<PAGE> 1
FORM 8-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities and Exchange Act of 1934
Date of Report (Date of earliest event reported): July 16, 1996
METROCALL, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 0-21924 54-1215634
- ----------------------------- ------------------------ -------------------
(State or other jurisdiction (Commission File Number) (IRS Employer
of incorporation) Identification No.)
6677 Richmond Highway, Alexandria, Virginia 22306
- --------------------------------------------------------------------------------
(Address of principal executive offices)
Registrant's telephone number, including area code: (703) 660-6677
Not Applicable
-----------------------------
(Former name or former address, if changed since last report)
<PAGE> 2
ITEM 2. ACQUISITIONS OR DISPOSITIONS OF ASSETS
Parkway Paging, Inc.
On July 16, 1996, Metrocall, Inc. ("Metrocall" or the "Company")
completed a transaction pursuant to which the Company acquired substantially all
of the assets of Parkway Paging, Inc. ("Parkway") for approximately $28.0
million, including $22.7 million cash and the assumption of substantially all
Parkway's liabilities of $5.3 million. The acquisition of Parkway adds
approximately 140,000 subscribers to Metrocall's customer base. These customers
and the related infrastructure are located throughout the State of Texas,
primarily concentrated in the Dallas/Ft. Worth market. The transaction will be
accounted for as a purchase for financial reporting purposes.
In connection with the acquisition, the Company refinanced
approximately $5.2 million of indebtedness assumed in the Parkway transaction
under its existing credit facility.
Parkway operates multi-regional paging and wireless messaging networks
in the United States, primarily in the State of Texas. The primary assets of
Parkway include transmission equipment, subscriber paging units and licenses
issued by the Federal Communications Commission.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION, AND EXHIBITS
Financial Statements
Report of Hutton, Patterson & Company, Independent Public Accountants
Balance Sheets, December 31, 1995 and 1994 and March 20, 1996 and 1995
Statements of Income and Retained (Deficit) Earnings for the years ended
December 31, 1995, 1994 and 1993 and the quarters ended March 20, 1996 and
1995
Statements of Cash Flows for the years ended December 31, 1995, 1994 and 1993
and the quarters ended March 20, 1996 and 1995
Notes to Financial Statements
Pro Forma Financial Information
Unaudited Pro Forma Condensed Combined Financial Data
Unaudited Pro Forma Condensed Combined Balance Sheets as of March 31, 1996
Unaudited Pro Forma Condensed Combined Statements of Operations for the year
ended December 31, 1995
Unaudited Pro Forma Condensed Combined Statements of Operations for the three
month period ended March 31, 1996
Notes to Unaudited Pro Forma Condensed Combined Financial Statements
Exhibits
Consent of Hutton, Patterson & Company, Independent Public Accountants
2
<PAGE> 3
[HUTTON, PATTERSON & COMPANY LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
Parkway Paging, Inc.
Plano, Texas
We have audited the balance sheets of Parkway Paging, Inc. as of December
31, 1995 and 1994, and the related statements of income and retained (deficit)
earnings and cash flows for the years ended December 31, 1995, 1994 and 1993.
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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Parkway Paging, Inc. as of
December 31, 1995 and 1994, and the results of its operations and its cash flows
for the years ended December 31, 1995, 1994 and 1993, in conformity with
generally accepted accounting principles.
Hutton, Patterson & Company
February 13, 1996
(except for Note M, as to
which the date is June 18, 1996)
Dallas, Texas
F-1
<PAGE> 4
PARKWAY PAGING, INC.
BALANCE SHEETS
DECEMBER 31, 1995 AND 1994 AND MARCH 20, 1996 AND 1995
<TABLE>
<CAPTION>
UNAUDITED
(NOTE M)
-----------------------
MARCH 20, MARCH 20,
1995 1994 1996 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash (Note A)......................................................... $ 7,103 $ 516,984 $ (17,233) $ 659,055
Accounts receivable (Note A).......................................... 628,473 511,094 877,522 685,124
Inventory (Note A).................................................... 403,879 704,530 920,640 427,536
Notes receivable, current (Notes B & J)............................... 9,920 22,032 10,120 19,276
Other receivables..................................................... 35,885 14,125 23,937 500
Prepaid taxes (Note I)................................................ 56,477 122,818 56,477 122,818
Deferred income tax asset (Note I).................................... 105,722 66,605 105,722 66,605
Prepaid expenses...................................................... 631 31,821 24,987 --
---------- ---------- ---------- ----------
TOTAL CURRENT ASSETS........................................... 1,248,090 1,990,009 2,002,172 1,980,914
---------- ---------- ---------- ----------
PAGERS HELD FOR LEASE OR SALE (net of accumulated depreciation of
$292,203 and $440,511 at December 31, 1995 and 1994, respectively)
(Notes A, F & G)...................................................... 257,349 180,956 245,579 161,725
---------- ---------- ---------- ----------
PROPERTY AND EQUIPMENT (net of accumulated depreciation) (Notes A, C, F
& G).................................................................. 3,078,019 2,515,488 2,839,069 2,621,602
OTHER ASSETS
Long-term notes receivable (Notes B & J).............................. 57,613 67,023 54,497 64,617
Deferred income tax asset (Note I).................................... 17,102 13,078 17,102 13,078
Other (Note D)........................................................ 18,748 36,284 14,114 32,050
---------- ---------- ---------- ----------
TOTAL OTHER ASSETS............................................. 93,463 116,385 85,713 109,745
---------- ---------- ---------- ----------
$4,676,921 $4,802,838 $5,172,533 $4,873,986
========== ========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable...................................................... $ 77,573 $ 313,811 96,213 59,942
Deferred revenue (Note A)............................................. 706,473 761,335 1,122,301 870,038
Accrued and other liabilities (Note E)................................ 92,738 107,804 85,521 29,636
Current maturities of notes payable (Note G).......................... 256,351 183,199 240,363 23,793
Current maturities of obligations under capital leases (Note F)....... 2,149,708 1,544,712 2,237,240 1,439,996
---------- ---------- ---------- ----------
TOTAL CURRENT LIABILITIES...................................... 3,282,843 2,910,861 3,781,638 2,423,405
---------- ---------- ---------- ----------
LONG-TERM DEBT
Notes payable (Note G)................................................ 419,943 236,109 366,345 606,707
Obligations under capital leases (Note F)............................. 813,288 1,407,689 803,216 1,301,259
---------- ---------- ---------- ----------
TOTAL LONG-TERM DEBT........................................... 1,233,231 1,643,798 1,169,561 1,907,966
---------- ---------- ---------- ----------
TOTAL LIABILITIES.............................................. 4,516,074 4,554,659 4,951,199 4,331,371
---------- ---------- ---------- ----------
COMMITMENTS AND CONTINGENCIES (Notes H, K and L)........................ -- -- -- --
STOCKHOLDERS' EQUITY (Note L)
Common stock (10,000,000 shares authorized, 24,398 shares issued and
outstanding, $1.00 par)............................................. 24,398 24,398 24,398 24,398
Additional paid-in capital............................................ 364,602 364,602 364,602 364,602
Retained (deficit) earnings........................................... (228,153) (140,821) (167,666) 153,615
---------- ---------- ---------- ----------
TOTAL STOCKHOLDERS' EQUITY..................................... 160,847 248,179 221,334 542,615
---------- ---------- ---------- ----------
$4,676,921 $4,802,838 $5,172,533 $4,873,986
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-2
<PAGE> 5
PARKWAY PAGING, INC.
STATEMENTS OF INCOME AND RETAINED (DEFICIT) EARNINGS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
AND THE QUARTERS ENDED MARCH 20, 1996 AND 1995
<TABLE>
<CAPTION>
UNAUDITED
(NOTE M)
---------------------------
MARCH 20, MARCH 20,
1995 1994 1993 1996 1995
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
REVENUES
Service, rent and maintenance revenues...... $ 7,403,225 $ 5,218,774 $ 4,216,416 $ 1,646,473 $ 1,556,958
Product sales............................... 2,344,026 1,909,991 1,433,461 485,570 391,780
----------- ----------- ----------- ----------- -----------
9,747,251 7,128,765 5,649,877 2,132,043 1,948,738
Cost of products sold (Note A).............. (2,261,776) (1,892,906) (1,265,761) (324,750) (377,989)
----------- ----------- ----------- ----------- -----------
7,485,475 5,235,859 4,384,116 1,807,293 1,570,749
----------- ----------- ----------- ----------- -----------
OPERATING EXPENSES
Service, rent and maintenance............... 2,329,764 1,674,627 1,068,198 583,453 428,477
Selling..................................... 1,113,808 712,554 412,138 221,066 242,887
General and administrative.................. 2,541,642 1,710,251 1,422,447 534,179 353,109
Depreciation and amortization............... 1,153,896 929,069 899,433 325,116 199,947
----------- ----------- ----------- ----------- -----------
7,139,110 5,026,501 3,802,216 1,663,814 1,224,420
----------- ----------- ----------- ----------- -----------
INCOME FROM OPERATIONS........................ 346,365 209,358 581,900 143,479 346,329
----------- ----------- ----------- ----------- -----------
OTHER
(Loss) gain on disposal (Note A)............ (71,683) (65,748) -- 7,000 --
Interest expense (net of interest income of
$9,278, $15,591 and $9,923 at December 31,
1995, 1994 and 1993, respectively......... (405,155) (359,299) (332,166) (89,992) (51,894)
----------- ----------- ----------- ----------- -----------
(476,838) (425,047) (332,166) (82,992) (51,894)
----------- ----------- ----------- ----------- -----------
NET (LOSS) INCOME BEFORE BENEFIT (PROVISION)
FOR FEDERAL INCOME TAXES AND CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE.... (130,473) (215,689) 249,734 60,487 294,435
BENEFIT (PROVISION) FOR FEDERAL INCOME TAXES
(Note I).................................... 43,141 69,297 (78,025) -- --
----------- ----------- ----------- ----------- -----------
NET (LOSS) INCOME BEFORE CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING PRINCIPLE.............. (87,332) (146,392) 171,709 60,487 294,435
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING
PRINCIPLE (Note I).......................... -- -- 51,996 -- --
----------- ----------- ----------- ----------- -----------
NET (LOSS) INCOME............................. (87,332) (146,392) 223,705 60,487 294,435
RETAINED (DEFICIT) EARNINGS, beginning........ (140,821) 5,571 (218,134) (228,153) (140,821)
----------- ----------- ----------- ----------- -----------
RETAINED (DEFICIT) EARNINGS, ending........... $ (228,153) $ (140,821) $ 5,571 $ (167,666) $ 153,615
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 6
PARKWAY PAGING, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
AND THE QUARTERS ENDED MARCH 20, 1996 AND 1995
<TABLE>
<CAPTION>
UNAUDITED
(NOTE M)
-----------------------
MARCH 20, MARCH 20,
1995 1994 1993 1996 1995
----------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) income................................. $ (87,332) $(146,392) $ 223,705 60,487 294,435
Adjustments to reconcile net (loss) income to net
cash provided by operating activities
Depreciation and amortization................... 1,153,896 929,069 899,433 325,116 199,948
Deferred federal income tax credit.............. (43,141) (69,297) (10,385) -- --
Loss (gain) disposal............................ 71,683 65,748 -- (7,000) --
Changes in assets and liabilities
(Increase) decrease in accounts receivable.... (117,379) 21,090 (457,525) (249,049) (174,030)
Decrease (increase) in inventory.............. 300,651 (496,661) (170,169) (516,761) 276,994
Increase in other receivables................. (21,760) (10,036) (4,089) 11,948 13,625
Decrease (increase) in prepaid taxes.......... 66,341 (43,600) (79,218) -- --
Decrease (increase) in prepaid expenses....... 31,190 (31,821) -- (24,356) 31,821
(Increase) decrease in pagers held for lease
or sale (Note A)............................ (145,073) 51,454 13,729 193 19,231
(Increase) decrease in deposits............... (1,001) (1,600) 5,102 -- (401)
(Decrease) increase in accounts payable....... (236,238) 236,733 41,597 18,640 (253,869)
(Decrease) increase in deferred revenue....... (54,862) 340,250 367,480 415,828 108,703
(Decrease) increase in accrued and other
liabilities................................. (15,066) 14,745 39,036 (7,217) (78,168)
----------- ----------- ----------- ----------- -----------
Net cash flows provided by operating activities... 901,909 859,682 868,696 27,829 438,289
----------- ----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Receipts on notes receivable...................... 21,522 25,875 15,425 2,916 5,162
Purchases of property and equipment............... (1,325,894) (782,849) (272,445) (69,955) (301,429)
Proceeds on sale of fixed assets.................. 20,000 -- -- 7,000 --
----------- ----------- ----------- ----------- -----------
Net cash flows used in investing activities....... (1,284,372) (756,974) (257,020) (60,039) (296,265)
----------- ----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Additional obligations under capital leases for
inventory....................................... 1,693,215 2,071,434 1,315,616 787,415 44,169
Payments on obligations under capital leases...... (2,077,619) (1,637,112) (1,466,779) (709,955) (255,315)
Proceeds from bank loans.......................... 511,475 -- -- -- --
Payments on notes payable......................... (254,489) (281,302) (270,186) (69,586) 211,193
----------- ----------- ----------- ----------- -----------
Net cash flows (used in) provided by financing
activities...................................... (127,418) 153,020 (421,349) 7,874 47
----------- ----------- ----------- ----------- -----------
NET (DECREASE) INCREASE IN CASH..................... (509,881) 255,728 190,327 (24,336) 142,071
CASH, beginning..................................... 516,984 261,256 70,929 7,103 516,984
----------- ----------- ----------- ----------- -----------
CASH, ending........................................ $ 7,103 $ 516,984 $ 261,256 $ (17,233) $ 659,055
=========== =========== =========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH PAID FOR:
Interest........................................ $ 417,258 $ 378,351 $ 334,307 $ 91,176 $ 54,526
----------- ----------- ----------- ----------- -----------
Income taxes.................................... $ -- $ 43,600 $ 115,632 $ -- $ --
=========== =========== =========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND
FINANCING ACTIVITIES
Acquisitions of pagers held for lease or sale
and property and equipment through capital
leases (Note F)............................... $ 395,000 $ 237,498 $ 767,574 $ 787,415 $ 44,169
=========== =========== =========== =========== ===========
Acquisitions of property and equipment through
notes payable (Notes G & J)................... $ -- $ -- $ 53,300 $ -- $ --
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 7
PARKWAY PAGING, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE A -- THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES
Organization
Parkway Paging, Inc. (the Company) was formed on May 7, 1991, and
incorporated in the state of Texas. Operations began on October 1, 1991. The
Company was formed for the purpose of providing air time, leasing, wholesale and
retail sales of pagers and pager repairs and service in the Dallas-Fort Worth
Metroplex. During the year ended December 31, 1993, the Company expanded its
services to include long distance and additional voice messaging services. The
Company also purchased a tandem telephone switch which enabled the addition of
the long distance service and will allow the Company to expand into the cellular
telephone market and Local Exchange Carrier (LEC) billing.
As discussed below, the Company acquired operations through an acquisition
and merger of related companies. Parkway Communications, Inc. was formed in 1983
and has served the cellular, specialized mobile radio (SMR) and paging markets
since its inception. In 1989, Parkway Communications, Inc. leased its assets to
Parkway Paging I, Ltd. Prior to the merger, as described below, Parkway
Communications, Inc. sold its cellular and SMR business to concentrate on the
paging industry.
The Company purchased the assets of Parkway Paging I, Ltd. (a partnership)
through the issuance of 19,200 shares of common stock and the assumption of
liabilities on October 1, 1991. The assets purchased were recorded at their
estimated fair value at October 1, 1991, under the purchase method of accounting
in accordance with generally accepted accounting principals. The value of the
liabilities assumed and stock issued exceeded the estimated fair value of the
assets by $71,665. This excess was recorded as goodwill.
On October 1, 1991, the Company also affected a merger with Parkway
Communications, Inc. and Business Paging, Inc. through the exchange of stock.
The stockholders of Parkway Communications, Inc. and Business Paging, Inc.
received 4,800 shares of stock in the Company in exchange for their stock in
these two corporations. The assets, liabilities and equity of Parkway
Communications, Inc. and Business Paging, Inc. were recorded at the book value
as stated in the financial statements of these two corporations at September 30,
1991, under the pooling of interests method as prescribed under generally
accepted accounting principals.
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Property and Equipment
Property and equipment are stated at cost. Expenditures for maintenance are
charged to expense as incurred. Upon retirement of equipment, the cost and the
related accumulated depreciation are removed from
F-5
<PAGE> 8
PARKWAY PAGING, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE A -- THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
the accounts. Depreciation and amortization are computed using straight-line and
accelerated methods based on the following estimated useful lives:
<TABLE>
<S> <C>
Broadcast equipment.................................... 3 to 15 years
Pagers held for lease or sale.......................... 3 years
Alpha dispatch equipment............................... 5 years
Pager repair equipment................................. 7 years
Office equipment....................................... 3 to 10 years
Leaseholds............................................. 7 to 39 years
Automobiles............................................ 5 years
</TABLE>
Reserve for Doubtful Accounts
The Company's policy is to expense accounts receivable of doubtful
collectibility after 75 days. Therefore, no reserve is provided.
Inventory
Inventory consists of pagers specifically purchased for resale and pager
parts utilized for repair of damaged pagers. Inventory is stated at the lower of
cost or market; cost being determined principally by use of the average-cost
method.
Pagers Held for Lease or Sale
The Company purchases specific brands of pagers which are primarily leased
to customers. These pagers are capitalized and depreciated in accordance with
the Company's depreciation policies as described above. Although the majority of
these pagers are leased, some are sold. Upon the sale of pagers, the cost of
pagers and the related accumulated depreciation are removed from the accounts
and the net book value is charged to costs of products sold. The proceeds on the
sales of such pagers is included in product sales. The cost of pagers sold is
removed from pagers held for lease or sale on a last-in-first-out basis. During
the year ended December 31, 1994, the Company recorded the disposal of obsolete,
missing and fully depreciated pagers. The loss on disposal totalled $65,748.
During the year ended December 31, 1995, additional disposals were recorded
resulting in a loss of $73,979.
Intangible Assets
Intangible assets consist of organization costs and goodwill. A portion of
the goodwill is attributable to the purchase of Parkway Paging I, Ltd. as
discussed previously. The remainder resulted from Parkway Communications, Inc.
transactions and was transferred to the Company during the merger. All
intangible assets are amortized over five years on a straight-line basis.
Deferred Revenue
Certain customers of the Company pay for services in advance. These advance
payments are deferred and recognized as revenue when earned. During the year
ended December 31, 1993, the Company purchased a new billing system which allows
the Company to bill on the 20th of each month for the subsequent month's
services. The Company records these advance billings as deferred revenue when
billed and recognizes them as revenue in the month for which the services are to
be provided. Advance payments for service are not refundable.
F-6
<PAGE> 9
PARKWAY PAGING, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE A -- THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
Cash
The Company maintains operating cash accounts with a financial institution
in excess of federally insured limits. The amount that would be at risk in the
event the institution is unable to continue business was $270,451 at December
31, 1995.
NOTE B -- NOTES RECEIVABLE
Notes receivable consist of the following at December 31:
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
Procom, Inc., receivable in monthly installments of
$1,365, including interest at 13%, final payment due
9/17/95................................................ $ -- $12,872
Abner, Inc., receivable in monthly installments of
$1,244, including interest at 8%, final payment due
7/11/01
(Note J)............................................... 67,533 76,183
------- -------
67,533 89,055
Current portion.......................................... 9,920 22,032
------- -------
$57,613 $67,023
======= =======
</TABLE>
These notes receivable were acquired as a result of the business
combinations described in NOTE A. Both arose in the ordinary course of business.
NOTE C -- PROPERTY AND EQUIPMENT
Property and equipment consist of the following at December 31:
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Broadcast equipment......................................... $5,379,692 $4,069,529
Alpha dispatch equipment.................................... 41,398 73,502
Pager repair equipment...................................... 89,681 73,080
Office equipment............................................ 505,520 414,772
Leaseholds.................................................. 243,201 140,859
Automobiles................................................. 13,615 2,042
---------- ----------
6,273,107 4,773,784
Less accumulated depreciation and amortization............ 3,195,088 2,258,296
---------- ----------
$3,078,019 $2,515,488
========== ==========
</TABLE>
F-7
<PAGE> 10
PARKWAY PAGING, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE D -- OTHER ASSETS
Other assets consist of the following at December 31:
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
Goodwill......................................................... $88,765 $88,765
Less accumulated amortization.................................... 75,447 57,697
------- -------
13,318 31,068
------- -------
Organization costs............................................... 3,927 3,927
Less accumulated amortization.................................... 3,207 2,421
------- -------
720 1,506
------- -------
Deposits......................................................... 4,710 3,710
------- -------
$18,748 $36,284
======= =======
</TABLE>
NOTE E -- ACCRUED AND OTHER LIABILITIES
Accrued and other liabilities consist of the following at December 31:
<TABLE>
<CAPTION>
1995 1994
------- --------
<S> <C> <C>
Sales tax payable............................................... $34,193 $ 57,222
Interest payable................................................ 15,321 18,146
Payroll taxes payable........................................... 3,659 8,602
Accrued payroll................................................. 36,091 21,624
Customer deposits held.......................................... 586 850
Excise/use tax payable.......................................... 2,888 1,360
------- --------
$92,738 $107,804
======= ========
</TABLE>
NOTE F -- OBLIGATIONS UNDER CAPITAL LEASES
The Company is obligated under various capital leases which were incurred
in the acquisition of pagers and other property and equipment. The following is
a schedule, by years, of future minimum lease payments under capital leases with
the present value of the net minimum lease payments:
<TABLE>
<S> <C>
1996............................................................. $2,346,744
1997............................................................. 639,409
1998............................................................. 183,297
1999............................................................. 66,296
2000............................................................. 49,790
----------
Net minimum lease payments....................................... 3,285,536
Less amount representing interest................................ 322,540
----------
Present value of net minimum lease payments...................... 2,962,966
Less current portion............................................. 2,149,708
----------
$ 813,288
=========
</TABLE>
F-8
<PAGE> 11
PARKWAY PAGING, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE F -- OBLIGATIONS UNDER CAPITAL LEASES -- (CONTINUED)
The Company held the following assets under capital leases at December 31:
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Pagers...................................................... $ 375,953 $ 256,751
Broadcast equipment......................................... 1,274,329 1,085,592
Pager repair equipment...................................... 14,608 14,608
---------- ----------
1,664,890 1,356,951
Less accumulated depreciation............................... 1,016,323 697,431
---------- ----------
$ 648,567 $ 659,520
========== ==========
</TABLE>
In addition, the Company assumed capital leases related to pagers and
broadcast equipment acquired in the business combinations described in Note A.
Consequently, specific assets acquired subject to capital leases were not
identified. The net book value of pagers and broadcast equipment acquired in the
business combinations was $170,767 and $268,611 at December 31, 1995 and 1994,
respectively. All assets acquired under capital leases are presented in the
accompanying balance sheet as property and equipment and pagers held for lease
or sale.
NOTE G -- NOTES PAYABLE
Notes payable consist of the following at December 31:
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
Note payable due in monthly installments of $2,917 through
6/6/97, with a final payment of $2,938 due on 7/6/97, plus
interest at 8.75%, secured by equipment and stockholder's
certificates of deposit and stock............................ $55,417 $87,500
Note payable due in monthly installments of $937 through
6/6/95, with a final payment of $879 due on 7/6/95, plus
interest at 8.75%, secured by equipment and stockholder's
certificates of deposit and stock............................ -- 5,560
Note payable due in monthly installments of $6,667 through
6/6/95, with a final payment of $6,715 due on 7/6/95, plus
interest at 8.75%, secured by equipment and stockholder's
certificates of deposit and stock............................ -- 40,000
Note payable due in monthly installments of $4,924 through
1/15/00, with a final payment of $4,968 due 2/15/00, plus
interest at 10.5%, secured by equipment and stockholder's
certificate of deposit and stock............................. 246,229 --
Note payable due in monthly installments of $3,600 through
3/15/00, with a final payment of $3,632 due 4/15/00, plus
interest at 10.5%, secured by equipment and stockholder's
certificate of deposit and stock............................. 187,200 --
Note payable due in monthly installments of $3,333 through
6/17/97, plus interest at 7.25%, secured by stockholder's
certificates
of deposit................................................... 60,134 100,134
Note payable, Shareholder, due in monthly installments of
$2,084, including interest at 12%, maturing 6/26/97 (NOTE J),
unsecured.................................................... 38,973 53,786
</TABLE>
F-9
<PAGE> 12
PARKWAY PAGING, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
1995 1994
--------- ---------
NOTE G -- NOTES PAYABLE -- (CONTINUED)
<S> <C> <C>
Note payable, Shareholder, due in monthly installments of
$1,335, including interest at 12%, maturing 9/17/95 (Note J),
unsecured.................................................... -- 11,433
Note payable, Shareholder, due in monthly installments of
$2,224, including interest at 12%, maturing 11/21/97 (Note
J),
unsecured.................................................... 45,014 65,418
Note payable, Shareholder, due in monthly installments of
$1,112, including interest at 12%, maturing 12/27/97 (Note
J),
unsecured.................................................... 26,074 33,486
Note payable, Shareholders, due in five annual installments
beginning 1/1/94, including interest at 10% (Note J),
unsecured.................................................... 17,253 21,991
--------- ---------
676,294 419,308
Less current maturities........................................ 256,351 183,199
--------- ---------
$419,943 $236,109
======== ========
</TABLE>
Maturities of notes payable over the next five years are as follows:
<TABLE>
<S> <C>
1996.............................................. $256,351
1997.............................................. 193,322
1998.............................................. 108,602
1999.............................................. 102,295
2000.............................................. 15,724
--------
$676,294
========
</TABLE>
The Company established a line of credit during the year ended December 31,
1995, providing for maximum borrowings of $300,000. Interest is due at the
bank's stated prime plus 1%. The line of credit is guaranteed by certain
shareholders who are officers of the Company. At December 31, 1995, there were
no draws on the line of credit.
NOTE H -- COMMITMENTS AND CONTINGENCIES
The Company leases office space and equipment under noncancellable
operating leases. At December 31, 1995, the Company was obligated under these
leases as follows:
<TABLE>
<S> <C>
1996.............................................. $315,664
1997.............................................. 223,435
1998.............................................. 166,249
1999.............................................. 85,485
2000.............................................. 32,573
Thereafter........................................ --
--------
$823,406
========
</TABLE>
Rental expense under operating leases was $543,433, $358,312 and $279,427
for the years ended December 31, 1995, 1994 and 1993, respectively.
The Company purchases pagers from three major suppliers. A significant
portion are purchased from NEC (Note J). However, due to competition and
technological advances, management believes that the
F-10
<PAGE> 13
PARKWAY PAGING, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE H -- COMMITMENTS AND CONTINGENCIES -- (CONTINUED)
failure of any of these suppliers to perform on future purchase agreements would
have no materially adverse effect on the Company.
NOTE I -- FEDERAL INCOME TAXES
Effective January 1, 1993, the Company adopted Financial Accounting
Standard No. 109. The cumulative effect of the adoption was the recognition of a
deferred tax asset in the amount of $51,996 which resulted from net operating
losses available to offset taxable income. The related deferred tax credit is
included in net income for the year ended December 31, 1993. The utilization of
these net operating losses resulted in a reduction of the deferred tax asset
during 1993. The temporary differences giving rise to the deferred tax asset
consist of net operating losses and limitations on the deductibility of goodwill
for tax purposes. For book purposes, goodwill is amortized over five years, for
tax purposes, goodwill is amortized over fifteen years.
The Company acquired $235,394 of net operating losses available to offset
future tax liabilities in the merger with Business Paging, Inc. (Note A). A
portion of these losses was utilized in 1991 and 1992. During the year ended
December 31, 1993, the Company used the remaining $118,531 of net operating
losses acquired.
The deferred tax asset consists of the following at December 31:
<TABLE>
<CAPTION>
1995 1994
-------- -------
<S> <C> <C>
Current-net operating loss.............................. $105,722 $66,605
Noncurrent-goodwill amortization........................ 17,102 13,078
-------- -------
$122,824 $79,683
======== =======
</TABLE>
No valuation allowance has been provided because based upon the weight of
available evidence it is more likely than not that the deferred tax asset will
be realized.
The benefit (provision) for federal income taxes at December 31, consists
of the following:
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- --------
<S> <C> <C> <C>
Taxes currently payable...................... $ -- $ -- $(82,642)
Deferred
Cumulative effect of adoption of SFAS
109..................................... -- -- (51,996)
Goodwill amortization...................... 4,024 2,692 10,385
Net operating loss......................... 39,117 66,605 46,228
------- ------- --------
$43,141 $69,297 $(78,025)
======= ======= ========
</TABLE>
The Company made estimated tax payments of $43,600 during the year ended
December 31, 1994, and had alternative minimum tax credits from December 31,
1992 and 1993, of $26,779 and $29,698, respectively. In addition, overpayments
of $22,851 for the year ended December 31, 1993, were applied to 1994 taxes. Due
to a net operating loss of $197,193 for federal income tax purposes, there were
no federal income taxes due at December 31, 1994. This resulted in an
overpayment of $122,818. Of this balance, $56,477 represented alternative
minimum tax credits which may be applied against regular tax in future years
when regular tax exceeds alternative minimum tax. These credits may be carried
forward indefinitely. These credits remain available at December 31, 1995. The
Company has net operating losses available to offset future taxable income of
$310,949 which begin to expire in 2009. Due to the significant change in
ownership subsequent to year end (NOTE L), the availability of these net
operating losses is severely limited by the Internal Revenue Code. The extent of
the limitation has not been determined.
F-11
<PAGE> 14
PARKWAY PAGING, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE J -- RELATED PARTY TRANSACTIONS
The Company has notes payable to Ray Windle and Windle & Windle,
shareholders, as described in Note G. At December 31, 1994, the Company owed Ray
Windle and Windle & Windle $119,204 and $44,919, respectively. At December 31,
1995, the balances were $83,987 and $26,074, respectively. The Company also has
a note payable to a group of shareholders as described in Note G. The balance at
December 31, 1995 and 1994, was $17,253 and $21,991, respectively. All loans
from shareholders relate to the acquisition of property and equipment and the
business acquisitions described in Note A.
George Bush, president of the Company, owned a building which was leased to
the Company. Rent of $56,292 was paid to George Bush during 1993. During the
year ended December 31, 1994, Mr. Bush sold the building to another entity, 1200
Commerce, which is owned by various shareholders of the Company. Rent of $23,455
was paid to George Bush during 1994. For the years ended December 31, 1995 and
1994, rent of $83,890 and $36,764 was paid to 1200 Commerce.
Shareholders of the Company own 100% of Abner, Inc. The Company paid Abner,
Inc. $74,280 in rental for radio towers during 1995. Rental of $68,280 was paid
to Abner, Inc. for each of the years ended December 31, 1994 and 1993. In
addition, the Company held a note receivable from Abner, Inc. in the amount of
$67,533 and $76,183 at December 31, 1995 and 1994, respectively, as discussed in
Note B.
Several shareholders of the Company are officers of NEC. During the years
ended December 31, 1995, 1994 and 1993, the Company purchased pagers and parts
from NEC totalling approximately $1,852,748, $1,906,000 and $987,000,
respectively. In addition, the Company owed NEC $2,039,690 and $1,786,676 for
obligations under capital leases at December 31, 1995 and 1994, respectively.
The Company also sells pagers to an agent who is a director of the Company.
During the year ended December 31, 1995 and 1994, total sales to this agent were
$630,809 and $345,335, respectively. Sales in prior years were insignificant.
NOTE K -- RETIREMENT PLAN
Effective September 1, 1995, the Company adopted a 401(k) Pension and
Profit Sharing Plan (the Plan) covering substantially all of its employees.
Under the provisions of the Plan, employees may contribute up to 10% of their
gross wages. The Company may make discretionary contributions to the Plan, but
has elected not to do so for the year ended December 31, 1995.
NOTE L -- SUBSEQUENT EVENT
Subsequent to December 31, 1995, the Company entered into an agreement of
merger with Metrocall, Inc. and PPI Acquisition Corp. The agreement provides
that as of the date of closing, all issued and outstanding shares of the Company
common stock shall be converted in the aggregate into the right to receive cash
and shares of Metrocall, Inc. common stock. The purchase price includes payment
of a liability equivalent to 5% of the net proceeds of the merger, as calculated
by the Board of Directors of the Company, to certain officers of the Company.
NOTE M -- UNAUDITED FINANCIAL STATEMENTS
The balance sheets of Parkway Paging, Inc. as of March 20, 1996 and 1995,
and the related statements of income and retained earnings and cash flow for the
quarters then ended have been prepared by the Company without audit.
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 (which include only normal
recurring adjustments) considered necessary for a fair presentation have been
included. Operating results for the quarters ended March 20, 1996 and 1995, are
not necessarily indicative of the results that may be expected for the full
year.
F-12
<PAGE> 15
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL DATA
The following pro forma condensed combined balance sheet gives effect to the
Parkway Acquisition as if it had occurred on March 31, 1996. The unaudited pro
forma condensed combined statements of operations for the three month period
ended March 31, 1996 and for the year ended December 31, 1995, give effect to
the Parkway Acquisition as if it had occurred on January 1, 1995. The purchase
price was adjusted in the accompanying pro forma statements based upon
Parkway's financial performance for the three month period ended March 31,
1996. Accordingly, the actual consideration paid by Metrocall was different.
The Parkway Acquisition will be accounted for by the purchase method of
accounting. The purchase price has been allocated on a preliminary basis to
the assets to be acquired based upon the estimated value of such assets. The
final allocation of intangible assets will be based upon appraised values.
This information should be read in conjunction with the notes included herein,
the Metrocall Consolidated Financial Statements, and the Parkway Financial
Statements (include herewith). The unaudited pro forma condensed combined
financial data do not purport to represent what the combined company's results
of operations or financial position actually would have been had such
transaction and event occurred on the dates specified, or to project the
combined company's results of operations or financial position for any future
period or date. The pro forma adjustments are based upon available information
and certain adjustments that management of Metrocall believes are reasonable.
In the opinion of management of Metrocall, all adjustments have been made that
are necessary to present the unaudited pro forma condensed combined data.
<PAGE> 16
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF MARCH 31, 1996
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
--------------------------- PRO FORMA COMBINED
METROCALL PARKWAY(A) ADJUSTMENTS COMPANY
---------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
CURRENT ASSETS:
Cash, cash equivalents and short term
investments $115,150 $ - $(24,645) $ 90,505
Accounts receivable, net 9,345 902 - 10,247
Inventory - 920 (920) (C) -
Prepaid expenses and other current assets 1,750 197 - 1,947
--------- ------- --------- ---------
Total current assets 126,245 2,019 (24,645) 102,699
PROPERTY AND EQUIPMENT, NET 82,955 3,085 920 (C) 86,960
INTANGIBLES, net 127,802 - 34,920 (D) 162,722
OTHER ASSETS 292 86 (26) (E) 352
--------- ------- --------- ---------
Total Assets $337,294 $5,190 $ 10,249 $352,733
========= ======= ========= =========
</TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<S> <C> <C> <C> <C>
CURRENT LIABILITIES:
Current maturities of long-term obligations $ 260 $2,478 $(2,478) (F) $ 260
Accounts payable and accrued expenses 21,046 199 493 (G) 21,738
Deferred revenues and subscriber deposits 2,561 1,122 - 3,683
--------- ------- --------- ---------
Total current liabilities 23,867 3,799 (1,985) 25,681
LONG-TERM OBLIGATIONS 153,735 1,170 2,478 (F) 157,383
DEFERRED INCOME TAXES 11,642 - 9,977 (H) 21,619
MINORITY INTEREST 501 - - 501
--------- ------- --------- ---------
Total liabilities 189,745 4,969 10,470 205,184
TOTAL STOCKHOLDER'S EQUITY 147,549 221 (221) (I) 147,549
--------- ------- --------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $337,294 $5,190 $10,249 $352,733
========= ======= ========= =========
</TABLE>
See accompanying notes A-L to this unaudited statement.
<PAGE> 17
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
--------------------------- PRO FORMA COMBINED
METROCALL PARKWAY(A) ADJUSTMENTS COMPANY
------------ ----------- -------------- -------------
<S> <C> <C> <C> <C>
SERVICE, RENT AND MAINTENANCE REVENUE $ 92,160 $7,403 $ - $ 99,563
PRODUCT SALES 18,699 2,344 - 21,043
--------- ------- ------- ---------
Total revenues 110,859 9,747 - 120,606
NET BOOK VALUE OF PRODUCTS SOLD (15,527) (2,262) - (17,789)
--------- ------- ------- ---------
95,332 7,485 - 102,817
SERVICE, RENT AND MAINTENANCE EXPENSE 27,258 2,330 - 29,588
SELLING, MARKETING, GENERAL AND ADMINISTRATIVE 40,303 3,655 - 43,958
DEPRECIATION AND AMORTIZATION 31,504 1,153 2,594 (J) 35,251
OTHER 2,050 - - 2,050
--------- ------- ------- ---------
Total operating expenses 101,115 7,138 2,594 110,847
--------- ------- ------- ---------
(LOSS) INCOME FROM OPERATIONS (5,783) 347 (2,594) (8,030)
INTEREST EXPENSE AND OTHER, net (10,522) (477) (204) (K) (11,203)
--------- ------- ------- ---------
(Loss) income before taxes (16,305) (130) (2,798) (19,233)
BENEFIT FOR TAXES 595 43 871 (L) 1,509
--------- ------- ------- ---------
(Loss) income before
extraordinary item
(15,710) (87) (1,927) (17,724)
EXTRAORDINARY ITEM (4,392) - - (4,392)
--------- ------- ------- ---------
Net (loss) income $ (20,102) $ (87) $(1,927) $(22,116)
========= ======= ======= =========
NET LOSS PER COMMON SHARE BEFORE EXTRAORDINARY
ITEM $ (1.34) $(1.52)
EXTRAORDINARY ITEM, net of income tax benefit (0.38) (0.38)
--------- ---------
NET LOSS PER SHARE $ (1.72) (1.90)
--------- ---------
SHARES USED IN COMPUTING NET LOSS PER SHARE 11,668 11,668
========= =========
</TABLE>
See accompanying notes A-L to this unaudited statement.
<PAGE> 18
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE THREE MONTH PERIOD ENDED MARCH 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
--------------------------- PRO FORMA COMBINED
METROCALL PARKWAY(A) ADJUSTMENTS COMPANY
------------ ----------- -------------- ------------
<S> <C> <C> <C> <C>
SERVICE, RENT AND MAINTENANCE REVENUE $23,750 $1,646 $ - $25,396
PRODUCT SALES 6,189 486 - 6,675
--------- ------- ------ --------
Total revenues 29,939 2,132 - 32,071
NET BOOK VALUE OF PRODUCTS SOLD (4,650) (325) - (4,975)
--------- ------- ------ --------
25,289 1,807 - 27,096
SERVICE, RENT AND MAINTENANCE EXPENSE 8,193 583 - 8,776
SELLING, MARKETING, GENERAL AND ADMINISTRATIVE 10,375 755 - 11,130
DEPRECIATION AND AMORTIZATION 11,491 325 649 (J) 12,465
--------- ------- ------ --------
Total operating expenses 30,059 1,663 649 32,371
--------- ------- ------ --------
(LOSS) INCOME FROM OPERATIONS (4,770) 144 (649) (5,275)
INTEREST EXPENSE AND OTHER, net (2,855) (83) (51) (K) (2,989)
--------- ------- ------ --------
Net income (loss) before taxes (7,625) 61 (700) (8,264)
(PROVISION) BENEFIT FOR TAXES (64) - 218 (L) 154
--------- ------- ------ --------
Net income (loss) $(7,689) $ 61 $(482) $(8,110)
========= ======= ====== ========
NET LOSS PER SHARE $ (0.53) $ (0.55)
========= ========
SHARES USED IN COMPUTING NET LOSS PER SHARE 14,626 14,626
========= ========
</TABLE>
See accompanying notes A-L to this unaudited statement.
<PAGE> 19
NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL STATEMENTS
(A) Historical Parkway financial statements are as of March 20, 1996, for
the 11 week period ending March 20, 1996, and the year-ended December
31, 1995.
(B) Reflects estimated cash payments to Parkway shareholders of
approximately $24.6 million after adjustment for liabilities assumed.
(C) Reflects the reclassification of pagers held for resale or future
rental, from inventory to furniture and equipment to conform
accounting practices to those of Metrocall.
(D) Reflects fair values assigned to intangible assets acquired which
consist of the following (in thousands):
<TABLE>
<S> <C>
FCC license $17,460
Subscriber lists 7,483
Goodwill 9,977
-------
$34,920
=======
</TABLE>
(E) Reflects primarily the deferred tax asset of Parkway for which no
value has been assigned in the pro forma statements.
(F) Reclassifies current maturities of long-term obligations to noncurrent
pursuant to the terms of Metrocall s financing arrangements.
(G) Reflects estimated accruals for costs of closing acquired duplicate
facilities, and estimated severance for planned terminations of
acquired employees.
(H) The Parkway Acquisition is structured as a stock purchase. The
deferred income tax liability represents the tax effect of the
difference between the amounts allocated to assets acquired and their
tax basis.
(I) Adjusts for the historical equity amounts of Parkway.
(J) Reflects incremental depreciation and amortization based upon the
preliminary allocation of depreciable and amortizable assets and
assumed useful lives of 5 years for subscriber lists and 25 years for
FCC licenses and goodwill.
(K) Represents the estimated incremental interest at a rate of 8.25
percent that would have been incurred assuming that Parkway was
acquired on January 1, 1995.
(L) Represents the tax benefit resulting from the amortization of acquired
intangibles for Parkway assuming an effective income tax rate of 40
percent.
<PAGE> 20
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned duly authorized.
METROCALL, INC.
/s/ Vincent D. Kelly
-----------------------------------
Vincent D. Kelly
Chief Financial Officer, Treasurer
and Vice President
Date: August 13, 1996
3
<PAGE> 1
CONSENT OF INDEPENDENT ACCOUNTANTS
As independent public accountants we hereby consent to the use of our report
dated February 13, 1996, relating to the financial statements of Parkway Paging,
Inc. (and to all references to our firm) included in or made a part of this
Form 8K.
/s/ HUTTON, PATTERSON & COMPANY
- ---------------------------------
Hutton, Patterson & Company
Dallas, Texas
August 13, 1996
