SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
AMENDMENT No.1 TO CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report: (Date of Earliest Event Reported): June 3, 1999
ARCH COMMUNICATIONS GROUP, INC.
------------------------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
Delaware
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(State or Other Jurisdiction of Incorporation)
0-23232 31-1358569
------------------------ ---------------------------------
(Commission File Number) (IRS Employer Identification No.)
1800 West Park Drive, Suite 250, Westborough, MA 01581
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(Address of principal executive offices) (Zip Code)
(508) 870-6700
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Registrant's Telephone Number, Including Area Code
Not Applicable
------------------------------------------------------------------------
(Former Name or Former Address, if Changed Since Last Report)
<PAGE>
Introductory Note
On June 3, 1999, Arch Communications Group, Inc. ("Arch") completed its
acquisition of MobileMedia Communications, Inc. ("MobileMedia") through the
merger of MobileMedia with and into a wholly-owned subsidiary of Arch (the
"Merger"). The Merger has been accounted for using the purchase method of
accounting in accordance with generally accepted accounting principles.
On June 18, 1999, Arch filed a Current Report on Form 8-K to report the
Merger. The purpose of this Amendment No. 1 to the Current Report on Form 8-K is
to file the financial statements of the business acquired and the pro forma
financial statements required by Item 7.
Item 7 is amended as set forth below:
Item 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements of Businesses Acquired
The required financial statements are attached hereto on pages 3
through 22.
(b) Pro forma Financial Statements
The required pro forma financial statements are attached hereto on
pages 23 through 28.
2
<PAGE>
Report of Independent Auditors
The Board of Directors
MobileMedia Communications, Inc.
We have audited the accompanying consolidated balance sheets of MobileMedia
Communications, Inc. and Subsidiaries ("MobileMedia") as of December 31, 1997
and 1998, and the related consolidated statements of operations, stockholders'
equity (deficit) and cash flows for each of the three years in the period ended
December 31, 1998. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of MobileMedia Communications, Inc. and Subsidiaries at December 31, 1997 and
1998 and the consolidated results of their operations and cash flows for each
of the three years in the period ended December 31, 1998 in conformity with
generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that
MobileMedia will continue as a going concern. As more fully described in Note
1, on January 30, 1997, MobileMedia Corporation and substantially all of its
subsidiaries filed voluntary petitions for reorganization under Chapter 11 of
the United States Bankruptcy Code in the United States Bankruptcy Court for the
District of Delaware (the Bankruptcy Court). Additionally, as more fully
described in Note 11, on April 8, 1997, the Federal Communications Commission
("FCC") issued a Public Notice commencing an administrative hearing into the
qualification of MobileMedia to remain a licensee. These events, and
circumstances relating to the Chapter 11 filing with the Bankruptcy Court,
including MobileMedia's highly leveraged financial structure, non-compliance
with certain covenants of loan agreements with banks and note indentures, net
working capital deficiency and recurring losses from operations, raise
substantial doubt about MobileMedia's ability to continue as a going concern.
Although MobileMedia is currently operating the business as a debtor-in-
possession under the jurisdiction of the Bankruptcy Court, the continuation of
the business as a going concern is contingent upon, among other things, the
ability to (a) gain approval of the creditors and confirmation by the
Bankruptcy Court of a plan of reorganization, (b) maintain compliance with all
covenants under the debtor-in-possession financing agreement, (c) achieve
satisfactory levels of future operating profit and (d) retain FCC qualification
as a licensee. The financial statements do not include any adjustments to
reflect the possible future effects on the recoverability and classification of
assets or the amounts and classification of liabilities that may result from
the outcome of these uncertainties.
/s/ Ernst & Young LLP
MetroPark, New Jersey
February 12, 1999, except for the eighth paragraph of Note 1 and
the second paragraph of Note 6, as to which the date is March 26, 1999
and the ninth paragraph of Note 1, as to which the date is April 12, 1999
3
<PAGE>
MOBILEMEDIA COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
December 31,
------------------------ March 31,
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
ASSETS (unaudited)
Current assets
Cash and cash equivalents............. $ 10,920 $ 1,218 $ --
Accounts receivable (less allowance
for uncollectible accounts of
$26,500, $15,000 and $14,893 in 1997,
1998 and 1999, respectively) ........ 55,432 38,942 37,270
Inventories........................... 868 2,192 1,609
Prepaid expense....................... 5,108 5,523 5,261
Other current assets.................. 2,783 4,855 4,900
----------- ----------- -----------
Total current assets................ 75,111 52,730 49,040
----------- ----------- -----------
Investment in net assets of equity
affiliate.............................. 1,788 1,400 --
Property and equipment, net............. 257,937 219,642 225,566
Intangible assets, net.................. 295,358 266,109 258,793
Other assets............................ 24,940 21,573 20,610
----------- ----------- -----------
Total assets........................ $ 655,134 $ 561,454 $ 554,009
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Liabilities not subject to compromise
Debtor-In-Possession (DIP) credit
facility............................. $ 10,000 $ -- $ 5,000
Accrued restructuring costs........... 4,897 5,163 7,197
Accrued wages, benefits and payroll... 11,894 12,033 9,944
Book cash overdraft................... -- -- 1,255
Accounts payable--post petition....... 2,362 1,703 7,334
Accrued interest...................... 4,777 3,692 3,566
Accrued expenses and other current
liabilities.......................... 35,959 35,735 30,061
Current income taxes payable.......... -- 2,871 1,200
Advance billing and customer
deposits............................. 34,252 28,554 28,892
Deferred gain on tower sale........... -- 68,444 67,278
----------- ----------- -----------
Total liabilities not subject to
compromise......................... 104,141 158,195 161,727
----------- ----------- -----------
Liabilities subject to compromise
Accrued wages, benefits and payroll
taxes................................ 562 647 476
Accrued interest...................... 18,450 17,579 17,578
Accounts payable--pre petition........ 19,646 15,410 15,351
Accrued expenses and other current
liabilities.......................... 20,663 15,285 12,231
Debt.................................. 1,075,681 905,681 905,681
Other liabilities..................... 2,915 -- --
----------- ----------- -----------
Total liabilities subject to
compromise......................... 1,137,917 954,602 951,317
----------- ----------- -----------
Deferred tax liabilities.............. 2,655 2,655 2,655
Stockholders' deficit
Common stock (1 share, no par value,
issued and outstanding at
December 31, 1997 and 1998 and March
31, 1999)............................ -- -- --
Additional paid-in-capital............ 676,025 676,025 676,025
Accumulated deficit--pre petition..... (1,154,420) (1,154,420) (1,154,420)
Accumulated deficit--post petition.... (111,184) (75,603) (83,295)
----------- ----------- -----------
Total stockholders' deficit......... (589,579) (553,998) (561,690)
----------- ----------- -----------
Total liabilities and stockholders'
deficit............................ $ 655,134 $ 561,454 $ 554,009
=========== =========== ===========
</TABLE>
See accompanying notes.
4
<PAGE>
MOBILEMEDIA COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands)
<TABLE>
<CAPTION>
Three Months
Year Ended December 31, Ended March 31,
-------------------------------- ------------------
1996 1997 1998 1998 1999
----------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Revenue (unaudited)
Services, rents and
maintenance........... $ 568,892 $ 491,174 $423,059 $108,542 $100,631
Product sales.......... 71,818 36,218 26,622 6,621 5,193
----------- --------- -------- -------- --------
Total revenues....... 640,710 527,392 449,681 115,163 105,824
Cost of products sold.... (72,595) (35,843) (22,162) (5,513) (3,516)
----------- --------- -------- -------- --------
568,115 491,549 427,519 109,650 102,308
Operating expenses
Services, rents and
maintenance........... 144,050 139,333 111,589 28,899 27,077
Selling................ 96,817 69,544 61,106 15,703 14,136
General and
administrative........ 218,607 179,599 133,003 34,908 31,481
Reduction of
liabilities subject to
compromise............ -- -- (10,461) -- (3,050)
Impairment of long-
lived assets.......... 792,478 -- -- -- --
Restructuring costs.... 4,256 19,811 18,624 4,558 5,067
Depreciation........... 136,434 110,376 86,624 24,193 20,501
Amortization........... 212,264 29,862 29,835 7,478 7,468
Amortization of
deferred gain on tower
sale.................. -- -- (1,556) -- (1,167)
----------- --------- -------- -------- --------
Total operating
expenses............ 1,604,906 548,525 428,764 115,739 101,513
----------- --------- -------- -------- --------
Operating Income (loss).. (1,036,791) (56,976) (1,245) (6,089) 795
Other income (expense)
Interest expense, net.. (92,663) (67,611) (53,043) (14,626) (10,018)
Gain (loss) on
sale/disposal of
assets................ 68 3 94,165 1 (323)
Other.................. -- -- (338) -- 2,063
----------- --------- -------- -------- --------
Total other expense.. (92,595) (67,608) 40,784 (14,625) (8,278)
----------- --------- -------- -------- --------
Income (loss) before
income taxes (benefit).. (1,129,386) (124,584) 39,539 (20,714) (7,483)
Income taxes (benefit)... (69,442) -- 3,958 -- 209
----------- --------- -------- -------- --------
Net income (loss)........ $(1,059,944) $(124,584) $ 35,581 $(20,714) $ (7,692)
=========== ========= ======== ======== ========
</TABLE>
See accompanying notes.
5
<PAGE>
MOBILEMEDIA COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
(in thousands)
<TABLE>
<CAPTION>
Accumulated Accumulated
Additional Deficit Deficit
Paid in Pre- Post-
Capital Petition Petition Total
---------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Balance at December 31, 1995.. $659,829 $ (81,076) $ 0 $ 578,753
Capital contribution from
MobileMedia.................. 12,800 -- -- 12,800
Net loss...................... -- (1,059,944) -- (1,059,944)
-------- ----------- --------- -----------
Balance at December 31, 1996.. 672,629 (1,141,020) 0 (468,391)
Capital contribution from
MobileMedia.................. 3,396 -- -- 3,396
Net loss...................... -- (13,400) (111,184) (124,584)
-------- ----------- --------- -----------
Balance at December 31, 1997.. 676,025 (1,154,420) (111,184) (589,579)
Net income.................... -- -- 35,581 35,581
-------- ----------- --------- -----------
Balance at December 31, 1998
............................. 676,025 (1,154,420) (75,603) (553,998)
Net loss (unaudited).......... -- -- (7,692) (7,692)
-------- ----------- --------- -----------
Balance at March 31, 1999
(unaudited).................. $676,025 $(1,154,420) $ (83,295) $ (561,690)
======== =========== ========= ===========
</TABLE>
See accompanying notes.
6
<PAGE>
MOBILEMEDIA COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Three Months Ended
Year Ended December 31, March 31,
--------------------------------- --------------------
1996 1997 1998 1998 1999
----------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Operating activities (unaudited)
Net income (loss)..... $(1,059,944) $(124,584) $ 35,581 $(20,714) $(7,692)
Adjustments to reconcile
net loss to net cash
provided by (used in)
Operating activities:
Depreciation and amor-
tization............. 348,698 140,238 116,459 31,672 27,969
Amortization of de-
ferred gain on tower
sale................. -- -- (1,556) -- (1,167)
Income tax benefit.... (69,442) -- -- -- --
Accretion of note pay-
able discount........ 16,792 1,485 -- -- --
Provision for uncol-
lectible accounts.... 56,556 65,181 14,841 4,981 2,131
Reduction of liabili-
ties subject to com-
promise.............. -- -- (10,461) -- (3,050)
Recognized gain on
sale of tower as-
sets................. -- -- (94,165) -- --
Impairment of long-
lived assets......... 792,478 -- -- -- --
Undistributed earnings
of affiliate, net.... 160 69 (87) 22 --
Change in operating as-
sets and liabilities:
Accounts receivable... (55,965) (53,904) 1,649 2,813 (459)
Inventories........... 2,433 12,514 (1,324) 407 583
Prepaid expenses and
other assets......... 12,145 (686) 590 (1,052) 1,028
Accounts payable, ac-
crued expenses and
other liabilities.... 13,283 (25,393) (7,065) 1,413 (1,791)
----------- --------- --------- --------- --------
Net cash provided by
(used in) operating
activities........... 57,194 14,920 54,462 19,542 17,552
----------- --------- --------- --------- --------
Investing activities:
Construction and capi-
tal expenditures, in-
cluding net changes
in pager assets...... (161,861) (40,556) (53,867) (4,854) (26,806)
Net proceeds from the
sale of tower as-
sets................. -- -- 169,703 -- --
Net proceeds from the
sale of investment in
Abacus............... -- -- -- -- 1,400
Net loss on the dis-
posal of fixed as-
sets................. -- -- -- -- 381
Acquisition of busi-
nesses............... (866,460) -- -- -- --
----------- --------- --------- --------- --------
Net cash provided by
(used in) investing ac-
tivities............... (1,028,321) (40,556) 115,836 (4,854) (25,025)
----------- --------- --------- --------- --------
Financing activities:
Book cash overdraft... -- -- -- -- 1,255
Capital contribution
by MobileMedia Corpo-
ration............... 12,800 3,396 -- -- --
Payment of debt issue
costs................ (6,939) -- -- -- --
Borrowing from revolv-
ing credit facili-
ties................. 580,250 -- -- -- --
Repayments on revolv-
ing credit facili-
ties................. -- -- (170,000) -- --
Borrowing from DIP
credit facilities.... -- 47,000 -- -- 5,000
Repayments on DIP
credit facilities.... -- (37,000) (10,000) (10,000) --
----------- --------- --------- --------- --------
Net cash provided by
(used in) financing ac-
tivities............... 586,111 13,396 (180,000) (10,000) 6,255
----------- --------- --------- --------- --------
Net (decrease) increase
in cash, cash equiva-
lents designated and
cash designated for the
MobileComm acquisi-
tion................... (385,016) (12,240) (9,702) 4,688 (1,218)
Cash and cash equiva-
lents at beginning of
period................. 408,176 23,160 10,920 10,920 1,218
----------- --------- --------- --------- --------
Cash and cash equiva-
lents at end of peri-
od..................... $ 23,160 $ 10,920 $ 1,218 $ 15,608 $ 0
=========== ========= ========= ========= ========
</TABLE>
See accompanying notes.
7
<PAGE>
MOBILEMEDIA COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
1. Chapter 11 Reorganization and Basis of Presentation
On January 30, 1997 (the "Petition date"), MobileMedia Corporation
("Parent"), its wholly owned subsidiary MobileMedia Communications, Inc., and
all seventeen of MobileMedia Communications, Inc.'s subsidiaries
("MobileMedia") (collectively with Parent, 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"). Chapter 11 is the principal business reorganization
chapter of the Bankruptcy Code. Under Chapter 11 of the Bankruptcy Code, a
debtor is authorized to reorganize its business for the benefit of its
creditors and stockholders. In addition to permitting rehabilitation of the
debtor, another goal of Chapter 11 is to promote equality of treatment of
creditors and equity security holders of equal rank with respect to the
restructuring of debt. In furtherance of these two goals, upon the filing of a
petition for reorganization under Chapter 11, section 362(a) of the Bankruptcy
Code generally provides for an automatic stay of substantially all acts and
proceedings against the debtor and its property, including all attempts to
collect claims or enforce liens that arose prior to the commencement of the
debtor's case under Chapter 11.
The Bankruptcy Court has exercised supervisory powers over the operations of
the Debtors with respect to the employment of attorneys, investment bankers and
other professionals, and transactions out of the Debtors' ordinary course of
business or otherwise requiring bankruptcy court approval under the Bankruptcy
Code. The Debtors have been paying undisputed obligations that have arisen
subsequent to the Petition date on a timely basis.
Since the Petition date, the Bankruptcy Court has entered orders, among other
things, allowing the Debtors (i) to pay certain customer refunds and deposits
in the ordinary course of business, (ii) to pay wages, salaries and benefits
owing to employees, and (iii) to pay specified pre-petition taxes owing to
various governmental entities. On February 6, 1997, the Bankruptcy Court
entered an order authorizing the Debtors to pay approximately $46,000 in pre-
petition amounts owing to certain essential vendors.
Under the Bankruptcy Code, the Debtors 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
Debtors, 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
Debtors to the extent that the Debtors utilize the collateral or services of
such parties subsequent to the commencement of the Chapter 11 proceedings. The
Debtors cannot presently determine or reasonably estimate the ultimate
liability that 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 notified all known
claimants that pursuant to an order of the Bankruptcy Court, all proofs of
claims, on account of pre-petition obligations, other than for certain
governmental entities, were required to be filed by June 16, 1997 (the "Bar
Date"). As of March 31, 1999, approximately 2,581 proofs of claim had been
filed against the Debtors. 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 inaccurate estimates of the Debtors'
liabilities. As of March 31, 1999, the Debtors had secured orders of the
Bankruptcy Court reducing approximately 1,607 claims filed in an aggregate
amount of approximately $143,362 to an allowed amount of $10,239. As of March
31, 1999, the Debtors had also analyzed and resolved an additional 876 proofs
of claim, representing an aggregate allowed amount of $8,389. The Debtors
expect the objection process to continue.
8
<PAGE>
MOBILEMEDIA COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(dollars in thousands)
On August 20, 1998, MobileMedia announced that it had executed a merger
agreement with Arch Communications Group, Inc. ("Arch"), pursuant to which
MobileMedia Communications, Inc. will be merged with and into a wholly-owned
subsidiary of Arch. Immediately prior to the Merger, Parent will contribute all
of its assets to MobileMedia Communications, Inc. Also on August 20, 1998, the
Debtors filed a First Amended Joint Plan of Reorganization that reflects the
proposed merger with Arch. On September 3, 1998, Arch and MobileMedia executed
an amendment to the merger agreement and the Debtors filed a subsequent Second
Amended Joint Plan of Reorganization. On December 1, 1998 Arch and MobileMedia
executed a second amendment to the merger agreement and on December 2, 1998,
the Debtors filed a Third Amended Joint Plan of Reorganization (the "Plan"). As
of February 9, 1999, Arch and MobileMedia executed a third amendment to the
merger agreement. Under the Plan, the Debtors' secured creditors will receive
cash in an amount equal to their allowed pre-petition claims and the Debtors'
unsecured creditors will receive cash or equity securities of Arch in
satisfaction of their pre-petition claims against the Debtors. Because there
are a variety of conditions precedent to the consummation of the Plan and the
merger with Arch, there can be no assurance that the transactions contemplated
thereby will be consummated.
In December 1998 and January 1999, MobileMedia solicited the votes of its
creditors on the Plan. 100% of the voting creditors in Class 4 voted to accept
the Plan. As to Allowed Claims in Class 5, 83% in number and 91% in amount of
those voting voted to accept the Plan. Of the Allowed Claims in Class 6 that
voted on the Plan, 968 of such holders (approximately 94% in number and 69% in
amount) voted to accept the Plan, and 61 of such holders (approximately 6% in
number and 31% in amount) voted to reject the Plan.
Objections to confirmation were filed by New Generation Advisors, Inc. ("New
Generation"), Merrill Lynch Phoenix Fund, Inc., Merrill Lynch Corporate Bond
Fund, Inc.--High Income Portfolio and State Street Research High Income Fund
(the "Objectors"). On February 12, 1999, at a continued hearing on confirmation
of the Plan, the Bankruptcy Court ordered MobileMedia to provide due diligence
to a nominee of New Generation, to prepare supplemental disclosure to the
holders of Allowed Claims in Class 6, and to resolicit the votes of such
holders on the Plan. At a hearing held before the Bankruptcy Court on February
18, 1999, the Bankruptcy Court entered an order approving a form of Notice and
Supplemental Disclosure, directing MobileMedia to resolicit the votes of all
holders of Allowed Class 6 Claims and establishing March 23, 1999 as (a) the
Supplemental Voting Deadline for Class 6 and (b) the deadline for any further
objections to confirmation of the Plan arising out of the matters set forth in
the Notice of Supplemental Disclosure. No further objections to the Plan were
received by March 23, 1999. Taking into account the resolicitation of Class 6,
the Plan was accepted by 59.6% in number and 69.3% in dollar amount of voting
Class 6 creditors.
On March 22, 1999, the Debtors and various other parties (including the
Objectors, Arch, the Committee and the Agent for the Company's pre-petition
secured lenders) executed a stipulation (the "Stipulation") that was approved
by the Bankruptcy Court, effective as of March 23, 1999. The Stipulation
resolved the pending objections to the Plan by providing for the withdrawal of
the Objectors' objections and the waiver of all appeal rights of the Objectors.
The Plan was confirmed by the Bankruptcy Court on April 12, 1999.
The consolidated financial statements at December 31, 1997, 1998 and March
31, 1999 (unaudited) 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 MobileMedia 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.
9
<PAGE>
MOBILEMEDIA COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(dollars in thousands)
2. The Company and Summary of Significant Accounting Policies
The Company
MobileMedia provides paging and wireless messaging services in the United
States, including the 100 largest metropolitan areas.
Consolidation
The consolidated financial statements include the accounts of MobileMedia and
its wholly-owned subsidiaries (MobileMedia Communications, Inc. (California),
MobileMedia Paging, Inc., MobileMedia DP Properties, Inc., Dial Page Southeast,
Inc., Radio Call Company of Va., 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.
Cash Equivalents
MobileMedia considers all highly-liquid securities with an original maturity
of less than three months to be cash equivalents.
Concentrations of Credit Risk
Financial instruments that potentially subject MobileMedia to concentrations
of credit risk consist principally of temporary cash investments and accounts
receivable. MobileMedia places its cash with high-quality institutions and, by
policy, limits its credit exposure to any one institution. Although MobileMedia
faces significant credit risk from its customers, such risk does not result
from a concentration of credit risk as a result of the large number of
customers which comprise MobileMedia's customer base. MobileMedia generally
does not require collateral or other security to support customer receivables.
Inventories
MobileMedia values inventories at the lower of specific cost or market value.
Inventories consist of pagers held specifically for resale by MobileMedia.
Revenue Recognition
MobileMedia 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. MobileMedia
leases (as lessor) certain pagers under operating leases. Sales of pagers are
recognized upon delivery.
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.
10
<PAGE>
MOBILEMEDIA COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(dollars in thousands)
Property and Equipment
Effective October 1, 1997, MobileMedia 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.
MobileMedia purchases a significant percentage of its pagers from one
supplier. Any disruption of such supply could have a material impact on
MobileMedia's operations.
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.
Depreciation and amortization are computed using the straight-line method
over the following estimated useful lives:
<TABLE>
<S> <C>
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
</TABLE>
Intangible Assets
Intangible assets consist primarily of customer lists and FCC licenses which
are being amortized principally using the straight-line method over periods
ranging from 3 to 25 years. In connection with the impairment writedown
discussed below, MobileMedia revised the useful lives of FCC licenses and
customer lists to 25 years and 3 years, respectively.
Impairment of Long-Lived Assets
In accordance with Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed Of", MobileMedia records impairment losses on long-lived assets
used in operations when events and circumstances indicate that the assets might
be impaired and the undiscounted cash flows estimated to be generated by those
assets are less than the net book value of those assets. In 1997, MobileMedia
determined impairment existed with respect to its long-lived assets as of
December 31, 1996. Such determination was based upon the existence of adverse
business circumstances, such as MobileMedia's bankruptcy, its 1996 operating
results and the uncertainty associated with the pending FCC proceeding. In July
1998, MobileMedia evaluated the ongoing value of its long-lived assets
effective December 31, 1996 and, based on this evaluation, MobileMedia
determined that intangible assets with a net book value of $1,118,231 were
impaired and wrote them down by $792,478 to their
11
<PAGE>
MOBILEMEDIA COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(dollars in thousands)
estimated fair value. Fair value was determined through the application of
generally accepted valuation methods to MobileMedia's projected cash flows,
discounted at an estimated market rate of interest. The remaining carrying
amount of long-lived assets are expected to be recovered based on MobileMedia's
estimates of cash flows. However, it is possible that such estimates could
change based upon the uncertainties of the bankruptcy process and because
future operating and financial results may differ from those projected which
may require further writedowns to fair value.
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 $19,295 at December 31, 1998 and
$18,384 at March 31, 1999 (unaudited) and are being amortized on a straight
line basis over the term of the related debt.
Book Cash Overdraft
Under MobileMedia's cash management system, checks issued but not presented
to banks occasionally result in overdraft balances for accounting purposes and
are classified as "Book cash overdraft" in the balance sheet.
Liabilities Subject to Compromise
Liabilities subject to compromise consists of pre-petition liabilities that
may be affected by a plan of reorganization. In accordance with AICPA Statement
of Position 90-7 "Financial Reporting by Entities in Reorganization under the
Bankruptcy Code", MobileMedia records liabilities subject to compromise based
on the expected amount of the allowed claims related to these liabilities.
Accordingly, in December 1998 and March 1999 MobileMedia reduced such
liabilities by approximately $10,461 and $3,050 (unaudited), respectively, to
reflect changes in estimated allowed claims.
Restructuring Costs
Restructuring costs are primarily comprised of professional fees constituting
administrative expenses incurred by MobileMedia 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".
New Authoritative Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131 "Disclosures about Segments of an
Enterprise and Related Information" ("SFAS No. 131"), which is effective for
years beginning after December 15, 1997. SFAS No. 131 establishes standards for
the way that public business enterprises report information about operating
segments in annual financial statements and requires that those enterprises
report selected information about operating segments in interim financial
reports. It also establishes standards for related disclosures about products
and services, geographic areas, and major customers. SFAS No. 131 is effective
for financial statements for fiscal years beginning after December 15, 1997.
MobileMedia has adopted SFAS No. 131 as of December 31, 1998. Such adoption did
not have an impact on MobileMedia's financial reporting.
12
<PAGE>
MOBILEMEDIA COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(dollars in thousands)
In April 1998, the Accounting Standards Executive Committee of the Financial
Accounting Standards Board issued Statement of Position 98-5 ("SOP 98-5")
"Reporting on the Costs of Start-Up Activities". SOP 98-5 requires costs of
start-up activities and organization costs to be expensed as incurred. Initial
application of SOP 98-5 will be reported as the cumulative effect of a change
in accounting principle. MobileMedia has adopted SOP 98-5 effective January 1,
1999. Such adoption did not have any effect on MobileMedia's financial position
or results of operations.
3. Acquisitions and Divestitures
On September 3, 1998, MobileMedia completed the sale of 166 transmission
towers to Pinnacle Towers, Inc. ("Pinnacle") for $170,000 in cash (the "Tower
Sale"). Under the terms of a lease with Pinnacle, MobileMedia will lease
antenna sites located on these towers for an initial period of 15 years at an
aggregate annual rental of $10,700. The sale was accounted for in accordance
with Statement of Financial Accounting Standards No. 28, Accounting for Sales
with Leasebacks, and resulted in a recognized gain of $94,200 and a deferred
gain of $70,000. The deferred gain will be amortized on a straight-line basis
over the initial lease period of 15 years. Subsequent to the sale, MobileMedia
distributed the $170,000 in proceeds to its secured creditors, who had a lien
on such assets.
On January 4, 1996, MobileMedia 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
MobileMedia (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:
<TABLE>
<CAPTION>
(in thousands)
<S> <C>
Current assets............................................. $ 55,301
Property and equipment..................................... 112,986
Intangible assets.......................................... 934,269
Other assets............................................... 143
Liabilities assumed........................................ (149,662)
---------
$ 953,037
=========
</TABLE>
13
<PAGE>
MOBILEMEDIA COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(dollars in thousands)
4. Property and Equipment
Property and equipment are summarized as follows:
<TABLE>
<CAPTION>
December 31, March
----------------- 31,
1997 1998 1999
-------- -------- --------
(in thousands) (unaudited)
<S> <C> <C> <C> <C>
Pagers................................... $196,791 $176,610 $190,903
Radio transmission equipment............. 202,296 203,048 204,054
Computer equipment....................... 30,896 32,679 32,866
Furniture and fixtures................... 20,918 22,019 21,187
Leasehold improvements................... 14,652 16,516 16,745
Construction in progress................. 1,128 11,624 13,140
Land, buildings and other................ 7,911 6,697 6,591
-------- -------- --------
474,592 469,193 485,486
Accumulated depreciation................. 216,655 249,551 259,920
-------- -------- --------
Property and equipment, net.............. $257,937 $219,642 $225,566
======== ======== ========
</TABLE>
5. Intangible Assets
<TABLE>
<CAPTION>
December 31, March 31, 1999 (unaudited)
-------------------------------------------------------------- ------------------------------
1997 1998
------------------------------- ------------------------------
Accumulated Accumulated Accumulated
Cost Amortization Net Cost Amortization Net Cost Amortization Net
--------- ------------ -------- -------- ------------ -------- -------- ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FCC Licenses............ $ 261,323 $ (8,918) $252,405 $261,523 $(16,891) $244,632 $261,623 $(18,937) $242,686
Customer lists.......... 64,430 (21,477) 42,953 64,430 (42,953) 21,477 64,430 (48,323) 16,107
--------- -------- -------- -------- -------- -------- -------- -------- --------
$ 325,753 $(30,395) $295,358 $325,953 $(59,844) $266,109 $326,053 $(67,260) $258,793
========= ======== ======== ======== ======== ======== ======== ======== ========
</TABLE>
MobileMedia is not amortizing the cost of two nationwide Personal
Communications Services ("PCS") licenses, one acquired directly from the FCC
and the other as a result of the MobileComm acquisition, because the
construction of paging networks related to such licenses has not been
completed. These networks are expected to begin commercial operation in 1999
and, accordingly, amortization of these licenses will begin at such time.
14
<PAGE>
MOBILEMEDIA COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(dollars in thousands)
6. Debt
Debt is summarized as follows:
<TABLE>
<CAPTION>
December 31, March 31,
------------------- -----------
1997 1998 1999
---------- -------- -----------
(unaudited)
<S> <C> <C> <C>
DIP credit facility...................... $ 10,000 $ -- $ 5,000
Revolving loan........................... 99,000 72,900 72,900
Term loan................................ 550,000 406,100 406,100
10 1/2% Senior Subordinated Deferred
Coupon Notes due December 1, 2003....... 174,125 174,125 174,125
9 3/8% Senior Subordinated Notes due
November 1, 2007........................ 250,000 250,000 250,000
Dial Page Notes.......................... 1,570 1,570 1,570
Note Payable............................. 986 986 986
---------- -------- --------
Total debt............................. $1,085,681 $905,681 $910,681
========== ======== ========
</TABLE>
The debt obligations of MobileMedia include:
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 March 31, 1999 there was $5,000 of borrowings outstanding
under this facility, as of December 31, 1998 there were no funded
borrowings and as of December 31, 1997, there was $10,000 of borrowings
outstanding under this facility. MobileMedia 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, MobileMedia is required to make monthly interest payments to
the DIP Lenders and pay a commitment fee of 0.5% on any unused portion of
the DIP Facility. 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
MobileMedia. During 1997, the Debtors drew down $47,000 of borrowings and
repaid $37,000 under the DIP Facility. During January and February, 1998
the Debtors repaid an additional $10,000. On January 27, 1998, the DIP
Facility was amended and reduced from $200,000 to $100,000. On August 12,
1998, MobileMedia received approval from the Bankruptcy Court to extend the
DIP Facility to March 31, 1999 and further reduce it from $100,000 to
$75,000. MobileMedia has negotiated an extension of the DIP Facility
through and including December 31, 1999.
2) A $750,000 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 March 31, 1999 and December 31, 1998 there
was $479,000 outstanding under this facility consisting of term loans of
$101,500 and $304,600 and loans under a revolving credit facility totaling
$72,900. This agreement was entered into on December 4, 1995, in connection
with the financing of the MobileComm Acquisition. Commencing in 1996
MobileMedia was in default under this agreement. As a result of such
default and the bankruptcy filing, MobileMedia has no borrowing capacity
under this agreement. Since the Petition date, MobileMedia has brought
current its interest payments and has been making monthly payments to the
lenders under the Pre-Petition Credit Agreement equal to the amount of
interest accruing under such agreement. On September 3, 1998, MobileMedia
repaid $170,000 of borrowings under the Pre-Petition Credit Agreement with
proceeds from the Tower Sale (see Note 3).
15
<PAGE>
MOBILEMEDIA COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(dollars in thousands)
3) $250,000 Senior Subordinated Notes due November 1, 2007 (the "9 3/8%
Notes") issued in November 1995. These notes bear interest at a rate of 9
3/8% payable semi-annually on May 1 and November 1 of each year. On
November 1, 1996, MobileMedia did not make its scheduled interest payment
on its 9 3/8% Notes which constituted an event of default. The note holders
have not exercised any rights or remedies afforded holders (which rights
include, but are not limited to, acceleration of the stated maturity of the
notes). Since the Petition 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 1/2%, compounded semi-annually, to an
aggregate principal amount of $210,000 by December 1, 1998 after which
interest is paid in cash at a rate of 10 1/2% and is payable semi-annually.
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. 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 Petition date, any such right or remedy
is subject to the automatic stay created by the Bankruptcy Code.
Interest Expense on Debt
Interest paid during the years ended December 31, 1996, 1997 and 1998, and
the three months ended March 31, 1998 and 1999 (unaudited) was $65,978,
$70,817, $51,560, $13,915 and $9,383 respectively. Total interest cost incurred
for the years ended December 31, 1996, 1997 and 1998 was $94,231, $68,409 and
$53,982, respectively of which $1,292, $176 and $228 was capitalized. Total
interest cost incurred for the three months ended March 31, 1998 and 1999
(unaudited), was $14,793 and $10,248, respectively, of which $21 and $149 was
capitalized.
Subsequent to the Petition date, interest was accrued and paid only on the
Pre-Petition Credit Agreement and the DIP Facility. If not for the filing,
interest expense for the year ended December 31, 1997 and 1998 and March 31,
1998 and 1999 (unaudited), would have been approximately $104,152, $97,776,
$25,724 and $21,187, respectively.
7. Income Taxes
The components of income tax benefit (expense) are as follows:
<TABLE>
<CAPTION>
Year ended December
31,
---------------------
1996 1997 1998
------- ----- -------
<S> <C> <C> <C>
Current:
Federal.......................................... $ -- $ -- $(1,757)
State and local.................................. -- -- (2,201)
------- ----- -------
-- -- (3,958)
Deferred:
Federal.......................................... 52,081 -- --
State and local.................................. 17,361 -- --
------- ----- -------
Total.......................................... $69,442 $ -- $(3,958)
======= ===== =======
</TABLE>
16
<PAGE>
MOBILEMEDIA COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(dollars in thousands)
MobileMedia is included in the Parent's consolidated federal income tax
return. Income taxes are presented in the accompanying financial statements as
if MobileMedia filed tax returns as a separate consolidated entity.
A reconciliation of income tax benefit (expense) and the amount computed by
applying the statutory federal income tax rate to loss before income taxes is
as follows:
<TABLE>
<CAPTION>
Year ended December 31,
---------------------------
1996 1997 1998
-------- ------- --------
<S> <C> <C> <C>
Tax benefit (expense) at federal statutory rate... $395,285 $43,604 $(13,838)
Goodwill and intangible amortization and
writedown........................................ (95,362) -- --
State income taxes................................ -- -- (1,783)
Nondeductible expenses............................ -- -- (4,765)
Valuation allowance on federal deferred tax
assets........................................... (230,481) (43,604) 16,428
-------- ------- --------
Total........................................... $ 69,442 $ -- $ (3,958)
======== ======= ========
</TABLE>
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 1998
-------- --------
<S> <C> <C>
Deferred tax liabilities:
Difference in book and tax basis of fixed assets......... $ 10,206 $ 19,974
Other.................................................... 68 27
-------- --------
Deferred tax liabilities............................... 10,274 20,001
Deferred tax assets:
Tax credit carryforwards................................. -- 1,757
Accounts receivable reserves............................. 10,578 6,000
Differences between the book and tax basis of intangible
assets.................................................. 128,462 121,526
Difference between book and tax basis of accrued
liabilities............................................. 5,089 4,794
Net operating loss carryforward.......................... 161,840 135,458
Deferred gain on tower sale.............................. -- 27,378
-------- --------
Total deferred assets.................................. 305,969 296,913
Valuation allowances for deferred tax assets........... (298,350) (279,567)
-------- --------
Deferred tax assets.................................... 7,619 17,346
======== ========
Net deferred tax liabilities........................... $ 2,655 $ 2,655
======== ========
</TABLE>
As of December 31, 1998, MobileMedia has available net operating loss
carryforwards for tax purposes of approximately $330,000 which expire in years
2008 through 2012. Utilization of these losses may be limited under Section 382
of the Internal Revenue Code.
MobileMedia believes consummation of the public offering of 15,525,000 shares
of Parent's Class A Common Stock on November 7, 1995 caused an ownership change
for MobileMedia for purposes of Section 382 of the Code. As a result, the use
of MobileMedia's pre-ownership change net operating loss
17
<PAGE>
MOBILEMEDIA COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(dollars in thousands)
carryforwards will be limited annually by the Section 382 Limitation, which is
estimated to be approximately $40,000. In addition, if a second ownership
change has occurred subsequent to November 7, 1995, which has not yet been
determined, use of MobileMedia's net operating losses would be severely
limited. It is also anticipated that the net operating loss carryforwards and
certain other tax attributes of MobileMedia will be substantially reduced and
their utilization significantly limited as a result of consummation of the Plan.
8. Leases
Certain facilities and equipment used in operations are held under operating
leases. Rental expenses under operating leases were $44,574, 43,453, $40,936,
$10,423 and $12,989 for the years ended December 31, 1996, 1997 and 1998 and
the three months ended March 31, 1998 and 1999 (unaudited), respectively. At
December 31, 1998, the aggregate minimum rental commitments under leases were
as follows:
<TABLE>
<S> <C>
1999............................................................ $ 48,951
2000............................................................ 25,457
2001............................................................ 19,250
2002............................................................ 15,726
2003............................................................ 13,327
Thereafter...................................................... 15,783
---------
$ 138,494
=========
</TABLE>
9. Employee Benefit Plans
MobileMedia has adopted a retirement savings plan that allows 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 their compensation. Effective
February 1, 1996, MobileMedia 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. MobileMedia's matching contribution was $700 in 1996, $730 in 1997
and $692 in 1998 and $160 and $178 for the three months ended March 31, 1998
and 1999 (unaudited), respectively.
10. Stock Option Plans
MobileMedia has two stock option plans under which approximately 1.3 million
options are currently outstanding. Under the proposed Plan of Reorganization,
MobileMedia's equity holders will receive no value for their ownership
interests in the Company, and accordingly, the options are also deemed to have
no value.
11. Commitments and Contingencies
MobileMedia is party to a number of lawsuits and other matters arising in the
ordinary course of business.
As announced on September 27, 1996 and October 21, 1996, MobileMedia
disclosed that misrepresentations and other violations had 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. MobileMedia
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.
18
<PAGE>
MOBILEMEDIA COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(dollars in thousands)
On January 13, 1997, the FCC issued a Public Notice relating to the status of
certain FCC authorizations held by MobileMedia. 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 as defective approximately 94 applications for fill-in sites around
existing paging stations 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. However, the FCC granted MobileMedia
interim operating authority to operate transmitters in this last category
subject to further action by the FCC.
On April 8, 1997, the FCC adopted an order commencing an administrative
hearing into the qualification of MobileMedia to remain a licensee. The order
directed an Administrative Law Judge to take evidence and develop a full
factual record on directed issues concerning MobileMedia's filing of false
forms and applications. MobileMedia 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 in
order to allow MobileMedia to develop and consummate a plan of reorganization
that provides for a change of control of MobileMedia and a permissible transfer
of MobileMedia's FCC licenses. The grant of the stay was premised on the
availability of an FCC doctrine known as Second Thursday, which provides that,
if there is a change of control that meets certain conditions, the regulatory
issues designated for administrative hearing will be resolved by the transfer
of MobileMedia's FCC licenses to the new owners of MobileMedia and the hearing
will not proceed. The stay was originally granted for ten months and was
extended by the FCC through October 6, 1998.
On September 2, 1998, MobileMedia and Arch Communications Group, Inc.
("Arch") filed a joint Second Thursday application. The FCC released an order
granting the application on February 5, 1999. The order, which is conditioned
on confirmation of the plan and consummation thereof within nine months,
expressly terminated the administrative hearing and resolved the issues
designated therein. The order denied the parties' request for permanent
authority to operate transmitters for which MobileMedia was granted interim
authority on January 13, 1997. If the Merger is consummated, Arch must cease
operating these facilities within 6 months after the merger. The order also
denied the parties' request for a waiver of the spectrum cap (which prohibits
narrowband PCS licensees from having ownership interest in more than three
channels in any geographic area). Arch must divest any excess channels within 6
months after the merger.
Prior to the Petition date, five actions allegedly arising under the federal
securities laws were filed against MobileMedia and certain of its present and
former officers, directors and underwriters in the United States District Court
for the District of New Jersey (the "New Jersey District Court"). 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 could conduct only limited discovery in
connection with the New Jersey Actions and could not file any pleadings, except
responses to motions to dismiss, until the earlier of September 30, 1998 and
the effective date of a plan of reorganization. On October 21, 1998, the
defendents' motion to dismiss the New Jersey Actions filed with the New Jersey
District Court on January 16, 1998 was denied.
19
<PAGE>
MOBILEMEDIA COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(dollars in thousands)
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. 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 hearings held on December 10, 1997 and May 29,
1998, the Bankruptcy Court enjoined the plaintiffs in the California Actions
until September 15, 1998 from taking certain actions in connection with the
California Actions, with certain exceptions.
The plaintiffs in both the New Jersey Actions and California Actions are
currently conducting discovery of MobileMedia in connection with their
prosecution of the actions against the named defendants. Following consummation
of the Plan of Reorganization, the Company may be subject to further discovery
in these proceedings.
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. It is anticipated
that under any plan of reorganization for MobileMedia these Claims will receive
no distributions.
12. Other Investments
On March 21, 1995, MobileMedia purchased a 33% interest in Abacus
Communications Partners, L.P., ("Abacus") a Delaware limited partnership, from
Abacus Business Services, Inc. for $1,641. Abacus Communications Partners, L.P.
is one of MobileMedia's alphanumeric dispatch services providers. 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 MobileMedia's share of
undistributed earnings or losses of the purchased company. MobileMedia's share
of income (loss) of affiliate, net of distribution, for the years ended
December 31, 1996, 1997 and 1998, was $160, $69, and $(87), respectively. On
December 30, 1998 MobileMedia reached an agreement to sell its interest in
Abacus to Abacus Exchange Inc. for $1,400 and subsequently completed the sale
on January 25, 1999. Accordingly, MobileMedia wrote down its investment in
Abacus from $1,612 to $1,400 as of December 31, 1998.
13. Impact of Year 2000 (unaudited)
General
Computer systems were originally designed to recognize calendar years by the
last two digits in the date code field. Beginning in the year 2000, these date
code fields will need to accept four digit entries to distinguish twenty-first
century dates from twentieth century dates. Any of MobileMedia'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. As a result, in less than two years, the
computerized systems (including both information and
20
<PAGE>
MOBILEMEDIA COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(dollars in thousands)
non-information technology systems) and applications used by MobileMedia will
need to be reviewed, evaluated and, if and where necessary, modified or
replaced to ensure that all financial, information and operating systems are
Year 2000 compliant.
State of Readiness
MobileMedia has formed an internal task force comprised of representatives of
its various relevant departments to address Year 2000 compliance matters. The
task force has undertaken a preliminary review of internal and external areas
that are likely to be affected by Year 2000 compliance matters and has
classified the various areas as mission critical, important or non-
critical/non-important. MobileMedia also expects to hire outside consultants to
review MobileMedia's testing methodology and test results, to assess its
contingency planning and to provide general oversight relating to Year 2000
compliance matters.
With respect to internal matters, MobileMedia has completed a review of its
hardware and software to determine whether its business-related applications
(including applications relating to distribution, finance, inventories,
operations, pager activation, purchasing and sales/marketing) will be Year 2000
compliant. In addition, in the last quarter of 1998, programs designed to
identify Year 2000 problems associated with dates embedded in certain business-
related files were created and executed to identify any Year 2000 compliance
issues. The testing unearthed a few Year 2000 problems all of which have been
addressed and retested for Year 2000 readiness. Additional testing took place
the first quarter of 1999, which included testing of MobileMedia's financial
and human resource software packages. Although the results of these tests are
still being analyzed, relatively few Year 2000 problems were identified. There
can be no assurance, however, that such testing has detected, or will detect,
all compliance issues related to the Year 2000 problem.
With respect to external matters, MobileMedia has distributed questionnaires
and requests for certification to its mission-critical vendors and is in the
process of obtaining and reviewing the responses thereto. The questionnaires
have requested information concerning embedded technologies of such vendors,
the hardware and software applications used by such vendors and the Year 2000
compliance efforts of such vendors relating thereto.
Estimated Year 2000 Compliance Costs
MobileMedia has an information technology staff of approximately 68 people
that has addressed technical issues relating to Year 2000 compliance matters.
Through December 31, 1998, MobileMedia has incurred approximately $50 in costs
(excluding in-house labor and hardware) in connection with Year 2000 compliance
matters. In addition, MobileMedia has purchased upgraded hardware at a cost of
approximately $175 for use as redundant equipment in testing for Year 2000
problems in an isolated production environment. MobileMedia estimates that it
will expend approximately $500 on additional hardware, software and other items
related to the Year 2000 compliance matters.
In addition, MobileMedia estimates that it will incur approximately $200 in
costs relating to Year 2000 remediation efforts for its paging network
hardware. MobileMedia also upgraded its paging network hardware during 1998 and
plans further upgrades in fiscal year 1999. Such upgrades have not been and are
not expected to be purchased solely for remediation of the Year 2000 compliance
problems; such upgrades are not themselves expected to have Year 2000
compliance problems.
21
<PAGE>
MOBILEMEDIA COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(dollars in thousands)
Risks Relating to Year 2000 Compliance Matters
MobileMedia has a goal to become Year 2000 compliant with respect to internal
matters during 1999. Although MobileMedia has begun testing of its internal
business-related hardware and software applications, there can be no assurances
that such testing will detect all applications that may be affected by Year
2000 compliance problems. With respect to external matters, due to the multi-
dependent and interdependent issues raised by Year 2000 compliance, including
many factors beyond its control, MobileMedia may face the possibility that one
or more of its mission-critical vendors, such as its utilities, telephone
carriers, equipment manufacturers or satellite carriers, may not be Year 2000
compliant on a timely basis. Because of the unique nature of such vendors,
alternate providers may not be available. Finally, MobileMedia does not
manufacture any of the pagers, paging-related hardware or network equipment
used by MobileMedia or its customers in connection with MobileMedia's paging
operations. Although MobileMedia has tested such equipment, it has also relied
upon the representations of its vendors with respect to their Year 2000
readiness. MobileMedia can give no assurance as to the accuracy of such
vendors' representations.
Contingency Planning
MobileMedia has begun the process of assessing contingency plans that might
be available in the event of either internal or external Year 2000 compliance
problems. To this end, MobileMedia's various internal departments have begun to
prepare assessments of potential contingency alternatives. The task force will
undertake a review of these assessments on a department-by-department basis and
on a company-wide basis. MobileMedia intends to complete its contingency
planning during the second quarter of 1999.
22
<PAGE>
ARCH COMMUNICATIONS GROUP, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma condensed consolidated balance sheet has
been prepared to reflect the MobileMedia acquisition, assuming it had occurred
on March 31, 1999 and using the purchase method of accounting. Under the
purchase method of accounting, the purchase price is allocated to assets
acquired and liabilities assumed based on their estimated fair values at the
time of the acquisition. Income of the combined company will not include income
or loss of MobileMedia prior to the acquisition. The unaudited pro forma
condensed consolidated statements of operations for the year ended December 31,
1998 and the three months ended March 31, 1999 present the results of operations
of Arch and MobileMedia assuming the MobileMedia acquisition had been effected
on January 1, 1998. You should read the unaudited pro forma financial data in
conjunction with the consolidated historical financial statements of Arch and
MobileMedia, including the notes to both sets of financial statements.
The pro forma condensed consolidated financial data is for information
purposes only and is not necessarily indicative of the results of future
operations of the combined company or the actual results that would have been
achieved had the MobileMedia acquisition been consummated during the period
indicated. Moreover, the pro forma condensed consolidated financial statements
reflect preliminary pro forma adjustments made to combine Arch with MobileMedia
using the purchase method of accounting. The actual adjustments may differ from
those reflected in the pro forma financial statements.
23
<PAGE>
ARCH COMMUNICATIONS GROUP, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
March 31, 1999
(in thousands)
<TABLE>
<CAPTION>
Pro Forma Adjustments
Arch MobileMedia Pro Forma
(Historical) (Historical) Debits Credits Consolidated
------------ ------------ ---------- ----------- ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents........... $ 12,102 -- $ 12,102
Accounts receivable
net................... 30,757 $ 37,270 68,027
Inventories............ 9,803 1,609 11,412
Prepaid expenses and
other................. 9,348 10,161 19,509
---------- ----------- ----------
Total current assets. 62,010 49,040 111,050
---------- ----------- ----------
Property and
equipment, net........ 218,608 225,566 444,174
Intangible and other
assets................ 602,814 279,403 114,317(1) 18,384(1) 978,150
---------- ----------- ----------
$ 883,432 $ 554,009 $1,533,374
========== =========== ==========
LIABILITIES AND
STOCKHOLDERS' EQUITY
(DEFICIT)
Current liabilities:
Current maturities of
long-term debt........ $ 1,250 $ 910,681 479,000(1) $ 1,250
431,681(2)
Accounts payable....... 26,564 23,940 15,351(2) 35,153
Accrued expenses....... 10,068 53,912 12,707(2) 51,273
Accrued interest....... 17,187 21,144 17,578(2) 20,753
Customer deposits and
deferred revenue...... 16,633 28,892 45,525
Accrued restructuring.. 11,032 7,197 7,197(2) 21,032
10,000(1)
---------- ----------- ----------
Total current
liabilities......... 82,734 1,045,766 174,986
---------- ----------- ----------
Long-term debt, less
current maturities.... 1,036,441 -- 312,000(1) 1,348,441
---------- ----------- ----------
Deferred income taxes.. -- 2,655 2,655(2) --
---------- ----------- ----------
Other long-term
liabilities........... 26,844 67,278 67,278(2) 26,844
---------- ----------- ----------
Stockholders' equity
(deficit) (9):
Preferred stock........ 3 -- 3
Common stock........... 212 -- 1,228(1) 1,440
Additional paid-in
capital............... 378,590 676,025 676,025(3) 623,052
1,228(1) 245,690(1)
Accumulated deficit.... (641,392) (1,237,715) 554,447(2) (641,392)
18,384(1) 676,025(3)
25,627(1)
---------- ----------- ----------
Total stockholders'
equity (deficit).... (262,587) (561,690) (16,897)
---------- ----------- ----------
$ 883,432 $ 554,009 $1,533,374
========== =========== ==========
</TABLE>
See accompanying notes to unaudited pro forma condensed consolidated financial
statements
24
<PAGE>
ARCH COMMUNICATIONS GROUP, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
For the Year Ended December 31, 1998
(in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
Arch MobileMedia Pro Forma Pro Forma
(Historical) (Historical) Adjustments Consolidated
------------ ------------ ----------- ------------
<S> <C> <C> <C> <C>
Service, rental and
maintenance revenues... $ 371,154 $423,059 $ (8,454)(4) $ 785,759
Products sales.......... 42,481 26,622 -- 69,103
----------- -------- ----------- -----------
Total revenues...... 413,635 449,681 (8,454) 854,862
Cost of products sold... (29,953) (22,162) -- (52,115)
----------- -------- ----------- -----------
383,682 427,519 (8,454) 802,747
----------- -------- ----------- -----------
Operating expenses:
Service, rental and
maintenance.......... 80,782 111,589 10,800 (5) 194,717
(8,454)(4)
Selling............... 49,132 61,106 -- 110,238
General and
administrative....... 112,181 133,003 -- 245,184
Depreciation and
amortization......... 221,316 114,903 11,432 (6) 363,330
15,679 (6)
Restructuring expense
..................... 14,700 -- -- 14,700
Bankruptcy related
expense ............. -- 8,163(7) 8,163
----------- -------- ----------- -----------
Total operating
expenses........... 478,111 428,764 29,457 936,332
----------- -------- ----------- -----------
Operating income (loss). (94,429) (1,245) (37,911) (133,585)
Interest expense, net... (104,213) (53,043) 53,043 (8) (143,746)
(39,533)(8)
Gain on sale of assets
....................... -- 94,165 -- 94,165
Other expenses ......... (5,689) (338) -- (6,027)
----------- -------- ----------- -----------
Income (loss) before
provision for income
taxes and extraordinary
item................... (204,331) 39,539 (24,401) (189,193)
Provision for income
taxes.................. -- 3,958 -- 3,958
----------- -------- ----------- -----------
Income (loss) before
extraordinary item..... (204,331) $ 35,581 $ (24,401) $ (193,151)
=========== ======== =========== ===========
Basic/diluted income
(loss) before
extraordinary item per
share.................. $ (9.78) -- -- (1.35)
Weighted average common
shares
outstanding............ 20,993,192 -- 122,845,000(1) 143,838,192
</TABLE>
See accompanying notes to unaudited pro forma condensed consolidated financial
statements.
25
<PAGE>
ARCH COMMUNICATIONS GROUP, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
For the Three Months Ended March 31, 1999
(in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
Arch MobileMedia Pro Forma Pro Forma
(Historical) (Historical) Adjustments Consolidated
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Service, rental and
maintenance revenues... $ 90,529 $100,631 $ (2,114)(4) $ 189,046
Products sales.......... 10,359 5,193 15,552
----------- -------- ------------ ------------
Total revenues...... 100,888 105,824 (2,114) 204,598
Cost of products sold... (6,926) (3,516) (10,442)
----------- -------- ------------ ------------
93,962 102,308 (2,114) 194,156
----------- -------- ------------ ------------
Operating expenses:
Service, rental and
maintenance.......... 20,293 27,077 (2,114)(5) 45,256
Selling............... 13,011 14,136 27,147
General and
administrative....... 25,626 31,481 57,107
Depreciation and
amortization......... 51,118 26,802 2,858 (6) 84,698
3,920 (6)
Bankruptcy related
expense.............. -- 2,017 2,017
----------- -------- ------------ ------------
Total operating
expenses........... 110,048 101,513 4,664 216,225
----------- -------- ------------ ------------
Operating income (loss). (16,086) 795 (6,778) (22,069)
Interest expense, net... (26,477) (10,018) (9,883)(8) (36,360)
10,018 (8)
Gain on sale of assets.. -- 1,740 -- 1,740
Other expenses.......... (3,200) -- (3,200)
----------- -------- ------------ ------------
Income (loss) before
provision for income
taxes and extraordinary
item................... (45,763) (7,483) (6,643) (59,889)
Provision for income
taxes.................. -- 209 -- 209
----------- -------- ------------ ------------
Income (loss) before
extraordinary item..... $ (45,763) $ (7,692) $ (6,643) $ (60,098)
=========== ======== ============ ============
Basic/diluted income
(loss) before
extraordinary item per
share.................. $ (2.18) -- $ (0.42)
=========== ============
Weighted average common
shares outstanding..... 21,215,583 -- 122,845,000 (1) 144,060,583
=========== ============ ============
</TABLE>
See accompanying notes to unaudited pro forma condensed consolidated financial
statements
26
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(1) To record
. $312.0 million of additional Arch borrowings necessary to fund its
obligations in connection with the MobileMedia acquisition,
. the issuance of 122,845,000 shares of common stock, having an aggregate
value of $245.7 million, to unsecured creditors and standby purchasers
. the writeoff of $18.4 million of deferred financing costs associated
with the former MobileMedia credit facility and
. the excess of purchase price over the assumed fair value of the
identifiable assets acquired.
The historical book value of the tangible and intangible assets of
MobileMedia was assumed to approximate fair value. The excess of purchase
price over the assumed fair value of identifiable assets acquired was
calculated as follows:
<TABLE>
<S> <C>
Consideration exchanged:
Payments to secured creditors................................... $479,000
Assumed fair value of shares issued to unsecured creditors...... 28,690
--------
507,690
Liabilities assumed:
Administrative costs.......................................... 25,000
Other......................................................... 82,252
--------
Total consideration exchanged................................... 614,942
Transaction costs............................................... 25,000
Restructuring reserve........................................... 10,000
--------
Total purchase price............................................ 649,942
Less fair value of tangible and intangible net assets acquired.... 535,625
--------
Excess of purchase price over tangible and intangible net assets
acquired......................................................... 114,317
========
</TABLE>
--------
(a) Administrative costs consist of payments to some of MobileMedia's
creditors.
(b) Other liabilities assumed include operating liabilities such as accounts
payable, accrued expenses and advance billings which Arch assumed in
connection with the MobileMedia acquisition.
(c) Transaction costs include legal, investment banking, financing,
accounting and other costs incurred by Arch to consummate the MobileMedia
acquisition.
(d) Restructuring reserve consists of severance costs related primarily to
duplicative general and administrative functions at the corporate,
regional and market levels of MobileMedia, such as technical, marketing,
finance and other support functions. These terminations will occur as the
operations of MobileMedia are integrated into those of Arch and are based
on management's preliminary review of synergies that exist between the
companies. This analysis is expected to be finalized after consummation
of the MobileMedia acquisition and may result in additional amounts to be
reserved.
(2) To eliminate liabilities of MobileMedia not assumed by Arch, satisfied in
cash or exchanged for common stock.
(3) To eliminate MobileMedia equity balances.
(4) To eliminate revenues and expenses between Arch and MobileMedia.
(5) This entry records the incremental rental expense for the use of
transmitter space on the towers that were sold and leased back in
MobileMedia's tower sale transaction.
27
<PAGE>
(6) To record the amortization on the excess of purchase price over the
tangible and intangible assets acquired, calculated on a straight-line
basis over 10 years in the amounts of $11,432 for the year ended
December 31, 1998 and $2,858 for the three months ended March 31, 1999. The
actual amortization recorded after consummation of the MobileMedia
acquisition may differ from these amounts due to changes in the price of
common stock upon closing of the MobileMedia acquisition as well as full
allocation of purchase price to assets and liabilities assumed pursuant to
APB No. 16. The amortization relates to the $258.8 million assumed fair
value of intangible assets, consisting primarily of FCC licenses with an
assumed fair value of $242.7 million and customer lists with an assumed
fair value of $16.7 million. This amortization has already been provided in
the historical financial statements of MobileMedia. The MobileMedia
historical amortization was adjusted by $15,679 for the year ended December
31, 1998 and by $3,920 for the three months ended March 31, 1999 to conform
MobileMedia's 25 year estimated useful life of FCC licenses to Arch's 10
year estimated useful life. The estimated useful life of the customer lists
was assumed to be 3 years.
(7) These costs represent incremental and non-recurring third-party legal,
accounting and financial advisory fees and expenses incurred by MobileMedia
related to its administration of its insolvency proceedings.
(8) To remove the interest expense associated with the various MobileMedia
credit facilities and notes eliminated as a result of the insolvency
proceedings and to record the interest associated with Arch's additional
borrowings used to fund the MobileMedia acquisition. Interest was
calculated assuming an 11% rate on $173.0 million of additional bank
borrowings and a 14.75% rate on $139.0 million of senior notes. Interest
expense would be as follows if interest rates on the bank borrowings were
to decrease or increase 1/8 of a percent:
<TABLE>
<CAPTION>
Assumed Change in Interest Rate Assumed Interest Expense
------------------------------- ------------------------------------
Year Ended Three Months Ended
December 31, 1998 March 31, 1999
----------------- ------------------
<S> <C> <C>
Increase of 1/8%.................... $39,923 $9,981
Decrease of 1/8%.................... $39,143 $9,786
</TABLE>
28
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Date: June 23, 1999 ARCH COMMUNICATIONS GROUP, INC.
By: /s/ J. Roy Pottle
----------------------------
J. Roy Pottle
Executive Vice President and
Chief Financial Officer
29
<PAGE>
EXHIBIT INDEX
Exhibit Number Description
- -------------- -----------
23.1 Consent of Ernst & Young LLP
CONSENT OF INDEPENDENT AUDITORS
We consent to the inclusion in Arch Communications Group,Inc.'s Form 8-K/A dated
June 3, 1999 of our report dated February 12, 1999, except for the eighth
paragraph of Note 1 and the second paragraph of Note 6, as to which the date is
March 26, 1999, and the ninth paragraph of Note 1, as to which the date is April
12, 1999, with respect to the financial statements of MobileMedia
Communications, Inc. as of December 31, 1998 and 1997 and for each of the three
years in the periods ended December 31, 1998.
MetroPark, New Jersey /s/ Ernst & Young LLP
June 21, 1999
