respect to interconnection commitments. Specifically, FCC rules now make clear that we are not required to pay reciprocal compensation or switched access charges to LECs. Although we are required under certain interconnection agreements to pay “transit charges” – i.e., charges for telecommunications traffic that originates on a third-party carrier’s network and traverses the network of a LEC with which we interconnect – we pay immaterial amounts for such transit services and make the required payments as billed in the ordinary course of business. We have only one live billing dispute with a LEC relating to transit charges, and the amount in dispute is immaterial. As a result, any liability to which we are exposed as a result of outstanding charges for transit service (including service charges and late fees) is not material.
We have various LOCs outstanding with multiple state agencies. The LOCs have one to three-year contract requirements and contain automatic renewal terms. The deposits related to the LOCs are included within other assets on the condensed consolidated balance sheets. During the third quarter, we established a one year $0.2 million LOC for an international sale. This LOC has reduced our available borrowing capacity under our Amended Credit Agreement. We are involved, from time to time, in lawsuits arising in the normal course of business. We believe these pending lawsuits will not have a material adverse impact on our financial results or operations. The following amends and restates the description of previously reported legal contingencies in the 2011 Annual Report for which there has been a material development during the nine months ended September 30, 2012. Filed Litigation. On June 25, 2012, Mr. and Mrs. Andre C. Franco (collectively the “Plaintiffs”) filed a lawsuit in the Circuit Court for Montgomery County, Maryland against Metrocall, Inc. (now USA Mobility Wireless, Inc. “Wireless”), and an employee of Wireless (collectively “the Defendants”). The lawsuit arose from a vehicle accident involving the employee in December 2009. The Plaintiffs seek damages of $21.0 million jointly and severally from the Defendants. As of September 30, 2012, the Plaintiffs and the Company are currently in discussion regarding mediation. We are fully insured for these damages and our defense against this claim has been assumed by the insurance carrier who has designated legal counsel to handle this lawsuit on our behalf. We do not expect the monetary settlement of this lawsuit, if any, would have a material impact on our financial condition or results of operations. |
Asset Retirement Obligations - Additional Information (Detail) (USD $)
In Millions, unless otherwise specified |
3 Months Ended | 9 Months Ended | |
---|---|---|---|
Sep. 30, 2012
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Sep. 30, 2012
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Dec. 31, 2011
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Asset Retirement Obligation Liabilities [Line Items] | |||
Cumulative asset retirement costs | $ 1.8 | $ 1.8 | $ 1.9 |
Increase in asset retirement costs | 0.2 | ||
Reduction to asset retirement costs | $ (0.3) | ||
Minimum [Member]
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Asset Retirement Obligation Liabilities [Line Items] | |||
Asset retirement cost reductions reflect decreased paging equipment assets depreciated over the related estimated lives | 51 months | ||
Maximum [Member]
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Asset Retirement Obligation Liabilities [Line Items] | |||
Asset retirement cost reductions reflect decreased paging equipment assets depreciated over the related estimated lives | 57 months |
Components of Inventory (Detail) (USD $)
In Thousands, unless otherwise specified |
Sep. 30, 2012
|
Dec. 31, 2011
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---|---|---|
Components Of Inventory [Line Items] | ||
Purchased hardware and software, net | $ 3,052 | $ 2,093 |
Work in process | 170 | 175 |
Total inventory | $ 3,222 | $ 2,268 |
Stockholders' Equity (Tables)
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9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2012
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Changes in Stockholders' Equity | Changes in Stockholders’ Equity. Changes in stockholders’ equity for the nine months ended September 30, 2012 consisted of:
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Restricted Stock Vested by or Awarded to Non-Executive Directors | The following table details information on the restricted stock vested or granted to our non-executive directors in 2011 and 2012:
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Cash Dividends Declared to Non-Executive Directors | The following table details information on the cash dividends declared in 2012 relating to the restricted stock granted to our non-executive directors:
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Cash Dividends Declared to Stockholders | On July 30, 2012, our Board of Directors reset the quarterly dividend distribution rate to $0.125 per share of common stock from $0.25 per share of common stock. The following table details our cash dividend payments made in 2012:
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Basic and Diluted Net Income Per Common Shares |
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2004 Equity Plan [Member]
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Activities Under Equity Plan | The following table summarizes the activities under the 2004 Equity Plan from inception through May 16, 2012:
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2012 Plan [Member]
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Activities Under Equity Plan | The following table summarizes the activities under the 2012 Equity Plan from May 16, 2012 through September 30, 2012:
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Deferred Revenue - Additional Information (Detail) (USD $)
In Thousands, unless otherwise specified |
Sep. 30, 2012
|
Dec. 31, 2011
|
---|---|---|
Deferred Revenue Arrangement [Line Items] | ||
Deferred revenue, current | $ 16,369 | $ 14,693 |
Deferred revenue, noncurrent | 471 | 581 |
Customer deposits | $ 1,475 | $ 1,806 |
Advertising Cost - Additional Information (Detail) (USD $)
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3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2012
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Sep. 30, 2011
|
Sep. 30, 2012
|
Sep. 30, 2011
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Wireless Operations [Member]
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Segment Reporting Information [Line Items] | ||||
Advertising expenses | $ 3,700 | $ 7,200 | $ 21,700 | $ 19,600 |
Software Operations [Member]
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Segment Reporting Information [Line Items] | ||||
Advertising expenses | $ 200,000 | $ 100,000 | $ 500,000 | $ 200,000 |
Restricted Stock Vested by or Awarded to Non-Executive Directors (Detail) (USD $)
In Thousands, except Share data, unless otherwise specified |
3 Months Ended | 9 Months Ended | ||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2012
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Jun. 30, 2012
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Mar. 31, 2012
|
Dec. 31, 2011
|
Sep. 30, 2011
|
Jun. 30, 2011
|
Mar. 31, 2011
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Dec. 31, 2010
|
Sep. 30, 2012
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Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||||||||||||||||||||||
Grant Date | October 1, 2012 | July 2, 2012 | April 2, 2012 | January 3, 2012 | October 3, 2011 | July 1, 2011 | April 1, 2011 | January 3, 2011 | ||||||||||||||
Price Per Share | $ 11.87 | [1] | $ 12.86 | [1] | $ 13.93 | [1] | $ 13.87 | [1] | $ 13.20 | [1] | $ 15.26 | [1] | $ 14.48 | [1] | $ 17.77 | [1] | ||||||
Restricted Stock Granted | 5,263 | 4,084 | 3,769 | 3,785 | 3,979 | 3,439 | 3,627 | 2,955 | 30,901 | |||||||||||||
Restricted Stock Vested | (3,979) | (3,439) | (3,627) | (2,955) | (14,000) | |||||||||||||||||
Vesting Date | October 1, 2013 | July 1, 2013 | April 1, 2013 | January 2, 2013 | October 1, 2012 | July 2, 2012 | April 2, 2012 | January 3, 2012 | ||||||||||||||
Restricted Stock Awarded and Outstanding | 5,263 | 4,084 | 3,769 | 3,785 | 16,901 | |||||||||||||||||
Cash Dividends Paid | $ 3,979 | [2] | $ 3,439 | [2] | $ 3,627 | [2] | $ 2,955 | [2] | $ 13,987 | [2] | ||||||||||||
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Estimated Amortization of Intangible Assets (Detail) (USD $)
In Thousands, unless otherwise specified |
Sep. 30, 2012
|
---|---|
Goodwill And Intangible Assets Disclosure [Line Items] | |
For the remaining three months ending December 31, 2012 | $ 1,631 |
2013 | 6,093 |
2014 | 5,906 |
2015 | 4,628 |
2016 | 3,186 |
Thereafter | 13,902 |
Total amortizable intangible assets | $ 35,346 |
Prepaid Expenses and Other
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Sep. 30, 2012
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Prepaid Expenses and Other | (5) Prepaid Expenses and Other — Prepaid expenses and other were as follows for the periods stated:
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Cash Dividends Declared to Non-Executive Directors (Detail) (USD $)
In Thousands, except Per Share data, unless otherwise specified |
3 Months Ended | 9 Months Ended | 3 Months Ended | 9 Months Ended | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2011
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Jun. 30, 2011
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Mar. 31, 2011
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Dec. 31, 2010
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Sep. 30, 2012
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Sep. 30, 2012
Non Executive Members Of Board Of Directors Restricted Stock [Member]
Non-Executive Directors [Member]
Dividend Declared [Member]
|
Jun. 30, 2012
Non Executive Members Of Board Of Directors Restricted Stock [Member]
Non-Executive Directors [Member]
Dividend Declared [Member]
|
Mar. 31, 2012
Non Executive Members Of Board Of Directors Restricted Stock [Member]
Non-Executive Directors [Member]
Dividend Declared [Member]
|
Sep. 30, 2012
Non Executive Members Of Board Of Directors Restricted Stock [Member]
Non-Executive Directors [Member]
Dividend Declared [Member]
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Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||||||||||||||||
Declaration Date | Jul. 30, 2012 | May 03, 2012 | Feb. 22, 2012 | |||||||||||||
Record Date | Aug. 17, 2012 | May 18, 2012 | Mar. 16, 2012 | |||||||||||||
Payment Date | September 7, 2012 | June 22, 2012 | March 30, 2012 | |||||||||||||
Per Share Amount | $ 0.125 | $ 0.250 | $ 0.250 | $ 0.625 | ||||||||||||
Total Amount | $ 3,979 | [1] | $ 3,439 | [1] | $ 3,627 | [1] | $ 2,955 | [1] | $ 13,987 | [1] | $ 1,952 | $ 3,743 | $ 3,708 | $ 9,403 | ||
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