<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): May 1, 1998
MOBILEMEDIA COMMUNICATIONS, INC.
(Exact name of registrant as specified in its charter)
Delaware 33-68840 22-3379712
(State or other jurisdiction (Commission File No.) (IRS Employer
of incorporation) Identification No.)
65 Challenger Road, Ridgefield Park, New Jersey 07660
(Address of principal executive offices)
(Zip Code)
(201) 440-8400
(Registrant's telephone number, including area code)
--------------------------------------------------------------------
(Former name or former address, if changed since last report)
<PAGE>
INFORMATION TO BE INCLUDED IN THE REPORT
Item 1. Changes in Control of Registrant
Not Applicable.
Item 2. Acquisition or Disposition of Assets.
Not Applicable.
Item 3. Bankruptcy or Receivership
Not Applicable
Item 4. Changes in Registrant's Certifying Accountant
Not Applicable.
Item 5. Other Events.
Attached hereto as Exhibit 99.1 are the
consolidated financial statements of MobileMedia Communications,
Inc. as of and for the year ended December 31, 1997, which
financial statements are unaudited and have not been prepared in
accordance with generally accepted accounting principles due to the
Company's inability at the present time to determine the amount of
an impairment adjustment that would be required pursuant to
Statement of Financial Accounting Standard No. 121, "Accounting for
the Impairment of Long-Lived Assets and Long-Lived Assets to be
Disposed Of." Management believes that the amount of the impairment
adjustment could be material.
Item 6. Resignations of Registrants Directors.
Not Applicable
Item 7. Financial Statements and Exhibits.
Not Applicable
Item 8. Change in Fiscal Year.
Not Applicable
<PAGE>
Pursuant to the requirements of the Securities Exchange
Act of 1934, as amended, the registrant has duly caused this
report to be signed on its behalf by the undersigned hereunto duly
authorized.
MOBILEMEDIA COMMUNICATIONS, INC.
a Delaware corporation
Date: May 1, 1998 By: /s/ David R. Gibson
---------------------
David R. Gibson
Senior Vice President and
Chief Financial Officer
<PAGE>
EXHIBIT INDEX
Exhibit Page
- ------- ----
Exhibit 99.1 -- Unaudited Consolidated Financial Statements
of MobileMedia Communications, Inc.
<PAGE>
Exhibit 99.1
April 30, 1998
MOBILEMEDIA COMMUNICATIONS, INC. AND SUBSIDIARIES
Unaudited
Consolidated Balance Sheets as of
December 31, 1997 and 1996
Consolidated Statements of Operations, Changes
in Stockholder's Equity and Cash Flows for the Years ended
December 31, 1997, 1996 and 1995
Notes to Financial Statements
The accompanying unaudited financial statements as of December 31, 1997 and as
of December 31, 1996 and for the years then ended have not been prepared in
accordance with generally accepted accounting principles due to the Company's
inability at the present time to determine the amount of an impairment
adjustment that would be required pursuant to Statement of Financial Accounting
Standard No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of." The Company believes that the amount of
the impairment adjustment will be material. See Note 2 to the accompanying
unaudited financial statements.
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
MOBILEMEDIA COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets of MobileMedia Communications, Inc. and
Subsidiaries as of December 31, 1997 and 1996............................ F-2
Consolidated Statements of Operations of MobileMedia Communications, Inc.
and Subsidiaries for the years ended December 31, 1997, 1996 and 1995.... F-3
Consolidated Statement of Changes in Stockholders' Equity of MobileMedia
Communications, Inc. and Subsidiaries for the years ended December 31,
1997, 1996 and 1995 ..................................................... F-4
Consolidated Statements of Cash Flows of MobileMedia Communications, Inc.
and Subsidiaries for the years ended December 31, 1997, 1996 and 1995.... F-5
Notes to Consolidated Financial Statements ................................ F-6
F-1
<PAGE>
MOBILEMEDIA COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
UNAUDITED
(dollar amounts in thousands)
<TABLE>
<CAPTION>
December 31,
--------------------------
1997 1996
----------- -----------
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents ........................ $ 10,920 $ 23,160
Accounts receivable (less allowance for
uncollectible accounts of $29,944 and
$56,189 at December 31, 1997 and 1996,
respectively) .................................. 51,985 66,709
Inventories ...................................... 868 13,382
Prepaid expense .................................. 5,108 1,118
Other ............................................ 6,715 2,988
----------- -----------
Total current assets ................................ 75,596 107,357
Investment in net assets of equity affiliate ........ 1,788 1,857
Property and equipment, net ......................... 257,937 327,757
Intangible assets, net .............................. 1,006,835 1,118,231
Other assets ........................................ 23,503 27,482
----------- -----------
Total assets ........................................ $ 1,365,659 $ 1,582,684
=========== ===========
Liabilities and stockholder's equity
Liabilities not subject to compromise
Debtor-In-Possession (DIP) credit facility ..... $ 10,000 $ --
Accrued restructuring costs .................... 4,897 --
Accrued wages, benefits and payroll taxes ...... 11,894 --
Accounts payable - post petition ............... 2,362 --
Accrued interest ............................... 4,777 --
Accrued expenses and other current liabilities . 35,963 6,708
Advance billing and customer deposits .......... 34,252 37,022
----------- -----------
Total liabilities not subject to compromise .. 104,145 43,730
Liabilities subject to compromise
Accrued wages, benefits and payroll taxes ...... 3,093 9,443
Accrued interest on notes payable .............. 18,450 15,976
Accounts payable - pre petition ................ 19,646 45,484
Accrued expenses and other current liabilities . 20,663 48,215
Current portion of long-term debt .............. 1,075,681 1,074,196
Other .......................................... 2,876 18,900
----------- -----------
Total liabilities subject to compromise ...... 1,140,409 1,212,214
Deferred tax liabilities ....................... 72,097 72,097
Stockholder's equity
Common stock ($0.01 par value, 1,000 authorized,
300 issued and outstanding at December 31,
1997 and 1996) ............................... -- --
Additional paid-in-capital ..................... 676,025 672,629
Accumulated deficit - pre petition ............. (438,136) (417,986)
Accumulated deficit - post petition ............ (188,881) --
----------- -----------
Total stockholder's equity .......................... 49,008 254,643
----------- -----------
Total liabilities and stockholder's equity .......... $ 1,365,659 $ 1,582,684
=========== ===========
</TABLE>
See accompanying notes.
F-2
<PAGE>
MOBILEMEDIA COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
UNAUDITED
(dollar amounts in thousands)
Year ended December
-----------------------------------
1997 1996 1995
--------- --------- ---------
Revenues
Services, rents and maintenance ...... $ 491,174 $ 568,892 $ 220,745
Product sales ........................ 36,218 71,818 32,251
--------- --------- ---------
Total revenues ......................... 527,392 640,710 252,996
Cost of products sold .................. (35,843) (72,595) (26,885)
--------- --------- ---------
491,549 568,115 226,111
Operating expenses
Services, rents and maintenance ...... 139,333 144,050 59,800
Selling .............................. 69,544 96,817 45,203
General and administrative ........... 183,045 218,606 59,034
Restructuring costs .................. 19,811 4,256 --
Depreciation ......................... 110,376 136,437 50,399
Amortization ......................... 110,863 212,264 21,009
--------- --------- ---------
Total operating expenses ............... 632,972 812,430 235,445
--------- --------- ---------
Operating (loss) ....................... (141,423) (244,315) (9,334)
Other income (expense)
Interest expense, net ................ (67,611) (92,663) (31,745)
Gain on sale of assets ............... 3 68
--------- --------- ---------
Total other income (expense)............ (67,608) (92,595) (31,745)
--------- --------- ---------
Loss before income taxes ............... (209,031) (336,910) (41,079)
Income taxes ........................... -- -- --
--------- --------- ---------
Net loss ............................... $(209,031) $(336,910) $ (41,079)
========= ========= =========
See accompanying notes
F-3
<PAGE>
MOBILEMEDIA COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
UNAUDITED
(dollar amounts in thousands)
<TABLE>
<CAPTION>
Additional Accumulated Accumulated
Common Paid in Deficit Deficit
Stock Capital Pre-petition Post-petition Total
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1995 ...... $ 0 $ 659,829 $ (81,076) $ 0 $ 578,753
Capital contribution by MobileMedia
Corporation .................... 12,800 12,800
Net loss .......................... (336,910) 0 (336,910)
--------- --------- --------- --------- ---------
Balance at December 31, 1996 ...... $ 0 $ 672,629 $(417,986) $ 0 $ 254,643
Capital contribution by MobileMedia
Corporation .................... 3,396 3,396
Net loss .......................... (20,150) (188,881) (209,031)
--------- --------- --------- --------- ---------
Balance at December 31, 1997 ...... $ 0 $ 676,025 $(438,136) $(188,881) $ 49,008
========= ========= ========= ========= =========
</TABLE>
See accompanying notes.
F-4
<PAGE>
MOBILEMEDIA COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
(dollar amounts in thousands)
<TABLE>
<CAPTION>
Year ended December 31,
------------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Operating activities
Net loss ................................................ $ (209,031) $ (336,910) $ (41,079)
Adjustments to reconcile net loss to net cash provided
by operating activities:
Depreciation and amortization ........................... 221,239 348,701 71,408
Accretion of note payable discount ...................... 16,792 15,159
Provision for uncollectible accounts .................... 68,628 64,135 4,259
Write-off of unamortized debt issuance costs ............ 5,391
Undistributed earnings of affiliate, net of distributions 69 161 (303)
Change in operating assets and liabilities:
Accounts receivable ..................................... (53,904) (55,914) (17,595)
Inventories ............................................. 12,514 2,433 (3,353)
Prepaid expenses and other assets ....................... (3,205) 11,403 133
Accounts payable, accrued expenses and other
liabilities .......................................... (21,390) 5,022 9,829
----------- ----------- -----------
Net cash provided by operating activities ............... 14,920 55,823 43,849
----------- ----------- -----------
Investing activities:
Construction and capital expenditures, including net
changes in pager assets .............................. (40,556) (160,489) (86,163)
Investment in net assets of equity affiliates ........... (1,641)
Acquisition of businesses ............................... (866,460) (171,223)
MAP Mobile channel exchange agreement ................... (10,175)
Cash paid to FCC for PCS license ........................ (42,935)
Other ................................................... (561)
----------- ----------- -----------
Net cash used in investing activities ...................... (40,556) (1,026,949) (312,698)
----------- ----------- -----------
Financing activities:
Capital contribution from MobileMedia Corporation ....... 3,396 12,800 518,332
Proceeds from sale of notes, net ........................ 245,863
Repayment of Dial Page notes ............................ (83,430)
Payment of debt issue costs ............................. (6,876) (22,721)
Borrowing from revolving credit facilities .............. 580,250 1,071,000
Repayments on revolving credit facilities ............... (1,057,250)
Borrowing from DIP credit facilities .................... 47,000
Repayments on DIP credit facilities ..................... (37,000)
Repayments of other debt ................................ (64)
----------- ----------- -----------
Net cash provided by financing activities .................. 13,396 586,110 671,794
----------- ----------- -----------
Net (decrease) increase in cash, cash equivalents and cash
designated for the MobileComm Acquisition ............... (12,240) (385,016) 402,945
Cash and cash equivalents at beginning of period ........... 23,160 408,176 5,231
----------- ----------- -----------
Cash and cash equivalents at end of period ................. $ 10,920 $ 23,160 408,176
=========== =========== ===========
</TABLE>
See accompanying notes.
F-5
<PAGE>
MOBILEMEDIA COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
(dollar amounts in thousands)
1. Chapter 11 Reorganization and Basis of Presentation
On January 30, 1997 (the "Filing Date"), MobileMedia Corporation
("MobileMedia"), MobileMedia Communications, Inc. (the "Company") and all
seventeen of MobileMedia Communications' subsidiaries (collectively with the
Company and MobileMedia, the "Debtors"), filed for protection under Chapter 11
of title 11 of the United States Code (the "Bankruptcy Code"). The Debtors are
operating as debtors-in-possession and are subject to the jurisdiction of the
United States Bankruptcy Court for the District of Delaware (the "Bankruptcy
Court").
The Bankruptcy Court has authorized the Debtors to pay certain
pre-petition creditors. These permitted payments of pre-petition obligations
include: (i) employee salary and wages; (ii) certain employee benefits and
travel expenses; (iii) certain amounts owing to essential vendors; (iv) trust
fund type sales and use taxes; (v) trust fund payroll taxes; (vi) property
taxes; (vii) customer refunds; and (viii) customer rewards. On January 27, 1998,
MobileMedia filed its Joint Plan of Reorganization with the Bankruptcy Court. On
February 2, 1998, MobileMedia filed its Disclosure Statement with the Bankruptcy
Court.
Under the Bankruptcy Code, the Company may elect to assume or reject real
estate leases, employment contracts, personal property leases, service contracts
and other unexpired executory pre-petition leases and contracts, subject to
Bankruptcy Court approval. Assumption of a contract requires the Company, among
other things, to cure all defaults under the contract, including payment of all
pre-petition liabilities. Rejection of a contract constitutes a breach of that
contract as of the moment immediately preceding the Chapter 11 filing and the
other party has the right to assert a general, unsecured claim against the
bankruptcy estate for damages arising out of such breach. These parties may also
seek to assert post-petition administrative claims against the Company to the
extent that the Company utilizes the collateral or services of such parties
subsequent to the commencement of the Chapter 11 proceedings. The Company cannot
presently determine or reasonably estimate the ultimate liability which may
result from payments required to cure defaults under assumed leases and
contracts or from the filing of claims for all leases and contracts which may be
rejected.
In connection with the chapter 11 filing, the Debtors have notified all
known claimants for the purpose of identifying all pre-petition claims against
the Debtors. Pursuant to an order of the Court, all proofs of claims, other than
for certain governmental entities, on account of pre-petition obligations, were
required to be filed by June 16, 1997 (the "Bar Date"). Approximately 2,400
proofs of claim were filed against the Debtors by the Bar Date. Included among
the claims filed are claims of unspecified and undeterminable amounts. The
Debtors consider the amounts set forth in certain proofs of claim to be highly
inflated and an inaccurate estimate of the Debtors' liabilities. The Debtors
believe that certain of these claims are asserted in inaccurate amounts and may
be duplicative and/or amended claims. As of March 31, 1998, the Debtors had
secured orders of the Bankruptcy Court reducing 1,231 claims filed in an
aggregate amount of approximately $80.2 million to an allowed amount of $3.04
million. The Debtors expect the objection process to continue.
As previously announced, the Company filed a Joint Plan of Reorganization
(the "Plan") with the Bankruptcy Court on January 27, 1998, and its related
Disclosure Statement (the "Disclosure Statement") on February 2, 1998. The Plan
was filed with the support of the Steering Committee for the Company's secured
creditors (the "Secured Creditors Committee"), but without the support of the
Committee for the Company's unsecured creditors (the "Unsecured Creditors
Committee"). The Unsecured Creditors Committee has commenced discovery of the
Company, its advisors, the secured creditors of the Company and their advisors
in connection with possible objections to the Plan.
The Company is continuing to discuss the Company's Plan for the
stand-alone reorganization of the Company with the Secured Creditors Committee
and the Unsecured Creditors Committee, and the Company and such Committees also
are considering certain possible business combinations involving the Company
under a plan of reorganization. Accordingly, the Company and such Committees
agreed to adjourn a hearing concerning the
F-6
<PAGE>
MOBILEMEDIA COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
(dollar amounts in thousands)
1. Chapter 11 Reorganization and Basis of Presentation - (Continued)
adequacy of information contained in the Disclosure Statement that had been
scheduled for April 14, 1998. There can be no assurance that the parties will
reach agreement on a plan of reorganization or that any business combination
will be effected.
The accompanying financial statements have not been prepared in accordance
with GAAP because Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-lived Assets and for Long-lived Assets,
to be Disposed Of" ("SFAS 121") has not been applied. In March 1995, the
Financial Accounting Standards Board issued SFAS 121, which is effective for
financial statements for fiscal years beginning after December 15, 1995. Under
certain circumstances, SFAS 121 requires companies to write down the carrying
value of long-lived assets recorded in the financial statements to the fair
value of such assets. A significant amount of the assets of the Company, which
were acquired as a result of the acquisitions of businesses, including the Dial
Page and MobileComm acquisitions, were recorded in accordance with principles of
purchase accounting at acquisition prices and constitute long-lived assets. The
Company has determined, and its independent auditors have concurred, that SFAS
121 is applicable to the Company, and therefore the Company expects to be
required to write down the carrying value of its long-lived assets to their fair
value. The Company believes the amount of the write down will be material;
however, it is not possible at this time to determine such amount. Since the
Company cannot comply with SFAS 121 at this time, it is unable to issue audited
financial statements in compliance with generally accepted accounting
principles. Additionally, there may also be audit adjustments and adjustments to
certain other accounts as a result of the Debtors' filing for protection under
Chapter 11 of the US Bankruptcy Code on January 30, 1997.
The consolidated financial statements at December 31, 1997 and 1996 have
been prepared on a going concern basis which assumes continuity of operations
and realization of assets and liquidation of liabilities in the ordinary course
of business. As discussed herein, there are significant uncertainties relating
to the ability of the Company to continue as a going concern. The consolidated
financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts, or the amounts and
classification of liabilities that might be necessary as a result of the outcome
of the uncertainties discussed herein.
2. The Company and Summary of Significant Accounting Policies
The Company
The Company provides paging services in the United States, including most
of the largest metropolitan areas.
Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries (MobileMedia Communications of California,
Inc., MobileMedia Paging, Inc., MobileMedia DP Properties, Inc., Dial Page
Southeast, Inc., RadioCall Company of Virginia, Inc., MobileMedia PCS, Inc.,
Mobile Communications Corporation of America, MobileComm of Florida, Inc.,
MobileComm of Tennessee, Inc., MobileComm of the Midsouth, Inc., MobileComm
Nationwide Operations, Inc., MobileComm of the West, Inc., MobileComm of the
Northeast, Inc., MobileComm of the Southeast, Inc., MobileComm of the Southeast
Private Carrier Operations, Inc., MobileComm of the Southwest, Inc. and FWS
Radio, Inc.). All significant intercompany accounts and transactions have been
eliminated.
F-7
<PAGE>
MOBILEMEDIA COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
(dollar amounts in thousands)
2. The Company and Summary of Significant Accounting Policies - (Continued)
Cash Equivalents
The Company considers all highly-liquid securities with an original
maturity of less than three months to be cash equivalents.
Concentrations of Credit Risk
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of temporary cash investments
and accounts receivable. The Company places its temporary cash investments with
high-quality institutions and, by policy, limits the credit exposure to any one
institution. Although the Company faces significant credit risk from its
customers, which has been aggravated due to the Company's operating problems,
such risk does not result from a concentration of credit risk as a result of the
large number of customers which comprise the Company's customer base. The
Company generally does not require collateral or other security to support
customer receivables.
Inventories
The Company values inventories at the lower of specific cost or market
value. Inventories consist of pagers held specifically for resale by the
Company.
Revenue Recognition
The Company recognizes revenue under service, rent and maintenance
agreements with customers at the time the related services are performed.
Advance billings for services are deferred and recognized as revenue when
earned. The Company leases (as lessor) certain pagers under operating leases.
Sales of pagers are recognized upon delivery.
Reclassifications
Certain 1996 financial statement items have been reclassified to conform
to the 1997 presentation.
Restatement of 1996 Financial Statements
Certain 1996 financial statement items have been revised to correct
previously reported results. These revisions consist primarily of (1) an
increase in Accounts receivable and Accrued expenses and other current
liabilities of approximately $7,600 to reflect the reclassification of credit
balances resulting from historical errors in processing accounts receivable,
which arose prior to 1997 and (2) a decrease in Property and equipment, net and
Accrued expenses and other current liabilities of approximately $1,375 to adjust
accrued capital expenditures to correct amounts.
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from these estimates.
Property and Equipment
Effective October 1, 1997, the Company shortened the estimated useful life
of pagers from four to three years. This change resulted in additional
depreciation expense of approximately $2,500 in 1997.
Property and equipment are stated at cost, less accumulated depreciation.
Expenditures for maintenance are charged to expense as incurred.
Upon retirement of pagers, the cost and related accumulated depreciation
are removed from the accounts and the net book value, if any, is charged to
depreciation expense. Upon the sale of pagers, the net book value is charged to
cost of products sold.
F-8
<PAGE>
MOBILEMEDIA COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
(dollar amounts in thousands)
2. The Company and Summary of Significant Accounting Policies - (Continued)
Depreciation and amortization are computed using the straight-line method
over the following estimated useful lives:
Pagers ................................ 3 years
Radio transmission equipment .......... 10 years
Computer equipment .................... 4 years
Furniture and fixtures ................ 5 years
Leasehold improvements ................ 1-10 years
Buildings ............................. 30 years
Intangible Assets
Intangible assets consist primarily of customer lists, FCC licenses, a
non-competition agreement, software and the excess of consideration paid over
fair values of net assets acquired and are being amortized principally using the
straight-line method over periods ranging from 1 to 40 years.
Impairment of Long-Lived Assets
The Company adopted Statement of Financial Accounting Standards No. 121
("SFAS 121"), "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of" in the year ended December 31, 1995. Under
certain circumstances, SFAS 121 requires companies to write down the carrying
value of long-lived assets recorded in the financial statements to the fair
value of such assets. The Company has determined that the existence of adverse
business circumstances, such as the Company's bankruptcy, its operating results
for the 1997 and 1996 fiscal years and the uncertainty associated with the
pending FCC proceeding, constitute indicators of impairment for purposes of SFAS
121, that recognition of an impairment loss may be appropriate and that the
amount of such impairment loss will be material. At December 31, 1997 and 1996,
more than 90% of the Company's total assets constitute long-lived assets. The
Company has concluded that, at the present time, it is not possible to determine
the amount of impairment pursuant to SFAS 121, and, accordingly, the Company's
financial statements for 1997 and 1996 are not presented in accordance with
generally accepted accounting principles.
Debt Issue Costs
Debt issue costs, which relate to the long term debt discussed in Note 6,
are reported as "Other assets" in the accompanying balance sheets. Such costs
amounted to $22,939 at December 31, 1997 and $26,582 at December 31, 1996 and
are being amortized on a straight line basis over the term of the related debt.
Restructuring Costs
Restructuring costs are primarily comprised of professional fees
constituting administrative expenses incurred by the Company as a result of
reorganization under chapter 11 of the Bankruptcy Code.
Income Taxes
Income taxes are accounted for by the liability method in accordance with
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes".
F-9
<PAGE>
MOBILEMEDIA COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
(dollar amounts in thousands)
3. Acquisitions and Divestitures
On January 4, 1996, the Company completed its acquisition of MobileComm,
BellSouth's paging and wireless messaging unit, and an associated nationwide
two-way narrowband 50/12.5 kHz PCS license, and BellSouth agreed to enter into a
two-year non-compete agreement and a five-year reseller agreement with the
Company (the "MobileComm Acquisition"). The aggregate consideration paid for the
MobileComm Acquisition (excluding fees and expenses and related financing costs)
was approximately $928,709.
The MobileComm Acquisition has been accounted for as a purchase
transaction in accordance with Accounting Principles Board Opinion No. 16 and,
accordingly, the financial statements for the periods subsequent to January 4,
1996 reflect the purchase price and transaction costs of $24,328, allocated to
tangible and intangible assets acquired and liabilities assumed based on their
estimated fair values as of January 4, 1996.
The allocation of the purchase price is summarized as follows:
Current assets ............................ $ 55,301
Property and equipment .................... 112,986
Intangible assets ......................... 934,269
Other assets .............................. 143
Liabilities assumed ....................... (149,662)
---------
$ 953,037
=========
On August 31, 1995, the Company purchased the paging assets and messaging
services business (the "Paging Business") of Dial Page, Inc. ("Dial Page"),
including the capital stock of two wholly-owned Dial Page subsidiaries, and
assumed certain liabilities of the Paging Business (the "Dial Page
Acquisition"). The purchase price for the Paging Business was $187,396,
comprised of cash and the assumption by the Company of the aggregate principal
amount of and accrued interest on certain indebtedness of Dial Page.
The Dial Page Acquisition has been accounted for as a purchase transaction
in accordance with Accounting Principles Board Opinion No. 16 and, accordingly,
the financial statements for the periods subsequent to August 31, 1995 reflect
the purchase price, including bond tender premium and consent, and fees of
$7,444 and transaction costs of $5,339, allocated to tangible and intangible
assets acquired and liabilities assumed based on their estimated fair values as
of August 31, 1995.
The allocation of the purchase price is summarized as follows:
Current assets ................................ $ 3,441
Property and equipment ........................ 37,406
Intangible assets ............................. 167,101
Other assets .................................. 74
Liabilities assumed ........................... (7,843)
---------
$ 200,179
=========
Results of operations for the year ended December 31, 1995 include results
of Dial Page subsequent to August 31, 1995. The following unaudited pro forma
information reflects the results of operations of the Company assuming the Dial
Page and MobileComm acquisitions had occurred as of January 1, 1995.
F-10
<PAGE>
MOBILEMEDIA COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
(dollar amounts in thousands)
3. Acquisitions and Divestitures - (Continued)
Year ended
December 31, 1995
-----------------
Net revenue ....................... $ 559,236
Net loss .......................... $(213,173)
On October 23, 1995, the Company completed the purchase of additional capacity
for its nationwide Private Carrier Paging channel for $10,175 from MAP Mobile
Communications, Inc.
4. Property and Equipment
Property and equipment are summarized as follows:
December 31,
-------------------------
1997 1996
-------- --------
Pagers ....................................... $196,791 $228,924
Radio transmission equipment ................. 202,296 191,952
Computer equipment ........................... 30,896 25,641
Furniture and fixtures ....................... 20,918 19,435
Leasehold improvements ....................... 14,652 14,943
Construction in progress ..................... 1,128 1,494
Land, buildings and other .................... 7,911 12,947
-------- --------
474,592 495,336
Accumulated depreciation ..................... 216,655 167,579
-------- --------
Property and equipment, net .................. $257,937 $327,757
======== ========
5. Intangible Assets
<TABLE>
<CAPTION>
December 31,
---------------------------------------------------------------------------
1997 1996
------------------------------------ ------------------------------------
Accumulated Accumulated
Cost Amortization Net Cost Amortization Net
---------- ------------ ---------- ---------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Customer lists .................... $ 288,137 $ 175,020 $ 113,117 $ 288,137 $ 102,735 $ 185,402
FCC Licenses ...................... 774,731 40,421 734,310 774,731 22,757 751,974
Software .......................... 3,500 2,333 1,167 3,500 1,167 2,333
Non-competition agreement ......... 125,999 125,999 0 125,999 114,029 11,970
Excess of consideration paid over
fair value of net assets acquired 175,765 17,524 158,241 176,646 10,094 166,552
---------- ---------- ---------- ---------- ---------- ----------
$1,368,132 $ 361,297 $1,006,835 $1,369,013 $ 250,782 $1,118,231
========== ========== ========== ========== ========== ==========
</TABLE>
F-11
<PAGE>
MOBILEMEDIA COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
(dollar amounts in thousands)
5. Intangible Assets - (Continued)
The Company is not amortizing the cost of two nationwide PCS licenses, one
acquired directly from the FCC and the other as a result of the MobileComm
acquisition, since the paging networks related to such licenses have not been
constructed.
6. Long-Term Debt
Long-term debt is summarized as follows:
<TABLE>
<CAPTION>
December 31,
-----------------------
1997 1996
---------- ----------
<S> <C> <C>
DIP credit facility ................................. $ 10,000 $ --
Revolving loan ...................................... 99,000 99,000
Term loan ........................................... 550,000 550,000
10 1/2% Senior Subordinated Deferred Coupon
Notes due December 1, 2003 ........................ 174,125 172,628
9 3/8% Senior Subordinated Notes due November
1, 2007 ........................................... 250,000 250,000
Dial Page Notes ..................................... 1,570 1,570
Note Payable ........................................ 986 998
---------- ----------
Total long-term debt ...................... $1,085,681 $1,074,196
========== ==========
</TABLE>
As of December 31, 1997, the debt obligations of the Company included:
1) A debtor-in-possession credit facility ("DIP Facility") with a syndicate of
lenders including the Chase Manhattan Bank, as Agent (the "DIP Lenders"). As of
December 31, 1997, there was $10,000 of borrowings outstanding under this
facility. The Company is subject to certain financial and operating restrictions
customary to credit facilities of this type including a limitation on periodic
capital expenditures, minimum allowable periodic EBITDA and retention of a
turnaround professional. Additionally, the Company is required to make monthly
interest payments to the DIP Lenders. The DIP Facility bears interest at a rate
of LIBOR plus 250 basis points or Base Rate plus 150 basis points, at the option
of the Company. During the month of February 1997, the Debtors drew down $45
million of borrowings under the DIP Facility. During the months of March and
April 1997, the Debtors repaid $25 million and $5 million, respectively, of
borrowings under the DIP Facility. The Debtors drew down an additional $2
million under the DIP Facility during the month of August and repaid $5 million
and $2 million of borrowings during the months of October 1997 and December
1997, respectively. On January 27, 1998, the DIP Facility was amended and
reduced from $200,000 to $100,000.
2) A $750 million senior secured and guaranteed credit agreement (the
"Pre-Petition Credit Agreement") with a syndicate of lenders including The Chase
Manhattan Bank, as Agent. As of December 31, 1997 there was $649 million of
loans outstanding under this facility consisting of two term loans of $137.5
million and $412.5 million and loans under a revolving credit facility totaling
$99 million. This agreement was entered into on December 4, 1995, in connection
with the financing of the MobileComm Acquisition. During a portion of 1996 and
continuing subsequent to the Filing Date, the Company was in default under this
agreement. As a result of such default and the bankruptcy filing, the Company
has no borrowing capacity under this agreement.
F-12
<PAGE>
MOBILEMEDIA COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
(dollar amounts in thousands)
6. Long-Term Debt - (continued)
3) $250,000 Senior Subordinated Notes due November 1, 2007 (the "9 3/8% Notes")
issued in November 1995, concurrent with MobileMedia's second offering of Class
A Common Stock (See Note 11). These notes bear interest at a rate of 9 3/8%
payable semiannually on May 1 and November 1 of each year. On November 1, 1996,
the Company did not make its scheduled interest payment on its 9 3/8% Notes
which constituted an event of default under this indenture. The note holders
have not exercised any rights or remedies afforded such holders (which rights
include, but are not limited to, acceleration of the stated maturity of the
notes). Since the Filing Date, any such right or remedy is subject to the
automatic stay created by the Bankruptcy Code.
4) $210,000 of Senior Subordinated Deferred Coupon Notes (the "Deferred Coupon
Notes") issued, at a discount, in November 1993. The Deferred Coupon Notes
accrete at a rate of 10.5%, compounded semiannually, to an aggregate principal
amount of $210,000 by December 1, 1998 after which interest is paid in cash at a
rate of 10.5% and is payable semiannually. By virtue of the missed interest
payments on the 9 3/8% Notes and the Pre-Petition Credit Agreement an event of
default has occurred under this indenture. The note holders have not exercised
any rights or remedies afforded such holders (which rights include, but are not
limited to, acceleration of the stated maturity of the notes). Since the Filing
Date, any such right or remedy is subject to the automatic stay created by the
Bankruptcy Code.
Interest Expense on Long Term Debt
Interest paid during the year ended December 31, 1997, 1996 and 1995 was
$76,624, $65,978 and $9,828, respectively. Total interest cost incurred for the
year ended December 31, 1997 was $68,409, of which $176 was capitalized. Total
interest cost incurred for the year ended December 31, 1996 was $94,231, of
which $1,292 was capitalized. For the year ended December 31, 1995, total
interest incurred was $32,994, of which $1,249 was capitalized.
Subsequent to the Filing Date, interest was accrued and paid only on the
Pre-Petition Credit Agreement and the DIP Facility.
7. Related Party Transactions
On February 8, 1995 MobileMedia called upon certain investors for an
additional $25,000 of capital which was required to be contributed to the
Company in exchange for 137,095 shares of Class A and 2,362,900 shares of Class
B common stock at $10 per share and warrants to purchase 51,014 shares of Class
A Common Stock. On June 13, 1995, the Company received the $25,000 from the
exercise of such call.
F-13
<PAGE>
MOBILEMEDIA COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
(dollar amounts in thousands)
8. Income Taxes
The components of income tax benefit (expense) are as follows:
Year Ended December 31,
-----------------------------
1997 1996 1995
------ ------ ------
Current:
Federal ..................... $ -- $ -- $ --
State and local ............. -- -- --
------ ------ ------
Deferred:
Federal ..................... -- -- --
State and local ............. -- -- --
------ ------ ------
Total .................. $ -- $ -- $ --
====== ====== ======
A reconciliation of income tax benefit and the amount computed by applying
the statutory federal income tax rate to loss before income taxes is as follows:
Year Ended December 31,
1997 1996 1995
Tax benefit computed at federal
statutory rate ........... $ 73,160 $ 117,917 $ 14,378
Valuation allowance on federal
deferred tax assets ...... $ (73,160) $(117,917) $ (14,378)
Total .............. $ -- $ -- $ --
========= ========= =========
The effect of the valuation allowance shown above represents federal tax
effects on income from continuing operations.
F-14
<PAGE>
MOBILEMEDIA COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
(dollar amounts in thousands)
8. Income Taxes - (Continued)
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for federal and state income tax purposes. The
components of deferred tax liabilities are as follows:
<TABLE>
<CAPTION>
December 31,
----------------------
1997 1996
--------- ---------
<S> <C> <C>
Deferred tax liabilities:
Difference in book and tax cost of intangible assets $ 57,267 $ 83,776
Other ............................................... 2,604 1,914
--------- ---------
Tax deferred tax liabilities ............................ 59,871 85,690
Deferred tax assets:
Loss on discontinued operations ..................... 777 3,137
Difference between book and tax basis of liabilities 13,322 21,694
Net operating loss carryforward ..................... 157,875 85,326
Difference between book and tax basis of fixed assets 28,665 30,692
Other ............................................... 3,837 2,741
--------- ---------
Total deferred assets ................................... 204,476 143,590
Valuation allowances for deferred tax assets ............ (216,702) (129,997)
--------- ---------
Net deferred tax assets ................................. (12,226) 13,593
========= =========
Net deferred tax liabilities ............................ $ 72,097 $ 72,097
========= =========
</TABLE>
As of December 31, 1997, the Company has available net operating loss
carryforwards for tax purposes of approximately $380,000 which expire in years
2008 through 2012. Utilization of these losses may be limited under Section 382
of the Internal Revenue Code.
The Company believes consummation of the public offering of 15,525,000
shares of Class A Common Stock on November 7, 1995 caused an ownership change
for the Company for purposes of Section 382 of the Code. As a result, the use of
the Company's pre-ownership change net operating loss carryforwards will be
limited annually by the Section 382 Limitation, which is estimated to be
approximately $40.0 million. If a second ownership change occurred subsequent to
November 7, 1995, which has not been determined, use of the Company's net
operating losses would be severely limited. Furthermore, the Company's federal
and state net operating losses may be reduced or otherwise limited as a result
of the reorganization of the Company during bankruptcy proceedings.
F-15
<PAGE>
MOBILEMEDIA COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
(dollar amounts in thousands)
9. Leases
Certain facilities and equipment used in operations are held under
operating leases. In accordance with the Bankruptcy Code, all lease contracts
will be reviewed, and subject to Court approval, are subject to rejection.
Rental expenses under operating leases were $43,453, $44,574, and $14,983 for
years ended December 31, 1997, 1996 and 1995, respectively. At December 31,
1997, the aggregate minimum rental commitments under leases were as follows:
1998 ........................... $23,566
1999 ........................... 18,953
2000 ........................... 14,037
2001 ........................... 7,625
2002 ........................... 4,788
Thereafter ..................... 7,707
-------
$76,676
=======
On March 21, 1998, the Company moved into a new headquarters facility
pursuant to a lease with Miller Freeman, Inc. entered into with Bankruptcy Court
approval. On April 1, 1998, the Company, with Bankruptcy Court approval,
assigned its prior lease of rental property used for its Headquarters office to
Southwestern Bell Yellow Pages, Inc. The lease expires in June, 2000. The
estimated annual savings related to this lease assignment and the lease with
Miller Freeman, Inc. is approximately $1,400. The cost savings is not reflected
in the above minimum rental commitments.
10. Employee Benefit Plans
The Company adopted a retirement savings plan which allows for all
employees who have been employed for one year and have at least 1,000 hours of
credited service to contribute and defer up to 15% of his or her compensation.
Effective February 1, 1996, the Company began a matching contribution of 50% of
the first 2% of the elected deferral plus an additional 25% of the next 4% of
the elected deferral. The Company's matching contribution was $730 in 1997 and
$700 in 1996.
Employees of MobileComm and Dial Page who were hired by the Company were
eligible to participate in the Company's retirement savings plan based on their
recognized MobileComm and Dial Page service date. As of the date of the
MobileComm and Dial Page Acquisitions employees with one year and at least 1,000
hours of credited service were eligible to participate.
11. Common Stock, Stock Option Plans and Stock Warrants
On July 6, 1995, MobileMedia issued an aggregate of 8,000,000 shares of
Class A Common Stock in a public offering at a price of $18.50 per share.
MobileMedia received net proceeds from the sale of approximately $137,975. In
addition, on July 25, 1995, the underwriters exercised their over-allotment
option to purchase an additional 800,000 shares of Class A Common Stock at the
initial public offering price. Accordingly, MobileMedia received additional net
proceeds of $13,910 for the over-allotment shares.
On November 13, 1995, MobileMedia issued an aggregate of 13,500,000 shares
of Class A Common Stock at a public offering price of $23.75 resulting in net
proceeds of approximately $308,755. In addition, the underwriters exercised
their over-allotment option to purchase an additional 2,025,000 shares of Class
A Common Stock at the public offering price resulting in additional net proceeds
of approximately $46,170.
F-16
<PAGE>
MOBILEMEDIA COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
(dollar amounts in thousands)
11. Common Stock, Stock Option Plans and Stock Warrants - (Continued)
Non-Employee Directors
The Company adopted a stock option plan under which options to purchase
MobileMedia Class A Common Stock will be granted to the Company's non-employee
directors.
Options for a total of 121,800 shares of Class A Common Stock were issued
under the Plan since the beginning of the Plan. All exercise prices per share
were considered to be the fair market value at the date of grant.
The plan was amended in 1997 to provide that no additional options may be
granted. Accordingly, no additional options were granted after 1996 under the
Plan. At December 31, 1996, options for a total of 92,040 shares of Class A
Common Stock, at exercise prices ranging from $10.00 to $26.38, were
outstanding. At December 31, 1997, options for a total of 90,290 shares of Class
A Common Stock were outstanding (which figure reflects the forfeiture of options
for 1,750 shares of Class A Common Stock by reason of the resignation of a
director in 1997).
Employees
The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" and related interpretations in
accounting for its employee stock options because the alternative fair value
accounting provided for under FASB Statement No. 123, "Accounting for
Stock-Based Compensation," requires use of option valuation models that were not
developed for use in valuing employee stock options. Under APB 25, because the
exercise price of the Company's employee stock option equals the market price of
the underlying stock on the date of grant, no compensation expense is
recognized. In light of the Company's current circumstances, the pro forma
effect of stock compensation expense pursuant to SFAS No. 123 has not been
calculated.
The Company adopted the 1993 MobileMedia Corporation Stock Option Plan
(the "Option Plan") under which options to purchase shares of MobileMedia's
Class A Common Stock may be granted to officers and key employees of the
Company.
Two types of options may be granted under the Option Plan: options
intended to qualify as incentive stock options under Section 422 of the Code,
and "non-qualified" stock options not specifically authorized or qualified for
favorable federal income tax treatment under the Code. The option exercise price
for incentive stock options granted under the Option Plan may not be less than
the fair market value (as defined in the Option Plan) of the Company's Class A
Common Stock on the date the option is granted. The exercise price of
non-qualified stock options may be set by the Board of Directors at a discount
from fair market value.
Prior to the Filing Date, qualified and non-qualified options issued to
certain current and former officers and key employees of the Company to purchase
up to 1,449,259 and 1,470,468, shares of Class A Common Stock at December 31,
1997 and 1996, respectively, at exercise prices ranging from $6.81 to $10.00 per
share, were outstanding.
F-17
<PAGE>
MOBILEMEDIA COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
UNAUDITED
(dollar amounts in thousands)
12. Commitments and Contingencies
The Company is party to a number of lawsuits and other matters arising in
the ordinary course of business.
As announced in its September 27, 1996 and October 21, 1996 press
releases, the Company discovered misrepresentations and other violations which
occurred during the licensing process for as many as 400 to 500, or
approximately 6% to 7%, of its approximately 8,000 local transmission one-way
paging stations. The Company caused an investigation to be conducted by its
outside counsel, and a comprehensive report regarding these matters was provided
to the FCC in the Fall of 1996. In cooperation with the FCC, outside counsel's
investigation was expanded to examine all of the Company's paging licenses, and
the results of that investigation were submitted to the FCC on November 8, 1996.
As part of the cooperative process, the Company proposed to the FCC that a
consent order be entered which would result, among other things, in the return
of certain local paging authorizations then held by the Company, the dismissal
of certain pending applications for paging authorizations, and the voluntary
acceptance of a substantial monetary forfeiture.
On January 13, 1997, the FCC issued a Public Notice relating to the status
of certain FCC authorizations held by the Company. Pursuant to the Public
Notice, the FCC announced that it had (i) automatically terminated approximately
185 authorizations for paging facilities that were not constructed by the
expiration date of their construction permits and remained unconstructed, (ii)
dismissed approximately 94 applications for fill-in sites around existing paging
stations (which had been filed under the so-called "40-mile rule") as defective
because they were predicated upon unconstructed facilities and (iii)
automatically terminated approximately 99 other authorizations for paging
facilities that were constructed after the expiration date of their construction
permits. With respect to the approximately 99 authorizations where the
underlying station was untimely constructed, the FCC granted the Company interim
operating authority subject to further action by the FCC.
On April 8, 1997, the FCC adopted an order commencing an administrative
hearing into the qualification of the Company to remain a licensee. The order
directed an Administrative Law Judge to take evidence and develop a full factual
record on directed issues concerning the Company's filing of false forms and
applications. The Company was permitted to operate its licensed facilities and
provide service to the public during the pendency of the hearing.
On June 6, 1997, the FCC issued an order staying the hearing proceeding
for ten months in order to allow the Company to develop and consummate a plan of
reorganization that provides for a change of control of the Company and a
permissible transfer of the Company's FCC licenses. The order, which is based on
an FCC doctrine known as Second Thursday, provides that if there is a change of
control that meets the conditions of Second Thursday, the Company's FCC issues
will be resolved by the transfer of the Company's FCC licenses to the new owners
of the Company and the hearing will not proceed. The Company believes that a
reorganization plan that provides for either a conversion of certain existing
debt to equity, in which case existing MobileMedia shares will be substantially
diluted or eliminated, or a sale of the Company will result in a change of
control. The Company has requested that the FCC grant an extension of the order
staying the hearing for an additional six months to October 6, 1998. In the
event that the Company were unable to consummate a plan of reorganization that
satisfies the conditions of Second Thursday, or should the FCC not grant an
extension of the stay of the hearing, the Company would be required to proceed
with the hearing, which, if adversely determined, could result in the loss of
the Company's licenses or substantial monetary fines, or both. Such an outcome
would have a material adverse effect on the Company's financial condition and
results of operations.
Prior to the Filing Date, five actions allegedly arising under the federal
securities laws were filed against MobileMedia and certain of its officers,
directors and underwriters in the United States District Court for the District
F-18
<PAGE>
MOBILEMEDIA COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
UNAUDITED
(dollar amounts in thousands)
12. Commitments and Contingencies - (Continued)
of New Jersey. These actions were subsequently consolidated as In re MobileMedia
Securities Litigation, No. 96-5723 (AJL) (the "New Jersey Actions"). A
consolidated amended complaint (the "Complaint") was filed on November 21, 1997.
The Complaint does not name MobileMedia as a defendant.
In June 1997, the Debtors initiated an Adversary Proceeding in the
Bankruptcy Court to stay the prosecution of the New Jersey Actions. Pursuant to
a Stipulation entered into among the Debtors and the plaintiffs in the New
Jersey Actions and "So Ordered" by the Bankruptcy Court on October 31, 1997, the
plaintiffs in the New Jersey Actions may conduct only limited discovery in
connection with the New Jersey Actions and may not file any pleadings, except
responses to motions to dismiss, until the earlier of September 30, 1998 and the
effective date pursuant to a plan of reorganization.
In addition to the New Jersey Actions, two lawsuits (together, the
"California Actions" and, together with the New Jersey Actions, the "Securities
Actions") were filed in September 1997 in the United States District Court for
the Northern District of California and the Superior Court of California naming
as defendants certain former officers and certain present and former directors
of MobileMedia, certain investment entities and the Debtors' independent
auditors in their capacity as the Debtors' independent auditors. None of the
Debtors is named as defendant in the California Actions.
On November 4, 1997, the Debtors commenced an adversary proceeding in the
Bankruptcy Court seeking to stay the prosecution of the California Actions
against the named defendants. At a hearing held on December 10, 1997, the
Bankruptcy Court enjoined the plaintiffs in the California Actions until May 31,
1998 from prosecuting the California Actions, with certain exceptions.
Neither the New Jersey Actions nor the California Actions name any of the
Debtors as a defendant. However, proofs of claim have been filed against the
Debtors by the plaintiffs in the New Jersey Actions, and both the New Jersey
Actions and the California Actions may give rise to claims against the Debtors'
Directors, Officers and Corporate Liability Insurance Policy. Under the plan of
reorganization, filed on January 27, 1998, these Claims will receive no
distributions.
Three former employees have pre-petition agreements which provide an
incentive payment of up to $300 to each of them if the Company's EBITDA
(excluding operations of businesses acquired after MPS) for 1996 equals or
exceeds $82,200 subject to certain adjustments (the "1996 Target"), and of up to
$1,000 to each of them if the Company's EBITDA for 1998 (excluding operations of
businesses acquired after MPS) equals or exceeds $125,100, subject to certain
adjustments (the "1998 Target"). One current and four former employees have
pre-petition agreements which provide for incentive payments of up to $150 to
each of them if the Company (excluding operations of businesses acquired after
MPS) meets the 1996 Target and of up to $300 to each of them if the Company
(excluding operations of businesses acquired after MPS) meets the 1998 Target.
Several former employees have submitted proofs of claim with the Bankruptcy
Court with respect to these incentive payments. The Company intends to object to
these unsecured claims.
13. Other Investments
On March 21,1995, the Company purchased a 33% interest in Abacus
Communications Partners, L.P., a Delaware limited partnership, from Abacus
Business Services, Inc. for $1,641. Abacus Communications Partners, L.P. is the
Company's exclusive alphanumeric dispatch services provider. The investment has
been accounted for under the equity method in accordance with Accounting
Principles Board Opinion No. 18. Under the equity method, original investments
are recorded at cost and adjusted by the Company's share of undistributed
earnings or losses of the purchased company. The Company's share of income
(loss) of affiliate, net of distribution, for the years ended December 31, 1997,
1996 and 1995 was $69, $161 and $(303), respectively.
F-19
<PAGE>
MOBILEMEDIA COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
UNAUDITED
(dollar amounts in thousands)
14. Impact of Year 2000
The Year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Any of the Company's
computer 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.
While the Company is aware that certain of its software requires
modification, it is in the process of determining the full extent that it will
be required to modify or replace significant portions of its software so that
its computer systems function properly with respect to dates in the year 2000
and thereafter. If such modifications and conversions are not made, or are not
completed timely, the Year 2000 Issue could have a material impact on the
operations of the Company.
F-20
