METROCALL INC - 10-Q Quarterly Report

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2002

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM TO

COMMISSION FILE NUMBER: 0-21924

METROCALL HOLDINGS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

DELAWARE 54-1215634
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)

6677 RICHMOND HIGHWAY, ALEXANDRIA, VIRGINIA 22306
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (703) 660-6677

METROCALL, INC.
(FORMER NAME OF REGISTRANT)

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]

Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes [X] No [ ]

Indicate the number of shares outstanding of each of the issuer's classes
of common stock as of the latest practicable date:

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INDEX TO FORM 10-Q

2

PART I. FINANCIAL INFORMATION

ITEM 1. INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

METROCALL, INC. AND SUBSIDIARIES

DEBTOR-IN-POSSESSION
BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE INFORMATION)

See notes to interim condensed consolidated financial statements.
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METROCALL, INC. AND SUBSIDIARIES

DEBTOR-IN-POSSESSION
STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE INFORMATION)

See notes to interim condensed consolidated financial statements.
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METROCALL, INC. AND SUBSIDIARIES

STATEMENT OF STOCKHOLDERS' EQUITY
DEBTOR-IN-POSSESSION
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE INFORMATION)

See notes to interim condensed consolidated financial statements.
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METROCALL, INC. AND SUBSIDIARIES

DEBTOR-IN-POSSESSION
STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)

See notes to interim condensed consolidated financial statements.
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METROCALL, INC. AND SUBSIDIARIES
DEBTOR-IN-POSSESSION

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2002

1. GENERAL

Preparation of Interim Financial Statements

The accompanying unaudited interim condensed consolidated financial
statements included herein have been prepared in accordance with the rules and
regulations of the Securities and Exchange Commission (SEC). The interim
condensed consolidated financial statements include the consolidated accounts of
Metrocall, Inc. and our majority owned subsidiaries (collectively, the Company
or Metrocall). In the opinion of management, all adjustments (consisting of
normal recurring adjustments except as discussed herein) necessary for a fair
statement of the financial position, results of operations and cash flows for
the interim periods presented have been made. The preparation of the financial
statements includes estimates that are used when accounting for revenues,
allowance for uncollectible receivables, telecommunications expenses,
reorganization and restructuring expenses, and depreciation and amortization.
Actual results may differ from those estimates. The results of operations for
the nine-month period ended September 30, 2002, are not necessarily indicative
of the results to be expected for the full year. Some information and footnote
disclosures normally included in financial statements or notes thereto prepared
in accordance with generally accepted accounting principles have been condensed
or omitted as permitted by such SEC rules and regulations. We believe, however,
that our disclosures are adequate to make the information presented not
misleading. These interim condensed consolidated financial statements should be
read in conjunction with the consolidated financial statements and notes thereto
included in Metrocall's 2001 Annual Report on Form 10-K.

Exit from Chapter 11 and Plan of Reorganization

On October 8, 2002, Metrocall, Inc. together with its licensing and
operating subsidiaries Metrocall USA Inc. (Metrocall USA), Advanced Nationwide
Messaging Corporation Inc. (ANMC), MSI Inc. (MSI), McCaw RCC Communications,
Inc. (McCaw), and Mobilfone Service, LP (Mobilfone), (collectively, the
"Debtors") emerged from chapter 11 of the U.S. Bankruptcy Code pursuant to a
Plan of Reorganization (the "Plan") that was confirmed by the U.S. Bankruptcy
Court for the District of Delaware, (the "Bankruptcy Court") in an order entered
on September 26, 2002.

Background

The Debtors filed voluntary petitions for relief under chapter 11 on June
3, 2002. The chapter 11 cases were jointly administered for procedural purposes
only before the Bankruptcy Court under the docket of Metrocall, Inc. Case No.
02-11579. Metrocall Ventures, Inc. (Ventures), one of our subsidiaries, did not
file a voluntary petition and was not a party to the chapter 11 cases. From June
3, 2002 until October 8, 2002, the Debtors operated their businesses as
debtors-in-possession under the Bankruptcy Code.

Chapter 11 is the principal business reorganization chapter of the
Bankruptcy Code. Under chapter 11, a debtor is authorized to continue to operate
its business in the ordinary course and to reorganize its business for the
benefit of its creditors. In addition to permitting the rehabilitation of the
debtor, section 362 of the Bankruptcy Code generally provides for an automatic
stay of substantially all judicial, administrative and other actions or
proceedings against a debtor and its property, including all attempts to collect
claims or enforce liens that arose prior to the commencement of the debtor's
case under chapter 11. Also, the debtors may assume or reject pre-petition
executory contracts and unexpired leases pursuant to section 365 of the
Bankruptcy Code and other parties to executory contracts or unexpired leases
being rejected may assert rejection damage claims as permitted thereunder.

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METROCALL, INC. AND SUBSIDIARIES
DEBTOR-IN-POSSESSION

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Confirmation and consummation of a plan of reorganization are the principal
objectives of a chapter 11 reorganization case. A plan of reorganization sets
forth the means for satisfying claims against, and interests in, a debtor. On
June 3, 2002, we filed with the Bankruptcy Court our Proposed Plan of
Reorganization, which was subsequently amended and supplemented on several
occasions.

Summary of the Plan

Upon the effectiveness of our Plan, we implemented a series of operational
consolidations and restructurings pursuant to the Plan, which included the
following:

(i) Each of ANMC, MSI and Mobilfone were consolidated with and into
McCaw and all assets and liabilities of these companies were conveyed to
McCaw;

(ii) Metrocall, Inc. contributed all right, title and interest in all
of its assets to McCaw other than (a) certain intellectual property
conveyed to the license subsidiary, Metrocall USA, (b) a sufficient amount
of cash to pay claims and to administer the Metrocall, Inc. estate and (c)
its ownership interest in Inciscent, Inc., Metrocall USA or Ventures. These
assets were contributed subject to all existing liens in place at that
time. McCaw simultaneously assumed all of the underlying obligations
directly attributable to these assets;

(iii) Concurrently with the contributions by Metrocall, Inc. to McCaw,
Metrocall, Inc. contributed certain intellectual property (including
trademarks, trade names, and copyrights) to Metrocall USA. Immediately
thereafter, Metrocall USA entered into a license agreement with McCaw for
the use of the FCC licenses and other intellectual property; and

(iv) Metrocall, Inc., McCaw and Metrocall USA each reorganized and
continued in operations. Following the mergers and capital contributions
described above, McCaw and Metrocall USA each reincorporated under the laws
of the State of Delaware with amended and restated certificates of
incorporation and by-laws, McCaw was renamed Metrocall, Inc. and the
registrant, as reorganized, was renamed Metrocall Holdings, Inc.

The reorganized and reincorporated entities are as follows: Metrocall
Holdings, Inc. ("HoldCo.", formerly Metrocall, Inc.), Metrocall, Inc. ("OpCo.",
formerly McCaw) and Metrocall USA, Inc. ("LicenseCo."), respectively.

Our Plan provided for separate classes of claims and interests for
creditors and equity holders of each of the Debtors. Distributions to creditors
and equity interests of the applicable Debtors have commenced and will include,
among other distributions:

(i) The execution by OpCo. of a $60.0 million senior secured
promissory note and the related loan and security agreements in favor of
the senior lenders under our former pre-petition $133.0 million senior
secured credit facility. OpCo. is the direct borrower of the senior lenders
as a result of the reorganization described above while LicenseCo. together
with HoldCo. and Ventures each have guaranteed the senior secured note. The
guaranty of HoldCo. is secured by a pledge of its stock and ownership
interests in LicenseCo., as well as a pledge of its stock and ownership
interests in OpCo., Ventures and Inciscent, Inc.

(ii) The execution by HoldCo. of $20.0 million secured PIK promissory
notes and the related loan and security agreements in favor of the senior
lenders. LicenseCo. and Ventures each have guaranteed the secured PIK
notes.

The OpCo. and HoldCo. promissory notes contain covenants that require us to
maintain a total net debt to annualized operating cash flow ratio not to exceed
the ratio of 1.0:1.0 and an operating cash flow

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METROCALL, INC. AND SUBSIDIARIES
DEBTOR-IN-POSSESSION

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

to cash interest expense ratio that must exceed 2.0:1.0 at all times. In
addition, there are limitations on the amount of system and pager device capital
expenditures that may be incurred over certain periods of time;

(iii) The payment by OpCo. to all holders of allowed general unsecured
claims against any of the consolidated operating subsidiaries of 100% of
such allowed claims in cash or pursuant to any other such arrangement that
has been agreed to between the parties;

(iv) Cash distributions to holders of allowed tax priority claims,
administrative claims and convenience claims;

(v) The distribution by HoldCo. of 5,300,000 shares of new Series A
Preferred Stock ("Series A Preferred"), representing 88.3% of the preferred
stock to be issued and $53.0 million of the total $60.0 million initial
liquidation preference to holders of the allowed claims of the senior
lenders;

(vi) HoldCo. beginning no later than November 18, 2002, and through
interim distributions thereafter (to give effect to resolutions of disputed
claims through reserves to be established), will distribute to the holders
of allowed general unsecured claims against Metrocall, Inc. 500,000 shares
of the new Series A Preferred, representing 8.3% of the preferred stock to
be issued and $5.0 million of the $60.0 million initial liquidation
preference;

(vii) The issuance by HoldCo. of the remaining 3.4% of new Series A
Preferred, or 200,000 shares, representing $2.0 million of the $60.0
million initial liquidation preference for distribution to the Metrocall's
senior executives subject to and in connection with their respective new
employment agreements with HoldCo. and OpCo.; and

(viii) The issuance by HoldCo. of 420,000 shares of its new common
stock, representing 42% of the shares to be issued, to the allowed claims
of the senior lenders (subject to ratable dilution for the issuance of
restricted stock and options to employees of OpCo. not to exceed 7%) and,
beginning by November 18, 2002 and thereafter (to give effect to
resolutions of disputed claims through reserves to be established) 580,000
shares of its new common stock, representing 58% of the total shares to be
issued, to the allowed holders of general unsecured claims against
Metrocall, Inc. (subject to ratable dilution for the issuance of restricted
stock and options to employees of OpCo. not to exceed 7%).

Holders of our preferred and common stock outstanding prior to the
confirmation date of our Plan received no distributions under the Plan. Such
shares of stock were canceled pursuant to the Plan.

Comments on Financial Presentation

The accompanying interim consolidated condensed financial statements have
been prepared in accordance with AICPA Statement of Position No. (SOP) 90-7,
"Financial Reporting by Entities in Reorganization under the Bankruptcy Code"
and on a going concern basis, which contemplates continuity of operations,
realization of assets and liquidation of liabilities in the ordinary course of
business.

Liabilities subject to compromise on the accompanying balance sheets refer
to the liabilities of Metrocall incurred prior to the Petition Date that are
with unrelated parties. In accordance with SOP 90-7, liabilities subject to
compromise are recorded at the estimated amount that is expected to be allowed
on pre-petition claims in the chapter 11 proceedings and are subject to future
adjustments. Adjustments may result from negotiations, actions of the Bankruptcy
Court, further developments with respect to disputed claims, rejection of
executory contracts and unexpired leases, proofs of claim,

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METROCALL, INC. AND SUBSIDIARIES
DEBTOR-IN-POSSESSION

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

implementation of the Plan of Reorganization, or other events. Liabilities
subject to compromise consisted of the following as of September 30, 2002
(dollars in thousands):

Current maturities of long-term debt........................ $759,802
Accrued interest............................................ 111,911
Accounts payable............................................ 6,926
Deferred revenues........................................... 3,000
Other current liabilities................................... 1,240
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Total liabilities subject to compromise................ $882,879
========

In order to record its debt instruments at the amount expected to be
allowed by the Bankruptcy Court in accordance with SOP 90-7, as of the Petition
Date, Metrocall wrote off the debt discount into reorganization expense. See
Note 4 for further detail of reorganization expense.

Metrocall is required to accrue interest expense during the chapter 11
proceedings only to the extent that it is probable that such interest will be
paid pursuant to the proceedings. As only the lenders under the credit facility
have any principal recovery pursuant to the Plan of Reorganization, Metrocall
recognized interest expense subsequent to the Petition Date only with respect to
the loans under the credit facility.

Metrocall obtained approval from the Bankruptcy Court to pay or otherwise
honor certain of its pre-petition obligations, including employee wages,
salaries, benefits and other employee obligations, pre-petition claims of
certain critical vendors, cure payments under contracts assumed under the
Bankruptcy Code, and certain other pre-petition claims. These amounts are
included in the "Liabilities not subject to compromise" caption in the interim
condensed consolidated balance sheets at September 30, 2002 to the extent they
had not been paid.

The confirmation of the Plan will result in our adoption of "fresh-start
accounting" in accordance with SOP 90-7 as of October 8, 2002, which will
materially change the amounts and classifications reported in future
consolidated statements. In connection with fresh-start accounting, we will
allocate the reorganization value of the reorganized entities to our assets,
including identifiable intangible assets, in accordance with Statement of
Financial Accounting Standards (SFAS) No. 141, "Business Combinations." If any
portion of the reorganization value cannot be attributed to specific tangible or
identified intangible assets of the reorganized entities, such amount will be
reported as "reorganization value in excess of amounts allocable to identifiable
assets" on our balance sheet. Liabilities existing as of the effective date of
our reorganization plan, including debt, will be recorded at their net present
values. The net effect of fresh start accounting adjustments, including the
discharge of pre-petition obligations and adjustments of assets to fair value,
will likely result in a gain which will be reflected in the "predecessor
company" financial statements for the period ended October 7, 2002.

2. LIQUIDITY, RISKS AND OTHER IMPORTANT FACTORS

"Right-Size" Restructuring

Our restructuring also includes the substantial completion of certain
cost-cutting measures that we began earlier in 2002. We believe that our expense
reduction efforts, assuming the retention of a sizeable portion of our core
customer base which provides for recurring revenues, will allow us to generate
levels of operating and free cash flows sufficient to repay the senior lenders'
new promissory notes. We adopted our new business plan at the beginning of 2002
which has reoriented our sales focus and operations around servicing our direct
business and government customers. The new plan also reduces our cost structure
to direct our efforts to management's expectations of future revenues and
operating and free cash flows.

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METROCALL, INC. AND SUBSIDIARIES
DEBTOR-IN-POSSESSION

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Metrocall's business objectives and operating strategy for the remainder of
2002 focus on operating and free cash flows. Key elements of this strategy
include:

- Subscriber retention efforts;

- Cost containment and reduction; and

- Advanced messaging.

SUBSCRIBER RETENTION EFFORTS -- We expect that the demand for our
traditional paging services and related revenues will continue to decrease. We
intend to focus our attention on the placement of traditional paging services
but have shifted our sales emphasis to existing and potential business and
government subscribers placed by our direct sales force. We believe these
customers provide a higher average monthly revenue per unit ("ARPU") and lower
deactivation percentages than our other subscribers. We believe because of our
more concentrated focus on our direct business and government customers and the
expected decrease in demand by subscribers, that we can reduce the number of our
field service positions and de-emphasize and/or reduce certain direct sales
channels such as our company-owned retail stores as well as certain indirect
distribution channels, both of which have high subscriber churn statistics.

As a result of our new business objectives and the de-emphasis of certain
sales channels, we have reduced our selling and marketing work force by 663
positions to 738 employees at September 30, 2002. We have also revised our
incentive commission plans for members of our sales force who are successful in
retaining traditional subscribers. We will seek to maintain a close relationship
with our existing customers by maintaining decentralized sales and marketing
operations and by providing value-added services tailored to customers' needs.

In addition, we will continue to offer advanced messaging services and sell
PCS phones to subscribers who require wireless messaging beyond the capabilities
of traditional paging. We currently sell cellular and PCS phone services through
alliance and dealer agreements with several carriers including AT&T Wireless,
Inc. and Nextel Communications, Inc. We believe these offerings assist to
partially offset revenue losses associated with subscriber churn and enable us
to continue to satisfy customer demands for a broader range of wireless products
and services.

COST CONTAINMENT AND REDUCTION -- We believe we must continue to reduce our
operating expenses in the future to offset the expected continued reduction in
our traditional paging subscriber base and a lower than anticipated growth rate
for advanced messaging subscribers in 2002. We believe these reductions will be
necessary to ensure that we will have the continued liquidity and resources to
continue to provide our traditional and advanced messaging services. We believe
we can further reduce our operating expenses without affecting our airtime or
customer service because of further centralization of customer service functions
and the lower number of subscribers receiving services. Such containment and
reduction initiatives are expected to include:

- Continued rationalization of network operations;

- Consolidation of call center services;

- Consolidation of billing platforms; and

- Other initiatives.

Continued rationalization of network operations -- We expect to further
rationalize our network operations as we continue to migrate subscribers from
under-utilized frequencies. During 2002, we expect to deconstruct at least 300
transmitters and implement other telecommunication savings initiatives. As of

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METROCALL, INC. AND SUBSIDIARIES
DEBTOR-IN-POSSESSION

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

September 30, 2002, we deconstructed 287 transmitters and achieved
telecommunication expense reductions of approximately $2.7 million on an annual
basis.

Consolidation of call center services -- At December 31, 2001, we had three
call centers in operation and numerous field operation centers that handled
customer service requirements. In early 2002, we consolidated two of the call
centers into one larger call center in Pensacola, Florida.

Consolidation of billing platforms -- We currently operate three separate
billing platforms. During 2002, we will convert two of these platforms into our
largest system, providing for a consolidated, more efficient billing platform
covering all of our operations. In mid-June 2002, we completed the conversion of
one platform and expect to complete the conversion of the second platform by
year-end 2002. The conversion of each of these systems will result in reductions
in licensing fees, MIS support, field customer service costs and other
incidental expenses. We believe these conversions will permit us to more
effectively manage our customer base and provide customer service support.

Other initiatives -- Due to the reduction in our subscriber base, we
believe we will be able to reduce positions in general, administrative and
overhead support functions without materially adversely affecting operations or
customer service. Although we will focus on subscriber retention and placements
in our traditional operations, we believe that our efforts will be on direct
customer placements rather than in indirect channels. In addition, given the
expected overall reduction in traditional subscribers, we do not believe we will
be required to employ the same number of employees as we would in a growth mode.
We also believe that continued work force reduction is possible given our
management information systems, recent upgrades to our customer service
operations and the reduction in the subscriber base which has resulted in a
decrease in staffing requirements in our billing and collections departments,
inventory, and customer service areas and as such, expect no impact on
provisioning of airtime or customer services.

Overall, we expect to reduce our workforce by an annual total of
approximately 964 positions by the end of 2002 of which reductions of 909 had
occurred by September 30, 2002. Metrocall estimates severance and other cash
payouts to affected employees will equal up to $5.0 million of which
approximately $3.5 million was paid by September 30, 2002.

There can be no assurances that we will achieve the desired savings or
results from these initiatives.

ADVANCED MESSAGING -- Metrocall offers advanced messaging services using
narrowband PCS primarily through a strategic alliance agreement with Weblink.
Since December 31, 2000, we have added approximately 101,000 net subscribers to
these services; the majority of these subscribers rent their advanced messaging
devices from us for periods of up to or greater than 12 months. Under the terms
of the rental agreements with these customers, we receive monthly rental revenue
for each unit and do not expect to recover the device acquisition cost for a
period of up to 8 months following its placement. During the remainder of 2002,
we will continue to both lease and sell two-way paging devices using existing
inventory. We expect to maintain current ARPU levels as we focus on direct
distribution placements. We expect our existing inventory level to be adequate
for placements in this channel to mid-year 2003. As a result, we do not expect
to achieve the subscriber growth percentages we had experienced in 2000 and 2001
but expect to substantially reduce the amount of capital expenditures we incur.

Notwithstanding the above, our ability to offer narrowband PCS services
under our alliance agreement with Weblink could be affected by Weblink's plan of
reorganization recently implemented after its emergence from its own chapter 11
proceedings. In addition, pursuant to our alliance agreement, we are also
required to fund, if Weblink satisfies its obligations, an engineering charge
not to exceed $15.0 million payable in four equal quarterly installments
beginning no later than October 2004.

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METROCALL, INC. AND SUBSIDIARIES
DEBTOR-IN-POSSESSION

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Product Sourcing and Key Suppliers

We do not manufacture any of the paging or messaging devices,
infrastructure and other equipment used in our operations. While the equipment
used in Metrocall's operations is available for purchase from multiple sources,
we have historically limited the number of suppliers to achieve volume cost
savings and, therefore, depend on such manufacturers to obtain sufficient
inventory. We have purchased messaging devices primarily from Motorola, Inc.
(Motorola) and purchased terminals and transmitters primarily from Glenayre
Electronics, Inc. (Glenayre). While both Motorola and Glenayre will no longer
sell the messaging equipment we use, we have taken measures in an effort to
mitigate any risks to our business. We currently procure traditional paging
devices through a number of manufacturers other than Motorola and anticipate
that manufacturers other than Motorola will offer advanced messaging devices and
network equipment to satisfy Metrocall's future requirements.

Our ability to satisfy the product demand for advanced messaging equipment
could be affected by Motorola's unilateral announcement to abandon the product
supply business and the uncertainty of the availability of replacement product.
Either of these contingencies could adversely affect Metrocall's ability to
offer narrowband PCS services.

In the first quarter of 2002, we entered into a final purchase agreement
with Motorola pursuant to which we prepaid Motorola for our final order of
advanced messaging devices. We believe that this purchase agreement has provided
us with sufficient quantities of advanced messaging devices to meet our needs
through mid-year 2003.

Motorola has licensed both its one-way and two-way technology and patent
rights to multiple manufacturers. A current supply of one-way devices exists to
fulfill our future requirements. Two-way messaging devices are in development by
several manufacturers and may be available in the first quarter of 2003. We can
make no assurances, however, that we will have a source (as Motorola was) for
two-way devices of comparable quality or quantities that will be available after
the current inventory is exhausted.

We currently receive maintenance and support services for our network
infrastructure components from Glenayre through a support services contract
which expires in April 2003 unless extended for an additional 12 months at our
option. We expect that infrastructure and equipment components will continue to
be available from other suppliers for the foreseeable future, consistent with
normal manufacturing and delivery lead times but cannot provide any assurance
that we will not experience unexpected delays in obtaining equipment in the
future.

Our ability to continue as a going concern is dependent upon several
factors, including, but not limited to, our ability to (i) generate sufficient
cash flows to meet our obligations, on a timely basis, (ii) continue to obtain
uninterrupted supplies and services from our vendors, (iii) retain employees,
and (iv) reduce capital expenditures and operating expenses.

We are also subject to additional risks and uncertainties including, but
not limited to, changes in technology, business integration, competition,
government regulation and subscriber turnover.

3. SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

In addition to Metrocall, Inc., the accompanying consolidated financial
statements include the accounts of Metrocall's wholly-owned subsidiaries: McCaw
RCC Communications, Inc.; Advanced Nationwide Messaging Corporation, Inc.; MSI,
Inc., Mobilfone Service LP; Metrocall Ventures, Inc., which holds a 61% interest
in Beacon Peak Associates Ltd. (Beacon Peak) and other limited partnership or
LLC interests; and Metrocall USA, Inc., a non-operating wholly-owned subsidiary
that holds certain
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METROCALL, INC. AND SUBSIDIARIES
DEBTOR-IN-POSSESSION

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

regulatory licenses issued by the Federal Communications Commission (the FCC)
and other intellectual property. Please refer to Note 1 for a description of our
Plan and the reorganization or elimination of certain of these subsidiaries
effective October 8, 2002.

All significant inter-company transactions have been eliminated in
consolidation.

Revenue Recognition

We recognize revenue under service, rental and maintenance agreements with
customers as the related services are performed. We lease (as lessor) pagers and
messaging devices under operating leases. Substantially all the leases are on a
month-to-month basis. Advance billings for services are deferred and recognized
as revenue when earned. Sales of one-way and ancillary equipment are recognized
upon delivery. We bundle the sale of two-way paging equipment with the related
service and recognize the revenue and related cost of sales, up to the amount of
related revenue, over the expected customer relationship, which we estimate is
one year.

Property and Equipment

Property and equipment are carried at cost. Depreciation is computed using
the straight-line method over the following estimated useful lives:

We depreciate new pagers and advanced messaging devices using the half-year
convention upon acquisition. Betterments to acquired pagers and the net book
value of lost pagers are immediately charged to depreciation expense. Subscriber
equipment sold is recorded in the consolidated statements of operations at net
book value at the date of sale. Devices leased to customers under operating
leases continue to be depreciated over their remaining useful lives.

Long-lived Assets

Long-lived assets to be held and used are reviewed for impairment on a
periodic basis and whenever events or changes in circumstances indicate that the
carrying amount should be reviewed. Impairment is measured by comparing the book
value to the estimated undiscounted future cash flows expected to result from
use of the assets and their eventual disposition. Based on our review at
September 30, 2002, we believe that no permanent impairment in the carrying
value of long-lived assets existed at September 30, 2002.

In June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible
Assets." SFAS No. 142 requires that goodwill and intangible assets with
indefinite lives no longer be amortized but reviewed annually (or more
frequently if impairment indicators arise) for impairment. Separable intangible
assets that are not deemed to have indefinite lives will continue to be
amortized over their useful lives. Adoption of SFAS No. 142 had no impact to the
company's results from operations as all goodwill and intangible assets were
written off during 2001 through impairment charges.

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METROCALL, INC. AND SUBSIDIARIES
DEBTOR-IN-POSSESSION

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following table provides a reconciliation from reported net loss to net
loss adjusted to exclude goodwill amortization expense (dollars in thousands and
not including impairment charges discussed below):

During the three months ended June 30, 2001, we reviewed the carrying value
of our long-lived assets for impairment. As a result, during the three months
ended June 30, 2001, we wrote down the carrying value of our long-lived assets
by approximately $279.7 million to their estimated fair value based on the
analysis. The estimated fair value of the long-lived assets was determined by
estimating future discounted cash flows of such assets over their remaining
useful lives. The amount of the write down has been reported in amortization
expenses on the accompanying interim condensed statements of operations. The
amount of the write down affected the carrying value of the following assets,
which were acquired through mergers and acquisitions of traditional paging
customers and businesses (dollars in thousands):

In the three months ended December 31, 2001, Metrocall again reviewed the
carrying value of its long-lived assets for impairment. Factors that indicated
an impairment had occurred in this period included a greater than expected
decline in actual and expected future recurring traditional revenues and
subscribers and a slower than expected growth rate in its advanced messaging
business. Based on its analysis, Metrocall wrote down the carrying value of its
long-lived assets by approximately $108.2 million to their estimated fair value,
which was determined by estimating future discounted cash flows of such assets
over their remaining useful lives.

15

METROCALL, INC. AND SUBSIDIARIES
DEBTOR-IN-POSSESSION

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Segment Reporting

Metrocall operates in one reportable segment.

4. REORGANIZATION AND RESTRUCTURING EXPENSES

Reorganization expense in the accompanying interim condensed consolidated
statements of operations for the three and nine months ended September 30, 2002
consist of the following (dollars in thousands):

For the three and nine months ended September 30, 2002, $1.9 million and
$9.0 million was paid for reorganization expenses, respectively. In addition,
approximately $900,000 was included in general and administrative expenses for
the three months ended September 30, 2002 for retention payment obligations made
to certain key employees pursuant to a Key Employee Retention Plan (the "KERP")
that took effect on the date our Plan was confirmed. Such payments were made in
October 2002. Further, an additional $900,000 will be expensed and paid under
the KERP each quarter for the next three quarters.

5. CONTINGENCIES

Legal and Regulatory Matters

We are subject to certain legal and regulatory matters in the normal course
of business. In the opinion of management, the outcome of such matters will not
have a material adverse effect on our financial position or results of
operations.

In November 1998, Electronic Tracking Systems Pty Limited (ETS), an
Australian company, commenced a proceeding against ProNet Inc. (ProNet) (of
which Metrocall is the successor) before the Industrial Relations Commission of
New South Wales, Australia. ETS alleged that ProNet orally agreed to extend a
contract with ETS pursuant to which ProNet had licensed its electronic tracking
system to ETS in Australia and that ProNet breached the agreement. The complaint
seeks damages in the amount of $33 million (Australian) (approximately US $17
million at current exchange rates), as well as declaratory and other relief. We
had filed a motion to dismiss the proceeding on jurisdictional grounds,
including that the contract between ETS and ProNet provides for arbitration in
the State of Texas under Texas law. A justice of the Industrial Relations
Commission ruled that the Commission would exercise jurisdiction over the
dispute, and that decision has been upheld by a ruling of the full Commission.
We sought, but were denied, permission to appeal this order to the High Court of
Australia. We moved the Industrial Relations Commission to stay this litigation
in light of the automatic stay granted by the Bankruptcy Court in connection
with our reorganization proceedings.

16

METROCALL, INC. AND SUBSIDIARIES
DEBTOR-IN-POSSESSION

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

In November 2001, we commenced an arbitration proceeding before the
American Arbitration Association pursuant to the contract between ProNet and ETS
seeking a declaration that ProNet did not breach the agreement and that
Metrocall has no liability to ETS. If successful, we would argue that this
arbitral determination, and not any adjudication by the Industrial Relations
Commission of New South Wales, determines the rights of the parties in the
United States and everywhere else in the world except Australia. To assure our
continued right to arbitrate, we obtained a permanent injunction from a Texas
state court enjoining ETS and its principal from taking any actions to try to
enjoin or interfere with the AAA arbitration commenced by us.

Pursuant to an order of the Bankruptcy Court, all of the above-described
matters were settled and dismissed and mutual releases were exchanged for a
$15,000 payment by Metrocall in September 2002.

Spectrum Management, L.L.C. (Spectrum) had asserted a claim against us
alleging breaches of the contract under which we sold to Spectrum the electronic
tracking business that we had previously acquired from ProNet, Inc. We settled
this matter with Spectrum in July 2002, without adverse impact to our financial
statements. The settlement was approved by the Bankruptcy Court in September
2002.

We have filed complaints with the FCC against a number of Regional Bell
Operating Companies ("RBOCs") and the largest independent telephone company for
violations of the FCC's interconnection and local transport rules and the 1996
Act. The complaints alleged that these local telephone companies are unlawfully
charging for local transport of the telephone companies' local traffic. We
petitioned the FCC to rule that these local transport charges are unlawful and
to award us a reimbursement or credit for any past charges assessed by the
respective carriers since November 1, 1996, the effective date of the FCC's
transport rules. On May 31, 2000, the FCC adopted a Memorandum, Opinion and
Order granting most of the relief requested by us; that decision was upheld by
U.S. Court of Appeals for the D.C. Circuit. We have settled our damages claims
with all of these defendants as of September 30, 2002 and have executed
agreements providing for the delivery by the RBOC's of the services necessary
for Metrocall to service its customers.

6. RECENT ACCOUNTING PRONOUNCEMENTS

On August 16, 2001 the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations" (effective January 1, 2003), which addresses financial
accounting and reporting for obligations associated with the retirement of
tangible long-lived assets and the associated asset retirement costs. This
standard requires entities to record the fair value of a liability for an asset
retirement obligation in the period in which it is incurred. The entity is
required to capitalize the cost by increasing the carrying amount of the related
long-lived asset. The capitalized cost is then depreciated over the useful life
of the related asset. Upon settlement of the liability, an entity either settles
the obligation for its recorded amount or incurs a gain or loss. SFAS 143 is not
expected to have an impact on our financial statements.

In April 2002, the FASB issued SFAS No. 145 "Rescission of FASB Statements
No. 4, 44, and 64, Amendment of FASB Statement No. 13 and Technical
Corrections." SFAS No 145 rescinds SFAS No. 4, which required all gains and
losses from extinguishments of debt to be aggregated and, if material,
classified as an extraordinary item, net of related income tax effect. As a
result, the criteria in APB 30, "Reporting the Results of
Operations -- Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions", now
will be used to classify those gains and losses. SFAS No. 64 amended SFAS No. 4,
and thus SFAS No. 64 is no longer necessary because SFAS No. 4 has been
rescinded. The provisions of SFAS No. 145 related to the rescission of SFAS No.
4 are effective for financial statements issued for fiscal years beginning after
May 15, 2002. Any gain or loss that we had classified as an extraordinary item
in prior periods presented that does not meet the criteria in APB No. 30 for
classification as an extraordinary item will be reclassified.
17

METROCALL, INC. AND SUBSIDIARIES
DEBTOR-IN-POSSESSION

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

In July of 2002, the FASB issued SFAS No. 146 "Accounting for Costs
Associated with Exit or Disposal Activities". This statement addresses financial
accounting and reporting for costs associated with exit or disposal activities
and nullifies EITF Issue No. 94-3, "Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity (including Certain
Costs Incurred in a Restructuring)." The principal difference between Statement
146 and Issue 94-3 relates to Statement 146's requirements for recognition of a
liability for a cost associated with an exit or disposal activity when the
liability is incurred. Under Issue 94-3, a liability for an exit cost was
recognized at the date of an entity's commitment to an exit plan.

Accordingly, the fundamental difference in SFAS No. 146 is that an entity's
commitment to a plan, by itself, does not create an obligation that meets the
definition of a liability for purposes of recognition. Therefore, this Statement
eliminates the definition and requirements for recognition of exit costs in
Issue 94-3. This Statement also establishes that fair value is the objective for
initial measurement of the liability.

The provisions of this Statement are effective for exit or disposal
activities that are initiated after December 31, 2002. The adoption of this
standard is not expected to have a material impact on our consolidated financial
statements.

18

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

You should read the following discussion and analysis of the financial
condition and results of operations of Metrocall together with the Consolidated
Financial Statements and the notes to the Consolidated Financial Statements
included elsewhere in this quarterly report and on our Annual Report on Form
10-K for the year ended December 31, 2001.

FORWARD-LOOKING STATEMENTS

This Report on Form 10-Q includes or incorporates forward-looking
statements. We have based these forward-looking statements on our current
expectations and projections about future events. These forward-looking
statements are subject to risks, uncertainties and assumptions which include:

- our ability to implement our business strategies;

- our reliance on another messaging company, which recently reorganized
under chapter 11 of the Bankruptcy Code, to provide access to a two-way
messaging network;

- the reliance of our current business model on a continued revenue stream
from advanced messaging which is otherwise subject to certain risks;

- the restrictive covenants governing our indebtedness;

- the impact of competition from other narrow-band businesses and emerging
competition from broadband messaging services as well as ongoing and
future technological developments which may render our products less
attractive;

- satellite transmission failures;

- loss of subscribers and subscriber turnover;

- litigation;

- regulatory changes;

- dependence on key management personnel.

Other matters set forth in this Report on Form 10-Q may also cause actual
results to differ materially from those described in the forward-looking
statements. We undertake no obligation to update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
In light of these risks, uncertainties and assumptions, the forward-looking
events discussed in this Quarterly Report on Form 10-Q might not occur.

OVERVIEW

We are a leading provider of local, regional and national one-way or
"traditional" paging and two-way or "advanced wireless data and messaging"
services. Through our one-way nationwide wireless network, we provide messaging
services to over 1,000 U.S. cities, including the top 100 Standard Metropolitan
Statistical Areas (SMSAs). Since 1993, our subscriber base has increased from
less than 250,000 to a high of 6.3 million as of June 30, 2001 and is presently
4.1 million, including approximately 213,000 subscribers receiving advanced data
and messaging services. This growth was achieved through a combination of
internal growth and a program of mergers and acquisitions. As of September 30,
2002, we were the second largest messaging company in the United States based on
the number of subscribers.

We derive a majority of our revenues from fixed, periodic (usually monthly)
fees, generally not dependent on usage, charged to subscribers for paging and
wireless data services. While a subscriber continues to use its services,
operating results benefit from this recurring stream with minimal requirements
for incremental selling expenses or fixed costs. Our business strategy continues
to focus our sales and marketing efforts on subscriber demographics that provide
greater revenue stability and higher
19

margins. While we expect to continue efforts to both maintain and add
subscribers, we have down-sized our operational platform over the past eighteen
months mainly through reduction-in-force initiatives and office consolidations.
We do not believe any of our cost reduction efforts have had an effect on our
ability to provide messaging services or customer service.

Exit from Chapter 11 and Plan of Reorganization

On October 8, 2002, Metrocall, Inc. together with its licensing and
operating subsidiaries Metrocall USA Inc. (Metrocall USA), Advanced Nationwide
Messaging Corporation Inc. (ANMC), MSI Inc. (MSI), McCaw RCC Communications,
Inc. (McCaw), and Mobilfone Service, LP (Mobilfone), (collectively, the
"Debtors") emerged from chapter 11 of the U.S. Bankruptcy Code pursuant to a
Plan of Reorganization (the "Plan") that was confirmed by the U.S. Bankruptcy
Court for the District of Delaware, (the "Bankruptcy Court") in an order entered
on September 26, 2002.

Background

The Debtors filed voluntary petitions for relief under chapter 11 on June
3, 2002. The chapter 11 cases were jointly administered for procedural purposes
only before the U.S. Bankruptcy Court for the District of Delaware (the
"Bankruptcy Court") under the docket of Metrocall, Inc. Case No. 02-11579.
Metrocall Ventures, Inc. (Ventures), one of our subsidiaries, did not file a
voluntary petition and was not a party to the chapter 11 cases. From June 3,
2002 until October 8, 2002, Metrocall and its licensing and operating
subsidiaries (collectively, the "Debtors") operated their businesses as
debtors-in-possession under the Bankruptcy Code.

Chapter 11 is the principal business reorganization chapter of the
Bankruptcy Code. Under chapter 11, a debtor is authorized to continue to operate
its business in the ordinary course and to reorganize its business for the
benefit of its creditors. In addition to permitting the rehabilitation of the
debtor, section 362 of the Bankruptcy Code generally provides for an automatic
stay of substantially all judicial, administrative and other actions or
proceedings against a debtor and its property, including all attempts to collect
claims or enforce liens that arose prior to the commencement of the debtor's
case under chapter 11. Also, the debtors may assume or reject pre-petition
executory contracts and unexpired leases pursuant to section 365 of the
Bankruptcy Code and other parties to executory contracts or unexpired leases
being rejected may assert rejection damage claims as permitted thereunder.

Confirmation and consummation of a plan of reorganization are the principal
objectives of a chapter 11 reorganization case. A plan of reorganization sets
forth the means for satisfying claims against, and interests in, a debtor. On
June 3, 2002, we filed with the Bankruptcy Court our Proposed Plan of
Reorganization, which was subsequently amended and supplemented on several
occasions.

Summary of the Plan

Upon the effectiveness of our Plan, we implemented a series of operational
consolidations and restructurings pursuant to the Plan, which included the
following:

(i) Each of ANMC, MSI and Mobilfone were consolidated with and into
McCaw and all assets and liabilities of these companies were conveyed to
McCaw.

(ii) Metrocall, Inc. contributed all right, title and interest in all
of its assets to McCaw other than (a) certain intellectual property
conveyed to the license subsidiary, Metrocall USA, (b) a sufficient amount
of cash to pay claims and to administer the Metrocall, Inc. estate and (c)
its ownership interest in Inciscent, Inc., Metrocall USA or Ventures. These
assets were contributed subject to all existing liens in place at that
time. McCaw simultaneously assumed all of the underlying obligations
directly attributable to these assets;

(iii) Concurrently with the contributions by Metrocall, Inc. to McCaw,
Metrocall, Inc. contributed certain intellectual property (including
trademarks, trade names, and copyrights) to

20

Metrocall USA. Immediately thereafter, Metrocall USA entered into a license
agreement with McCaw for the use of the FCC licenses and other intellectual
property; and

(iv) Metrocall, Inc., McCaw and Metrocall USA each reorganized and
continued in operations. Following the mergers and capital contributions
described above, McCaw and Metrocall USA each reincorporated under the laws
of the State of Delaware with amended and restated certificates of
incorporation and by-laws, and McCaw was renamed Metrocall, Inc. and the
former registrant, as reorganized, was renamed Metrocall Holdings, Inc.

The reorganized and reincorporated entities are as follows: Metrocall
Holdings, Inc. ("HoldCo."), formerly Metrocall, Inc.), Metrocall, Inc.
("OpCo."), formerly McCaw) and Metrocall USA, Inc. ("LicenseCo."), respectively.

Our Plan provided for separate classes of claims and interests for
creditors and equity holders of each of the Debtors. Distributions to creditors
and equity interests of the applicable Debtors have commenced and will include,
among other distributions:

(i) The execution by OpCo. of a $60.0 million senior secured
promissory note and the related loan and security agreements in favor of
the senior lenders under our former pre-petition $133.0 million senior
secured credit facility. OpCo. is the direct borrower of the senior lenders
as a result of the reorganization described above while LicenseCo together
with HoldCo. and Ventures each have guaranteed the senior secured note. The
guaranty of HoldCo. is secured by a pledge of its stock and ownership
interests in LicenseCo., as well as a pledge of its stock and ownership
interests in OpCo., Ventures and Inciscent, Inc.

(ii) The execution by HoldCo. of $20.0 million secured PIK promissory
notes and the related loan and security agreements in favor of the senior
lenders. LicenseCo. and Ventures each have guaranteed the secured PIK
notes.

(iii) The payment by OpCo. to all holders of allowed general unsecured
claims against any of the consolidated operating subsidiaries of 100% of
such allowed claims in cash or pursuant to any other such arrangement that
has been agreed to between the parties;

(iv) Cash distributions to holders of allowed tax priority claims,
administrative claims and convenience claims;

(v) The distribution by HoldCo. of 5,300,000 shares of new Series A
Preferred Stock ("Series A Preferred"), representing 88.3% of the preferred
stock to be issued and $53.0 million of the total $60.0 million initial
liquidation preference to holders of the allowed claims of the senior
lenders;

(vi) HoldCo. beginning no later than November 18, 2002, and through
interim distributions thereafter (to give effect to resolutions of disputed
claims through reserves to be established), will distribute to the holders
of allowed general unsecured claims against Metrocall, Inc. 500,000 shares
of the new Series A Preferred, representing 8.3% of the preferred stock to
be issued and $5.0 million of the $60.0 million initial liquidation
preference;

(vii) The issuance by HoldCo. of the remaining 3.4% of new Series A
Preferred, or 200,000 shares, representing $2.0 million of the $60.0
million initial liquidation preference for distribution to the Metrocall's
senior executives subject to and in connection with their respective new
employment agreements with HoldCo. and OpCo.; and

(viii) The issuance by HoldCo. of 420,000 shares of its new common
stock, representing 42% of the shares to be issued to the allowed claims of
the senior lenders (subject to ratable dilution for the issuance of
restricted stock and options to employees of OpCo. not to exceed 7%)
beginning by November 18, 2002 and thereafter (to give effect to
resolutions of disputed claims through reserves to be established) 580,000
shares of its new common stock, representing 58% of the total shares to be
issued, to the allowed holders of general unsecured claims against
Metrocall, Inc. (subject to ratable dilution for the issuance of restricted
stock and options to employees of OpCo. not to exceed 7%).

21

Holders of our preferred and common stock outstanding prior to the
confirmation date of our Plan received no distributions under the Plan. Such
shares of stock were canceled pursuant to the Plan.

"Right-Size" Restructuring

Our restructuring also includes the substantial completion of certain
cost-cutting measures that we began earlier in 2002. We believe that our expense
reduction efforts, assuming the retention of a sizeable portion of our core
customer base which provides for recurring revenues, will allow us to generate
levels of operating and free cash flows sufficient to repay the senior lenders'
new promissory notes. We adopted our new business plan at the beginning of 2002
which has reoriented our sales focus and operations around servicing our direct
business and government customers. The new plan also reduces our cost structure
to direct our efforts to management's expectations of future revenues and
operating and free cash flows.

Metrocall's business objectives and operating strategy for the remainder of
2002 focus on operating and free cash flows. Key elements of this strategy
include:

- Subscriber retention efforts;

- Cost containment and reduction; and

- Advanced messaging.

SUBSCRIBER RETENTION EFFORTS -- We expect that the demand for our
traditional paging services and related revenues will continue to decrease. We
intend to focus our attention on the placement of traditional paging services
but have shifted our sales emphasis to existing and potential business and
government subscribers placed by our direct sales force. We believe these
customers provide a higher average monthly revenue per unit ("ARPU") and lower
deactivation percentages than our other subscribers. We believe because of our
more concentrated focus on our direct business and government customers and the
expected decrease in demand by subscribers, that we can reduce the number of our
field service positions and de-emphasize and/or reduce certain direct sales
channels such as our company-owned retail stores as well as certain indirect
distribution channels, both of which have high subscriber churn statistics.

As a result of our new business objectives and the de-emphasis of certain
sales channels, we have reduced our selling and marketing work force by 663
positions to 738 employees at September 30, 2002 from January 1, 2002. We expect
to reduce our selling and marketing positions by the end of 2002 by
approximately 51 additional positions to 687. We expect that many of these
remaining reductions will occur through normal attrition. We have also revised
our incentive commission plans for members of our sales force who are successful
in retaining traditional subscribers. We will seek to maintain a close
relationship with our existing customers by maintaining decentralized sales and
marketing operations and by providing value-added services tailored to
customers' needs.

In addition, we will continue to offer advanced messaging services and sell
PCS phones to subscribers who require wireless messaging beyond the capabilities
of traditional paging. We currently sell cellular and PCS phone services through
alliance and dealer agreements with several carriers including AT&T Wireless,
Inc. and Nextel Communications, Inc. We believe these offerings assist to
partially offset revenue losses associated with subscriber churn and enable us
to continue to satisfy customer demands for a broader range of wireless products
and services.

COST CONTAINMENT AND REDUCTION -- We believe we must continue to reduce our
operating expenses in the future to offset the expected continued reduction in
our traditional paging subscriber base and a lower than anticipated growth rate
for advanced messaging subscribers in 2002. We believe these reductions will be
necessary to ensure that we will have the continued liquidity and resources to
continue to provide our traditional and advanced messaging services. We believe
we can further reduce our operating expenses without affecting our airtime or
customer service because of further centralization of customer service

22

functions and the lower number of subscribers receiving services. Such
containment and reduction initiatives are expected to include:

- Continued rationalization of network operations;

- Consolidation of call center services;

- Consolidation of billing platforms; and

- Other initiatives.

Continued rationalization of network operations -- We expect to further
rationalize our network operations as we continue to migrate subscribers from
under-utilized frequencies. During 2002, we expect to deconstruct at least 300
transmitters and implement other telecommunication savings initiatives. As of
September 30, 2002, we deconstructed 287 transmitters and achieved
telecommunication expense reductions of approximately $2.7 million on an annual
basis.

Consolidation of call center services -- At December 31, 2001, we had three
call centers in operation and numerous field operation centers that handled
customer service requirements. In early 2002, we consolidated two of the call
centers into one larger call center in Pensacola, Florida.

Consolidation of billing platforms -- We currently operate three separate
billing platforms. During 2002, we will convert two of these platforms into our
largest system, providing for a consolidated, more efficient billing platform
covering all of our operations. In mid-June 2002, we completed the conversion of
one platform and expect to complete the conversion of the second platform by
year-end 2002. The conversion of each of these systems will result in reductions
in licensing fees, MIS support, field customer service costs and other
incidental expenses. We believe these conversions will permit us to more
effectively manage our customer base and provide customer service support.

Other initiatives -- Due to the reduction in our subscriber base, we
believe we will be able to reduce positions in general, administrative and
overhead support functions without materially adversely affecting operations or
customer service. Although we will focus on subscriber retention and placements
in our traditional operations, we believe that our efforts will be on direct
customer placements rather than in indirect channels. In addition, given the
expected overall reduction in traditional subscribers, we do not believe we will
be required to employ the same number of employees as we would in a growth mode.
We also believe that continued work force reduction is possible given our
management information systems, recent upgrades to our customer service
operations and the reduction in the subscriber base which has resulted in a
decrease in staffing requirements in our billing and collections departments,
inventory, and customer service areas and as such, expect no impact on
provisioning of airtime or customer services.

Overall, we expect to reduce our workforce by an annual total of
approximately 1,003 positions by the end of 2002 of which reductions of 948 had
occurred by September 30, 2002. Metrocall estimates severance and other cash
payouts to affected employees will equal up to $5.0 million of which
approximately $3.5 million was paid by September 30, 2002.

There can be no assurances that we will achieve the desired savings or
results from these initiatives.

ADVANCED MESSAGING -- Metrocall offers advanced messaging services using
narrowband PCS primarily through a strategic alliance agreement with Weblink.
Since December 31, 2000, we have added approximately 101,000 net subscribers to
these services; the majority of these subscribers rent their advanced messaging
devices from us for periods of up to or greater than 12 months. Under the terms
of the rental agreements with these customers, we receive monthly rental revenue
for each unit and do not expect to recover the device acquisition cost for a
period of up to 8 months following its placement. During the remainder of 2002,
we will continue to both lease and sell two-way paging devices using existing
inventory. We expect to maintain current ARPU levels as we focus on direct
distribution placements. We expect our existing inventory level to be adequate
for placements in this channel to mid-year 2003. As a result, we do not expect
to achieve the subscriber growth percentages we had experienced in 2000 and 2001
but expect to substantially reduce the amount of capital expenditures we incur.

23

Notwithstanding the above, our ability to offer narrowband PCS services
under our alliance agreement with Weblink could be affected by Weblink's plan of
reorganization recently implemented after its emergence from its own chapter 11
proceedings. In addition, pursuant to our alliance agreement, we are also
required to fund, if Weblink satisfies its obligations, an engineering charge
not to exceed $15.0 million payable in four equal quarterly installments
beginning no later than October 2004.

Product Sourcing and Key Suppliers

We do not manufacture any of the paging or messaging devices,
infrastructure and other equipment used in our operations. While the equipment
used in Metrocall's operations is available for purchase from multiple sources,
we have historically limited the number of suppliers to achieve volume cost
savings and, therefore, depend on such manufacturers to obtain sufficient
inventory. We have purchased messaging devices primarily from Motorola, Inc.
(Motorola) and purchased terminals and transmitters primarily from Glenayre
Electronics, Inc. (Glenayre). While both Motorola and Glenayre will no longer
sell the messaging equipment we use, we have taken measures in an effort to
mitigate any risks to our business. We currently procure traditional paging
devices through a number of manufacturers other than Motorola and anticipate
that manufacturers other than Motorola will offer advanced messaging devices and
network equipment to satisfy Metrocall's future requirements.

Our ability to satisfy the product demand for advanced messaging equipment
could be affected by Motorola's unilateral announcement to abandon the product
supply business and the uncertainty of the availability of replacement product.
Either of these contingencies could adversely affect Metrocall's ability to
offer narrowband PCS services.

In the first quarter of 2002, we entered into a final purchase agreement
with Motorola pursuant to which we prepaid Motorola for our final order of
advanced messaging devices. We believe that this purchase agreement has provided
us with sufficient quantities of advanced messaging devices to meet our needs
through mid-year 2003.

Motorola has licensed both its one-way and two-way technology and patent
rights to multiple manufacturers. A current supply of one-way devices exists to
fulfill our future requirements. Two-way messaging devices are in development by
several manufacturers and may be available in the first quarter of 2003. We can
make no assurances, however, that we will have a source (as Motorola was) for
two-way devices of comparable quality or quantities that will be available after
the current inventory is exhausted.

We currently receive maintenance and support services for our network
infrastructure components from Glenayre through a support services contract
which expires in April 2003 unless extended for an additional 12 months at our
option. We expect that infrastructure and equipment components will continue to
be available from other suppliers for the foreseeable future, consistent with
normal manufacturing and delivery lead times but cannot provide any assurance
that we will not experience unexpected delays in obtaining equipment in the
future.

FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

Our ability to continue as a going concern is dependent upon several
factors, including, but not limited to our ability to (i) generate sufficient
cash flows to meet our obligations, on a timely basis, (ii) continue to obtain
uninterrupted supplies and services from our vendors; (iii) retain employees,
and (iv) reduce capital expenditures and operating expenses.

Our liquidity position is also influenced by the timing of accounts
receivable collections and disbursements to vendors and employees. We invoice
approximately 85% of our customers monthly in advance of providing our services
and our days receivables outstanding averages approximately 35 days. Employee
salaries are paid on a bi-weekly basis and commission payments are paid monthly
in arrears. Payments to telecommunication providers and facility and site
landlords are made on a monthly basis. We have customary trade terms with most
of our vendors. In light of Metrocall's financial circumstances, in several
instances where alternative sources of procurement were not available, several
vendors have

24

required us to pay for goods and services in advance. For instance, Metrocall
was required to prepay to Motorola for certain products in February 2002, as a
result of Motorola's election to discontinue this segment of its business. We
believed this pre-payment for equipment was necessary to ensure adequate
availability of advanced messaging equipment through mid-year 2003. Since our
Plan became effective on October 8, 2002, we have been able to restore customary
trade credit with the substantial majority of our other major suppliers.

In connection with the Plan, we discharged our indebtedness under the old
credit facility and senior subordinated notes. The following details our
capitalization as of October 8, 2002 and on a pro forma basis giving effect to
the Plan (dollars in thousands):

- ---------------

* Includes reserves established for tax claims and administrative expenses
payable pursuant to the Plan in the amount of $10.2 million.

** At liquidation value.

The following describes the debt and preferred equity securities issued
under the Plan:

Senior Secured Promissory Note. The $60.0 million senior secured
promissory note issued by OpCo and guaranteed by HoldCo. and its subsidiaries
accrues interest at the prime lending rate plus a margin of 2.875%. Interest
payments are made on the last business day of each month. The maturity date of
the note is March 31, 2004. The promissory note is secured by substantially all
of our assets. The promissory note will amortize on a quarterly basis beginning
in March 2003 according to the following schedule (dollars in millions):

Within 5 business days of December 31, 2002 and thereafter within five
business days after the end of each fiscal quarter, we are required to make a
mandatory repayment of 100% of our Unrestricted Cash in

25

excess of $10.0 million. To the extent that such mandatory prepayments are made,
the payments will be applied to the scheduled amortization payments described in
the table above in inverse order of maturity. Unrestricted Cash means cash on
hand with HoldCo., OpCo. and LicenseCo. excluding (i) cash necessary to make
distributions pursuant to our Plan or to establish reserves as may be required
or permitted under the Plan or otherwise appropriate or (ii) cash encumbered by
Permitted Liens.

Senior Subordinated PIK Promissory Note. The $20.0 million senior
subordinated PIK promissory note issued by HoldCo. and guaranteed by LicenseCo.
and Ventures accrues interest at a rate of 12% per annum due quarterly in
arrears by issuance of additional senior secured promissory notes until the
senior secured promissory note is fully repaid. Thereafter, interest shall be
due and payable monthly in arrears in cash. The maturity date of the note is
December 31, 2004. The promissory note is secured by substantially all of our
assets. The facility will amortize on a quarterly basis beginning in June 2004
according to the following schedule (dollars in millions):

Upon payment in full of the senior secured promissory note and the end of
each quarter thereafter, we are required to reduce the PIK note by an amount
equal to 100% of our Unrestricted Cash (as defined with respect to the senior
secured promissory note) in excess of $10.0 million. This prepayment shall be
payable within five business days of the end of each such quarter.

Under the promissory notes, we are required to remain in compliance with
certain financial covenants including (i) a ratio of total net debt to
annualized operating cash flow not to exceed the ratio of 1.0:1.0; and, (ii) a
ratio of operating cash flow to cash interest expense that must exceed the ratio
of 2.0:1.0 at all times. In addition, there are limitations on system and pager
device capital expenditures.

Series A Preferred Stock. HoldCo. will issue 6.0 million shares of Series
A Preferred with an initial liquidation of $60.0 million or $10.0 per share. The
Series A Preferred accrues dividends at a rate of 15% per annum compounded
quarterly. Dividends on the Series A Preferred accrue (but will not become
payable) and increase the initial liquidation preference until such time as the
promissory notes are repaid in full and thereafter dividends shall accrue and
become payable in cash.

After repayment of the promissory notes, the Series A Preferred will be
redeemed on a pro-rata basis, together with any and all unpaid accrued dividends
to the redemption date on a quarterly basis by amount equal to 100% of
Unrestricted Cash (as defined with respect to the senior secured promissory
note) over $10.0 million. All of the shares of the Series A Preferred will be
redeemed on or before the later of December 31, 2006 or 180 days after the date
that the PIK note is paid in full.

Cash and cash equivalents. Cash and cash equivalents balances were
approximately $52.9 million and approximately $44.0 million at September 30,
2002 and November 8, 2002, respectively. We believe that these balances plus
cash expected to be generated from operations will be sufficient to meet our
financial obligations and fund capital expenditure requirements during the
remainder of 2002. Pursuant to our Plan, we have also reserved funds of
approximately $10.2 million for estimated tax and administrative expense claims
that may be paid out by the company as such claims are resolved. These balances
are excluded from the cash and cash equivalents amount at November 8, 2002 and
will be excluded from the cash required to be applied to the mandatory
prepayments of our promissory notes as described above.

CASH FLOWS

For the nine months ended September 30, 2002, net cash provided by
operating activities increased by approximately $28.0 million from $35.4 million
for the nine months ended September 30, 2001 to

26

$63.4 million for the nine months ended September 30, 2002. The increase in cash
provided by operating activities was primarily the result of the reduction of
our net loss before depreciation offset by changes in working capital.

Net cash used in investing activities decreased approximately $17.7 million
from $51.7 million for the nine months ended September 30, 2001 to $34.0 million
for the nine months ended September 30, 2002. The decrease in net cash used for
investing activities was primarily the result of a decrease in the purchase of
subscriber equipment. Capital expenditures were approximately $49.3 million and
$33.2 million for the nine-months ended September 30, 2001 and 2002,
respectively. Capital expenditures for the nine months ended September 30, 2001
included approximately $41.7 million for subscriber equipment, representing
increases in wireless devices on hand and net increases and betterments to the
rental subscriber base, while subscriber equipment purchases for the nine months
ended September 30, 2002 were approximately $29.3 million. The balance of
capital expenditures included $2.3 million for information systems and computer
related equipment, $0.6 million for network construction and development and
$0.9 million for general purchases including leasehold improvements and office
equipment.

Estimated capital expenditures for the remainder of 2002 are approximately
$7.0 million primarily for the acquisition of pagers, paging and transmission
equipment and information systems enhancement. Metrocall expects that its
capital expenditures for the year ending December 31, 2002, will be available
from its available cash flow. We expect future capital expenditures to be
limited to the expenditure covenants outlined in our new promissory note
agreements.

Net cash used by financing activities increased approximately $0.1 million
from $0.5 million for the nine months ended September 30, 2001 to $0.6 million
for the nine months ended September 30, 2002. These activities reflect payment
of principal on a capital lease. With the issuance of the promissory notes in
connection with the Plan, we expect to repay at least $26.5 million of the $60.0
million senior secured promissory note within the first five business days of
January 2003.

RESULTS OF OPERATIONS

The definitions below will be helpful in understanding the discussion of
Metrocall's results of operations.

- Service, rent and maintenance revenues: include primarily monthly,
quarterly, semi-annually and annually billed recurring revenue, not
generally dependent on usage, charged to subscribers for paging and
related services such as voice mail and pager repair and replacement.
Service, rent and maintenance revenues also include revenues derived from
cellular and long distance services.

- Net revenues: include service, rent and maintenance revenues and sales
of customer owned and maintained ("COAM") pagers less net book value of
products sold.

- Service, rent and maintenance expenses: include costs related to the
management, operation and maintenance of our network systems and customer
service support centers.

- Selling and marketing expenses: include salaries, commissions and
administrative costs for our sales force and related marketing and
advertising expenses.

- General and administrative expenses: include executive management,
accounting, office telephone, repairs and maintenance, management
information systems and employee benefits.

27

THREE MONTHS ENDED SEPTEMBER 30, 2002 COMPARED WITH 2001

REVENUES

The following table sets forth the amounts of revenues and the percentages
of net revenues represented by certain items in Metrocall's Interim Condensed
Consolidated Statements of Operations and certain other information for the
three month periods ended September 30, 2001 and 2002.

CONSOLIDATED PAGING OPERATIONS

TRADITIONAL PAGING OPERATIONS

Traditional paging service, rent and maintenance revenues decreased
approximately $24.9 million from $102.6 million for the three months ended
September 30, 2001 ("2001") to $77.7 million for the three months ended
September 30, 2002 ("2002"). Since July 2001, traditional units in service have
decreased in both the direct and indirect distribution channels. From September
30, 2001, direct distribution channel subscribers have decreased 356,907 units
as a result of subscriber conversions to Metrocall's advanced messaging services
and cancellations. From September 30, 2001, indirect distribution subscribers,
mainly in Metrocall's reseller and strategic alliance channels, have decreased
by 1,491,652 units. The decrease in the number of indirect subscribers primarily
resulted from a decrease in demand for traditional paging products in the
reseller channel and our desire to increase the average monthly revenue per unit
(ARPU) in this relatively low ARPU distribution channel. As a result of the
decrease in the traditional subscriber base and in particular indirect
subscribers, ARPU for 2002 increased $0.46 to $6.27 from 2001.

We expect that revenues generated from our traditional paging operations
will continue to decrease due to the continued pressures of competing
technologies attracting existing subscribers and increased competition. Although
a concerted customer retention program has been implemented, we cannot guarantee
that we will be able to slow the rate of customer churn.

28

Product sales from traditional operations decreased approximately $3.9
million from $8.0 million in 2001 to $4.1 million in 2002 and decreased as a
percentage of net revenues from 7.4% in 2001 to 5.1% in 2002. Net book value of
products sold decreased approximately $1.2 million from $2.5 million in 2001 to
$1.3 million in 2002 and decreased as a percentage of net revenues from 2.3% in
2001 to 1.6% in 2002. Fluctuations in traditional product sales and net book
value of products sold were the result of a reduction in the number of
subscriber units sold through direct distribution channels in 2002.

ADVANCED MESSAGING OPERATIONS

Advanced messaging service, rent and maintenance revenues increased $2.0
million to approximately $14.7 million in 2002. The increase in service, rent
and maintenance revenues was the result of a shift in the subscriber
distribution mix as a greater percentage of subscribers were in direct
distribution channels than in the past. We expect that our advanced messaging
service, rent and maintenance revenues will remain flat for the remainder of
2002.

Product sales from advanced messaging operations decreased approximately
$0.7 million to $2.7 million in 2002. Net book value of products sold decreased
$1.4 million to approximately $2.4 million in 2002. Metrocall bundles the sale
of two-way messaging equipment with the related service and recognizes revenue
and related cost of sales over the expected life of the customer relationship.
Accordingly, product sales revenues and related costs up to the amount of
product sales revenues are deferred and recognized over the expected customer
life.

OPERATING EXPENSES

The following tables set forth the amounts of operating expenses and
related percentages of net revenues represented by certain items in Metrocall's
Interim Condensed Consolidated Statements of Operations and certain other
information for the periods ended September 30, 2001 and 2002.

Overall, we experienced an increase in average monthly operating costs per
unit in service (operating costs per unit before depreciation and amortization)
from 2001 to 2002. Average monthly operating cost per unit increased $0.31 from
$5.09 per unit for 2001 to $5.40 per unit for 2002. Each operating expense is
discussed separately below.

Service, rent and maintenance expenses decreased approximately $5.5 million
from $30.6 million in 2001 to $25.1 million in 2002 and increased as a
percentage of net revenues from 25.4% in 2001 to 26.3% in 2002. Monthly service,
rent and maintenance expense per unit increased from $1.67 per unit in 2001 to
$1.95 per unit in 2002. Service, rent and maintenance expenses have decreased
primarily as a result of a decrease in subscriber line costs, rent, salaries and
dispatching costs. The cost reductions mentioned are due to rationalization and
re-negotiation of dispatching and subscriber line costs and other cost cutting
initiatives undertaken in connection with our restructuring. We expect that
service, rent and maintenance expenses in the fourth quarter of 2002 will remain
consistent with the results for the three months ended September 30, 2002.

Selling and marketing expenses decreased approximately $9.6 million from
$22.4 million in 2001 to $12.8 million in 2002 and decreased as a percentage of
net revenues from 18.6% in 2001 to 13.4% in 2002. The overall expense decrease
was primarily the result of reductions in salaries and commissions and other
related expenses as a result of a smaller sales and marketing force, and a
reduction in print and media advertising. Monthly selling and marketing expense
per unit decreased from $1.22 per unit in 2001 to $0.99 per unit in 2002. We
expect our selling and marketing expenses for the three months ended December
31, 2002 to remain relatively consistent with expenses incurred in the past
three months.

General and administrative expenses decreased by $8.5 million from $40.1
million in 2001 to $31.6 million, and decreased as a percentage of net revenues
from 33.3% in 2001 to 33.1% in 2002. The decrease in general and administrative
expenses was primarily the result of a reduction in salaries, taxes, and other
related expenses, and rent, due to several cost containment initiatives that
focused on the back office centralization and rationalization related to our
restructuring. General and administrative expenses in 2002 also included
approximately $0.9 million related to retention bonuses incurred in connection
with our reorganization. We expect general and administrative expenses to
decrease in future quarters as a result of continuing cost reduction
initiatives. Such past initiatives have included a reduction in administrative
and overhead positions, minimization in the utilization of temporary and other
professional services and continued consolidation of certain overhead functions
related to our restructuring.

Reorganization and restructuring related expenses of $6.0 million were
included in the accompanying statements of operations for 2002. Such costs
include costs incurred for legal, financial and investment banking services
received in connection with our debt restructuring efforts described herein,
severance costs, facility lease exit costs, and accelerated amortization of debt
discount. Our operational restructuring initiatives are more fully described
under "Right-Size Restructuring Plan."

Depreciation expense decreased approximately $13.8 million from $30.8
million in 2001 to $17.0 million in 2002. The decrease in depreciation expense
resulted mainly from a reduction in the basis of our assets, due to the
impairment charges taken during the second and fourth quarters of 2001.

Amortization expenses decreased approximately $307.3 million from $307.3
million in 2001 to $0.00 in 2002. This decrease was the result of the write down
of all our intangible assets by December 31, 2001.

30

OTHER INCOME/(EXPENSES)

Interest expense decreased approximately $18.0 million, from $20.6 million
in 2001 to $2.6 million in 2002. The decrease was primarily the result of the
cessation of interest expense recorded on our senior subordinated notes on June
3, 2002 as a result of following AICPA Statement of Position (SOP) 90-7
following our chapter 11 filing. Contractual interest that would have been
recognized for the three months ended September 30, 2002 was $21.5 million.

Metrocall's net loss decreased approximately $46.7 million from ($45.8)
million in 2001 to $0.9 million in 2002 mainly as a result of the above
mentioned events.

Preferred dividends and accretion decreased approximately $2.6 million in
2002 from $2.6 million in 2001 to $0.0 million in 2002 as a result of the
cessation of dividends recorded on our Series A Preferred on June 3, 2002.

NINE MONTHS ENDED SEPTEMBER 30, 2002 COMPARED WITH 2001

REVENUES

The following table sets forth the amounts of revenues and the percentages
of net revenues represented by certain items in Metrocall's Interim Condensed
Consolidated Statements of Operations and certain other information for the nine
month periods ended September 30, 2001 and 2002.

CONSOLIDATED PAGING OPERATIONS

31

TRADITIONAL PAGING OPERATIONS

Traditional paging service, rent and maintenance revenues decreased
approximately $69.7 million from $319.4 million for the nine months ended
September 30, 2001 ("2001") to $249.7 million for the nine months ended
September 30, 2002 ("2002"). Since July 2001, traditional units in service have
decreased in both the direct and indirect distribution channels. From September
30, 2001, direct distribution channel subscribers have decreased 356,907 units
as a result of subscriber conversions to Metrocall's advanced messaging services
and cancellations. From September 30, 2001, indirect distribution subscribers,
mainly in Metrocall's reseller and strategic alliance channels, have decreased
by 1,491,652 units. The decrease in the number of indirect subscribers was
mainly the result of a decrease in demand for traditional paging products in the
reseller channel and our desire to increase the average monthly revenue per unit
(ARPU) in this relatively low ARPU distribution channel. As a result of the
decrease in the traditional subscriber base, and mainly indirect channels, ARPU
for 2002 increased by $0.40 to $6.27 from 2001.

We expect that revenues generated from our traditional paging operations
will continue to decrease in the foreseeable future. Such decreases are expected
due to the continued pressures of competing technologies attracting existing
subscribers. Although a concerted customer retention program has been
implemented, we cannot guarantee that we will be able to slow the rate of
customer churn.

Product sales from traditional operations decreased approximately $11.0
million from $26.5 million in 2001 to $15.5 million in 2002 and decreased as a
percentage of net revenues from 7.9% in 2001 to 6.0% in 2002. Net book value of
products sold decreased approximately $4.1 million from $10.3 million in 2001 to
$6.2 million in 2002 and decreased as a percentage of net revenues from 3.1% in
2001 to 2.4% in 2002. Fluctuations in traditional product sales and net book
value of products sold were the result of a reduction in the number of
subscriber units sold through direct distribution channels in 2002.

ADVANCED MESSAGING OPERATIONS

32

Advanced messaging service, rent and maintenance revenues increased $12.1
million to approximately $44.3 million in 2002. The increase in service, rent
and maintenance revenues was the result of a shift in the subscriber
distribution mix as a greater percentage of subscribers were in direct
distribution channels than in the past. We expect that our advanced messaging
service, rent and maintenance revenues will remain flat for the remainder of
2002.

Product sales from advanced messaging operations increased approximately
$1.4 million to $8.2 million in 2002. Net book value of products sold decreased
$1.1 million to approximately $7.9 million in 2002 primarily as a result of
increased depreciation on advanced messaging equipment sold. Metrocall bundles
the sale of two-way messaging equipment with the related service and recognizes
revenue and related cost of sales over the expected life of the customer
relationship. Accordingly, product sales revenues and related costs up to the
amount of product sales revenues are deferred and recognized over the expected
customer life.

OPERATING EXPENSES

The following tables set forth the amounts of operating expenses and
related percentages of net revenues represented by certain items in Metrocall's
Interim Condensed Consolidated Statements of Operations and certain other
information for the periods ended September 30, 2001 and 2002.

Overall, we experienced an increase in average monthly operating costs per
unit in service (operating costs per unit before depreciation and amortization)
from 2001 to 2002. Average monthly operating cost per unit increased $0.23 from
$5.19 per unit for 2001 to $5.42 per unit for 2002. Each operating expense is
discussed separately below.

Service, rent and maintenance expenses decreased approximately $15.5
million from $95.0 million in 2001 to $79.5 million in 2002 and increased as a
percentage of net revenues from 26.0% in 2001 to 26.2% in 2002. Monthly service,
rent and maintenance expense per unit increased from $1.70 per unit in 2001 to
$1.87 per unit in 2002. Service, rent and maintenance expenses have decreased
primarily as a result of a decrease in subscriber line costs, supplies,
salaries, rent, and dispatching costs. There has been a partially offsetting
increase in tower rent expenses, and an increase in the two-way provisioning
costs to Weblink as a result of the increased number of units that have been
placed on the Weblink network since

33

September 30, 2001. The cost reductions mentioned are due to rationalization and
re-negotiation of dispatching and subscriber line costs and other cost cutting
initiatives related to our restructuring.

Selling and marketing expenses decreased approximately $21.3 million from
$71.4 million in 2001 to $50.1 million in 2002 and decreased as a percentage of
net revenues from 19.5% in 2001 to 16.5% in 2002. The overall expense decrease
was primarily the result of reductions in salaries and commissions and other
related expenses as a result of smaller sales and marketing force, and a
reduction in print and media advertising. Monthly selling and marketing expense
per unit has decreased from $1.28 per unit in 2001 to $1.18 per unit in 2002.

General and administrative expenses decreased by $22.7 million from $123.4
million in 2001 to $100.7 million, and decreased as a percentage of net revenues
from 33.7% in 2001 to 33.2% in 2002. The decrease in general and administrative
expenses was primarily the result of a reduction in salaries and other related
expenses, telephone administrative services, bad debt, rent and professional
service, due to several cost containment initiatives that focused on the back
office centralization and rationalization due to our restructuring and reduction
in revenues. General and administrative expenses in 2002 also included
approximately $0.9 million related to retention bonuses in connection with our
reorganization.

Reorganization related expenses of $18.5 million were included in the
accompanying statements of operations for 2002. Such costs include approximately
$9.8 million costs incurred for legal, financial and investment banking services
received in connection with our debt restructuring efforts and Chapter 11
proceedings described herein, severance costs of approximately $3.0 million,
facility lease exit costs of approximately $4.7 million, and accelerated
amortization of debt discount of approximately $1.0 million.

Depreciation expense decreased approximately $37.2 million from
$95.8 million in 2001 to $58.6 million in 2002. The decrease in depreciation
expense resulted mainly from a reduction in the basis of our assets, the result
of an impairment charge taken during the fourth quarter of 2001.

Amortization expenses decreased approximately $351.0 million from
$351.0 million in 2001 to $0.00 in 2002. This decrease was the result of the
write down of all our intangible assets in 2001.

OTHER INCOME/(EXPENSES)

Interest expense decreased approximately $22.4 million, from $61.8 million
in 2001 to $39.4 million in 2002. The decrease was primarily the result of the
cessation of interest expense on our senior subordinated notes on September 3,
2002 as a result of following AICPA SOP 90-7 following our chapter 11 filing.
Contractual interest that would have been recognized for the nine months ended
September 30, 2002 was $64.4 million.

Metrocall's net loss decreased approximately $407.9 million from $452.2
million in 2001 to $44.3 million in 2002 mainly as a result of the above
mentioned events.

Preferred dividends and accretion increased approximately $1.9 million in
2002 from $7.7 million in 2001 to $9.6 million in 2002. The increase was the
result of a $4.7 million of additional accretion expense recognized to increase
the book value of our preferred stock to its liquidation value as of the June 3,
2002 petition date in accordance with SOP 90-7, offset by the foregone dividends
expense associated with the cessation of dividends recognition as of June 3,
2002.

34

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

At September 30, 2002, we had $133.0 million outstanding under our credit
facility and $626.8 million aggregate principal amount outstanding of senior
subordinated notes. Please refer to Item 2 with respect to treatment of such
obligations under our Plan of Reorganization.

ITEM 4. CONTROLS AND PROCEDURES

Within 90 days prior to the filing date of this report and under the
supervision and with the participation of our Chief Executive Officer and Chief
Financial Officer, management evaluated the effectiveness of the design and
operation of our disclosure controls and procedures. Based on this evaluation,
our Chief Executive Office and Chief Financial Officer concluded that our
disclosure controls and procedures are effective in timely accumulating and
communicating to management information required to be disclosed in the reports
that we file with the SEC. There have been no significant changes in our
internal controls or in other factors that could significantly affect those
controls subsequent to the date of our last evaluation.

35

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Please refer to Note 5 of the interim condensed consolidated financial
statements.

ITEM 2. CHANGES IN SECURITIES

See Part 1, Item 2 for a discussion of our Plan of Reorganization and the
cancellation of all 'predecessor' common stock and preferred stock interests in
accordance with our Plan, effective October 8, 2002.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

See Part I, Item 2 for a discussion of our Plan of Reorganization.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits Required by Item 601 of Regulation S-K.

(b) Reports on Form 8-K

Form 8-K filed July 25, 2002 reporting that the Bankruptcy Court approved
the adequacy of the Second Amended Disclosure Statement for Metrocall, Inc and
certain of its subsidiaries and authorized Metrocall to begin soliciting votes
for its Plan of Reorganization.

Form 8-K filed July 11, 2002 (i) reporting the filing by Metrocall, Inc.
and certain of its subsidiaries of a motion requesting that the Bankruptcy Court
enter an order (1) scheduling a hearing on confirmation of the proposed joint
plan of reorganization (2) establishing objection deadlines and procedures and
(3) approving forms of notice, ballot and solicitation procedures; and (ii)
reporting that the Bankruptcy Court entered a final order granting Metrocall
Inc.'s motion establishing notification procedures regarding applicability of
the automatic stay limiting certain transfers of common stock, preferred stock
and interests there-in.

36

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

Date: November 14, 2002 METROCALL, INC.

By: /s/ VINCENT D. KELLY
------------------------------------
Vincent D. Kelly
Chief Financial Officer,
Chief Operating Officer, Treasurer
and
Executive Vice President

37

CERTIFICATION

I, William L. Collins, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Metrocall
Holdings, Inc.

2. Based on my knowledge, this quarterly 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 quarterly
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly 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 quarterly report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a) designed such disclosure controls and procedures 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 quarterly report is being
prepared;

b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and

c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):

a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and

6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

Date: November 14, 2002

/s/ WILLIAM L. COLLINS III
------------------------------------------------------------------------------
William L. Collins III
President and Chief Executive Officer

38

CERTIFICATION

I, Vincent D. Kelly, certify that:

1. I have reviewed this quarterly report on Form 10-K of Metrocall
Holdings, Inc.

2. Based on my knowledge, this quarterly 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 quarterly
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this annual 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 quarterly report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

a) designed such disclosure controls and procedures 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 quarterly report is being
prepared;

b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and

c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):

a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and

6. The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal controls or
in other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.

Date: November 14, 2002

/s/ VINCENT D. KELLY
------------------------------------------------------------------------------
Vincent D. Kelly
Chief Financial Officer, Chief
Operating Officer,
Treasurer and Executive Vice President

39

EXHIBIT INDEX