<PAGE>
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): October 10, 1996
--------------------
PRONET INC.
(Exact name of issuer as specified in its charter)
DELAWARE 0-16029 75-1832168
(State or other (Commission File Number) (I.R.S. Employer
jurisdiction of Identification Number)
incorporation)
6340 LBJ FREEWAY 75240
DALLAS, TEXAS (Zip Code)
(Address of Principal
Executive Offices)
Registrant's telephone number, including area code: (972) 687-2000
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
<PAGE>
ITEM 5. OTHER EVENTS.
(A) FINANCIAL STATEMENTS OF THE PAGING DIVISIONS OF PAC-WEST TELECOMM,
INC. AND SUBSIDIARY.
On April 25, 1996, ProNet Inc. (the "Company") signed a definitive
agreement to acquire the Paging Divisions of Pac-West Telecomm, Inc. and
Subsidiary ("PacWest") for an amount to be determined based upon the terms of
the agreement. This transaction is subject to various conditions and approvals
and is anticipated to close in the fourth quarter of 1996. Included herein as
Exhibit 99.1 are audited financial statements as of and for the twelve months
ended November 30, 1995 and the unaudited financial statements as of and for the
six months ended May 31, 1996.
(B) PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AND NOTES.
Attached hereto as Exhibit 99.2 are certain pro forma condensed
consolidated financial statements and notes thereto of the Company and its
completed and pending acquisitions.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
The following pro forma financial information is attached hereto and filed
as part of this report:
(b) PRO FORMA FINANCIAL INFORMATION.
- Unaudited Pro Forma Condensed Consolidated Balance Sheet for the
Company as of June 30, 1996, consolidating the assets and certain
liabilities of the Company, PacWest, and Georgialina Communication
Company and affiliates ("Georgialina").
- Unaudited Pro Forma Condensed Consolidated Statements of Operations
for the Company for the Year Ended December 31, 1995, incorporating
the operating revenues and expenses of the Company, Signet Paging
of Charlotte, Inc. ("Signet Charlotte"), Carrier Paging Systems,
Inc. ("Carrier"), All City Communication Company, Inc. ("All City"),
Metropolitan Houston Paging Services, Inc. ("Metropolitan"),
Americom Paging Corporation ("Americom"), Gold Coast Paging, Inc.
("Gold Coast"), Lewis Paging, Inc. ("Lewis"), Paging & Cellular of
Texas ("Paging & Cellular"), Apple Communication, Inc. ("Apple"),
Sun Paging Communications ("Sun"), SigNet Paging of Raleigh, Inc.
("SigNet Raleigh"), Cobbwells, Inc. dba Page One ("Page One"),
A.G.R. Electronics, Inc. and affiliates ("AGR"), Total Communication
Services, Inc. ("Total"), Williams Metro Communications Corp. and
affiliates ("Williams"), PacWest and Georgialina.
- Unaudited Pro Forma Condensed Consolidated Statements of Operations
for the Company for the Six Months Ended June 30, 1996,
incorporating the operating revenues and expenses of the Company,
AGR, Total, Williams, PacWest and Georgialina.
The Pro Forma Condensed Consolidated Statements of Operations include
reasonable estimates of costs and expenses which will be incurred by the Company
in connection with the operation of Signet Charlotte, Carrier, All City,
Metropolitan, Americom, Gold Coast, Lewis, Paging & Cellular, Apple, Sun, SigNet
Raleigh, Page One, AGR, Total, Williams, PacWest and Georgialina. The pro forma
condensed consolidated financial statements should be read in conjunction with
the historical consolidated financial statements of the Registrant.
Attached hereto as Exhibit 99.2 are pro forma condensed consolidated
financial statements and notes thereto of the Company and its completed and
pending acquisitions.
(c) EXHIBITS.
Financial information of pending acquisitions:
99.1 PacWest
Report of Independent Auditors
Statements of Assets and Liabilities and Divisional Equity as of
November 30, 1995 and May 31, 1996 (unaudited)
Statements of Operations for the Year Ended November 30, 1995 and for
the Six Months Ended May 31, 1996 (unaudited)
<PAGE>
Statements of Divisional Equity for the Year Ended November 30, 1995
and the Six Months Ended May 31, 1996 (unaudited)
Statements of Cash Flows for the Year Ended November 30, 1995 and for
the Six Months Ended May 31, 1996 (unaudited)
Pro Forma Condensed Consolidated Financial Statements of ProNet Inc. and
Subsidiaries:
99.2 Pro Forma Condensed Consolidated Balance Sheet as of June 30, 1996
(unaudited)
Pro Forma Condensed Consolidated Statement of Operations for the Year
Ended December 31, 1995 (unaudited)
Pro Forma Condensed Consolidated Statement of Operations for the Six
Months Ended June 30, 1996 (unaudited)
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
PRONET INC.
(Registrant)
By: /s/ JAN E. GAULDING
------------------------------------
Jan E. Gaulding
Senior Vice President and
Chief Financial Officer
(principal financial and accounting officer)
Date: October 10, 1996
<PAGE>
INDEX TO EXHIBITS
Financial information of pending acquisitions:
99.1 PacWest
Report of Independent Auditors
Statements of Assets and Liabilities and Divisional Equity as of
November 30, 1995 and May 31, 1996 (unaudited)
Statements of Operations for the Year Ended November 30, 1995 and for
the Six Months Ended May 31, 1996 (unaudited)
Statements of Divisional Equity for the Year Ended November 30, 1995
and the Six Months Ended May 31, 1996 (unaudited)
Statements of Cash Flows for the Year Ended November 30, 1995 and for
the Six Months Ended May 31, 1996 (unaudited)
Pro Forma Condensed Consolidated Financial Statements of ProNet Inc. and
Subsidiaries:
99.2 Pro Forma Condensed Consolidated Balance Sheet as of June 30, 1996
(unaudited)
Pro Forma Condensed Consolidated Statement of Operations for the Year
Ended December 31, 1995 (unaudited)
Pro Forma Condensed Consolidated Statement of Operations for the Six
Months Ended June 30, 1996 (unaudited)
<PAGE>
EXHIBIT
99.1
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors and Shareholders
ProNet Inc.
We have audited the accompanying Statements of Assets and Liabilities and
Divisional Equity of the Paging Divisions of Pac-West Telecomm, Inc. and
Subsidiary (the Company) as of November 30, 1995, and the related statements of
operations, divisional equity and cash flows for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the assets and liabilities and divisional equity of
the Paging Divisions of Pac-West Telecomm, Inc. and Subsidiary at November 30,
1995, and the results of their operations and their cash flows for the year then
ended in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Dallas, Texas
January 26, 1996
<PAGE>
PAGING DIVISIONS OF PAC-WEST TELECOMM, INC. AND SUBSIDIARY
STATEMENTS OF ASSETS AND LIABILITIES AND DIVISIONAL EQUITY
ASSETS
<TABLE>
NOVEMBER 30, MAY 31,
1995 1996
------------ -----------
(Unaudited)
<S> <C> <C>
Current assets:
Cash................................................................. $ 2,000 $ 5,000
Trade accounts receivable, net of allowance for doubtful
accounts of $49,000 and $74,000 in 1995 and 1996, respectively...... 297,000 274,000
Prepaid expenses and other current assets.............................. 39,000 70,000
---------- ----------
Total current assets............................................... 338,000 349,000
---------- ----------
Equipment, vehicles and leasehold improvements:
Communications equipment............................................. 4,260,000 4,709,000
Pagers............................................................... 2,171,000 2,220,000
Office furniture and equipment....................................... 52,000 52,000
Vehicles............................................................. 49,000 49,000
Leasehold improvements............................................... 4,000 4,000
---------- ----------
6,536,000 7,034,000
Less accumulated depreciation and amortization......................... 2,583,000 2,768,000
---------- ----------
3,953,000 4,266,000
---------- ----------
Goodwill and other assets, net of accumulated amortization of
$43,000 and $53,000 in 1995 and 1996, respectively.................... 105,000 96,000
---------- ----------
Total.............................................................. $4,396,000 $4,711,000
---------- ----------
---------- ----------
LIABILITIES AND DIVISIONAL EQUITY
Current liabilities:
Accounts payable..................................................... $ 87,000 $ 375,000
Accrued compensation................................................. 88,000 88,000
Other accrued liabilities............................................ 21,000 19,000
Current portion of notes payable..................................... 461,000 386,000
Current portion of capital lease obligations......................... 716,000 814,000
---------- ----------
Total current liabilities.......................................... 1,373,000 1,682,000
---------- ----------
Long-term debt:
Notes payable, less current portion.................................. 599,000 425,000
Capital lease obligations, less current portion...................... 2,004,000 2,142,000
---------- ----------
Total long-term debt............................................... 2,603,000 2,567,000
---------- ----------
Deferred income taxes.................................................. 150,000 150,000
---------- ----------
Divisional equity...................................................... 270,000 312,000
---------- ----------
Total.............................................................. $4,396,000 $4,711,000
---------- ----------
---------- ----------
</TABLE>
See accompanying notes.
<PAGE>
PAGING DIVISIONS OF PAC-WEST TELECOMM, INC. AND SUBSIDIARY
STATEMENTS OF OPERATIONS
YEAR SIX MONTHS
ENDED ENDED
NOVEMBER 30, MAY 31,
1995 1996
------------ -----------
(Unaudited)
Revenues:
Service revenues. . . . . . . . . . . . . . . $5,724,000 $3,134,000
Product sales . . . . . . . . . . . . . . . . 1,015,000 506,000
---------- ----------
Total revenues. . . . . . . . . . . . . . . . 6,739,000 3,640,000
Cost of products sold . . . . . . . . . . . . (874,000) (476,000)
---------- ----------
5,865,000 3,164,000
Cost of services . . . . . . . . . . . . . . . 1,233,000 542,000
---------- ----------
Gross margin . . . . . . . . . . . . . . . . . 4,632,000 2,622,000
Expenses:
Sales and marketing . . . . . . . . . . . . . 3,118,000 1,911,000
General and administrative. . . . . . . . . . 852,000 441,000
Depreciation and amortization . . . . . . . . 856,000 508,000
---------- ----------
4,826,000 2,860,000
---------- ----------
Operating loss . . . . . . . . . . . . . . . . (194,000) (238,000)
Interest expense . . . . . . . . . . . . . . . (381,000) (200,000)
---------- ----------
Loss before income taxes . . . . . . . . . . . (575,000) (438,000)
Income tax - benefit . . . . . . . . . . . . . 209,000 176,000
---------- ----------
Net loss . . . . . . . . . . . . . . . . . . . $ (366,000) $ (262,000)
---------- ----------
---------- ----------
See accompanying notes.
<PAGE>
PAGING DIVISIONS OF PAC-WEST TELECOMM, INC. AND SUBSIDIARY
STATEMENTS OF CASH FLOWS
YEAR SIX MONTHS
ENDED ENDED
NOVEMBER 30, MAY 31,
1995 1996
------------ -----------
(Unaudited)
OPERATING ACTIVITIES:
Net loss. . . . . . . . . . . . . . . . . . . $ (366,000) $(262,000)
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization. . . . . . . . 856,000 508,000
Provision for bad debts. . . . . . . . . . . 157,000 53,000
Deferred income taxes. . . . . . . . . . . . 130,000 --
Changes in operating assets and liabilities:
Increase in trade accounts receivable . . . (27,000) (29,000)
Increase in prepaid expenses and other
current assets . . . . . . . . . . . . . . (7,000) (31,000)
Increase (decrease) in accounts payable . . (30,000) 119,000
Increase (decrease) in accrued
compensation . . . . . . . . . . . . . . . 18,000 (1,000)
Increase (decrease) other liabilities . . . 4,000 (2,000)
----------- ---------
Net cash provided by operating activities. . . 735,000 355,000
----------- ---------
INVESTING ACTIVITIES:
Purchase of fixed assets. . . . . . . . . . . (1,440,000) (449,000)
Purchase of pagers-net. . . . . . . . . . . . (234,000) (361,000)
----------- ---------
Net cash used investing activities . . . . . . (1,674,000) (810,000)
----------- ---------
FINANCING ACTIVITIES:
Short-term borrowings . . . . . . . . . . . . -- 167,000
Borrowings under notes payable and capital
leases . . . . . . . . . . . . . . . . . . . 1,744,000 653,000
Principal payments on notes payable and
capital leases . . . . . . . . . . . . . . . (1,062,000) (666,000)
Cash transfers from parent. . . . . . . . . . 237,000 304,000
----------- ---------
Net cash provided by financing activities. . . 919,000 458,000
----------- ---------
Net increase (decrease) in cash. . . . . . . . (20,000) 3,000
Cash at beginning of period. . . . . . . . . . 22,000 2,000
----------- ---------
Cash at end of period. . . . . . . . . . . . . $ 2,000 $ 5,000
----------- ---------
----------- ---------
See accompanying notes.
<PAGE>
PAGING DIVISIONS OF PAC-WEST TELECOMM, INC. AND SUBSIDIARY
STATEMENTS OF DIVISIONAL EQUITY
AMOUNT
--------
Balance at December 1, 1994. . . . . . . . $399,000
Net loss. . . . . . . . . . . . . . . . . (366,000)
Cash transfers from parent. . . . . . . . 237,000
--------
Balance at November 30, 1995 . . . . . . . 270,000
Net loss (unaudited). . . . . . . . . . . (262,000)
Cash transfers from parent. . . . . . . . 304,000
--------
Balance at May 31, 1996 (unaudited). . . . $312,000
--------
--------
See accompanying notes.
<PAGE>
PAGING DIVISIONS OF PAC-WEST TELECOMM, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
NOVEMBER 30, 1995
NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION
Pac-West Telecomm, Inc. (a California corporation) is engaged in the
business of providing paging services, long-distance telecommunications, and
telephone equipment sales and installation services to businesses and
residential customers principally within California. Its wholly-owned
subsidiary, A Best Page, Inc. (a Nevada corporation) provides paging services
in the Las Vegas, Nevada area.
On April 25, 1996, Pac-West Telecomm, Inc. entered into an agreement to
merge its paging operations (the Paging Divisions) into ProNet Inc. The
acquired net assets are to include all of the outstanding capital stock of A
Best Page, Inc.
The accompanying Statements of Assets and Liabilities and Divisional
Equity include only the assets and liabilities of the paging services which
will be acquired by or assumed by ProNet Inc., including all the assets and
liabilities of A Best Page, Inc.
The accompanying Statements of Operations include the revenues and
expenses of only the Paging Divisions of Pac-West Telecomm, Inc., plus all of
the revenues and expenses of A Best Page, Inc.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included.
NOTE 2 - ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in financial statements and
accompanying notes. Actual results could differ from those estimates.
EQUIPMENT, VEHICLES AND LEASEHOLD IMPROVEMENTS
Equipment, vehicles and leasehold improvements are stated at cost, less
accumulated depreciation and amortization. Equipment includes assets
acquired under capital leases. Expenditures for maintenance are charged to
expenses as incurred. Upon retirement, the asset cost and the related
accumulated depreciation are removed from the accounts. Costs associated
with dispositions of pagers are reflected as a component of cost of sales and
services, whereas gains and losses associated with dispositions of other
equipment, vehicles and leasehold improvements are reflected as a component
of other income (expense). Depreciation and amortization are computed using
the straight-line method based on the following estimated useful lives and
includes amortization of assets acquired under capital lease:
Equipment . . . . . . . . . . . . . . . . . . . 5 to 7 years
Vehicles. . . . . . . . . . . . . . . . . . . . 5 years
Leasehold improvements. . . . . . . . . . . . . 3 years
GOODWILL
Intangibles acquired have been capitalized and are being amortized on a
straight-line basis over 10 years.
<PAGE>
PAGING DIVISIONS OF PAC-WEST TELECOMM, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOVEMBER 30, 1995
INCOME TAXES
Deferred taxes are determined based on the difference between the
financial statement and tax bases of assets and liabilities as measured by
the marginal tax rates, using the liability method.
NOTE 3 - NOTES PAYABLE AND LINES OF CREDIT
NOTES PAYABLE
Notes payable consists of the following as of November 30, 1995:
Contracts payable to finance companies,
payable in monthly installments ranging
from approximately $100 to $4,750, including
interest at 7.5% to 13.0%, due at various
dates through 1999. . . . . . . . . . . . . $ 931,000
Other note payable. . . . . . . . . . . . . . . 129,000
----------
1,060,000
Less current portion. . . . . . . . . . . . . . 461,000
----------
$ 599,000
----------
----------
Notes payable are collateralized by certain equipment and vehicles.
At November 30, 1995, aggregate future principal payments on notes payable
are as follows:
1996. . . . . . . . . . . . . . . . . . . . . $ 461,000
1997. . . . . . . . . . . . . . . . . . . . . 296,000
1998. . . . . . . . . . . . . . . . . . . . . 206,000
1999. . . . . . . . . . . . . . . . . . . . . 16,000
2000 and subsequent . . . . . . . . . . . . . 81,000
----------
$1,060,000
----------
----------
Interest paid on notes payable and capital lease obligations during 1995
was $371,000.
LINES OF CREDIT
Effective August 1995, Pac-West Telecomm, Inc. entered into a two-year
credit agreement with a financial institution, which provides for a line of
credit of 80% of eligible receivables, with a maximum borrowing limit of
$1,500,000. No amounts had been borrowed under this line of credit during
fiscal 1995. The line of credit bears interest at the bank's prime rate plus
0.75%. All of the Paging Divisions accounts receivable are collateral for
borrowings under this line of credit. At November 30, 1995 and February 29,
1996, $845,000 and $1,051,000, respectively, were available under this line
of credit based on Pac-West Telecomm, Inc.'s borrowing base.
The credit agreement (and related security agreement) contain various
restrictive covenants, including restrictions on the incurrence of new liens
and long-term indebtedness except for the financing of new equipment, the
payment of dividends, the entering into business combinations or mergers, and
requirements to maintain certain financial rations. Pac-West Telecomm, Inc.
has been in compliance with all the covenants and financial ratios.
In February 1996, Pac-West Telecomm, Inc. received a commitment for up
to $800,000 of equipment financing. Financings under this commitment will be
for terms of up to 60 months. The financing agreement contains a restrictive
condition as to certain consolidations or mergers of Pac-West Telecomm, Inc.
Under this agreement, in February 1996, the Paging Divisions financed
$381,000 of equipment under a capital lease.
<PAGE>
PAGING DIVISIONS OF PAC-WEST TELECOMM, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOVEMBER 30, 1995
NOTE 4 - COMMITMENTS AND CONTINGENCIES
LEASES
The Paging Divisions lease certain equipment under capital leases. In
addition, certain paging transmitting sites are leased on month-to-month,
annual and long-term noncancelable leases. In most cases, management expects
that the paging transmitting site leases will be renewed or replaced by other
leases in the normal course of business.
All of the paging transmitting site leases, as well as all of the
Federal Communication Commission paging transmitter licenses, in states other
than California and Nevada are in the name of an affiliated company,
Strategic Products Corporation. Pac-West Telecomm, Inc. owns and operates
the paging transmitting equipment at most of these sites, and makes the lease
payments on all the leases.
Future minimum payments under capital leases and noncancelable operating
leases with initial terms in excess of one year are as follows as of November
30, 1995 for the Paging Divisions:
CAPITAL OPERATING
LEASES LEASES
---------- ----------
1996. . . . . . . . . . . . . . . . . . . . $ 967,000 $ 310,000
1997. . . . . . . . . . . . . . . . . . . . 866,000 135,000
1998. . . . . . . . . . . . . . . . . . . . 747,000 89,000
1999. . . . . . . . . . . . . . . . . . . . 516,000 35,000
2000 and subsequent . . . . . . . . . . . . 235,000 20,000
---------- ----------
Total minimum lease payments. . . . . . . 3,331,000 $ 589,000
----------
----------
Less amounts representing interest. . . . . (611,000)
----------
Present value of minimum lease payments . . 2,720,000
Less principal portion due within one year. (716,000)
----------
Principal portion due after one year . . . . $2,004,000
----------
----------
Rental expense charged to operations for all operating leases of the Paging
Divisions was approximately $466,000 for 1995.
NOTE 5 - INCOME TAXES
The income tax provision (benefit) consists of the following for the year
ended November 30, 1995:
Current . . . . . . . . . . . . . . . . . . $(339,000)
Deferred . . . . . . . . . . . . . . . . . 130,000
---------
$(209,000)
---------
---------
The income tax benefit reflected in these Statements of Operations is based
on the effective tax rates for Pac-West Telecomm, Inc. and are higher than
the statutory rates due to state income taxes.
A Best Page, Inc. files a separate federal income tax return. No income
tax benefit has been applied to the results of operations of A Best Page,
Inc. as it has net operating loss carryovers totaling approximately $100,000
through 1995. No recognition has been given in these financial statements to
the potential future tax benefits from these net operating loss carryovers
for A Best Page, Inc. The net operating loss carryovers will begin expiring
in 2006.
<PAGE>
PAGING DIVISIONS OF PAC-WEST TELECOMM, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOVEMBER 30, 1995
NOTE 5 - INCOME TAXES (CONTINUED)
The Deferred income tax liability of $150,000 reflected in these
financial statements represents the allocable portion of Pac-West Telecomm,
Inc.'s deferred tax liabilities at November 30, 1995. Deferred tax
liabilities arise mainly from temporary differences that arise from
depreciation for federal and state income taxes versus financial reporting
purposes.
NOTE 6 - ALLOCATION OF CORPORATE EXPENSES
Corporate expenses for accounting, legal, and other general
administrative services are allocated to the Paging Divisions based upon
revenue of the divisions relative to the total revenues of Pac-West Telecomm,
Inc. Management believes this is a reasonable allocation method. Allocated
amounts for the year ended November 30, 1995 and the six months ended May 31,
1996 were $852,000 and $441,000, respectively.
<PAGE>
EXHIBIT
99.2
<PAGE>
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
BASIS OF PRESENTATION
The Pro Forma Condensed Consolidated Financial Statements of Operations
assume the acquisition of (a) Metropolitan, Apple, Page One, Total, AGR and
Williams, and the acquisition of the paging assets of Carrier, Signet Charlotte,
All City, Americom, Gold Coast, Lewis, Paging & Cellular, Sun, SigNet Raleigh
and Georgialina (collectively, the "Completed Acquisitions") and (b) the pending
acquisition by the Company of PacWest (the "Pending Acquisition") as if they
had occurred at the beginning of the period presented. The Completed
Acquisitions and the Pending Acquisition are collectively referred to as the
"Acquisitions."
The accompanying unaudited pro forma condensed consolidated balance sheet
of the Company at June 30, 1996, combines the historical consolidated balance
sheet of the Company, Georgialina and PacWest as if the Georgialina and PacWest
acquisitions had occurred on June 30, 1996 and assumes that the Acquisitions
were funded with proceeds of the Company's senior subordinated debt, proceeds
from the Company's $100 million equity offering in June 1996, issuance of shares
of the Company's common stock and borrowings under the Company's credit
facility. The accompanying unaudited pro forma condensed consolidated statement
of operations of the Company for the year ended December 31, 1995 combines the
pro forma consolidated statement of operations of the Company and statements of
operations of the Acquisitions as if the Acquisitions had occurred on January
1, 1995, and assumes that they were funded with proceeds of the Company's senior
subordinated debt, proceeds from the Company's $100 million equity offering in
June 1996, issuance of shares of the Company's common stock and borrowings under
the Company's credit facility. The accompanying unaudited pro forma condensed
consolidated statement of operations of the Company for the six months ended
June 30, 1996 combines the pro forma consolidated statement of operations of the
Company and AGR, Total, Williams, Georgialina and PacWest as if these
acquisitions had occurred on January 1, 1996, and assumes that the acquisitions
were funded with proceeds from the Company's $100 million equity offering in
June 1996, issuance of shares of the Company's common stock and borrowings under
the Company's credit facility.
The pro forma condensed consolidated financial statements do not purport to
represent what the Company's results of operations would have been had the
Acquisitions occurred on the dates indicated or for any future period or date.
The pro forma adjustments give effect to available information and assumptions
that management believes are reasonable. The pro forma condensed consolidated
financial statements should be read in conjunction with the Company's historical
consolidated financial statements and the financial statements of certain
Acquisitions and the notes thereto included or incorporated elsewhere herein.
<PAGE>
PRONET INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
As of June 30, 1996
(Unaudited)
ASSETS
<TABLE>
HISTORICAL
---------------------------------- PRO FORMA PRO FORMA
PRONET PACWEST GEORGIALINA ADJUSTMENTS CONSOLIDATED
--------- --------- ----------- ----------- ------------
(in thousands)
<S> <C> <C> <C> <C> <C>
Current assets ............... $ 47,431 $ 349 $ 1,510 $ (43)(B) $ 49,247
Equipment
Pagers ..................... 53,780 2,220 874 (1,329)(B),(D) 55,545
Communications
equipment ................ 33,888 4,709 444 (2,034)(B) 37,007
Security systems
equipment ................ 12,607 -- -- -- 12,607
Office and other ........... 9,948 105 449 (230)(B) 10,272
--------- --------- --------- --------- ---------
110,223 7,034 1,767 (3,593) 115,431
Less allowance for
depreciation ............. 42,814 2,768 717 (3,485)(B) 42,814
--------- --------- --------- --------- ---------
67,409 4,266 1,050 (108) 72,617
Goodwill and other assets,
net ........................ 152,912 96 746 21,298 (B)(C)(D) 175,052
--------- --------- --------- --------- ---------
TOTAL ASSETS ................. $ 267,752 $ 4,711 $ 3,306 $ 21,147 $ 296,916
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities .......... $ 14,832 $ 1,682 $ 523 $ (1,379)(B) $ 15,658
Deferred payments ............ 16,492 -- -- -- 16,492
Long-term debt, less current
maturities ................. 99,355 2,567 2,004 17,030 (A),(B) 120,956
Deferred tax liabilities ..... 688 150 -- (150)(B) 688
Shareholders' equity ......... 136,385 312 779 5,646 (A),(B) 143,122
--------- --------- --------- --------- ---------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY ....... $ 267,752 $ 4,711 $ 3,306 $ 21,147 $ 296,916
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
See accompanying Notes to Unaudited Pro Forma Condensed Consolidated
Financial Statements.
<PAGE>
PRONET INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
(UNAUDITED)
<TABLE>
TWO MONTHS
ENDED FEB.28, THREE MONTHS FOUR MONTHS SIX MONTHS
1995 ENDED MARCH 31, ENDED APRIL 30, ENDED JUNE 30,
------------- 1995 1995 1995
SIGNET --------------- ----------------------- --------------
PRONET CHARLOTTE CARRIER ALL CITY METROPOLITAN AMERICOM
-------- ------------- --------------- -------- ------------ --------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
REVENUES
Service revenues....................... $56,108 $ 872 $ 532 $1,139 $1,870 $1,810
Product sales.......................... 10,036 109 197 47 50 430
------- ---- ----- ------ ------ ------
Total revenues....................... 66,144 981 729 1,186 1,920 2,240
Cost of products sold.................. (9,421) (109) (179) -- (54) (259)
------- ---- ----- ------ ------ ------
56,723 872 550 1,186 1,866 1,981
COST OF SERVICES......................... 14,396 273 59 272 514 371
------- ---- ----- ------ ------ ------
GROSS MARGIN......................... 42,327 599 491 914 1,352 1,610
EXPENSES
Sales, general and administrative...... 23,935 367 286 511 592 782
Depreciation and amortization.......... 18,662 17 54 292 215 209
------- ---- ----- ------ ------ ------
42,597 384 340 803 807 991
------- ---- ----- ------ ------ ------
OPERATING INCOME (LOSS).............. (270) 215 151 111 545 619
OTHER INCOME (EXPENSE)
Interest expense....................... (8,640) (54) (26) (528) -- (4)
Interest and other income.............. 1,291 2 1 -- 20 97
------- ---- ----- ------ ------ ------
(7,349) (52) (25) (528) 20 93
INCOME (LOSS) BEFORE
INCOME TAXES........................ (7,619) 163 126 (417) 565 712
Provisions (benefit) for income taxes.. 78 -- 1 -- 192 --
------- ---- ----- ------ ------ ------
NET INCOME (LOSS).................... $(7,697) $163 $ 125 $ (417) $ 373 $ 712
------- ---- ----- ------ ------ ------
------- ---- ----- ------ ------ ------
NET LOSS PER SHARE....................... $ (1.23)
-------
-------
WEIGHTED AVERAGE SHARES.................. 6,267
-------
-------
NINE MONTHS
EIGHT MONTHS ENDED SEPT. 30, ELEVEN MONTHS YEAR ENDED
ENDED AUGUST 31, 1995 ENDED NOV. 30, DECEMBER 31, 1995
1995 --------------- 1995 --------------------------
------------------- PAGING & -------------- SIGNET PAGE
GOLD COAST LEWIS CELLULAR APPLE SUN RALEIGH ONE
---------- ----- --------------- -------------- ------ ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUES
Service revenues....................... $427 $ 932 $3,016 $ 4,358 $1,528 $2,900 $ 4,864
Product sales.......................... -- 780 1,161 846 246 146 722
---- ------ ----- ------- ------ ------ -------
Total revenues....................... 427 1,712 4,177 5,204 1,774 3,046 5,586
Cost of products sold.................. -- (490) (887) (1,153) (286) (123) (1,216)
---- ------ ----- ------- ------ ------ -------
427 1,222 3,290 4,051 1,488 2,923 4,370
COST OF SERVICES......................... 99 48 1,078 395 445 700 776
---- ------ ----- ------- ------ ------ -------
GROSS MARGIN......................... 328 1,174 2,212 3,656 1,043 2,223 3,594
EXPENSES
Sales, general and administrative...... 160 650 1,122 2,861 1,102 1,479 3,142
Depreciation and amortization.......... 51 88 492 96 425 419 360
---- ------ ----- ------- ------ ------ -------
211 738 1,614 2,957 1,527 1,898 3,502
---- ------ ----- ------- ------ ------ -------
OPERATING INCOME (LOSS).............. 117 436 598 699 (484) 325 92
OTHER INCOME (EXPENSE)
Interest expense....................... -- (4) (300) -- -- (78) (123)
Interest and other income.............. -- 20 13 -- -- 48 1
---- ------ ----- ------- ------ ------ -------
-- 16 (287) -- -- (30) (122)
INCOME (LOSS) BEFORE
INCOME TAXES........................ 117 452 311 699 (484) 295 (30)
Provisions (benefit) for income taxes.. -- -- -- -- -- -- --
---- ------ ----- ------- ------ ------ -------
NET INCOME (LOSS).................... $117 $ 452 $ 311 $ 699 $ (484) $ 295 $ (30)
---- ------ ----- ------- ------ ------ -------
---- ------ ----- ------- ------ ------ -------
NET LOSS PER SHARE.......................
WEIGHTED AVERAGE SHARES..................
YEAR ENDED DECEMBER 31, 1995
-------------------------------------------------- PRO FORMA PRO FORMA
AGR TOTAL WILLIAMS PACWEST GEORGIALINA ADJUSTMENTS CONSOLIDATED
------ ------ -------- ------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUES
Service revenues....................... $2,377 $ 784 $1,039 $5,724 $ 3,865 $ (96)(E) $ 94,049
Product sales.......................... 72 322 165 1,015 789 -- 17,133
------ ------ ------ ------ ------- -------- --------
Total revenues....................... 2,449 1,106 1,204 6,739 4,654 (96) 111,182
Cost of products sold.................. (772) (442) (101) (874) (1,218) -- (17,584)
------ ------ ------ ------ ------- -------- --------
1,677 664 1,103 5,865 3,436 (96) 93,598
COST OF SERVICES......................... 247 313 153 1,233 898 -- 22,270
------ ------ ------ ------ ------- -------- --------
GROSS MARGIN......................... 1,430 351 950 4,632 2,538 (96) 71,328
EXPENSES
Sales, general and administrative...... 1,510 528 900 3,970 1,998 (2,940)(F) 42,955
Depreciation and amortization.......... 187 17 98 856 383 7,439 (G) 30,360
------ ------ ------ ------ ------- -------- --------
1,697 545 998 4,826 2,381 4,499 73,315
------ ------ ------ ------ ------- -------- --------
OPERATING INCOME (LOSS).............. (267) (194) (48) (194) 157 (4,595) (1,987)
OTHER INCOME (EXPENSE)
Interest expense....................... (68) (13) (54) (381) (221) (6,789)(H) (17,283)
Interest and other income.............. 8 90 39 -- (1) -- 1,629
------ ------ ------ ------ ------- -------- --------
(60) 77 (15) (381) (222) (6,789) (15,654)
INCOME (LOSS) BEFORE
INCOME TAXES........................ (327) (117) (63) (575) (65) (11,384) (17,641)
Provisions (benefit) for income taxes.. -- -- -- (209) -- -- (I) 62
------ ------ ------ ------ ------- -------- --------
NET INCOME (LOSS).................... $ (327) $ (117) $ (63) $ (366) $ (65) $(11,384) $(17,703)
------ ------ ------ ------ ------- -------- --------
------ ------ ------ ------ ------- -------- --------
NET LOSS PER SHARE....................... $ (1.54)
--------
--------
WEIGHTED AVERAGE SHARES.................. 11,504
--------
--------
</TABLE>
See accompanying notes to Unaudited Pro Forma Condensed Consolidated
Financial Statements.
<PAGE>
PRONET INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1996
(UNAUDITED)
<TABLE>
ONE MONTH ENDED
JANUARY 31, 1996
----------------------- PRO FORMA PRO FORMA
PRONET AGR TOTAL WILLIAMS PACWEST GEORGIALINA ADJUSTMENTS CONSOLIDATED
-------- ---- ----- -------- ------- ----------- ----------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUES
Service revenues. . . . . . $ 41,942 $198 $ 69 $ 87 $3,134 $2,082 $ -- $ 47,512
Product sales . . . . . . . 7,035 6 36 14 506 320 -- 7,917
-------- ---- ---- ---- ------ ------ ------- --------
Total revenues. . . . . . 48,977 204 105 101 3,640 2,402 -- 55,429
Cost of products sold . . . . (6,136) (64) (92) (8) (476) (440) 108 (7,108)
-------- ---- ---- ---- ------ ------ ------- --------
42,841 140 13 93 3,164 1,962 108 48,321
COST OF SERVICES. . . . . . . 11,814 21 23 13 542 461 -- 12,874
-------- ---- ---- ---- ------ ------ ------- --------
GROSS MARGIN. . . . . . . 31,027 119 (10) 80 2,622 1,501 108 35,447
EXPENSES
Sales, general and
administrative . . . . . . 19,259 126 46 75 2,352 1,080 (408)(F) 22,530
Depreciation and
amortization . . . . . . . 17,132 16 2 8 508 205 1,059 (G) 18,930
Nonrecurring charges. . . . 7,374 -- -- -- -- -- -- 7,374
-------- ---- ---- ---- ------ ------ ------- --------
43,765 142 48 83 2,860 1,285 651 48,834
-------- ---- ---- ---- ------ ------ ------- --------
OPERATING INCOME (LOSS) . (12,738) (23) (58) (3) (238) 216 (543) (13,387)
OTHER INCOME (EXPENSE)
Interest expense. . . . . . (7,646) (6) (1) (5) (200) (105) (514)(H) (8,477)
Interest and other income . 214 1 4 3 -- 18 -- 240
-------- ---- ---- ---- ------ ------ ------- --------
(7,432) (5) 3 (2) (200) (87) (514) (8,237)
INCOME (LOSS) BEFORE
INCOME TAXES . . . . . . (20,170) (28) (55) (5) (438) 129 (1,057) (21,624)
Provision (benefit) for
income taxes . . . . . . . 100 -- -- -- (176) -- 176 (I) 100
-------- ---- ---- ---- ------ ------ ------- --------
NET INCOME (LOSS) . . . . $(20,270) $(28) $(55) $(5) $ (262) $ 129 $(1,233) $(21,724)
-------- ---- ---- ---- ------ ------ ------- --------
-------- ---- ---- ---- ------ ------ ------- --------
NET LOSS PER SHARE. . . . . . $ (2.65) $ (1.83)
-------- --------
-------- --------
WEIGHTED AVERAGE SHARES . . . 7,657 11,888
-------- --------
-------- --------
</TABLE>
SEE ACCOMPANYING NOTES TO UNAUDITED PRO FORMA
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
PRONET INC. AND SUBSIDIARIES
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
On March 1, 1995, the Company purchased substantially all of the paging
assets of Signet Charlotte for approximately $9.0 million, comprised of
approximately $4.8 million paid in cash at closing and a $4.2 million
deferred payment. On April 1, 1995, the Company completed the purchase of
substantially all of the paging assets of Carrier for approximately $6.5
million, comprised of approximately $3.5 million paid in cash at closing and
a deferred payment of approximately $3.0 million. Effective May 1, 1995, the
Company completed the acquisition of all the outstanding capital stock of
Metropolitan for approximately $21.0 million paid in cash at closing. Also
effective May 1, 1995, the Company completed the purchase of substantially
all of the paging assets of All City for approximately $6.3 million,
comprised of approximately $6.1 million paid in cash at closing and a
$200,000 deferred payment. Effective July 1, 1995, the Company completed the
purchase of substantially all of the paging assets of Americom for
approximately $17.5 million, comprised of approximately $8.8 million paid in
cash at closing and a deferred payment of $8.7 million. On September 1,
1995, the Company completed the purchase of substantially all of the paging
assets of Lewis for approximately $5.6 million, comprised of approximately
$3.5 million paid in cash at closing and a $2.1 million deferred payment. On
September 1, 1995, the Company completed the purchase of substantially all of
the paging assets of Gold Coast for approximately $2.3 million paid in cash
at closing. Effective October 1, 1995, the Company completed the
acquisition of substantially all of the paging assets of Paging & Cellular
for approximately $9.5 million paid in cash at closing. On December 1, 1995,
the Company completed the acquisition of all of the outstanding capital
stock of Apple for approximately $13.0 million, comprised of approximately
$8.5 million paid in cash and approximately $4.5 million in stock at closing.
Effective December 31, 1995, the Company completed the acquisition of
substantially all of the paging assets of Sun for approximately $2.3 million
paid in cash at closing. Effective January 1, 1996, the Company completed
two acquisitions. The Company acquired substantially all of the paging
assets of SigNet Raleigh for approximately $8.7 million, comprised of
approximately $4.7 million paid in cash at closing and delivery of $3.2
million in common stock of the Company at closing and a $800,000 deferred
payment. Also, the Company completed the purchase of substantially all of the
outstanding capital stock of Page One for approximately $19.7 million,
comprised of approximately $14.8 million paid in cash at closing and a $4.9
million deferred payment. Effective February 1, 1996, the Company completed
three additional acquisitions. The Company acquired all of the outstanding
capital stock of AGR for approximately $6.5 million paid in cash at closing,
Total for approximately $2.2 million, comprised of approximately $400,000
paid in cash and $1.8 million in common stock of the Company at closing, and
Williams for $2.7 million paid in cash at closing. In addition, upon the
final grant of certain licenses, the Company would pay an additional $1.5
million for AGR and $400,000 for Total. These acquisitions were accounted for
as purchases and were financed with the proceeds of the Company's senior
subordinated debt and/or borrowings under the Company's credit facility. On
July 1, 1996, the Company acquired a nationwide license (931.9125 MHz Radio
Common Carrier frequency) and associated system equipment (the "Nationwide
License") from Motorola, Inc. for approximately $43 million. This purchase
was funded with proceeds from the Company's June 1996 equity offering and
borrowings under the Company's credit facility. Effective October 1, 1996,
the Company acquired all of the outstanding capital stock of Georgialina for
approximately $11.4 million paid in cash at closing. This purchase was
funded with borrowings under the Company's credit facility. The results of
operations for the Completed Acquisitions, except for Georgialina, are
included in the actual results of operations of the Company from the
respective dates of acquisition, and the historical balance sheet of the
Company at June 30, 1996 includes these acquisitions.
In April 1996, the Company signed a definitive agreement to purchase all
of the outstanding capital stock of PacWest. This transaction will be
accounted for as a purchase for an approximate cost of $16.9 million. This
transaction is expected to close in the fourth quarter of 1996 and is subject
to various conditions and approvals. The Company anticipates this acquisition
will be funded with borrowings under the Company's credit facilities.
All deferred payments listed above are due one year from the closing of
the respective transactions and are payable, at the Company's discretion,
either in cash or shares of the Company's common stock based on market value
at the date of payment.
<PAGE>
PRONET INC. AND SUBSIDIARIES
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The unaudited pro forma condensed financial statements reflect the
transactions as though the Acquisitions had been acquired at the beginning of
the period presented. The Company and the Acquisitions, except for Gold
Coast and PacWest, operated on a December 31 fiscal year basis. Gold Coast
operated on a June 30 fiscal year basis. PacWest operates on a November 30
fiscal year basis. The respective results of operations for Signet
Charlotte, Carrier, Metropolitan, All City, Americom, Gold Coast, Lewis,
Paging & Cellular and Apple from January 1, 1995, to the dates of the
respective acquisitions were combined with the actual results of operations
of the Company, Sun, SigNet Raleigh, Page One, AGR, Total, Williams and
Georgialina for the year ended December 31, 1995 and the results of
operations of PacWest for the twelve months ended November 30, 1995, to
determine the pro forma results of operations for the year ended December 31,
1995. The respective results of operations of AGR, Total and Williams from
the date of acquisition were combined with the actual results of operations
of the Company and Georgialina for the six months ended June 30, 1996 and the
results of operations of PacWest for the six months ended May 31, 1996, to
determine the pro forma results of operations for the six months ended June
30, 1996.
<PAGE>
PRONET INC. AND SUBSIDIARIES
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The accompanying pro forma condensed consolidated balance sheet as of
June 30, 1996, has been prepared as if the Georgialina and PacWest
acquisitions had occurred on that date and reflects the following adjustments:
(A) Pro forma adjustments are made to record the borrowings under the
Company's credit facility and the issuance of the Company's common stock.
The following is a detail of these adjustments (in thousands):
DEBIT CREDIT
-------- -------
Investments in Georgialina and PacWest. . . . . $ 28,338
Shareholders' equity (deficit) . . . . . . . $ 6,737
Long-term debt, less current maturities. . . 21,601
To record the purchases of Georgialina and PacWest.
(B) Pro forma adjustments are made to reflect the fair value of those
assets acquired and liabilities assumed as a result of the Georgialina and
PacWest acquisitions. The Company will not acquire cash or assume certain
trade payables, certain accrued expenses or existing long-term debt. The
following is a detail of these adjustments (in thousands):
Long-term debt. . . . . . . . . . . . . . . . . $ 4,571
Allowance for depreciation . . . . . . . . . . 3,485
Current liabilities . . . . . . . . . . . . . . 1,379
Deferred tax liabilities . . . . . . . . . . . 150
Shareholders' equity (deficit) . . . . . . . . 1,091
Current assets . . . . . . . . . . . . . . . $ 43
Equipment . . . . . . . . . . . . . . . . . 3,485
Goodwill and other assets . . . . . . . . . 835
Investments in Georgialina and PacWest . . . 6,313
To reflect the allocation of the purchase price of the Georgialina and
PacWest acquisitions and to reflect reductions in certain assets not acquired
and liabilities not assumed by the Company.
(C) Pro forma adjustments are made to goodwill equal to the excess of
the applicable purchase price over the fair values assigned to assets
acquired and liabilities assumed. A pro forma adjustment is made to other
assets to record the noncompetition agreements based on amounts stated in
the respective definitive agreements. The following is a detail of these
adjustments (in thousands):
Goodwill and other assets . . . . . . . . . . . $22,025
Investments in Georgialina and PacWest . . . $22,025
To record goodwill related to the Georgialina and PacWest acquisitions.
(D) Pro forma adjustments are made to adjust depreciated pagers
according to the method used by the Company. The following is a detail of
these adjustments (in thousands):
Goodwill and other assets . . . . . . . . . . . $108
Pagers . . . . . . . . . . . . . . . . . . $108
To depreciate pagers related to the Georgialina and PacWest acquisitions.
<PAGE>
PRONET INC. AND SUBSIDIARIES
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The following is a summary of the fair value assigned to the assets
acquired and liabilities assumed from the Georgialina and PacWest
acquisitions (in thousands):
HISTORICAL COST
--------------------- FAIR
PACWEST GEORGIALINA SUBTOTAL ADJUSTMENTS VALUE
------- ----------- -------- ----------- -------
Current assets. . . . $ 349 $1,510 $1,859 $ (43) $ 1,816
Equipment
Pagers . . . . . . . 2,220 874 3,094 (1,221) 1,873
Communications
equipment . . . . . 4,709 444 5,153 (2,034) 3,119
Office and other . . 105 449 554 (230) 324
------ ------ ------ ------- -------
7,034 1,767 8,801 (3,485) 5,316
Less allowance for
depreciation . . . . 2,768 717 3,485 (3,485) --
------ ------ ------ ------- -------
4,266 1,050 5,316 -- 5,316
Goodwill, net . . . . -- -- -- 22,025 22,025
Other assets, net . . 96 746 842 (835) 7
------ ------ ------ ------- -------
Total assets. . . . . 4,711 3,306 8,017 21,147 29,164
Current liabilities . 1,682 523 2,205 (1,379) 826
Long-term debt. . . . 2,717 2,004 4,721 (4,721) --
------ ------ ------ ------- -------
Net assets. . . . . . $ 312 $ 779 $1,091 $27,247 $28,338
------ ------ ------ ------- -------
------ ------ ------ ------- -------
The accompanying ProNet pro forma condensed consolidated statement of
operations for the year ended December 31, 1995 and for the six months ended
June 30, 1996, have been prepared by combining the historical results of
ProNet and the Acquisitions for such respective periods and reflect the
following adjustments:
(E) A pro forma adjustment is made to reflect the effect on service
revenues related to the segment of the operations of All City not acquired
by the Company.
(F) The pro forma adjustment to sales, general and administrative
expenses represents expenses that would not have been incurred had the
Acquisitions occurred at the beginning of the periods presented. For
Signet Charlotte, Carrier, All City, Metropolitan, Lewis, Paging &
Cellular, Apple, Sun, SigNet Raleigh, Page One, AGR, Total, Williams,
PacWest and Georgialina cost savings relate to decreased salaries
(primarily due to reductions in senior management), office rent,
professional fees, telephone costs and bad debts.
(G) Pro forma adjustments are made to the statements of operations to
reflect additional depreciation and amortization expenses based on the fair
value of the assets acquired as if the Acquisitions had occurred at the
beginning of the periods presented. Pro forma depreciation is computed
using the straight-line method over the remaining estimated useful lives of
the assets. Goodwill is amortized using the straight-line method over a 15-
year term.
<PAGE>
PRONET INC. AND SUBSIDIARIES
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(H) Interest expense is comprised of interest on the revolving line
of credit, senior subordinated debt and the deferred payments, plus the
commitment fee on the revolving line of credit. Pro forma adjustments
reflect (i) the reversals of interest expense of $317,000 for the six
months ended June 30, 1996 and $1.9 million for the year ended December 31,
1995 on debt of the Acquisitions not assumed by the Company and (ii)
increase in interest expense due to borrowings on the Company's credit
facility at an assumed annual rate of 90 day LIBOR plus an applicable
margin. Interest expense on the deferred payments is provided as required
by the definitive agreements.
(I) At December 31, 1995, the Company had net operating loss
carryforwards of $11.0 million for income tax purposes that expire in years
2005 through 2011. No tax benefits were recorded because the realization
of net operating losses is not assured beyond a reasonable doubt.
Therefore, a pro forma adjustment was made to eliminate any tax benefits
associated with the Acquisitions.
The pro forma condensed consolidated financial information presented is not
necessarily indicative of either the results of operations that would have
occurred had the Acquisitions taken place at the beginning of the periods
presented or of future results of operations of the combined operations.
