ITEM 1. BUSINESS
General
On September 7, 1995, Arch Communications Group, Inc. ("Old Arch") completed its acquisition of USA Mobile Communications Holdings, Inc. ("USA Mobile") through the merger (the "Merger") of Old Arch with and into USA Mobile, which simultaneously changed its name to Arch Communications Group, Inc. ("Arch"). USA Mobile Communications, Inc. II ("USA Mobile II"), which had been a wholly-owned subsidiary of USA Mobile, became a wholly-owned subsidiary of Arch after the Merger.
USA Mobile II is a provider of wireless messaging services, primarily paging services. USA Mobile II provides paging services in 10 states.
For the year ended December 31, 1997, USA Mobile II's total revenues were $161.1 million, representing an increase of 13.9% over the year ended December 31, 1996, and its earnings before interest, taxes, depreciation and amortization ("EBITDA") was $62.1 million, representing an increase of 19.4% over the year ended December 31, 1996.
EBITDA is a standard measure of financial performance in the paging industry and is also one of the financial measures used to calculate whether USA Mobile II is in compliance with the covenants under its indebtedness, but should not be construed as an alternative to operating income or cash flows from operating activities as determined in accordance with generally accepted accounting principles. EBITDA does not reflect non-operating expenses. USA Mobile II's financial objective is to increase its EBITDA, as such earnings are a significant source of funds for servicing indebtedness and for investment in continued growth, including purchase of pagers and paging system equipment, construction and expansion of paging systems, and possible acquisitions.
Paging Operations
USA Mobile II currently provides four basic types of paging services: digital display, alphanumeric display, tone-only and tone-plus-voice. Paging services are provided to subscribers for a fixed monthly fee. Subscribers either lease the pager from USA Mobile II for an additional fixed monthly fee or they own the pager, having purchased it from USA Mobile II or another vendor. The monthly service fee is generally based on the type of service provided, the geographic area covered, the number of pagers provided to the customer and the period of the subscriber's commitment. Subscriber-owned pagers provide a more rapid recovery of USA Mobile II's capital investment than pagers owned and maintained by USA Mobile II, but may generate less recurring revenue. USA Mobile II also sells pagers to third-party resellers who lease or resell pagers to their own subscribers and resell USA Mobile II's paging services under marketing agreements.
USA Mobile II also provides enhancements and ancillary services such as voice mail, personalized greetings, message storage and retrieval, pager loss protection (which protects the customer against the risk of losing the pager) and pager maintenance services (under which USA Mobile will repair or replace pagers with no charge to the customer other than payment of applicable deductibles). Voice mail allows a caller to leave a recorded message that is stored in USA Mobile II's computerized message retrieval center. When a message is left, the subscriber can be automatically alerted through the subscriber's pager and can retrieve the stored message by calling USA Mobile II's paging terminal. Personalized greetings allow the subscriber to record a message to greet callers who reach the subscriber's pager or voice mail box. Message storage and retrieval allows a subscriber who leaves USA Mobile II's service area to retrieve calls that arrived during the subscriber's absence from the service area. Pager loss protection allows subscribers who lease pagers to limit their costs of replacement upon loss or destruction of the pager. Pager maintenance services are offered to subscribers who own their own equipment.
Subscribers And Marketing
USA Mobile II's paging accounts are generally businesses with employees who travel frequently but must be immediately accessible to their offices or customers. USA Mobile II's subscribers include proprietors of small businesses, professionals, management and medical personnel, field sales personnel and service forces, members of the construction industry and trades, and real estate brokers and developers. In addition, USA Mobile II believes that pager use among consumers will increase significantly in the future, although consumers do not currently account for a substantial portion of USA Mobile II's subscriber base.
In addition to marketing its services through a direct marketing and sales organization, USA Mobile II also markets its paging services indirectly through independent resellers, agents and retailers. USA Mobile II typically offers resellers paging services in large quantities at wholesale rates that are lower than retail rates, and resellers offer the services to end-users at a mark-up. USA Mobile II's costs of administering and billing resellers are lower than the costs of direct end-users on a per pager basis.
In addition to marketing its own paging services, USA Mobile II acts as a reseller of other paging carriers' services when existing or potential USA Mobile customers have travel patterns that require paging service beyond the coverage of USA Mobile II's own networks. USA Mobile II believes that it is not dependent on any other carrier and can obtain alternative service for most or all of its customers on other carriers' systems.
ITEM 2.
ITEM 2. PROPERTIES
At December 31, 1997, USA Mobile II owned the building in Cincinnati, Ohio, in which Arch's Data Center is located, as well as several other parcels of real property which are used as transmitter sites, and leased office space in 72 localities in 7 states. In addition, USA Mobile II leases transmitter sites on commercial broadcast towers, buildings, and other fixed structures in approximately 1,260 locations in 20 states. USA Mobile II's leases are for various terms and provide for monthly rental payments at various rates.
USA Mobile II is obligated to make total lease payments of $5.6 million under its office facility and tower site leases for the year ending December 31, 1998. USA Mobile II believes that it will be able to obtain additional space as needed at an acceptable cost.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
USA Mobile II, from time to time, is involved in lawsuits arising in the normal course of business. USA Mobile II believes that its currently pending lawsuits will not have a material adverse effect on USA Mobile II.
PART II
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
All of the common stock of USA Mobile II is held by Arch and is not publicly traded.
USA Mobile II has never declared or paid cash dividends on the common stock and does not intend to declare or pay cash dividends on the common stock in the foreseeable future. Certain covenants in USA Mobile II's credit facility and the two indentures, pursuant to which senior debt securities of USA Mobile II were issued will, in effect, prohibit the declaration or payment of cash dividends by USA Mobile II for the foreseeable future. See Note 3 to USA Mobile II's Consolidated Financial Statements.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
This Form 10-K contains forward-looking statements. For this purpose, any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, the words "believes", "anticipates", "plans", "expects" and similar expressions are intended to identify forward-looking statements. There are a number of important factors that could cause USA Mobile II's actual results to differ materially from those indicated or suggested by such forwarding-looking statements. These factors include, without limitation, those set forth below under the caption "Factors Affecting Future Operating Results".
SHIFT IN OPERATING FOCUS
In April 1997, Arch announced it was shifting its operating focus to put a higher priority on leverage reduction than subscriber unit growth. Arch's deleveraging efforts are focusing on, but are not limited to, slowing capital expenditures, implementing across-the-board efficiencies and the possible sale of non-strategic assets.
RESULTS OF OPERATIONS
The following table presents certain items from USA Mobile II's Consolidated Statements of Operations as a percentage of net revenues (total revenues less cost of products sold) and certain other information for the periods indicated:
Year Ended December 31, ----------------------- 1997 1996 ---- ---- Total revenues ..................... 109.0% 107.4% Cost of products sold .............. (9.0) (7.4) ----- ----- Net revenues ....................... 100.0 100.0 Operating expenses: Service, rental and maintenance .. 21.0 21.6 Selling .......................... 13.9 14.5 General and administrative ....... 23.0 24.4 Depreciation and amortization ...... 72.7 74.6 ----- ----- Operating income (loss) ............ (30.6)% (35.1)% ===== =====
Net income (loss) .................. (37.7)% (43.0)% ===== =====
EBITDA ............................. 42.1% 39.5% ===== =====
Total revenues increased to $161.1 million (a 13.9% increase) for the year ended December 31, 1997, as compared to $141.5 million for the corresponding 1996 period. Service, rental and maintenance revenues, which consist primarily of recurring revenues associated with the sale or lease of pagers, increased 12.2% to $141.9 million for the year ended December 31, 1997, from $126.5 million for the year ended December 31, 1996. These increases in revenues were primarily due to the increase in the number of pagers in service in 1997. Maintenance revenues represented less than 10% of total service, rental and maintenance revenues in the years ended December 31, 1997 and 1996. USA Mobile II does not differentiate between service and rental revenues. Product sales, less cost of products sold, increased to $5.8 million in 1997 from $5.2 million in 1996 as a result of a greater number of pager unit sales.
Service, rental and maintenance expenses, which consist primarily of telephone line and site rental expenses, increased to $31.0 million in the year ended December 31, 1997 from $28.4 million in 1996. The
increase was due primarily to increased expenses associated with system expansions and the provision of paging services to a greater number of subscribers.
Selling expenses increased to $20.5 million in 1997 from $19.0 million in 1996. The increase in selling expenses was due to the addition of sales personnel to support continued growth in the subscriber base. Selling expenses are directly related to the number of net new subscribers added. Therefore, such expenses may increase in the future if pagers in service are added at a more rapid rate than in the past.
General and administrative expenses increased to $34.1 million in 1997 from $32.2 million in 1996. The increase was due primarily to increased expenses associated with supporting more pagers in service.
Depreciation and amortization expenses increased to $107.4 million in 1997 from $98.3 million in 1996. These expenses reflect USA Mobile II's continued investment in pagers and other system expansion capital to support continued growth.
Operating loss decreased to $45.2 million in the year ended December 31, 1997 from $46.3 million in the year ended December 31, 1996 as a result of the factors outlined above.
Net interest expense increased to $31.7 million in the year ended December 31, 1997 from $30.1 million in the corresponding 1996 period due primarily to an increase in USA Mobile II's average outstanding debt.
During the years ended December 31, 1997 and 1996, USA Mobile II recognized an income tax benefit of $21.2 million and $19.8 million, respectively, representing the tax benefit of operating losses which were available to offset deferred tax liabilities arising from Arch's acquisition of USA Mobile.
USA Mobile II's net loss was $55.7 million for the year ended December 31, 1997 as compared to $56.6 million for the year ended December 31, 1996 as a result of factors outlined above.
Earnings Before Interest, Taxes, Depreciation and Amortization, "EBITDA," increased 19.4% to $62.1 million (42.1% of revenues) in 1997 from $52.0 million (39.5% of revenues) in 1996 as a result of the factors outlined above.
FACTORS AFFECTING FUTURE OPERATING RESULTS
The following important factors, among others, could cause USA Mobile II's actual operating results to differ materially from those indicated or suggested by forward-looking statements made in this Form 10-K or presented elsewhere by USA Mobile II's management from time to time.
Indebtedness And High Degree Of Leverage
USA Mobile II is highly leveraged. USA Mobile II had total debt and total assets of $288 million and $493 million, respectively, at December 31, 1997. Many factors, some of which will be beyond USA Mobile II's control, such as prevailing economic conditions, will affect the performance of USA Mobile II. In addition, covenants imposed by the current and future credit facilities and other indebtedness of USA Mobile II will restrict the ability of USA Mobile II to incur additional indebtedness and prohibit certain activities and may limit other aspects of USA Mobile II's operations. There can be no assurance that USA Mobile II will be able to generate sufficient cash flow to cover required interest and principal payments on its indebtedness. If USA Mobile II is unable to meet interest and principal payments in the future, it may, depending upon the circumstances which then exist, seek additional equity or debt financing, attempt to refinance its existing indebtedness or sell all or part of its business or assets to raise funds to repay its indebtedness. There can be no assurance that sufficient equity or debt financing will be available or, if available, that it will be on terms acceptable to USA Mobile II, that USA Mobile II will be able to refinance its existing indebtedness or that sufficient funds could be raised through asset sales. USA Mobile II's high degree of leverage may have important consequences for USA Mobile II, including: (i) the ability of USA Mobile to obtain additional financing for acquisitions, working capital, capital expenditures or other purposes, if necessary,
may be impaired or such financing may not be on favorable terms; (ii) a substantial portion of the cash flow of USA Mobile II will be used to pay interest expense, which will reduce the funds which would otherwise be available for operations and future business opportunities; (iii) USA Mobile II may be more highly leveraged than its competitors which may place it at a competitive disadvantage; and (iv) USA Mobile II's high degree of leverage will make it more vulnerable to a downturn in its business or the economy generally.
Future Capital Needs
USA Mobile II's business strategy requires the availability of substantial funds to service debt and finance the continued development and future growth and expansion of its operations. The amount of capital required by USA Mobile II will depend upon a number of factors, including subscriber growth, technological developments, marketing and sales expenses, competitive conditions, acquisition strategy and acquisition opportunities. No assurance can be given that additional equity or debt financing will be available to USA Mobile II on acceptable terms, if at all. The unavailability of sufficient financing when needed would have a material adverse effect on USA Mobile II.
History Of Losses
USA Mobile II has not reported any net income since its inception, except that USA Mobile II reported net income of $17.6 million in the year ended December 31, 1991 resulting from an extraordinary gain of $42.2 million attributable to the restructuring of its debt. USA Mobile II's historical net losses have resulted principally from (i) substantial depreciation and amortization expenses, primarily related to intangible assets and pager depreciation, and (ii) interest expense on debt incurred primarily to finance acquisitions of paging operations and other costs of growth. Substantial and increased amounts of debt are expected to be outstanding for the foreseeable future, which will result in significant additional interest expense which could have a substantial negative impact on USA Mobile II. USA Mobile II expects to continue to report net losses for the foreseeable future.
Growth And Acquisition Strategy
USA Mobile II has pursued and intends to continue to pursue acquisitions of paging businesses as well as the continued internal growth of USA Mobile II's paging business. The process of integrating acquired paging businesses may involve unforeseen difficulties and may require a disproportionate amount of the time and attention of USA Mobile II's management and the financial and other resources of USA Mobile II. No assurance can be given that suitable additional acquisitions can be identified, financed and completed on acceptable terms, or that USA Mobile II's future acquisitions will be successful. Implementation of USA Mobile II's growth strategies will be subject to numerous other contingencies beyond the control of USA Mobile II, including general and regional economic conditions, interest rates, competition, changes in regulation or technology and the ability to attract and retain skilled employees. Accordingly, no assurance can be given that USA Mobile II's growth strategies will prove effective or that the goals of USA Mobile II will be achieved.
Dependence On Key Personnel
The success of USA Mobile II will be dependent, to a significant extent, upon the continued services of a relatively small group of executive personnel. USA Mobile II does not have employment agreements with any of its current executive officers, although all current executive officers have entered into non-competition and retention agreements with Arch. The loss or unavailability of one or more of its executive officers or the inability to attract or retain key employees in the future could have an adverse effect upon USA Mobile II's operations.
Competition And Technological Change
USA Mobile II faces competition from other paging service providers in all markets in which it operates as well as from certain competitors who hold nationwide licenses. USA Mobile II believes that competition for paging subscribers is based on quality of service, geographic coverage and price and that USA Mobile II generally competes effectively based on these factors. Monthly fees for basic paging services have, in general, declined since
USA Mobile II commenced operations, due in part to competitive conditions, and USA Mobile II may face significant price-based competition in the future which could adversely affect USA Mobile II. Some of USA Mobile II's competitors possess greater financial, technical and other resources than USA Mobile II. A trend towards increasing consolidation in the paging industry in particular and the wireless communications industry in general in recent years has led to competition from increasingly larger and better capitalized competitors. If any of such competitors were to devote additional resources to the paging business or focus its strategy on USA Mobile II's markets, USA Mobile II's results of operations could be adversely affected. A variety of wireless two-way communication technologies currently are in use or under development. Although such technologies generally are higher priced than paging services or not widely available, technological improvements could result in increased capacity and efficiency for wireless two-way communication and, accordingly, could result in increased competition for USA Mobile II. Two-way service providers also could elect to provide paging service as an adjunct to their primary services. Future technological advances in the telecommunications industry could increase new services or products competitive with the paging services provided by USA Mobile II or could require USA Mobile II to reduce the price of its paging services or incur additional capital expenditures to meet competitive requirements. Recent and proposed regulatory changes by the FCC are aimed at encouraging such technological advances and new services. For example, the FCC created potential sources of competition by opening up a new spectrum for such services as the General Wireless Communications Services (GWCS) and the Wireless Communications Service (WCS) as well as speeding up licensing of other services through auctions, including the Local Multipoint Distribution Service (LMDS), 220-222 MHz and broadband PCS services. Entities offering service on wireless two-way communications technology, including cellular telephones and specialized mobile radio services, also compete with the paging services that USA Mobile II provides. There can be no assurance that USA Mobile II will be able to compete successfully with its current and future competitors in the paging business or with competitors offering alternative communication technologies.
Subscriber Turnover
The results of operations of wireless messaging service providers, such as USA Mobile II, can be significantly affected by subscriber cancellations. The sales and marketing costs associated with attracting new subscribers are substantial relative to the costs of providing service to existing customers. Because the paging business is characterized by high fixed costs, disconnections directly and adversely affect operating cash flow. An increase in its subscriber cancellation rate may adversely affect USA Mobile II's results of operations.
Dependence On Suppliers
USA Mobile II does not manufacture any of the pagers used in its paging operations. USA Mobile II buys pagers primarily from Motorola, Inc. ("Motorola") and NEC America, Inc. ("NEC") and therefore is dependent on such manufacturers to obtain sufficient pager inventory for new subscriber and replacement needs. In addition, USA Mobile II purchases terminals and transmitters primarily from Glenayre Technologies, Inc. ("Glenayre") and Motorola and thus is dependent on such manufacturers for sufficient terminals and transmitters to meet its expansion and replacement requirements. To date, USA Mobile II has not experienced significant delays in obtaining pagers, terminals or transmitters, but there can be no assurance that USA Mobile II will not experience such delays in the future. USA Mobile II has never had a purchase agreement with Glenayre or NEC. USA Mobile II's most recent one-year purchase agreement with Motorola expired in December 1997, with a provision for automatic renewal for a one-year term. Although USA Mobile II believes that sufficient alternative sources of pagers, terminals and transmitters exist, there can be no assurance that USA Mobile II would not be adversely affected if it were unable to obtain these items from current supply sources or on terms comparable to existing terms.
Government Regulation, Foreign Ownership And Possible Redemption Of Capital Stock
The paging operations of USA Mobile II are subject to regulation by the FCC and various state regulatory agencies. There can be no assurance that those agencies will not propose or adopt regulations or take actions that would have a material adverse effect on USA Mobile II's business. Changes in regulation of USA Mobile II's paging business or the allocation of radio spectrum for services that compete with USA Mobile II's business could
adversely affect USA Mobile II's results of operations. Indeed, the FCC has created potential sources of competition by opening up new spectrum for such services as GWCS and WCS as well as speeding up licensing of other services through auctions, including LMDS, 220-222 MHz and broadband PCS. Further, the FCC has recently adopted rules implementing a market area licensing scheme. In addition, some aspects of the recently enacted Telecommunications Act of 1996 could have a beneficial effect on USA Mobile II's business, but other provisions may place additional burdens upon USA Mobile II or subject USA Mobile II to increased competition.
Impact Of The Year 2000 Issue
USA Mobile II is currently working to resolve the potential impact of the year 2000 on the processing of date-sensitive information by USA Mobile II's computerized systems and transmission equipment. The year 2000 problem is the result of computer programs being written using two digits (rather than four) to define the applicable year. Any of USA Mobile II's programs that have time-sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in a system failure or miscalculations causing disruptions of operations, including, among other things, a temporary inability to process transactions, send invoices or engage in similar normal business activities. Based on preliminary information, costs of addressing potential problems are not currently expected to have a material adverse impact on USA Mobile II's financial position, results of operations or cash flows in future periods. However, if USA Mobile II, its customers or vendors are unable to resolve such processing issues in a timely manner, it could result in a material financial risk. Accordingly, USA Mobile II plans to devote the necessary resources to resolve all significant year 2000 issues in a timely manner.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and schedules listed in Item 14(a)(1) and (2) are included in this Report beginning on Page.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) Financial Statements
Consolidated Balance Sheets as of December 31, 1997 and 1996
Consolidated Statement of Operations for the Years Ended December 31, 1997 and 1996 and the Period from September 8, 1995 to December 31,
Predecessor Consolidated Statements of Operations for the Period from January 1, 1995 to September 7, 1995
Consolidated Statements of Stockholder's Equity (Deficit) for the Years Ended December 31, 1997 and 1996 and for the Period from September 8, 1995 to December 31, 1995
Predecessor Consolidated Statements of Stockholder's Equity (Deficit) for the Period from January 1, 1995 to September 7, 1995
Consolidated Statements of Cash Flows for the Years Ended December 31, 1997 and 1996 and for the Period from September 8, 1995 to December 31, 1995
Predecessor Consolidated Statements of Cash Flows for the Period from January 1, 1995 to September 7, 1995
Notes to Consolidated Financial Statements
(a)(2) Financial Statement Schedule
Schedule II - Valuation and Qualifying Accounts
(b) Reports on Form 8-K
None.
(c) Exhibits
The exhibits listed on the accompanying index to exhibits are filed as part of this Annual Report on Form 10-K.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
USA MOBILE COMMUNICATIONS, INC. II
By: /S/ C. EDWARD BAKER, JR. --------------------------- C. Edward Baker, Jr. Chairman of the Board and Chief Executive Officer
March 27, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and on the dates indicated.
/S/ C. EDWARD BAKER, JR. Chairman of the Board and March 27, 1998 - -------------------------- Chief Executive Officer (principal executive officer)
/S/ JOHN B. SAYNOR Executive Vice President, March 27, 1998 - ------------------------- Director
/S/ J. ROY POTTLE Executive Vice President March 27, 1998 - ------------------------- and Chief Financial Officer (principal financial officer and principal accounting officer)
/S/ R. SCHORR BERMAN Director March 27, 1998 - -------------------------
/S/ JAMES S. HUGHES Director March 27, 1998 - -------------------------
/S/ ALLAN L. RAYFIELD Director March 27, 1998 - -------------------------
/S/ JOHN A. SHANE Director March 27, 1998 - -------------------------
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Reports of Independent Public Accountants...........................
Consolidated Balance Sheets as of December 31, 1997 and 1996........
Consolidated Statements of Operations for the Years Ended December 31, 1997 and 1996 and for the Period from September 8, 1995 to December 31, 1995 ..........................
Predecessor Consolidated Statement of Operations for the Period from January 1, 1995 to September 7, 1995 .................
Consolidated Statements of Stockholder's Equity (Deficit) for the Years Ended December 31, 1997 and 1996 and for the Period from September 8, 1995 to December 31, 1995.......................
Predecessor Consolidated Statement of Stockholder's Equity (Deficit) for the Period from January 1, 1995 to September 7, 1995 ..........
Consolidated Statements of Cash Flows for the Years Ended December 31, 1997 and 1996 and for the Period from September 8, 1995 to December 31, 1995.........................................
Predecessor Consolidated Statement of Cash Flows for the Period from January 1, 1995 to September 7, 1995 ........................
Notes to Consolidated Financial Statements..........................
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To USA Mobile Communications, Inc. II:
We have audited the accompanying consolidated balance sheets of USA Mobile Communications, Inc. II (a Delaware Corporation and a wholly-owned subsidiary of Arch Communications Group, Inc.) and subsidiaries as of December 31, 1997 and 1996, and the related consolidated statements of operations, stockholder's equity (deficit) and cash flows for the years ended December 31, 1997 and 1996, for the period from September 8, 1995 to December 31, 1995 and for the period from January 1, 1995 to September 7, 1995 (predecessor basis). These financial statements and the schedule referred to below are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and the schedule 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 financial position of USA Mobile Communications, Inc. II and subsidiaries as of December 31, 1997 and 1996, and the results of their operations and their cash flows for the years ended December 31, 1997 and 1996, for the period from September 8, 1995 to December 31, 1995 and for the period from January 1, 1995 to September 7, 1995 (predecessor basis), in conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedule listed under Part IV, Item 14(a)(2) is presented for purposes of complying with the Securities and Exchange Commission's rules and is not a required part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in our audits of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Boston, Massachusetts February 9, 1998
USA MOBILE COMMUNICATIONS, INC. II (A WHOLLY-OWNED SUBSIDIARY OF ARCH COMMUNICATIONS GROUP, INC.) CONSOLIDATED BALANCE SHEETS December 31, 1997 and 1996 (in thousands, except share amounts)
ASSETS
1997 1996 ---- ---- Current assets: Cash and cash equivalents ....................... $ 1,291 $ 891 Accounts receivable (less reserves of $1,280 and $1,071 in 1997 and 1996, respectively) ......... 8,353 8,034 Inventories ..................................... 10,591 8,807 Prepaid expenses and other ...................... 390 962 Due from (to) Arch Communications Group, Inc. ... 5,232 (2,950) --------- --------- Total current assets ......................... 25,857 15,744 --------- --------- Property and equipment, at cost: Land, buildings and improvements ................ 3,409 3,196 Paging and computer equipment ................... 139,338 137,803 Furniture, fixtures and vehicles ................ 7,499 3,449 --------- --------- 150,246 144,448 Less accumulated depreciation and amortization .. 51,569 33,127 --------- --------- Property and equipment, net ..................... 98,677 111,321 --------- --------- Intangible and other assets (less accumulated amortization of $141,513 and $82,273 in 1997 and 1996, respectively) ........................... 368,912 428,839 --------- --------- $ 493,446 $ 555,904 ========= =========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities: Accounts payable ................................ $ 9,882 $ 4,850 Accrued expenses ................................ 4,537 7,497 Accrued interest ................................ 7,537 7,736 Customer deposits ............................... 4,480 4,983 Deferred revenue ................................ 3,216 2,215 Due to Arch Communications Enterprises, Inc. .... 2,079 27 --------- --------- Total current liabilities .................... 31,731 27,308 --------- --------- Long-term debt ..................................... 288,000 278,000 --------- --------- Deferred income taxes .............................. 19,559 40,731 --------- --------- Commitments and Contingencies Stockholder's equity: Common stock - $.01 par value, authorized 1,000 shares, issued and outstanding: 749 shares ..... -- -- Additional paid-in capital ...................... 283,353 283,353 Accumulated deficit ............................. (129,197) (73,488) --------- --------- Total stockholder's equity ................... 154,156 209,865 --------- --------- $ 493,446 $ 555,904 ========= =========
The accompanying notes are an integral part of these consolidated financial statements
USA MOBILE COMMUNICATIONS, INC. II (A WHOLLY-OWNED SUBSIDIARY OF ARCH COMMUNICATIONS GROUP, INC.) CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands)
The accompanying notes are an integral part of these consolidated financial statements
USA MOBILE COMMUNICATIONS, INC. II PREDECESSOR CONSOLIDATED STATEMENT OF OPERATIONS Period from January 1, 1995 to September 7, 1995 (in thousands)
Service, rental and maintenance revenues ... $ 72,185 Product sales .............................. 9,996 -------- Total revenues ........................ 82,181 Cost of products sold ...................... (6,726) -------- 75,455 -------- Operating expenses: Service, rental and maintenance .......... 13,875 Selling .................................. 11,916 General and administrative ............... 19,267 Depreciation and amortization ............ 29,239 -------- Total operating expenses .............. 74,297 -------- Operating income ........................... 1,158 Interest expense, net ...................... (18,522) Non-operating expenses ..................... (7,844) -------- Income (loss) before income tax benefit .... (25,208) Benefit from income taxes .................. 2,675 -------- Net income (loss) .......................... $(22,533) ========
The accompanying notes are an integral part of these consolidated financial statements
USA MOBILE COMMUNICATIONS, INC. II (A WHOLLY-OWNED SUBSIDIARY OF ARCH COMMUNICATIONS GROUP, INC.) CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY (DEFICIT) (in thousands)
The accompanying notes are an integral part of these consolidated financial statements
USA MOBILE COMMUNICATIONS, INC. II PREDECESSOR CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY (DEFICIT) (in thousands)
The accompanying notes are an integral part of these consolidated financial statements
USA MOBILE COMMUNICATIONS, INC. II (A WHOLLY-OWNED SUBSIDIARY OF ARCH COMMUNICATIONS GROUP, INC.) CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)
The accompanying notes are an integral part of these consolidated financial statements
USA MOBILE COMMUNICATIONS, INC. II PREDECESSOR CONSOLIDATED STATEMENT OF CASH FLOWS Period from January 1, 1995 to September 7, 1995 (in thousands)
Cash flows from operating activities: Net income (loss) ......................................... $(22,533) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization ............................. 29,239 Amortization of debt issuance costs ....................... 720 Deferred tax benefit ...................................... (2,675) Accounts receivable loss provision ........................ 2,149 Changes in assets and liabilities, net of effect from acquisitions of paging companies: Accounts receivable .................................... (3,122) Inventories ............................................ 418 Prepaid expenses and other ............................. (198) Accounts payable ....................................... (3,969) Accrued expenses ....................................... 972 Accrued acquisition costs .............................. 2,553 Accrued interest ....................................... 1,375 Customer deposits ...................................... 950 Deferred revenue ....................................... (39) -------- Net cash provided by operating activities ................... 5,840 -------- Cash flows from investing activities: (Investment) sale of investment in repurchase agreements .. 37,000 Acquisitions of paging companies, net of cash acquired .... (28,684) (Payment) release of pending acquisition escrow deposits .. 14,234 Additions to property and equipment, net .................. (34,044) Additions to intangible and other assets .................. (2,812) -------- Net cash used for investing activities ...................... (14,306) -------- Cash flows from financing activities: Issuance of long-term debt ................................ 12,840 Repayment of long-term debt ............................... (651) Capital contributions ..................................... 54 -------- Net cash provided by financing activities ................... 12,243 -------- Net increase in cash ........................................ 3,777 Cash, beginning of period ................................... 420 -------- Cash, end of period ......................................... $ 4,197 ========
The accompanying notes are an integral part of these consolidated financial statements
USA MOBILE COMMUNICATIONS, INC. II (A WHOLLY-OWNED SUBSIDIARY OF ARCH COMMUNICATIONS GROUP, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization -- USA Mobile Communications, Inc. II (USA Mobile II) is a provider of wireless messaging services, primarily paging services, in 9 states.
On September 7, 1995, Arch Communications Group, Inc. (Arch) completed its acquisition of USA Mobile Communications Holdings, Inc. (USA Mobile) and its wholly-owned subsidiary USA Mobile II. The acquisition was completed in two steps. First, in May 1995, Arch acquired approximately 37%, or 5,450,000 shares, of USA Mobile's then outstanding common stock for $83.9 million in cash, funded by borrowings under Arch's credit agreements. Second, on September 7, 1995, the acquisition was completed through the merger of Arch with and into USA Mobile (the Merger). Upon consummation of the Merger, USA Mobile was renamed Arch Communications Group, Inc. In the Merger, each share of USA Mobile's outstanding common stock was exchanged for Arch common stock on a .8020-for-one basis (an aggregate of 7,599,493 shares of Arch common stock), and the 5,450,000 USA Mobile shares purchased by Arch in May 1995 were retired.
The Merger has been accounted for using the purchase method of accounting. Arch is treated as the acquirer in the Merger for accounting and financial reporting purposes. The fair values of USA Mobile II's assets and liabilities at the effective time of the Merger represent a new cost basis for those assets and liabilities that have been pushed down to the accompanying separate financial statements of USA Mobile II dated subsequent to September 7, 1995. The principal effect of push down accounting was to increase the carrying values of intangible assets by $374.1 million and to decrease the carrying values of property and equipment by $9.2 million. Substantially all USA Mobile's assets and liabilities were composed of the assets and liabilities of USA Mobile II on the Merger date. Pro forma information is included in Note 2.
The aggregate consideration paid or exchanged in the Merger was $582.2 million, consisting of cash paid of $88.9 million (including direct transaction costs), 7,599,493 shares of Arch common stock valued at $209.0 million and the assumption of liabilities of $284.3 million, including $241.2 million of long-term debt. Resulting goodwill is being amortized over a ten-year period using the straight-line method. The accompanying consolidated statements of operations, stockholder's equity (deficit) and cash flows for the period January 1, 1995 to September 7, 1995 are collectively referred to herein as "Predecessor Financial Statements". Application of the purchase method of accounting at the Merger date primarily resulted in higher values assigned to intangible assets which will have the effect of increased amortization expense charged in future periods. Accordingly, Predecessor Financial Statements are not comparable to the financial statements of USA Mobile II subsequent to the Merger date. Certain amounts in the Predecessor Financial Statements, however, were reclassified to conform with the current period presentation.
Principles of Consolidation -- The accompanying consolidated financial statements include the accounts of USA Mobile II and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated.
Revenue Recognition -- USA Mobile II recognizes revenue under rental and service agreements with customers as the related services are performed. Maintenance revenues and related costs are recognized ratably over the respective terms of the agreements. Sales of equipment are recognized upon delivery. Commissions are recognized as an expense when incurred.
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.
Cash Equivalents - Cash equivalents include short-term, interest-bearing instruments purchased with remaining maturities of three months or less. The carrying amount approximates fair value due to the relatively short period to maturity of these instruments.
Inventories -- Inventories consist of new pagers which are held specifically for resale. Inventories are stated at the lower of cost or market, with cost determined on a first-in, first-out basis.
Property and Equipment -- Pagers sold or otherwise retired are removed from the accounts at their net book value using the first-in, first-out method. USA Mobile II provides for depreciation and amortization using the straight-line method over the following estimated useful lives:
Estimated Asset Classification Useful Life -------------------- ----------- Buildings and improvements............ 20 Years Leasehold improvements................ Lease Term Pagers................................ 3 Years Paging and computer equipment......... 5-8 Years Furniture and fixtures................ 5-8 Years Vehicles.............................. 3 Years
Depreciation and amortization expense related to property and equipment totaled $45,685,000, $34,972,000, $5,421,000 and $17,297,000 for the years ended December 31, 1997 and 1996, the period from September 8, 1995 to December 31, 1995 and the period from January 1, 1995 to September 7, 1995.
Intangible and Other Assets -- Intangible and other assets, net of accumulated amortization, are composed of the following at December 31, 1997 and 1996 (in thousands):
1997 1996 ---- ---- Goodwill ................................ $214,286 $242,769 Purchased FCC licenses .................. 103,580 117,183 Purchased subscriber lists .............. 47,552 65,256 Non-competition agreements .............. 2,133 2,615 Deferred financing costs................. 525 248 Other ................................... 836 768 -------- -------- $368,912 $428,839 ======== ========
Amortization expense related to intangible and other assets totaled $61,676,000, $63,327,000, $19,716,000 and $11,942,000 for the years ended December 31, 1997 and 1996, the period from September 7, 1995 to December 31, 1995 and the period from January 1, 1995 to September 7, 1995.
Subscriber lists, Federal Communications Commission (FCC) licenses and goodwill are amortized over their estimated useful lives, ranging from five to ten years using the straight-line method. Non-competition agreements are amortized over the terms of the agreements using the straight-line method. Other assets consist of organizational and FCC application and development costs which are amortized using the straight-line method over their estimated useful lives not exceeding ten years. Development costs include nonrecurring, direct costs incurred in the development and expansion of paging systems, and are amortized over a two-year period. Deferred financing costs incurred in connection with USA Mobile II's credit agreements (see Note 3) are being amortized over periods not to exceed the terms of the related agreements.
In accordance with Statement of Financial Accounting Standards (SFAS) No. 121 "Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of" USA Mobile II evaluates the recoverability of its carrying value of the Company's long-lived assets and certain intangible assets based on estimated undiscounted cash flows to be generated from each of such assets as compared to the original estimates used in measuring the assets. To the extent impairment is identified, USA Mobile II reduces the carrying value of such impaired assets. To date, USA Mobile II has not had any such impairments.
Fair Value of Financial Instruments -- USA Mobile II's financial instruments, as defined under Statement of Financial Accounting Standards (SFAS) No. 107 "Discounted above Fair Value of Financial Instruments", include its cash and its debt financing. The fair value of cash is equal to the carrying value at December 31, 1997 and 1996.
As discussed in Note 3, USA Mobile II's debt financing consists of (1) senior bank debt and (2) fixed rate Senior Notes. USA Mobile II considers the fair value of the senior bank debt to be equal to the carrying value since this facility bears a current market rate of interest.
USA Mobile II's fixed rate Senior Notes are traded publicly. The following table depicts the fair value of this debt based on the current market quotes as of December 31, 1997 and 1996 (in thousands):
December 31, 1997 December 31, 1996 -------------------- ------------------- Carrying Fair Carrying Fair Description Value Value Value Value ----------- ----- ----- ----- ----- 91/2% Senior Notes due 2004 ... $125,000 $122,488 $125,000 $117,000 14% Senior Notes due 2004 ..... 100,000 112,540 100,000 115,000
Reclassifications -- Certain amounts of prior periods were reclassified to conform to the 1997 presentation.
2. ACQUISITIONS
The Merger has been accounted for as a purchase, and the results of the operations have been included in the consolidated financial statements from the dates of the Merger. The following unaudited pro forma summary presents the consolidated results of operations as if the push-down accounting effect of the Merger had occurred on January 1, 1995, after giving effect to certain adjustments, including depreciation and amortization of acquired assets and interest expense on acquisition debt. These pro forma results have been prepared for comparative purposes only and do not purport to be indicative of what would have occurred had the Merger been completed on January 1, 1995, or of the results that may occur in the future. Net income (loss) per share is not presented because it is not considered meaningful.
Year Ended December 31, 1995 ---------------------------- (Unaudited and in thousands)
Total Revenues ..................... $ 125,014 Net income (loss) .................. (57,158)
On May 23, 1995, USA Mobile II concluded a settlement of a class action suit brought against it by certain investors in Premiere Page. The settlement released USA Mobile from certain claims by certain former shareholders of Premiere Page in return for the issuance of an additional 139,300 shares of USA Mobile's common stock valued at $1,332,000 and payment of plaintiffs counsel fees and expenses.
3. LONG-TERM DEBT
Long-term debt consisted of the following at December 31, 1997 and 1996 (in thousands):
1997 1996 ---- ---- Senior bank debt ....................... $ 63,000 $ 53,000 91/2% Senior Notes due 2004 ............ 125,000 125,000 14% Senior Notes due 2004 .............. 100,000 100,000 -------- -------- Long-term debt ......................... $288,000 $278,000 ======== ========
Senior Bank Debt - USA Mobile II and the direct subsidiaries of USA Mobile II (the "USA Mobile II Borrowing Subsidiaries) are parties to a $110 million reducing revolving credit facility dated March 19, 1997, as amended, with a group of banks pursuant to which the banks have agreed to make advances for working capital and other purposes (the "USA Mobile II Credit Facility").
Upon the closing of the USA Mobile II Credit Facility, the banks did not require the contemporaneous grant of a security interest in the assets of USA Mobile II and its subsidiaries but they have reserved the right to require such a security interest upon the occurrence of certain triggering events. Arch and USA Mobile II have guaranteed the obligations of the USA Mobile II Borrowing Subsidiaries under the USA Mobile II Credit Facility. Arch's guarantee is secured by the pledge of the stock of Arch Communications Enterprises, Inc. ("Arch Enterprises"), a wholly-owned subsidiary of Arch, and USA Mobile II.
Obligations under the USA Mobile II Credit Facility bear interest based on a reference rate equal to either (i) the agent bank's Alternate Base Rate or (ii) the agent bank's LIBOR rate, in each case plus a margin which is based on the ratio of USA Mobile II's total indebtedness to annualized operating cash flow. A commitment fee of .375% per annum is also payable on the average daily unused portion of the USA Mobile II Credit Facility.
The USA Mobile II Credit Facility contains restrictive and financial covenants which, among other things, limit the ability of USA Mobile II to: incur additional indebtedness, pay dividends, grant liens on its assets, merge, sell or acquire assets; repurchase or redeem capital stock; incur capital expenditures; and prepay indebtedness other than indebtedness under the USA Mobile II Credit Facility. As of December 31, 1997, USA Mobile II and the USA Mobile Borrowing Subsidiaries were in compliance with the covenants of the USA Mobile II Credit Facility.
As of December 31, 1997, $63.0 million was outstanding and $4.6 million was available under the USA Mobile II Credit Facility. At December 31, 1997, such advances bore interest at an average annual rate of 8.55%.
Senior Notes -- The USA Mobile II 9 1/2% Notes and the USA Mobile II 14% Notes (collectively, the Senior Notes) contain certain restrictive and financial covenants which, among other things, limit the ability of USA Mobile II to: incur additional indebtedness; pay dividends; grant liens on its assets; sell assets; enter into transactions with related parties; merge, consolidate or transfer substantially all of its assets; redeem capital stock or subordinated debt; and make certain investments. Interest on the Senior Notes is payable semi-annually.
Maturities of Debt -- Scheduled long-term debt maturities at December 31, 1997, are as follows (in thousands):
Year Ending December 31, ------------------------ 2001.................... $ 13,000 2002.................... 50,000 Thereafter.............. 225,000 --------- $ 288,000 =========
4. INCOME TAXES
USA Mobile II accounts for income taxes under the provisions of SFAS No. 109 "Accounting for Income Taxes". Deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities given the provisions of enacted tax laws.
The components of the net deferred tax asset (liability) recognized in the accompanying consolidated balance sheets at December 31, 1997 and 1996 are as follows (in thousands):
1997 1996 ---- ---- Deferred tax assets............... $ 36,062 $ 29,496 Deferred tax liabilities.......... (55,621) (70,227) -------- -------- $(19,559) $(40,731) ======== ========
The approximate effect of each type of temporary difference and carryforward at December 31, 1997 and 1996 is summarized as follows (in thousands):
1997 1996 ---- ---- Net operating losses................ $ 30,828 $ 29,199 Intangible and other assets......... (55,234) (67,508) Depreciation of property & equipment 2,983 (2,719) Accruals and reserves............... 1,864 297 -------- -------- $(19,559) $(40,731) ======== ========
The effective income tax rate differs from the statutory Federal tax rate primarily due to the nondeductibility of goodwill amortization. The net operating loss (NOL) carryforwards expire at various dates through 2012. The Internal Revenue Code contains provisions that may limit the NOL carryforwards available to be used in any given year if certain events occur, including significant changes in ownership, as defined.
5. COMMITMENTS
USA Mobile II has operating leases for office and transmitting sites with lease terms ranging from one month to approximately ten years. In most cases, USA Mobile II expects that, in the normal course of business, leases will be renewed or replaced by other leases.
Future minimum lease payments under noncancellable operating leases at December 31, 1997 are as follows (in thousands):
Year Ending December 31, ------------------------ 1998.................. $ 5,570 1999.................. 3,195 2000.................. 1,889 2001.................. 954 2002.................. 419 Thereafter............ 1,586 -------- Total................. $ 13,613 ========
Total rent expense under operating leases for the years ended December 31, 1997 and 1996, for the period September 8, 1995 to December 31, 1995 and for the period January 1, 1995 to September 7, 1995 approximated $6,258,000, $5,856,000, $1,640,000, and $3,346,000 respectively.
6. EMPLOYEE BENEFIT PLAN
In 1994, USA Mobile II established a retirement savings plan, qualifying under Section 401(k) of the Internal Revenue Code covering eligible employees, as defined. Under the plan, a participant may elect to defer receipt of a stated percentage of the compensation which would otherwise be payable to the participant for any plan year (the deferred amount) provided, however, that the deferred amount shall not exceed the maximum amount permitted under Section 401(k) of the Internal Revenue Code. The plan provides for USA Mobile II matching contributions. Matching contributions for the year ended December 31, 1996, the period from September 8, 1995 to December 31, 1995 and the period from January 1, 1995 to September 7, 1995 approximated $106,000, $27,000 and $58,000 respectively.
On December 31, 1996, the USA Mobile II retirement savings plan was merged into the Arch retirement savings plan. The Arch plan is qualified under section 401(k) of the Internal Revenue Code and covers eligible employees of Arch and its subsidiaries.
7. RELATED PARTY TRANSACTIONS
Intercompany transactions with Arch Communications Group, Inc. and Subsidiaries - In March 1996, Arch completed a public offering of 10 7/8% Senior Discount Notes due March 2008 generating net proceeds of $266.1 million. Arch used $47.5 million of the net proceeds (of which $15.0 million was a capital contribution from Arch to USA Mobile II and $32.5 million was an intercompany demand loan from Arch Enterprises to USA Mobile II) to repay all the then outstanding indebtedness under USA Mobile II's credit facility. The demand intercompany loan was repaid to Arch Enterprises in May 1996, through borrowings under USA Mobile II's credit facility.
In 1996, USA Mobile II sold certain paging assets to Arch Enterprises for $10.4 million. The fair values of asset and liabilities transferred ($10.7 million and $0.3 million, respectively) approximated the net book values of those assets and liabilities; hence, no gain or loss was recognized.
8. QUARTERLY FINANCIAL RESULTS (UNAUDITED)
Quarterly financial information for the years ended December 31, 1997 and 1996 is summarized below (in thousands):
Year Ended December 31, 1997: First Second Third Fourth Quarter Quarter Quarter Quarter ------- ------- ------- ------- Revenues................. $ 39,058 $ 40,220 $40,955 $40,833 Operating income (loss).. (12,837) (13,130) (11,933) (7,316) Net income (loss) ....... (15,325) (15,694) (14,652) (10,038)
Year Ended December 31, 1996: First Second Third Fourth Quarter Quarter Quarter Quarter ------- ------- ------- ------- Revenues................. $ 32,864 $ 34,776 $36,299 $37,521 Operating income (loss).. (9,582) (10,864) (12,231) (13,574) Net income (loss) ....... (12,832) (13,765) (14,604) (15,394)
SCHEDULE II
USA MOBILE COMMUNICATIONS, INC. II VALUATION AND QUALIFYING ACCOUNTS Years Ended December 31, 1997 And 1996 Period From September 8, 1995 to December 31, 1995 Period From January 1, 1995 to September 7, 1995 (Predecessor) (in thousands)
S-1
INDEX
Exhibit Description
3.1 - Restated Certificate of Incorporation. (1) 3.2 - By-laws, as amended.(1) 4.1 - Indenture, dated February 1, 1994, between USA Mobile Communications, Inc. II ("USA Mobile II") and United States Trust Company of New York, as Trustee, relating to the 91/2% Senior Notes due 2004 of USA Mobile II. (1) 4.2 - Indenture, dated December 15, 1994, between USA Mobile II and United States Trust Company of New York, as Trustee, relating to the 14% Senior Notes due 2004 of USA Mobile II. (2) 10.1 - Credit Agreement, dated March 19, 1997 (the "USA Mobile II Credit Agreement"), by and among Premiere Page of Kansas, Inc., Q Media Paging-Alabama, Inc., USA Mobile Communications, Inc. III, Q Media Company-Paging, Inc., W.Q. Communications, Inc., USA Mobile Communications, Inc. II, the Lenders Party hereto and The Bank of New York, as Administrative Agent. (3) 10.2 - Amendment No. 3 to the USA Mobile II Credit Agreement. (4) 10.3 - Letter Agreement dated January 7, 1997 and Amendment 1 dated May 1, 1997 between the Company and Motorola, Inc. (3) 27.1 - Financial data schedule
+ Identifies exhibits constituting a management contract or compensatory plan
(1) Incorporated by reference from the Registration Statement on Form S-1 (File no. 33-72646) of USA Mobile II.
(2) Incorporated by reference from the Registration Statement on Form S-1 (File no. 33-85580) of USA Mobile II.
(3) Incorporated by reference from the Quarterly Report on Form 10-Q of Arch for the quarter ended March 31, 1997. Confidential treatment previously granted with respect to portions of this exhibit.
(4) Incorporated by reference from the Annual Report on Form 10-K of Arch for the Year ended December 31, 1997. Confidential treatment requested with respect to portions of this exhibit.