<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
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 2, 1998
Metrocall, Inc.
(Exact name of registrant as specified in its charter)
Delaware 0-21924 54-1215634
(State or other jurisdiction (Commission (IRS Employer
of incorporation) file number) Identification No.)
6677 Richmond Highway, Alexandria, Virginia
(Address of Principal Executive Offices)
Registrant's telephone number, including area code: (703) 660-6677
ITEM 2. ACQUISITIONS OR DISPOSITIONS OF ASSETS
As reported on a Form 8-K filed with the Securities and Exchange
Commission on October 2, 1998, Metrocall, Inc. ("Metrocall" or the "Company")
completed its previously reported purchase of the AT&T Messaging Division
("AMD") a subsidiary of AT&T Wireless Services, Inc., on October 2, 1998,
pursuant to the terms of the Stock Purchase Agreement dated June 26, 1998. The
acquisition was approved by the Company's stockholders on September 29, 1998.
The Company is amending its Form 8-K to reflect an update to Note 10,
"Subsequent Events", to the Notes to AT&T Wireless Servives, Inc. -
Messaging Division Combined Financial Statements and also to provide unaudited
condensed combined financial statements of AMD as of and for the nine months
ended September 30, 1998.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION, AND EXHIBITS
(a) FINANCIAL STATEMENTS
The following financial statements are presented below:
The AT&T Wireless Services, Inc. - Messaging Division Combined Statements of
Net Assets as of December 31, 1997 and 1996; the Combined Statements of
Operations and Changes in Net Assets for the years ended December 31, 1997,
1996 and 1995; the Combined Statements of Cash Flows for the years ended
December 31, 1997, 1996 and 1995; and Notes to Combined Financial Statements.
The AT&T Wireless Services, Inc. - Messaging Division Unaudited Condensed
Combined Statements of Net Assets as of September 30, 1998 and December 31,
1997; the Unaudited Condensed Combined Statement of Operations and Changes in
Net Assets for the Nine Months Ended September 30, 1998; the Unaudited
Condensed Combined Statement of Cash Flows for the Nine Months Ended September
30, 1998; and Notes to Unaudited Condensed Combined Financial Statements.
<PAGE> 2
REPORT OF INDEPENDENT ACCOUNTANTS
To the Management of AT&T Wireless
Services, Inc. -- Messaging Division:
We have audited the accompanying combined statements of net assets of AT&T
Wireless Services, Inc. -- Messaging Division (the "Company"), a business unit
of AT&T Wireless Services, Inc., (as defined in Note 1) as of December 31, 1997
and 1996 and the related combined statements of operations and changes in net
assets and cash flows for the years ended December 31, 1997, 1996 and 1995.
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 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 audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the combined net assets of the Company as of December
31, 1997 and 1996, and the combined results of their operations and changes in
net assets and cash flows for the years ended December 31, 1997, 1996 and 1995,
in conformity with generally accepted accounting principles.
Coopers & Lybrand L.L.P.
Seattle, Washington
February 27, 1998, except for
Note 10
as to which the date
is December 1, 1998
F-1
<PAGE> 3
AT&T WIRELESS SERVICES, INC. -- MESSAGING DIVISION
(A BUSINESS UNIT OF AT&T WIRELESS SERVICES, INC.)
COMBINED STATEMENTS OF NET ASSETS
AS OF DECEMBER 31, 1997 AND 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Accounts receivable, less allowance of $1,765 and
$1,972, respectively.................................. $ 20,023 $ 19,437
Inventories............................................ 1,933 4,409
Prepaid expenses and other............................. 184 167
-------- --------
Total current assets.............................. 22,140 24,013
Property and equipment, net................................. 83,218 74,276
Intangible assets, net...................................... 9,160 9,536
Other assets................................................ 81 76
-------- --------
Total assets...................................... 114,599 107,901
-------- --------
LIABILITIES AND NET ASSETS
Current liabilities:
Accounts payable and accrued expenses.................. 24,421 21,116
Unearned revenues and customer deposits................ 16,825 16,719
Note payable to affiliate.............................. -- 15,000
-------- --------
Total current liabilities......................... 41,246 52,835
Commitments and contingencies
-------- --------
Net assets........................................ $ 73,353 $ 55,066
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-2
<PAGE> 4
AT&T WIRELESS SERVICES, INC. -- MESSAGING DIVISION
(A BUSINESS UNIT OF AT&T WIRELESS SERVICES, INC.)
COMBINED STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Sales and revenues:
Paging service revenues................................ $165,899 $148,338 $120,949
Equipment sales........................................ 12,820 12,231 14,352
Activation fees and other.............................. 7,149 6,781 5,319
-------- -------- --------
Total sales and revenues.......................... 185,868 167,350 140,620
-------- -------- --------
Operating costs and expenses:
Cost of paging service................................. 48,686 43,073 30,557
Cost of equipment sales................................ 8,980 10,015 11,520
General and administrative............................. 67,184 63,928 58,852
Sales and marketing.................................... 32,317 27,847 31,569
Depreciation and amortization.......................... 40,036 39,277 34,186
Reorganization......................................... 3,097 -- --
-------- -------- --------
Total operating costs and expenses................ 200,300 184,140 166,684
-------- -------- --------
Interest expense, affiliate................................. 1,020 1,371 1,343
-------- -------- --------
Loss before income taxes.................................... 15,452 18,161 27,407
Provision for state income taxes............................ 255 230 151
-------- -------- --------
Net loss.................................................... 15,707 18,391 27,558
Net assets, beginning of period............................. 55,066 40,626 51,019
Conversion of note payable to affiliate..................... 15,000 -- --
Advances from AT&T Wireless Services, Inc., net............. 18,994 32,831 17,165
-------- -------- --------
Net assets, end of period................................... $ 73,353 $ 55,066 $ 40,626
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 5
AT&T WIRELESS SERVICES, INC. -- MESSAGING DIVISION
(A BUSINESS UNIT OF AT&T WIRELESS SERVICES, INC.)
COMBINED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss............................................... $(15,707) $(18,391) $(27,558)
Adjustments to reconcile net loss to net cash provided
by operating activities:
Depreciation and amortization..................... 40,036 39,277 34,186
Cost of pager equipment sold...................... 3,819 4,097 5,064
Non cash reorganization charge.................... 1,627 -- --
Changes in current assets and liabilities:
Accounts receivable.......................... (586) (3,954) (636)
Inventories.................................. 1,796 (1,797) 293
Prepaid expenses and other................... (17) 179 (230)
Accounts payable and accrued expenses........ 4,497 (3,134) 4,642
Unearned revenues and customer deposits...... 106 1,643 2,858
-------- -------- --------
Net cash provided by operating
activities............................ 35,571 17,920 18,619
-------- -------- --------
INVESTING ACTIVITIES:
Purchase of property and equipment..................... (54,565) (50,751) (35,784)
-------- -------- --------
Net cash used in investing activities... (54,565) (50,751) (35,784)
-------- -------- --------
FINANCING ACTIVITIES:
Advances from AT&T Wireless Services, Inc., net........ 18,994 32,831 17,165
-------- -------- --------
Net cash provided by financing
activities............................ 18,994 32,831 17,165
-------- -------- --------
Net change in cash during year.............................. $ -- $ -- $ --
======== ======== ========
SUPPLEMENTAL CASH FLOW INFORMATION:
Income taxes paid...................................... $ 255 $ 230 $ 151
Interest paid.......................................... 1,020 1,371 1,343
Non-cash investing activities:
Purchase of system operating equipment............ 1,211 903 2,334
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 6
AT&T WIRELESS SERVICES, INC. -- MESSAGING DIVISION
(A BUSINESS UNIT OF AT&T WIRELESS SERVICES, INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
1. DESCRIPTION OF BUSINESS, BASIS OF PRESENTATION AND REORGANIZATION
Description of Business
AT&T Wireless Services, Inc. -- Messaging Division (the "Company") is a
business unit of AT&T Wireless Services, Inc. ("AWS"), a wholly owned subsidiary
of AT&T Corp. The Company is a provider of one-way paging and wireless messaging
services on a local, regional and national basis and its core service offerings
include two types of paging services: numeric and alphanumeric. The Company
provides one-way paging services to both business customers and consumers and
offers its customers both customer owned and maintained equipment or rental
options for equipment. The Company is regionally-focused with its primary
service areas located in the Northwest, West Coast, Mountain, Central and
Southwest regions of the United States.
The Federal Communications Commission ("FCC") sold several new licenses in
public auctions to provide wireless services, which includes nationwide
narrowband paging licenses in the Company's markets. As a result, competition in
the wireless industry is continuing to evolve and the Company may experience
increased competition from new products or services.
Basis of Presentation
The combined financial statements include the operating accounts of McCaw
RCC Communications, Inc., a wholly owned subsidiary of AWS, and its wholly owned
subsidiaries. The operating accounts include only those related to the one-way
paging and wireless messaging services business. All material inter-entity
transactions and account balances have been eliminated.
As a business unit of AWS, the accompanying combined financial statements
have been prepared from the historical financial records of AWS and reflect the
assets, liabilities, revenues and expenses directly attributable to the Company,
including all allocations deemed necessary by management to present the
financial position, results of operations and cash flows of the Company on a
stand-alone basis. The financial position, results of operations and cash flows
of the Company may differ from those that may have been achieved had the Company
operated as an entity independent of AWS. The allocation methodologies have been
described within the respective notes to the combined financial statements and
management considers the allocations to be reasonable.
The Company has experienced substantial net losses and has had insufficient
internally generated funds to cover capital and operating expenditures. The
ability of the Company to achieve profitability and generate sufficient cash
flows from operations to fund its investing needs depends on many factors,
including the future costs of operations and technological and industry
developments. Future operating results will be subject to significant business,
economic, regulatory, technical and competitive uncertainties. Depending on
their extent and timing, these factors, individually or in the aggregate, could
have a material adverse impact on the Company's financial position, financial
results or competitive position. AWS is committed to fund any working capital
requirements or operational deficit of the Company through March, 1999, subject
to earlier termination upon a change in control of the Company.
Reorganization
During March 1997, AWS announced its plan to abandon the buildout of its
nationwide two-way paging network. As part of this plan, the Company closed
certain facilities in Florida, New York, and Pennsylvania in 1997 that were
providing one-way paging services to customers under reseller arrangements
pending completion of the two-way paging network. The Company continues to serve
customers in Florida, New York and Pennsylvania and maintains a limited
distribution network in these states. As a result of these closures, the
F-5
<PAGE> 7
AT&T WIRELESS SERVICES, INC. -- MESSAGING DIVISION
(A BUSINESS UNIT OF AT&T WIRELESS SERVICES, INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
1. DESCRIPTION OF BUSINESS, BASIS OF PRESENTATION AND
REORGANIZATION -- (CONTINUED)
Company recorded $1,470 in severance costs and $1,627 to write down the net book
value of property and equipment and inventories which had no future utility.
In November 1997, AT&T Corp. confirmed its plan to solicit offers for the
purchase of the Company and its operations. In January 1998, and in connection
with this proposed transaction, the Company entered into compensation
arrangements with certain key employees that provide for cash bonuses in the
event a sale is consummated. The aggregate amount of bonuses available to those
employees is approximately $5,000 and payment is contingent upon the
consummation of a sale agreement and continued employment through a transition
period from the closing date of the sale. In the event a sale agreement is not
reached by December 31, 1998 or the closing of such sale is not consummated by
December 31, 1999, the compensation arrangements terminate.
2. SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition
Paging service revenues are comprised of air time for paging services and
pager rentals and are recognized as the services are performed and ratably over
the rental periods, respectively. Revenues related to prebilled services to
subscribers are deferred and are included in unearned revenues.
Sales of equipment are recorded as revenue when the goods are delivered.
Advertising Costs
The Company expenses direct advertising costs as incurred. Advertising and
promotion expenses were $2,837, $2,710 and $2,831 for the years ended December
31, 1997, 1996 and 1995 respectively.
Internal Use Software
The Company expenses the cost of purchased or developed software for
internal use purposes as incurred. During March 1998, the Accounting Standards
Executive Committee issued Statement of Position ("SOP") 98-1, Accounting for
the Costs of Computer Software Developed or Obtained for Internal Use. SOP 98-1
is effective for fiscal years ending after December 15, 1998 and requires the
capitalization of the costs of certain purchased or developed software used for
internal purposes. The impact of the adoption of SOP 98-1 is not expected to
have a material impact on the financial position or results of operation of the
Company.
Inventories
Inventories consist of pagers and are stated at the lower of cost or
market. Cost is determined using the specific identification method.
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed using
the straight-line method over the estimated useful lives of the assets, which
are generally twelve years for operating equipment, two years for pagers, and
three to five years for office furniture and equipment. Leasehold improvements
are amortized using the straight-line method over the lesser of the term of the
lease or estimated useful lives.
F-6
<PAGE> 8
AT&T WIRELESS SERVICES, INC. -- MESSAGING DIVISION
(A BUSINESS UNIT OF AT&T WIRELESS SERVICES, INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
2. SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
The costs of normal maintenance and repairs are charged to expense as
incurred and expenditures for major improvements are capitalized at cost. Gains
or losses on the disposition of assets are included in the statement of
operations at the time of disposition.
Retired pagers are removed from property and equipment at net book value
using the first-in, first-out method of accounting.
Intangible Assets
Intangible assets are principally comprised of FCC licensing costs and
goodwill. FCC licensing costs represent direct costs to acquire paging licenses.
Goodwill represents the difference between the purchase price and the estimated
fair values of the identifiable net assets acquired in business combinations
treated as purchases. Intangible assets are amortized over their estimated
useful lives, which is generally 40 years.
Amortization expense related to intangible assets totaled $400, $807 and
$1,442 for the years ended December 31, 1997, 1996 and 1995, respectively.
Accumulated amortization totaled $6,890 and $6,670 as of December 31, 1997 and
1996, respectively.
Income Taxes
The Company is included in the consolidated Federal and certain combined
state income tax returns of AT&T Corp. and its subsidiaries. The Company also
files separate state income tax returns in certain states which require income
tax returns to be prepared on a separate entity basis. For financial statement
purposes, the Company provides for Federal income taxes on a separate return
basis, as if it were a stand alone entity. State income taxes are provided based
on tax returns filed.
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 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. Management
of the Company will continue to evaluate the estimated useful lives of its
operating equipment and intangible assets based upon changes in industry
conditions.
Concentration of Risks
The Company currently purchases all of its significant terminal equipment
from a single vendor, other system operating equipment from three vendors and
its pagers from two vendors. Although there are a limited number of
manufacturers of the terminals, other system operating equipment and pagers,
management believes that the Company could secure reasonably similar equipment
from other vendors on comparable terms. Additionally, the Company currently has
one primary provider of nationwide paging services. While there are a limited
number of nationwide carriers, management believes that other carriers could
provide similar services on comparable terms. However, a change in vendors or
reseller could cause a delay in service provisioning or possible loss of
revenues, which could adversely affect operating results.
F-7
<PAGE> 9
AT&T WIRELESS SERVICES, INC. -- MESSAGING DIVISION
(A BUSINESS UNIT OF AT&T WIRELESS SERVICES, INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
3. PROPERTY AND EQUIPMENT
Property and equipment at December 31 are as follows:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Pagers................................................ $ 105,374 $ 93,728
System operating equipment............................ 57,399 52,065
Office furniture and equipment........................ 22,280 20,267
Leasehold improvements and other...................... 3,680 3,790
--------- ---------
188,733 169,850
Less accumulated depreciation and amortization........ (107,862) (100,583)
--------- ---------
80,871 69,267
Construction in progress.............................. 2,347 5,009
--------- ---------
$ 83,218 $ 74,276
========= =========
</TABLE>
Depreciation and amortization expense related to property and equipment
totaled $39,636, $38,470 and $32,744 for the years ended December 31, 1997, 1996
and 1995, respectively.
Pagers are considered placed in service upon deployment to the Company's
field office locations. During July 1997, the Company launched an initiative to
aggregate its pager purchases and stage those pagers purchased at a central
location to be available for deployment to field office locations. As of
December 31, 1997, the value of pagers staged at this location aggregated
approximately $6,400.
4. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses at December 31 are as follows:
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Trade accounts payable.................................... $ 6,982 $ 6,131
Employee payroll and benefits............................. 9,871 8,022
Payroll and other taxes................................... 3,940 3,391
Other operating expenses.................................. 3,628 3,572
------- -------
$24,421 $21,116
======= =======
</TABLE>
5. NOTE PAYABLE TO AFFILIATE
On January 1, 1993, the Company issued a demand note to a wholly owned
subsidiary of AWS. The principal amount of $15,000 was payable on demand, with
interest at an annual rate of 9% payable on a quarterly basis. The demand note
was converted to a non-interest bearing intercompany payable on September 30,
1997. Interest expense related to the demand note was $1,020, $1,371 and $1,343
during the years ended December 31, 1997, 1996 and 1995, respectively.
F-8
<PAGE> 10
AT&T WIRELESS SERVICES, INC. -- MESSAGING DIVISION
(A BUSINESS UNIT OF AT&T WIRELESS SERVICES, INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
6. INCOME TAXES
Deferred taxes are determined based on the estimated future tax effects of
differences between the financial statement and the tax bases of assets and
liabilities given the provisions of enacted tax laws. The components of deferred
income taxes at December 31 are as follows:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforward.................... $ 38,223 $ 34,047
Property and equipment............................. 3,628 1,291
Intangible assets.................................. 2,732 4,929
Accrued expenses................................... 2,843 1,783
Other.............................................. 1,254 1,473
-------- --------
Total deferred tax assets............................... 48,680 43,523
Valuation allowance..................................... (48,680) (43,523)
-------- --------
Net deferred taxes...................................... $ -- $ --
======== ========
</TABLE>
As of December 31, 1997 and 1996, on a separate return basis the Company
had $108,175 and $94,997 of Federal net operating loss carryforwards,
respectively, expiring in the years 1999 through 2012 and approximately $10,000
and $16,000 of state net operating loss carryforwards, respectively, with
varying expiration dates. The benefits of the Federal net operating losses have
been realized on the consolidated tax returns of AT&T Corp. and subsidiaries in
previous years. Under its tax sharing arrangement, the Company will receive the
benefit of the Federal net operating losses from AWS based on the Company's
future taxable income on a separate return basis as long as they remain a
subsidiary of AT&T Corp. The state net operating losses available to the Company
upon a change in ownership are not material.
Management estimates that realization of deferred tax assets cannot be
projected at this time. Accordingly, a valuation allowance was recorded for that
amount. Management will evaluate the appropriateness of the reserve in the
future based upon historical and expected operating results of the Company.
The following represents the principal differences between Federal income
tax computed at the statutory rate and the Company's income tax provision for
the years ended December 31:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Federal income tax benefit at the statutory
rate........................................... $(5,408) $(6,356) $(9,592)
State and local income tax....................... 255 230 151
Non-deductible expenses.......................... 251 210 182
Increase in valuation allowance.................. 5,157 6,146 9,410
------- ------- -------
Provision for income taxes.................. $ 255 $ 230 $ 151
======= ======= =======
</TABLE>
7. COMMITMENTS AND CONTINGENCIES
Lease Arrangements
The Company is committed under operating leases, principally for
facilities, office space, equipment and base station sites. Certain operating
leases include options for additional periods and provide for payment by the
lessee of taxes, maintenance and insurance.
F-9
<PAGE> 11
AT&T WIRELESS SERVICES, INC. -- MESSAGING DIVISION
(A BUSINESS UNIT OF AT&T WIRELESS SERVICES, INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
7. COMMITMENTS AND CONTINGENCIES -- (CONTINUED)
Future minimum lease payments required under operating leases and
agreements that have an initial or remaining noncancelable lease term in excess
of one year at December 31, 1997 are summarized below:
<TABLE>
<S> <C>
1998........................................................ $ 6,895
1999........................................................ 5,245
2000........................................................ 4,319
2001........................................................ 3,380
2002........................................................ 1,731
Thereafter.................................................. 420
-------
$21,990
=======
</TABLE>
Total rent expense for the years ended December 31, 1997, 1996 and 1995 was
$8,642, $7,941 and $7,154, respectively.
Contingencies
Under certain provisions of the Telecommunications Act of 1996 (the "Act")
and the FCC's regulations under the Act and other rulings, effective November
1996, the Company is no longer subject to charges for dedicated transmission
facilities used to deliver local telecommunications traffic that originate on
the Local Exchange Carriers (the "LECs") networks. The LECs are currently
seeking to overturn the applicable FCC regulations and other rulings. Management
believes that the Company has complied with the provisions of the Act and the
applicable FCC regulations and other rulings, as currently in effect.
In addition to the matter described in the preceding paragraph, the Company
is subject to various proceedings, lawsuits and other claims in the ordinary
course of business and also makes routine filings with the FCC and state
regulatory authorities. Management believes that the resolution of any current
litigation, proceedings or matters arising from such will not have a material
adverse impact on the financial position, results of operations or cash flows of
the Company.
8. EMPLOYEE BENEFIT PLAN
The Company sponsors a savings plan with AWS for the majority of its
employees. The plan allows for employees to contribute a portion of their
pre-tax and/or after-tax income in accordance with specified guidelines. The
Company will match a percentage of the employee contribution, up to certain
limits. Company contributions totaled $2,717, $3,012 and $1,756 during the years
ended December 31, 1997, 1996 and 1995, respectively.
9. RELATED PARTY TRANSACTIONS
Operating Expenses
Operating expenses include expenses directly attributable to the Company's
operations as well as an allocation of certain AWS operating expenses. As a
business unit of AWS, the Company is allocated costs for certain administrative,
management, and other services. The Company also has certain co-located
operations and technical facilities with other business units of AWS. The
allocated costs of administrative, management, and other services have been
assigned to the Company based on either the ratio of the Company's employees to
AWS' total operating employees or the ratio of the Company's revenues to AWS'
total revenues and totaled $3,495, $2,738 and $2,719 for the years ended
December 31, 1997, 1996 and 1995, respectively. The costs of
F-10
<PAGE> 12
AT&T WIRELESS SERVICES, INC. -- MESSAGING DIVISION
(A BUSINESS UNIT OF AT&T WIRELESS SERVICES, INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
9. RELATED PARTY TRANSACTIONS -- (CONTINUED)
co-locating certain operations and technical facilities assigned to the Company
were based on either the ratio of square footage used by the Company in relation
to the total leased space for operational facilities or the estimated
incremental cost incurred by the AWS affiliates for technical facilities, which
totaled $688, $492 and $441 for the years ended December 31, 1997, 1996 and
1995, respectively. The total allocated cost and co-location fees represent
management's best estimate of the cost which should be allocated to the Company.
Net Assets
The intercompany balance has been classified as net assets in these
combined financial statements as there is no debt instrument and no defined
repayment period.
The Company's expenditures are made out of cash concentration accounts
maintained on behalf of the Company by a subsidiary of AWS to meet its capital
expenditure and working capital requirements. All cash activities of the Company
are managed and maintained by AWS on behalf of the Company. The resulting
balance for the Company related to the above activities is reflected as an
intercompany advance, which has been included in net assets.
Paging Services Provided to AWS and AT&T Corp.
The Company provides one-way paging and wireless messaging services to AWS
and AT&T Corp. Paging service revenues from AWS and AT&T Corp. totaled
approximately $6,000, $4,600 and $1,900 for the years ended December 31, 1997,
1996 and 1995, respectively.
Transactions with AT&T Corp.
The Company purchases equipment, including pagers and system operating
equipment, from Lucent Technologies, Inc. ("Lucent"), a former subsidiary of
AT&T Corp. AT&T Corp.'s ownership interest in Lucent was distributed to its
shareholders on September 30, 1996. For the period from January 1, 1996 through
September 30, 1996 and for the year ended December 31, 1995, the Company
purchased equipment from Lucent totaling $2,236 and $2,527, respectively. The
Company purchases long-distance, interconnection and other services from AT&T
Corp. totaling $5,104, $4,904 and $2,299 for the years ended December 31, 1997,
1996 and 1995, respectively. Additionally, the Company paid commissions related
to customer activations to AT&T Corp. totaling $1,013 and $1,378 for the years
ended December 31, 1996 and 1995, respectively. Included in accounts payable and
accrued expenses at December 31, 1997 and 1996 is $1,445 and $107, respectively,
due to AT&T Corp. for these transactions.
10. SUBSEQUENT EVENT
During June 1998, AWS and AT&T Corp., entered into a stock purchase
agreement for the sale of the Company to Metrocall, Inc. The sale was completed
on October 2, 1998 and, as a result, the Company ceased to be a business unit of
AWS.
F-11
<PAGE> 13
AT&T WIRELESS SERVICES, INC. -- MESSAGING DIVISION
(A BUSINESS UNIT OF AT&T WIRELESS SERVICES, INC.)
UNAUDITED CONDENSED COMBINED STATEMENTS OF NET ASSETS
AS OF SEPTEMBER 30, 1998 AND DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
------------- ------------
<S> <C> <C>
ASSETS
Current assets:
Accounts receivable, less allowance of $1,377 and
$1,765, respectively.................................. $ 18,616 $ 20,023
Inventories............................................ 785 1,933
Prepaid expenses and other............................. 93 184
-------- --------
Total current assets.............................. 19,494 22,140
Property and equipment, net................................. 73,003 83,218
Intangible assets, net of accumulated amortization of $7,129
and $6,890, respectively.................................. 8,799 9,160
Other assets................................................ 64 81
-------- --------
Total assets...................................... 101,360 114,599
-------- --------
LIABILITIES AND NET ASSETS
Current liabilities:
Accounts payable and accrued expenses.................. 15,857 24,421
Unearned revenues and customer deposits................ 16,702 16,825
-------- --------
Total current liabilities......................... 32,559 41,246
-------- --------
Commitments and contingencies
-------- --------
Net assets.................................................. $ 68,801 $ 73,353
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-12
<PAGE> 14
AT&T WIRELESS SERVICES, INC. -- MESSAGING DIVISION
(A BUSINESS UNIT OF AT&T WIRELESS SERVICES, INC.)
UNAUDITED CONDENSED COMBINED STATEMENTS OF OPERATIONS
AND CHANGES IN NET ASSETS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1998
--------
<S> <C>
Sales and revenues:
Paging service revenues................................ $135,613
Equipment sales........................................ 5,520
Activation fees and other.............................. 7,354
--------
Total sales and revenues.......................... 148,487
--------
Operating costs and expenses:
Cost of paging service................................. 44,484
Cost of equipment sales................................ 4,274
General and administrative............................. 46,552
Sales and marketing.................................... 21,312
Depreciation and amortization.......................... 35,014
--------
Total operating costs and expenses................ 151,636
--------
Gain on sale of equipment, net.............................. 155
--------
Loss before income taxes.................................... 2,994
Provision for state income taxes............................ 208
--------
Net loss.................................................... 3,202
Net assets, beginning of period............................. 73,353
Repayments to AT&T Wireless Services, Inc., net............. (1,350)
--------
Net assets, end of period................................... $ 68,801
========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-13
<PAGE> 15
AT&T WIRELESS SERVICES, INC. -- MESSAGING DIVISION
(A BUSINESS UNIT OF AT&T WIRELESS SERVICES, INC.)
UNAUDITED CONDENSED COMBINED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1998
--------
<S> <C>
OPERATING ACTIVITIES:
Net loss............................................... $ (3,202)
Adjustments to reconcile net loss to net cash provided
by operating activities:
Depreciation and amortization..................... 35,014
Cost of pager equipment sold...................... 1,774
Gain on sale of equipment......................... (155)
Changes in current assets and liabilities:
Accounts receivable.......................... 1,407
Inventories.................................. 1,148
Prepaid expenses and other................... 108
Accounts payable and accrued expenses........ (8,564)
Unearned revenues and customer deposits...... (123)
--------
Net cash provided by operating
activities............................ 27,407
--------
INVESTING ACTIVITIES:
Purchase of property and equipment..................... (26,457)
Proceeds from sale of equipment........................ 400
--------
Net cash used in investing activities... (26,057)
--------
FINANCING ACTIVITIES:
Repayments to AT&T Wireless Services, Inc., net........ (1,350)
--------
Net cash used by financing activities... (1,350)
--------
Net change in cash during the period........................ $ --
========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-14
<PAGE> 16
AT&T WIRELESS SERVICES, INC. -- MESSAGING DIVISION
(A BUSINESS UNIT OF AT&T WIRELESS SERVICES, INC.)
NOTES TO UNAUDITED CONDENSED COMBINED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Description of Business
AT&T Wireless Services, Inc. -- Messaging Division (the "Company") is a
business unit of AT&T Wireless Services, Inc. ("AWS"), a wholly owned subsidiary
of AT&T Corp. The Company is a provider of one-way paging and wireless messaging
services on a local, regional and national basis and its core service offerings
include two types of paging services: numeric and alphanumeric. The Company
provides one-way paging services to both business customers and consumers and
offers its customers both customer owned and maintained equipment or rental
options for equipment. The Company is regionally-focused with its primary
service areas located in the Northwest, West Coast, Mountain, Central and
Southwest regions of the United States.
During June 1998, AWS and AT&T Corp., entered into a stock purchase
agreement for the sale of the Company to Metrocall, Inc. The sale was completed
on October 2, 1998 and, as a result, the Company ceased to be a business unit of
AWS.
Basis of Presentation
The unaudited condensed combined financial statements include the operating
accounts of McCaw RCC Communications, Inc., a wholly owned subsidiary of AWS,
and its wholly owned subsidiaries. The operating accounts include only those
related to the one-way paging and wireless messaging services business. All
material inter-entity transactions and account balances have been eliminated.
As a business unit of AWS, the accompanying unaudited condensed combined
financial statements have been prepared from the historical financial records of
AWS and reflect the assets, liabilities, revenues and expenses directly
attributable to the Company, including all allocations deemed necessary by
management to present the financial position, results of operations and cash
flows of the Company on a stand-alone basis. The financial position, results of
operations and cash flows of the Company may differ from those that may have
been achieved had the Company operated as an entity independent of AWS. The
allocation methodologies have been described within the respective notes to the
unaudited condensed combined financial statements and management considers the
allocations to be reasonable.
The unaudited condensed combined financial statements have been prepared by
the Company and contain all adjustments, consisting only of normal recurring
adjustments which are, in the opinion of the Company's management, necessary to
present fairly, the combined financial position of the Company as of September
30, 1998 and the combined results of its operations and its cash flows for the
nine months ended September 30, 1998.
Certain information and disclosures normally included in financial
statements have been condensed or omitted. The unaudited condensed combined
financial statements should be read in connection with the Company's audited
combined financial statements as of and for the year ended December 31, 1997 and
notes thereto.
The Company has experienced substantial net losses and has had insufficient
internally generated funds to cover capital and operating expenditures. The
ability of the Company to achieve profitability and generate sufficient cash
flows from operations to fund its investing needs depends on many factors,
including the future costs of operations and technological and industry
developments. Future operating results will be subject to significant business,
economic, regulatory, technical and competitive uncertainties. Depending on
their extent and timing, these factors, individually or in the aggregate, could
have a material adverse impact on the Company's financial position, financial
results or competitive position. AWS was committed to fund any
F-15
<PAGE> 17
AT&T WIRELESS SERVICES, INC. -- MESSAGING DIVISION
(A BUSINESS UNIT OF AT&T WIRELESS SERVICES, INC.)
NOTES TO UNAUDITED CONDENSED COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION -- (CONTINUED)
working capital requirements or operational deficit of the Company through
August, 1999, subject to earlier termination upon a change in control of the
Company. AWS terminated its funding commitment on October 2, 1998 in connection
with the sale of the Company.
2. PROPERTY AND EQUIPMENT
Property and equipment at September 30, 1998 and December 31, 1997 are as
follows:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Pagers................................................ $ 104,811 $ 105,374
System operating equipment............................ 56,776 57,399
Office furniture and equipment........................ 20,065 22,280
Leasehold improvements and other...................... 3,210 3,680
--------- ---------
184,862 188,733
Less accumulated depreciation and amortization........ (116,198) (107,862)
--------- ---------
68,664 80,871
Construction in progress.............................. 4,339 2,347
--------- ---------
$ 73,003 $ 83,218
========= =========
</TABLE>
Pagers are considered placed in service upon deployment to the Company's
field office locations. During 1997, the Company launched an initiative to
aggregate its pager purchases and stage those pagers purchased at a central
location to be available for deployment to field office locations. As of
September 30, 1998 and December 31, 1997, the value of pagers staged at this
location aggregated approximately $1,696 and $6,400, respectively.
3. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses at September 30, 1998 and December
31, 1997 are as follows:
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Trade accounts payable.................................... $ 4,148 $ 6,982
Employee payroll and benefits............................. 4,888 9,871
Payroll and other taxes................................... 4,196 3,940
Other operating expenses.................................. 2,625 3,628
------- -------
$15,857 $24,421
======= =======
</TABLE>
4. INCOME TAXES
The Company is included in the consolidated Federal and certain combined
state income tax returns of AT&T Corp. and its subsidiaries. The Company also
files separate state income tax returns in certain states which require income
tax returns to be prepared on a separate entity basis. For financial statement
purposes, the Company provides for Federal income taxes on a separate return
basis, as if it were a stand alone entity. State income taxes are provided based
on tax returns filed. The valuation allowance against deferred tax assets
increased by approximately $1,060 for the nine months ended September 30, 1998.
F-16
<PAGE> 18
AT&T WIRELESS SERVICES, INC. -- MESSAGING DIVISION
(A BUSINESS UNIT OF AT&T WIRELESS SERVICES, INC.)
NOTES TO UNAUDITED CONDENSED COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
5. RELATED PARTY TRANSACTIONS
Net Assets
The intercompany balance has been classified as net assets in these
combined financial statements as there is no debt instrument and no defined
repayment period.
The Company's expenditures are made out of cash concentration accounts
maintained on behalf of the Company by AWS to meet its capital expenditure and
working capital requirements. All cash activities of the Company are managed and
maintained by AWS on behalf of the Company. The resulting balance for the
Company related to the above activities is reflected as an intercompany advance,
which has been included in net assets.
Operating Expenses
Operating expenses include expenses directly attributable to the Company's
operations as well as an allocation of certain AWS operating expenses. As a
business unit of AWS, the Company is allocated costs for certain administrative,
management, and other services. The Company also has certain co-located
operations and technical facilities with other business units of AWS. The costs
of administrative, management, and other services have been assigned to the
Company based on either the ratio of the Company's employees to AWS' total
operating employees or the ratio of the Company's revenues to AWS' total
revenues and totaled $3,016 for the nine months ended September 30, 1998. The
costs of co-locating certain operations and technical facilities assigned to the
Company were based on either the ratio of square footage used by the Company in
relation to the total leased space for operational facilities or the estimated
incremental cost incurred by the AWS affiliates for technical facilities and
totaled $750 for the nine months ended September 30, 1998. The total allocated
cost and co-location fees represent management's best estimate of the cost which
should be allocated to the Company.
As part of AWS' centralization efforts, effective January 1, 1998, certain
payroll and employee benefit functions previously managed by the Company are now
managed by AWS. As a result of this centralization, certain accrued payroll and
benefit liabilities previously recorded on the Company's books are reflected in
the intercompany balance at September 30, 1998.
Paging Services Provided to AWS and AT&T Corp.
The Company provides one-way paging and wireless messaging services to AWS
and AT&T Corp. Paging service revenues from AWS and AT&T Corp. totaled $4,516
for the nine months ended September 30, 1998.
Transactions with AT&T Corp.
The Company purchases long-distance, interconnection and other services
from AT&T Corp. totaling $4,537 for the nine months ended September 30, 1998.
Included in accounts payable and accrued expenses at September 30, 1998 and
December 31, 1997 were $310 and $1,445 respectively, due to AT&T Corp. for these
transactions.
F-17
<PAGE> 19
(b) PRO FORMA FINANCIAL INFORMATION - The Registrant has previously filed the
information required by this item on a Definitive Proxy Statement on Form
14A filed with the Securities and Exchange Commission on August 31, 1998
and such information is incorporated by reference
(c) EXHIBITS
Exhibit Description
- ------- -----------
23 Consent of PricewaterhouseCoopers LLP
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
METROCALL, INC.
By: /s/ Vincent D. Kelly
-----------------------------------------
Vincent D. Kelly
Chief Financial Officer and Treasurer
Date: January 27, 1999
<PAGE> 20
EXHIBIT INDEX
Exhibit
Number Description
- ------- -----------
23 Consent of PricewaterhouseCoopers LLP
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement of
Metrocall, Inc. on Form S-8 of our report dated February 27, 1998, except for
Note 10 as to which the date is December 1, 1998, on our audits of the combined
financial statements of AT&T Wireless Services, Inc. -- Messaging Division, a
business unit of AT&T Wireless Services, Inc., as of December 31, 1997 and 1996
and for the years ended December 31, 1997, 1996 and 1995, which report is
included in the Form 8-K/A of Metrocall, Inc. as filed on January 27, 1999.
PricewaterhouseCoopers LLP
Seattle, Washington
January 27, 1999
