QUARTERLY REPORT UNDER SECTION 13 0R 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the quarterly period ended March 31, 1999
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the transition period from
______________ to _____________
Commission File Numbers 0-23232/1-14248
ARCH COMMUNICATIONS GROUP, INC.
(Exact name of Registrant as specified in its Charter)
DELAWARE 31-1358569
(State of incorporation) (I.R.S. Employer Identification No.)
1800 West Park Drive, Suite 250
Westborough, Massachusetts 01581
(address of principal executive offices) (Zip Code)
(508) 870-6700
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months or for such shorter period that the Registrant was
required to file such reports, and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 21,215,583 shares of the
Company's Common Stock ($.01 par value) were outstanding as of May 10, 1999
<PAGE>
ARCH COMMUNICATIONS GROUP, INC.
QUARTERLY REPORT ON FORM 10-Q
INDEX
PART I. FINANCIAL INFORMATION Page
Item 1. Financial Statements:
Consolidated Condensed Balance Sheets as of March 31, 1999
and December 31, 1998 3
Consolidated Condensed Statements of Operations for the
Three Months Ended March 31, 1999 and 1998 4
Consolidated Condensed Statements of Cash Flows for the
Three Months Ended March 31, 1999 and 1998 5
Notes to Consolidated Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 7
Item 3. Quantitative and Qualitative Disclosures About Market Risk 16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 2. Changes in Securities and Use of Proceeds 16
Item 3. Defaults upon Senior Securities 16
Item 4. Submission of Matters to a Vote of Security Holders 17
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 18
2
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
ARCH COMMUNICATIONS GROUP, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
---- ----
ASSETS (unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 12,102 $ 1,633
Accounts receivable, net 30,757 30,753
Inventories 9,803 10,319
Prepaid expenses and other 9,348 8,007
----------- -----------
Total current assets 62,010 50,712
----------- -----------
Property and equipment, at cost 439,563 428,173
Less accumulated depreciation and amortization (220,955) (209,128)
----------- -----------
Property and equipment, net 218,608 219,045
----------- -----------
Intangible and other assets, net 602,814 634,528
----------- -----------
$ 883,432 $ 904,285
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current maturities of long-term debt $ 1,250 $ 1,250
Accounts payable 26,564 25,683
Accrued restructuring 11,032 11,909
Accrued interest 17,187 20,997
Accrued expenses and other liabilities 26,701 27,175
----------- -----------
Total current liabilities 82,734 87,014
----------- -----------
Long-term debt, less current maturities 1,036,441 1,003,499
----------- -----------
Other long-term liabilities 26,844 27,235
----------- -----------
Stockholders' equity (deficit):
Preferred stock-- $.01 par value 3 3
Common stock-- $.01 par value 212 212
Additional paid-in capital 378,590 378,077
Accumulated deficit (641,392) (591,755)
----------- -----------
Total stockholders' equity (deficit) (262,587) (213,463)
----------- -----------
$ 883,432 $ 904,285
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated
condensed financial statements.
3
<PAGE>
ARCH COMMUNICATIONS GROUP, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(unaudited and in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1999 1998
---- ----
<S> <C> <C>
Service, rental, and maintenance revenues $ 90,529 $ 91,397
Product sales 10,359 10,642
------------ ------------
Total revenues 100,888 102,039
Cost of products sold (6,926) (7,366)
------------ ------------
93,962 94,673
------------ ------------
Operating expenses:
Service, rental, and maintenance 20,293 20,189
Selling 13,011 11,870
General and administrative 25,626 28,318
Depreciation and amortization 51,118 53,714
------------ ------------
Total operating expenses 110,048 114,091
------------ ------------
Operating income (loss) (16,086) (19,418)
Interest expense, net (26,477) (25,366)
Equity in loss of affiliate (3,200) (1,055)
------------ ------------
Income (loss) before accounting change (45,763) (45,839)
Cumulative effect of accounting change (3,361) --
------------ ------------
Net income (loss) (49,124) (45,839)
Preferred stock dividend (513) --
------------ ------------
Net income (loss) to common stockholders $ (49,637) $ (45,839)
============ ============
Basic/diluted net income (loss) per common
share before accounting change $ (2.18) $ (2.20)
Cumulative effect of accounting change per
basic/diluted common share (0.16) --
------------ ------------
Basic/diluted net income (loss) per common share $ (2.34) $ (2.20)
============ ============
Basic/diluted weighted average number of common
shares outstanding 21,215,583 20,877,076
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated
condensed financial statements.
4
<PAGE>
ARCH COMMUNICATIONS GROUP, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(unaudited and in thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1999 1998
---- ----
<S> <C> <C>
Net cash provided by operating activities $ 12,379 $ 9,992
-------- --------
Cash flows from investing activities:
Additions to property and equipment, net .. (21,125) (15,915)
Additions to intangible and other assets .. (4,403) (5,404)
Net proceeds form sale of tower site assets 618 --
-------- --------
Net cash used for investing activities (24,910) (21,319)
-------- --------
Cash flows from financing activities:
Issuance of long-term debt 23,000 24,500
Repayment of long-term debt -- (12,259)
Net proceeds from sale of common stock -- 298
-------- --------
Net cash provided by financing activities 23,000 12,539
-------- --------
Net increase in cash and cash equivalents 10,469 1,212
Cash and cash equivalents, beginning of period 1,633 3,328
-------- --------
Cash and cash equivalents, end of period $ 12,102 $ 4,540
======== ========
Supplemental disclosure:
Interest paid $ 20,212 $ 15,289
Accretion of discount on senior notes $ 9,942 $ 8,880
</TABLE>
The accompanying notes are an integral part of these consolidated
condensed financial statements.
5
<PAGE>
ARCH COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(unaudited)
(a) Preparation of Interim Financial Statements - The consolidated condensed
financial statements of Arch Communications Group, Inc. ("Arch" or the
"Company") have been prepared in accordance with the rules and regulations of
the Securities and Exchange Commission. The financial information included
herein, other than the consolidated condensed balance sheet as of December 31,
1998, has been prepared by management without audit by independent accountants
who do not express an opinion thereon. The consolidated condensed balance sheet
at December 31, 1998 has been derived from, but does not include all the
disclosures contained in, the audited consolidated financial statements for the
year ended December 31, 1998. In the opinion of management, all of these
unaudited statements include all adjustments and accruals consisting only of
normal recurring accrual adjustments which are necessary for a fair presentation
of the results of all interim periods reported herein. These consolidated
condensed financial statements should be read in conjunction with the
consolidated financial statements and accompanying notes included in Arch's
Annual Report on Form 10-K for the year ended December 31, 1998. The results of
operations for the periods presented are not necessarily indicative of the
results that may be expected for a full year.
(b) Intangible and Other Assets - Intangible and other assets, net of
accumulated amortization, are comprised of the following (in thousands):
March 31, December 31,
1999 1998
---- ----
(unaudited)
Goodwill $261,782 $271,808
Purchased FCC licenses 247,193 256,519
Purchased subscriber lists 49,456 56,825
Deferred financing costs 22,463 22,072
Investment in Benbow PCS Ventures, Inc. ("Benbow") 8,953 11,347
Investment in CONXUS Communications, Inc. 6,500 6,500
Non-competition agreements 1,525 1,790
Other 4,942 7,667
-------- --------
$602,814 $634,528
======== ========
(c) Change in Accounting Principle - 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. Arch adopted SOP 98-5 effective January 1, 1999. Initial
application of SOP 98-5 resulted in a $3.4 million charge which was reported as
the cumulative effect of a change in accounting principle. This charge
represents the unamortized portion of start-up and organization costs which had
been deferred in prior years.
(d) Divisional Reorganization - As of March 31, 1999, 258 employees had been
terminated due to the divisional reorganization announced in June 1998. The
Company's restructuring activity as of March 31, 1999 is as follows (in
thousands):
Reserve
Initially Utilization of Remaining
Established Reserve Reserve
----------- ------- -------
Severance costs $ 9,700 $ 2,875 $ 6,825
Lease obligation costs 3,500 508 2,992
Other costs 1,500 285 1,215
------- ------- -------
Total $14,700 $ 3,668 $11,032
======= ======= =======
6
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
FORWARD-LOOKING STATEMENTS
This Form 10-Q contains forward-looking statements. For this purpose, any
statements contained herein that are not statements of historical fact may be
deemed to be forward-looking statements. Without limiting the foregoing, the
words "believes", "anticipates", "plans", "expects" and similar expressions are
intended to identify forward-looking statements. There are a number of important
factors that could cause the Company's actual results to differ materially from
those indicated or suggested by such forward-looking statements. These factors
include, without limitation, those set forth below under the caption "Factors
Affecting Future Operating Results".
PENDING MOBILEMEDIA MERGER
On August 18, 1998, the Company entered into an Agreement and Plan of Merger
(as amended as of September 3, 1998, December 1, 1998 and February 8, 1999, the
"MobileMedia Merger Agreement") providing for a merger (the "MobileMedia
Merger") of MobileMedia Communications, Inc. ("MobileMedia") with and into a
subsidiary of Arch. The MobileMedia Merger is part of MobileMedia's Plan of
Reorganization (as amended, the "Reorganization Plan") to emerge from Chapter 11
bankruptcy. Arch's stockholders approved the MobileMedia Merger on January 26,
1999. On February 5, 1999, the Federal Communications Commission (the "FCC")
released an order approving the transfer of MobileMedia's FCC licenses to Arch
in connection with the MobileMedia Merger, subject to approval and confirmation
of the Reorganization Plan. The order granting the transfer became a final
order, no longer subject to reconsideration or judicial review, on March 8,
1999. The Reorganization Plan was confirmed by the U.S. Bankruptcy Court for the
District of Delaware on April 12, 1999. Consummation of the MobileMedia Merger
and the associated debt and equity financings (described below) (collectively,
the "MobileMedia Transactions") is subject to the performance by third parties
of their contractual obligations, the availability of sufficient financing and
other conditions. There can be no assurance the MobileMedia Merger will be
consummated.
Pursuant to the MobileMedia Merger, Arch will: (i) issue certain stock and
warrants; (ii) pay $479.0 million in cash to certain creditors of MobileMedia;
(iii) pay approximately $50.0 million of administrative, transaction and related
costs; (iv) raise $217.0 million in cash through rights offerings of its common
stock (the "Rights Offering"); and (v) cause its wholly owned subsidiary, Arch
Communications, Inc. ("ACI") and ACI's principal operating subsidiary, Arch
Paging Inc. ("API"), to borrow a total of approximately $312.0 million. After
consummation of the MobileMedia Transactions, which is expected to occur late in
the second quarter of 1999, MobileMedia will become a wholly owned subsidiary of
API.
DIVISIONAL REORGANIZATION
In June 1998, the Arch Board approved a divisional reorganization (the
"Divisional Reorganization"). As part of the Divisional Reorganization, which is
being implemented over a period of 18 to 24 months, Arch has consolidated its
former Midwest, Western, and Northern divisions into four existing operating
divisions, and is in the process of consolidating certain regional
administrative support functions, such as customer service, collections,
inventory and billing, to reduce redundancy and take advantage of various
operating efficiencies.
In connection with the Divisional Reorganization, Arch (i) anticipates a net
reduction of approximately 10% of its workforce, (ii) is closing certain office
locations and redeploying other real estate assets and (iii) recorded a
restructuring charge of $14.7 million during 1998. The restructuring charge
consisted of approximately (i) $9.7 million for employee severance, (ii) $3.5
million for lease obligations and terminations, and (iii) $1.5 million of other
costs. The severance costs and lease obligations will require cash outlays
throughout the 18 to 24 month restructuring period. Upon the completion of the
MobileMedia Merger, Arch's management will reassess the size and scope of the
Divisional Reorganization. The Company will also determine the size and scope of
additional restructuring reserves required as a direct result of the MobileMedia
Merger. There can be no assurance that the desired cost savings will be achieved
or that the anticipated reorganization of Arch's business will be accomplished
smoothly, expeditiously or successfully. See Note (d) to Arch's Consolidated
Condensed Financial Statements.
7
<PAGE>
RESULTS OF OPERATIONS
Total revenues decreased $1.2 million, or 1.1%, to $100.9 million in the
three months ended March 31, 1999 from $102.0 million in the three months ended
March 31, 1998, and net revenues (total revenues less cost of products sold)
decreased slightly to $94.0 million from $94.7 million over the same period.
Total revenues and net revenues in the 1999 period were adversely affected by a
general slowing of paging industry growth, compared to prior years. Revenues
were also adversely affected by: (i) Arch's decision in the fourth quarter of
1998, in anticipation of the MobileMedia Merger, not to replace normal attrition
among direct sales personnel; (ii) the reduced effectiveness of the reseller
channel of distribution; and (iii) reduced sales through Arch's company owned
stores. Arch expects revenue to continue to be adversely affected in 1999 due to
these factors. Service, rental and maintenance revenues, which consist primarily
of recurring revenues associated with the sale or lease of pagers, decreased
slightly to $90.5 million in the three months ended March 31, 1999 from $91.4
million in the three months ended March 31, 1998. Maintenance revenues
represented less than 10% of total service, rental and maintenance revenues in
the three months ended March 31, 1999 and 1998. Arch does not differentiate
between service and rental revenues. Product sales, less cost of products sold,
increased 4.8% to $3.4 million in the three months ended March 31, 1999 from
$3.3 million in the three months ended March 31, 1998.
Service, rental and maintenance expenses, which consist primarily of
telephone line and site rental expenses, increased to $20.3 million (21.6% of
net revenues) in the three months ended March 31, 1999 from $20.2 million (21.3%
of net revenues) in the three months ended March 31, 1998. The increase was due
primarily to increased expenses associated with system expansions and the
provision of paging services to a greater number of units. As existing paging
systems become more populated through the addition of new paging units, the
fixed costs of operating these paging systems are spread over a greater
subscriber base. Annualized service, rental and maintenance expenses per unit in
service decreased to $19 in the three months ended March 31, 1999 from $20 in
the three months ended March 31, 1998.
Selling expenses increased to $13.0 million (13.8% of net revenues) in the
three months ended March 31, 1999 from $11.9 million (12.5% of net revenues) in
the three months ended March 31, 1998 due primarily to increased hiring of
direct sales personnel.
General and administrative expenses decreased to $25.6 million (27.3% of net
revenues) in the three months ended March 31, 1999 from $28.3 million (29.9% of
net revenues) in the three months ended March 31, 1998. The decrease was due
primarily to reduction of headcount as a result of the divisional reorganization
which began in June 1998.
Depreciation and amortization expenses decreased to $51.1 million (54.4% of
net revenues) in the three months ended March 31, 1999 from $53.7 million (56.7%
of net revenues) in the three months ended March 31, 1998. These expenses
principally reflect Arch's acquisitions of paging businesses in prior periods
accounted for as purchases, and investment in pagers and other system expansion
equipment to support growth.
Operating loss decreased to $16.1 million in the three months ended March 31,
1999 from $19.4 million in the three months ended March 31, 1998 as a result of
the factors outlined above.
Net interest expense increased to $26.5 million in the three months ended
March 31, 1999 from $25.4 million in the three months ended March 31, 1998. The
increase was attributable to an increase in Arch's average outstanding debt.
Interest expense in the three months ended March 31, 1999 and 1998 includes
approximately $9.9 million and $8.9 million, respectively, of non-cash interest
accretion on Arch's 107/8% Senior Discount Notes due 2008 (the "Senior Discount
Notes").
On January 1, 1999, Arch adopted SOP 98-5. SOP 98-5 requires costs of
start-up activities and organization costs to be expensed as incurred. Initial
application of SOP 98-5 resulted in a $3.4 million charge which was reported as
the cumulative effect of a change in accounting principle. This charge
represents the unamortized portion of start-up and organization costs which had
been deferred in prior years.
Net losses increased to $49.1 million in the three months ended March 31,
1999 from $45.8 million in the three months ended March 31, 1998 as a result of
the factors outlined above.
8
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Arch's business strategy requires the availability of substantial funds to
finance the expansion of existing operations, to fund capital expenditures for
pagers and paging system equipment, to service debt and to finance acquisitions.
Capital Expenditures and Commitments
Arch's capital expenditures increased from $21.3 million in the three months
ended March 31, 1998 to $25.5 million in the three months ended March 31, 1999.
Arch generally has funded its capital expenditures with net cash provided by
operating activities and the incurrence of debt. Arch believes that it will have
sufficient cash available from operations and credit facilities to fund its
capital expenditures for the remainder of the year.
Arch is obligated, to the extent such funds are not available to Benbow from
other sources and subject to the approval of Arch's designee on Benbow's Board
of Directors, to advance to Benbow sufficient funds to service the FCC
license-related debt obligations incurred by Benbow in connection with its
acquisition of its N-PCS licenses and to finance construction of an N-PCS
system.
Arch is currently evaluating the prospects for Benbow's N-PCS system and its
other N-PCS investments and services and the likelihood of Benbow generating
sufficient revenue to repay the advances from Arch (or other sources) that would
be required in order to fund Benbow's remaining N-PCS license obligations and
the construction of its N-PCS system. Arch is unable to predict whether Benbow
will obtain sufficient financing to fund Benbow's remaining N-PCS license
obligations and the construction of Benbow's N-PCS system or whether Benbow will
be able to repay Arch's existing advances or any future advances from Arch or
other sources.
Sources of Funds
Arch's net cash provided by operating activities was $12.4 million and $10.0
million in the three months ended March 31, 1999 and 1998 respectively. Arch
believes that its capital needs for the foreseeable future will be funded with
borrowings under current and future credit facilities, net cash provided by
operations and, depending on the Company's needs and market conditions, possible
sales of equity or debt securities.
FACTORS AFFECTING FUTURE OPERATING RESULTS
The following important factors, among others, could cause Arch's actual
operating results to differ materially from those indicated or suggested by
forward-looking statements made in this Form 10-Q or presented elsewhere by
Arch's management from time to time.
Growth and Acquisition Strategy
Arch believes that the paging industry has experienced, and will continue to
experience, consolidation due to factors that favor larger, multi-market paging
companies, including (i) the ability to obtain additional radio spectrum, (ii)
greater access to capital markets and lower costs of capital, (iii) broader
geographic coverage of paging systems, (iv) economies of scale in the purchase
of capital equipment, (v) operating efficiencies and (vi) enhanced access to
executive personnel.
Arch has pursued, and intends to continue to pursue, acquisitions of paging
businesses as a key component of its growth strategy. However, the process of
integrating acquired paging businesses may involve unforeseen difficulties and
may require a disproportionate amount of the time and attention of Arch's
management. No assurance can be given that suitable acquisitions can be
identified, financed and completed on acceptable terms, or that any future
acquisitions by Arch will be successful.
Implementation of Arch's growth strategy will be subject to numerous other
contingencies beyond the control of its management. These contingencies include
national and regional economic conditions, interest rates, competition, changes
in regulation or technology and the ability to attract and retain skilled
employees. Accordingly, no assurance can be given that Arch's growth strategy
will prove effective or that its goals will be achieved.
9
<PAGE>
Future Capital Needs; Uncertainty of Additional Funding
Arch's business strategy requires the availability of substantial funds to
finance the continued development and future growth and expansion of its
operations, including possible acquisitions. The amount of capital required by
Arch following the MobileMedia Merger will depend upon a number of factors,
including growth in the number of units in service, the type of paging devices
and services demanded by customers, service revenues, technological
developments, marketing and sales expenses, competitive conditions, the nature
and timing of Arch's N-PCS strategy and acquisition strategies and
opportunities. No assurance can be given that additional equity or debt
financing will be available to Arch when needed on acceptable terms, if at all.
The unavailability of sufficient financing when needed would have a material
adverse effect on Arch.
Competition and Technological Change
Arch faces competition from other paging service providers in all markets in
which it operates, as well as from certain competitors who hold nationwide
licenses. Monthly fees for basic paging services have, in general, declined in
recent years, due in part to competitive conditions, and Arch may face
significant price-based competition in the future which could have a material
adverse effect on Arch. Since 1997, industry growth in basic paging units in
service has slowed considerably. Certain competitors of Arch possess greater
financial, technical and other resources than Arch. A trend towards increasing
consolidation in the paging industry in particular and the wireless
communications industry in general in recent years has led to competition from
increasingly larger and better capitalized competitors. If any of such
competitors were to devote additional resources to the paging business or focus
on Arch's particular markets, there could be a material adverse effect on Arch.
Competitors are currently using and developing a variety of two-way paging
technologies. Arch does not presently provide such two-way services, other than
as a reseller. Although such services generally are higher priced than
traditional one-way paging services, technological improvements could result in
increased capacity and efficiency for such two-way paging technologies and,
accordingly, could result in increased competition for Arch. Future
technological advances in the telecommunications industry could increase new
services or products competitive with the paging services provided by Arch or
could require Arch to reduce the price of their paging services or incur
additional capital expenditures to meet competitive requirements. Recent and
proposed regulatory changes by the FCC are aimed at encouraging such
technological advances and new services. Other forms of wireless two-way
communications technology, including cellular and broadband personal
communications services ("PCS"), and specialized mobile radio services, also
compete with the paging services that Arch currently provides. While such
services are primarily focused on two-way voice communications, service
providers are, in many cases, electing to provide paging services as an adjunct
to their primary services. Technological change also may affect the value of the
pagers owned by Arch and leased to its subscribers. If Arch's subscribers
request more technologically advanced pagers, including, but not limited to,
two-way pagers, Arch could incur additional inventory costs and capital
expenditures if required to replace pagers leased to its subscribers within a
short period of time. Such additional investment or capital expenditures could
have a material adverse effect on Arch. There can be no assurance that Arch will
be able to compete successfully with current and future competitors in the
paging business or with competitors offering alternative communication
technologies. Pursuant to the 1994 Communications Assistance for Law Enforcement
Act ("CALEA"), all telecommunications carriers, including Arch, are subject to
certain law enforcement assistance capability requirements. These capability
requirements will likely necessitate equipment modifications. Although CALEA
requires the federal government to reimburse carriers for certain equipment
modifications, it is unclear whether Arch will be entitled to such a
reimbursement and if so, how much Arch will receive.
Government Regulation, Foreign Ownership and Possible Redemption
The paging operations of Arch are subject to regulation by the FCC and
various state regulatory agencies. The FCC paging licenses granted to Arch are
for varying terms of up to 10 years, at the end of which renewal applications
must be approved by the FCC. In the past, paging license renewal applications
generally have been granted by the FCC upon a showing of compliance with FCC
regulations and of adequate service to the public. Arch is unaware of any
circumstances which would prevent the grant of any pending or future renewal
applications; however, no assurance can be given that any of Arch's renewal
applications will be free of challenge or will be granted by the FCC. It is
10
<PAGE>
possible that there may be competition for radio spectrum associated with
licenses as they expire, thereby increasing the chances of third party
interventions in the renewal proceedings. Other than those renewal applications
still pending, the FCC has thus far granted each license renewal application
that Arch has filed. There can be no assurance that the FCC and various state
regulatory agencies will not propose or adopt regulations or take actions that
would have a material adverse effect on Arch.
The FCC's review and revision of rules affecting paging companies is ongoing
and the regulatory requirements to which Arch is subject may change
significantly over time. For example, the FCC has decided to adopt a market area
licensing scheme for all paging channels under which carriers would be licensed
to operate on a particular channel throughout a broad geographic area (for
example, a Major Trading Area as defined by Rand McNally) rather than being
licensed on a site-by-site basis. These geographic area licenses will be awarded
pursuant to auction. Incumbent paging licensees that do not acquire licenses at
auction will be entitled to interference protection from the market area
licensee. Arch is participating actively in this proceeding in order to protect
its existing operations and retain flexibility, on an interim and long-term
basis, to modify systems as necessary to meet subscriber demands. The FCC has
issued a Further Notice of Proposed Rulemaking in which the FCC sought comments
on, among other matters, whether it should impose coverage requirements on
licensees with nationwide exclusivity (such as Arch), whether these coverage
requirements should be imposed on a nationwide or regional basis, and
whether--if such requirements are imposed--failure to meet the requirements
should result in a revocation of the entire nationwide license or merely a
portion of the license. If the FCC were to impose stringent coverage
requirements on licensees with nationwide exclusivity, Arch might have to
accelerate the build-out of its systems in certain areas.
Changes in regulation of Arch's paging businesses or the allocation of radio
spectrum for services that compete with Arch's business could adversely affect
its results of operations. In addition, some aspects of the Telecommunications
Act of 1996 (the "Telecommunications Act") may place additional burdens upon
Arch or subject Arch to increased competition. For example, the FCC has adopted
rules that govern compensation to be paid to pay phone providers which has
resulted in increased costs for certain paging services including toll-free
1-800 number paging. Arch has generally passed these costs on to its
subscribers, which makes Arch's services more expensive and which could affect
the attraction or retention of customers; however, there can be no assurance
that Arch will be able to continue to pass on these costs. In addition, the FCC
also has adopted rules regarding payments by telecommunications companies into a
revamped fund that will provide for the widespread availability of
telecommunications services, including to low-income consumers ("Universal
Service"). Prior to the implementation of the Telecommunications Act, Universal
Service obligations largely were met by local telephone companies, supplemented
by long-distance telephone companies. Under the new rules, certain
telecommunications carriers, including Arch, are required to contribute to a
revised fund created for Universal Service (the "Universal Service Fund"). In
addition, certain state regulatory authorities have enacted, or have indicated
that they intend to enact, similar contribution requirements based on state
revenues. Arch can not yet know the full impact of these state contribution
requirements. Moreover, Arch is not able at this time to estimate the amount of
any such payments that it will be able to bill to their subscribers; however,
payments into the Universal Service Fund will likely increase the cost of doing
business.
Moreover, in a rulemaking proceeding pertaining to interconnection between
local exchange carriers ("LECs") and commercial mobile radio services ("CMRS")
providers such as Arch, the FCC has concluded that LECs are required to
compensate CMRS providers for reasonable costs incurred by such providers in
terminating traffic that originates on LEC facilities, and vice versa.
Consistent with this ruling, the FCC has determined that LECs may not charge a
CMRS provider or other carrier for terminating LEC-originated traffic or for
dedicated facilities used to deliver LEC-originated traffic to one-way paging
networks. Nor may LECs charge CMRS providers for number activation and use fees.
These interconnection issues are still in dispute, and it is unclear whether the
FCC will maintain its current position. Depending on further FCC disposition of
these issues, Arch may or may not be successful in securing refunds, future
relief or both, with respect to charges for termination of LEC-originated local
traffic. If these issues are ultimately resolved by the FCC in favor of CMRS
providers, then Arch will pursue relief through settlement negotiations,
administrative complaint procedures or both. If these issues are ultimately
decided in favor of the LECs, Arch likely would be required to pay all past due
11
<PAGE>
contested charges and may also be assessed interest and late charges for the
withheld amounts. Although these requirements have not to date had a material
adverse effect on Arch, these or similar requirements could in the future have a
material adverse effect on Arch.
The Communications Act also limits foreign investment in and ownership of
entities that are licensed as radio common carriers by the FCC. Arch owns or
controls several radio common carriers and is accordingly subject to these
foreign investment restrictions. Because Arch is the parent company of certain
radio common carriers (but is not a radio common carrier itself), Arch may not
have more than 25% of its stock owned or voted by aliens or their
representatives, a foreign government or its representatives or a foreign
corporation if the FCC finds that the public interest would be served by denying
such ownership. In connection with the World Trade Organization Agreement (the
"WTO Agreement")--agreed to by 69 countries--the FCC adopted rules effective
February 9, 1998 that create a very strong presumption in favor of permitting a
foreign interest in excess of 25% if the foreign investor's home market country
signed the WTO Agreement. Arch's subsidiaries that are radio common carrier
licensees are subject to more stringent requirements and may have only up to 20%
of their stock owned or voted by aliens or their representatives, a foreign
government or their representatives or a foreign corporation. This ownership
restriction is not subject to waiver. Arch's Restated Certificate of
Incorporation, as amended permits the redemption of shares of Arch's capital
stock from foreign stockholders where necessary to protect FCC licenses held by
Arch or its subsidiaries, but such redemption would be subject to the
availability of capital to Arch and any restrictions contained in applicable
debt instruments and under the Delaware General Corporation Law ("DGCL") (which
currently would not permit any such redemptions). The failure to redeem such
shares promptly could jeopardize the FCC licenses held by Arch or its
subsidiaries.
Turnover of Units in Service
The results of operations of wireless messaging service providers, such as
Arch, can be significantly affected by units in service cancellations. The sales
and marketing costs associated with attracting new subscribers are substantial
relative to the costs of providing service to existing customers. Because the
paging business is characterized by high fixed costs, cancellations directly and
adversely affect earnings before interest, taxes, depreciation and amortization
("EBITDA"). An increase in the unit in service cancellation rate could have a
material adverse effect on Arch.
Dependence on Third Parties
Arch does not manufacture any of the pagers used in its paging operations.
Arch buys pagers primarily from Motorola, Inc. ("Motorola"), NEC America, Inc.
and Panasonic Communications & Systems Company and therefore is dependent on
such manufacturers to obtain sufficient pager inventory for new subscriber and
replacement needs. In addition, Arch purchases terminals and transmitters
primarily from Glenayre Electronics, Inc. and Motorola and thus is dependent on
such manufacturers for sufficient terminals and transmitters to meet their
expansion and replacement requirements. To date, Arch has not experienced
significant delays in obtaining pagers, terminals or transmitters, but there can
be no assurance that Arch will not experience such delays in the future. Arch's
purchase agreement with Motorola expires on June 19, 1999, although it contains
a provision for renewals for one-year terms. There can be no assurance that
Arch's agreement with Motorola will be renewed or, if renewed, that such
agreement will be on terms and conditions as favorable to Arch as those under
the current agreements. Although Arch believes that sufficient alternative
sources of pagers, terminals and transmitters exist, there can be no assurance
that Arch would not be materially adversely affected if it were unable to obtain
these items from current supply sources or on terms comparable to existing
terms. Finally, Arch relies on third parties to provide satellite transmission
for some aspects of their paging services. To the extent there are satellite
outages or if satellite coverage is otherwise impaired, Arch may experience a
loss of service until such time as satellite coverage is restored, which could
have a material adverse effect on Arch.
Possible Acquisition Transactions
Arch believes that the paging industry will undergo further consolidation,
and Arch expects to participate in such continued industry consolidation. Arch
has evaluated and expects to continue to evaluate possible acquisition
transactions on an ongoing basis and at any given time may be engaged in
discussions with respect to possible acquisitions or other business
combinations. The process of integrating acquired paging businesses may involve
12
<PAGE>
unforeseen difficulties and may require a disproportionate amount of the time
and attention of Arch's management and financial and other resources. No
assurance can be given that suitable acquisition transactions can be identified,
financed and completed on acceptable terms, that Arch's future acquisitions will
be successful, or that Arch will participate in any future consolidation of the
paging industry.
Dependence on Key Personnel
The success of Arch will depend, to a significant extent, upon the continued
services of a relatively small group of executive personnel. Arch does not have
employment agreements with, or maintain life insurance on the lives of, any of
its current executive officers, although certain executive officers have entered
into non-competition agreements and all executive officers have entered into
executive retention agreements with Arch. The loss or unavailability of one or
more of its executive officers or the inability to attract or retain key
employees in the future could have a material adverse effect on Arch.
Impact of the Year 2000 Issue
The Year 2000 problem is the result of computer programs being written using
two digits (rather than four) to define the applicable year. Any of Arch's
programs that have time-sensitive software may recognize a date using "00" as
the year 1900 rather than the year 2000. This could result in a system failure
or miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions, send invoices or engage
in similar normal business activities. As a result, the computerized systems
(including both information and non-information technology systems) and
applications used by Arch are being reviewed, evaluated and, if and where
necessary, modified or replaced to ensure that all financial, information and
operating systems are Year 2000 compliant.
Arch has created a cross-functional project group (the "Y2K Project Group")
to work on the Year 2000 problem. The Y2K Project Group is finishing its
analysis of external and internal areas likely to be affected by the Year 2000
problem. It has classified the identified areas of concern into either a mission
critical or non-mission critical status. For external areas, Arch has
distributed vendor surveys to its primary and secondary vendors. The surveys
requested information about hardware and/or software supplied by information
technology vendors as well as non-information technology system vendors that
might use embedded technologies in their systems or products. Information was
requested regarding the vendor's Year 2000 compliance planning, timing, status,
testing and contingency planning. As part of its evaluation of Year 2000
vulnerability related to its pager and paging equipment vendors, Arch has
discussed with them their efforts to identify potential issues associated with
their equipment and/or software and has concluded that, to the extent any
vulnerability exists, it has been addressed. Internally, Arch is completing an
inventory audit of hardware and software testing for both its corporate and
divisional operations. These areas of operation include: information systems,
finance, operations, inventory, billing, pager activation and purchasing.
Additional testing is scheduled to conclude in the second quarter of 1999.
Arch expects that it will incur costs to replace existing hardware, software
and paging equipment, which will be capitalized and amortized in accordance with
Arch's existing accounting policies, while maintenance or modification costs
will be expensed as incurred. Arch has upgraded hardware to enable compliance
testing to be performed on dedicated test equipment in an isolated
production-like environment. Based on Arch's costs incurred to date, as well as
estimated costs to be incurred over the next nine months, Arch does not expect
that resolution of the Year 2000 problem will have a material adverse effect on
its results of operations and financial condition. Costs of the Year 2000
project are based on current estimates and actual results may vary significantly
from such estimates once detailed plans are developed and implemented.
While it is Arch's stated goal to be compliant, on an internal basis, by
September 30, 1999, Arch may face the possibility that one or more of its
mission critical vendors, such as its utility providers, telephone carriers or
satellite carriers, may not be Year 2000 compliant. Because of the unique nature
of such vendors, alternative providers of these services may not be available.
Additionally, although Arch has initiated its test plan for its business-related
hardware and software applications, there can be no assurance that such testing
will detect all applications that may be affected by the Year 2000 problem.
Lastly, Arch does not manufacture any of the pagers or paging-related equipment
used by its customers or for its own paging operations. Although Arch is in the
process of testing of such equipment it has relied to a large extent on the
representations and assessments of its vendors with respect to their readiness.
13
<PAGE>
Arch can offer no assurances as to the accuracy of such vendors' representations
and assessments.
Arch is designing and implementing contingency plans relating to the Year
2000 problem. To this end, each department is identifying the likely risks and
determining commercially reasonable solutions. The Y2K Project Group is
collecting and reviewing the determinations on both a department-by-department
and company-wide basis. Arch intends to complete its Year 2000 contingency
planning during calendar year 1999.
No Dividends
Arch has never declared or paid cash dividends, nor does Arch intend to
declare or pay any cash dividends in the foreseeable future. Certain covenants
in the Company's credit facility and in other Arch debt instruments, effectively
prohibit the declaration or payment of cash dividends by Arch for the
foreseeable future. In addition, the terms of the Series C Preferred Stock
generally prohibit the payment of cash dividends on Arch's Common Stock unless
all accrued and unpaid dividends on the Series C Preferred Stock are paid in
full.
History of Losses
Since its inception, Arch has not reported any net income. Arch reported net
losses of $114.7 million, $181.9 million and $206.1 million in the fiscal years
ended December 31, 1996, 1997 and 1998, respectively. These historical net
losses have resulted principally from substantial depreciation and amortization
expense, primarily related to intangible assets and pager depreciation, interest
expense and other costs of growth. Substantial and increased amounts of debt are
expected to be outstanding for the foreseeable future, which will result in
significant additional interest expense which could have a material adverse
effect on Arch. Arch expects to continue to report net losses for the
foreseeable future, whether or not the MobileMedia Merger is consummated. See
Arch's Consolidated Condensed Financial Statements included elsewhere herein.
Volatility of Trading Price
The market price of Arch's Common Stock is subject to significant fluctuation
and has recently declined. Between January 1, 1998 and May 12, 1999, the
reported sale price of Arch's Common Stock on the NASDAQ National Market has
ranged from a low of $.6875 per share (in October 1998) to a high of $6.1875 per
share (in June 1998). The trading price of Arch's Common Stock following the
MobileMedia Merger will likely be affected by numerous factors, including the
risk factors set forth herein, as well as prevailing economic and financial
trends and conditions in the public securities markets. During recent periods,
share prices of paging companies such as Arch have exhibited a high degree of
volatility. Shortfalls in revenues or EBITDA from the levels anticipated by the
public markets could have an immediate and significant adverse effect on the
trading price of Arch's Common Stock in any given period. Such shortfalls may
result from events that are beyond Arch's immediate control and can be
unpredictable. The trading price of Arch's shares may also be affected by
developments, including reported financial results and fluctuations in trading
prices of the shares of other publicly held companies in the paging industry
generally, which may not have any direct relationship with Arch's business or
long-term prospects.
Indebtedness and High Degree of Leverage
Arch is highly leveraged. At March 31, 1999, Arch and its subsidiaries had
outstanding $1.0 billion of total debt, including (i) $125.0 million principal
amount of ACI's 9 1/2% Senior Notes due 2004 (the "ACI 9 1/2% Notes"), (ii)
$100.0 million principal amount of ACI's 14% Senior Notes due 2004 (the "ACI 14%
Notes"), (iii) $127.7 million accreted value of ACI's 12 3/4% Notes (together
with the ACI 9 1/2% Notes and the ACI 14% Notes, the "ACI Notes"), (iv) $379.4
million accreted value of Arch's 10 7/8% Senior Discount Notes (the "Senior
Discount Notes"), (v) $13.4 million principal amount of Arch's 6 3/4%
Convertible Subordinated Debentures due 2003 (the "Arch Convertible Debentures")
and (vi) $290.0 million of borrowings under the API Credit Facility. In
addition, on April 9, 1999, an affiliate of Arch issued $139.8 million accreted
value of 13 3/4% Senior Discount Notes due 2008 (the "13 3/4% Senior Discount
Notes") which will be assumed by ACI upon consummation of the MobileMedia
Merger. Arch's high degree of leverage may have adverse consequences for Arch,
including: (i) the ability of Arch to obtain additional financing for
acquisitions, working capital, capital expenditures or other purposes, may be
impaired or extinguished or such financing may not be available on acceptable
terms, if at all; (ii) a substantial portion of the Adjusted EBITDA will be
required to pay interest expense, which will reduce the funds which would
14
<PAGE>
otherwise be available for operations and future business opportunities; (iii)
the API Credit Facility and the indentures (the "Arch Indentures") under which
the ACI Notes are outstanding (and the 13 3/4% Senior Discount Notes will be
outstanding after their assumption by ACI) contain financial and restrictive
covenants, the failure to comply with which may result in an event of default
which, if not cured or waived, could have a material adverse effect on Arch;
(iv) Arch may be more highly leveraged than its competitors which may place it
at a competitive disadvantage; (v) Arch's high degree of leverage will make it
more vulnerable to a downturn in its business or the economy generally; and (vi)
Arch's high degree of leverage may impair its ability to participate in the
future consolidation of the paging industry. Arch has implemented various
initiatives to reduce capital costs while sustaining acceptable levels of unit
and revenue growth. As a result, Arch's rate of internal growth in units in
service has slowed and is expected to remain below the rates of internal growth
previously achieved by Arch, but Arch has not yet reduced its financial leverage
significantly. There can be no assurance that Arch will be able to reduce its
financial leverage significantly or that Arch will achieve an appropriate
balance between growth which it considers acceptable and future reductions in
financial leverage. If Arch is not able to achieve continued growth in EBITDA,
it may be precluded from incurring additional indebtedness due to cash flow
coverage requirements under existing debt instruments. EBITDA is not a measure
defined in GAAP and should not be considered in isolation or as a substitute for
measures of performance prepared in accordance with GAAP. Adjusted EBITDA may
not necessarily be comparable to similarly titled data of other paging
companies. See Arch's Consolidated Financial Statements and Notes thereto
included elsewhere herein.
MobileMedia Merger Cash Requirements
To fund the estimated cash payments required by the MobileMedia Merger of
approximately $312.0 million (consisting of $262.0 million to fund a portion of
the cash payments to MobileMedia's secured creditors and $50.0 million to fund
estimated transaction and administrative expenses) API, The Bank of New York,
Toronto Dominion (Texas), Inc., Royal Bank of Canada, Barclays Bank, PLC and
Conseco Capital Management, Inc. have executed a commitment letter for a $181
million increase to API's existing $400 million credit facility. In addition, on
April 9, 1999, an affiliate of Arch issued $139.8 million accreted value of the
13 3/4% Senior Discount Notes which will be assumed by ACI upon consummation of
the MobileMedia Merger and the proceeds used to fund a portion of the cash
payments in connection with the MobileMedia Merger. If Arch is not able to
arrange financing to make the cash payments required by the MobileMedia Merger
and therefore could not consummate the MobileMedia Merger, and Arch's failure to
perform its obligations under the MobileMedia Merger Agreement is not otherwise
excused, Arch will be liable to pay a $32.5 million breakup fee to MobileMedia.
API Credit Facility and Indenture Restrictions
The API Credit Facility and the Arch Indentures impose (or will impose)
certain operating and financial restrictions on Arch. The API Credit Facility
requires API and, in certain cases, ACI, to maintain specified financial ratios,
among other obligations, including a maximum leverage ratio and a minimum fixed
charge coverage ratio, each as defined in the API Credit Facility. In addition,
the API Credit Facility limits or restricts, among other things, API's ability
to: (i) declare dividends or redeem or repurchase capital stock; (ii) prepay,
redeem or purchase debt; (iii) incur liens and engage in sale/leaseback
transactions; (iv) make loans and investments; (v) incur indebtedness and
contingent obligations; (vi) amend or otherwise alter debt instruments and other
material agreements; (vii) engage in mergers, consolidations, acquisitions and
asset sales; (viii) engage in transactions with affiliates; and (ix) alter its
lines of business or accounting methods. In addition, the Arch Indentures limit,
among other things: (i) the incurrence of additional indebtedness by Arch and
its Restricted Subsidiaries (as defined therein); (ii) the payment of dividends
and other restricted payments by Arch and its Restricted Subsidiaries; (iii)
asset sales; (iv) transactions with affiliates; (v) the incurrence of liens; and
(vi) mergers and consolidations. Arch's ability to comply with such covenants
may be affected by events beyond its control, including prevailing economic and
financial conditions. A breach of any of these covenants could result in a
default under the API Credit Facility and/or the Arch Indentures. Upon the
occurrence of an event of default under the API Credit Facility or the Arch
Indentures, the creditors could elect to declare all amounts outstanding,
together with accrued and unpaid interest, to be immediately due and payable. If
Arch were unable to repay any such amounts, the creditors could proceed against
the collateral securing certain of such indebtedness. If the lenders under the
API Credit Facility accelerate the payment of such indebtedness, there can be no
15
<PAGE>
assurance that the assets of Arch would be sufficient to repay in full such
indebtedness and the other indebtedness of Arch, including the ACI Notes and,
when assumed, the 13 3/4% Senior Discount Notes. In addition, because the API
Credit Facility and the Arch Indentures limit (or will limit) the ability of
Arch to engage in certain transactions except under certain circumstances, Arch
may be prohibited from entering into transactions that could be beneficial to
Arch.
Possible Fluctuations in Revenues and Operating Results
Arch believes that future fluctuations in its revenues and operating results
are possible as the result of many factors, including competition, turnover of
units in service, new service developments and technological change. Arch's
current and planned debt repayment levels are, to a large extent, fixed in the
short term, and are based in part on its expectations as to future revenues, and
Arch may be unable to adjust spending in a timely manner to compensate for any
revenue shortfall. Due to the foregoing or other factors, it is possible that
due to future fluctuations, Arch's revenue or operating results may not meet the
expectations of securities analysts or investors, which may have a material
adverse effect on the price of Arch's Common Stock.
Divisional Reorganization
In June 1998, the Arch Board approved the Divisional Reorganization. Once
fully implemented, the Divisional Reorganization is expected to result in annual
cost savings of approximately $15.0 million. Arch expects to reinvest a portion
of these cost savings to expand its sales activities. There can be no assurance
that the expected cost savings will be achieved or that the reorganization of
Arch's business will be accomplished smoothly, expeditiously or successfully.
The difficulties of such reorganization may be increased by the need to
integrate MobileMedia's operations in multiple locations and to combine two
corporate cultures. The inability to successfully integrate the operations of
MobileMedia would have a material adverse effect on Arch.
Anti-Takeover Provisions
Arch's Restated Certificate of Incorporation, as amended and Arch's By-laws
include provisions for a classified Board of Directors, the issuance of "blank
check" preferred stock (the terms of which may be fixed by the Arch Board
without further stockholder approval), a prohibition on stockholder action by
written consent in lieu of a meeting and certain procedural requirements
governing stockholder meetings. Arch also has a stockholders rights plan. In
addition, Section 203 of the DGCL will, with certain exceptions, prohibit Arch
from engaging in any business combination with any "interested stockholder" (as
defined therein) for a three-year period following the date that such
stockholder becomes an interested stockholder. Such provisions may have the
effect of delaying, making more difficult or preventing a change in control or
acquisition of Arch.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The majority of the Company's long-term debt is subject to fixed rates of
interest or interest rate protection. In the event that the interest rate on the
Company's non-fixed rate debt fluctuates by 10% in either direction, the Company
believes the impact on its results of operations would be immaterial. The
Company transacts infrequently in foreign currency and therefore is not exposed
to significant foreign currency market risk.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company is involved in various lawsuits and claims arising in the normal
course of business. The Company believes that none of such matters will have a
material adverse effect on the Company's business or financial condition.
Item 2. Changes in Securities and Use of Proceeds
None.
Item 3. Defaults upon Senior Securities
None.
16
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders
At the Company's Special Meeting of Stockholders held on January 26, 1999 the
following proposals were adopted by the vote specified below:
<TABLE>
<CAPTION>
Broker
Proposal For Against Abstain Nonvotes
- -------- --- ------- ------- --------
<S> <C> <C> <C>
1. To approve the issuance of shares of Arch's Common Stock, 15,649,868 638,332 38,767 --
shares of Arch Class B Common Stock and rights and warrants to
acquire shares of Arch Common Stock pursuant to (x) an
Agreement and Plan of Merger dated August 18, 1998, as amended
among Arch, a subsidiary of Arch, MobileMedia Corporation
("Parent") and MobileMedia Communications, Inc. ("MMC" and,
together with its subsidiaries, "MobileMedia"), (y) a related
Third Amended Joint Plan of Reorganization of Parent and
MobileMedia dated as of December 1, 1998 and (z) certain
standby commitment letters dated as of August 18, 1998, as
amended, among Arch, MMC and certain unsecured creditors of
Parent and MobileMedia
2. To approve an amendment to the Restated Certificate of 15,484,725 765,859 42,447 33,936
Incorporation of Arch increasing (i) the number of authorized
shares of Arch Common Stock from 75,000,000 to 365,000,000
shares, 65,000,000 shares of which will be designated Class B
Common Stock and (ii) the number of authorized shares of Arch's
Series B Junior Participating Preferred Stock from 200,000 to
300,000 shares
3. To approve an amendment to the Restated Certificate of 15,327,701 945,601 53,665 --
Incorporation of Arch to effect a reverse stock split
4. To approve an amendment to Arch's 1997 Stock Option Plan to 11,905,818 4,325,081 62,132 33,936
increase the number of shares of Arch Common Stock issuable
under such plan from 1,500,000 to 6,000,000
5. To approve Arch's 1999 Employee Stock Purchase Plan 15,180,761 939,414 172,856 33,936
</TABLE>
Item 5. Other Information
Stockholder Proposals for 2000 Annual Meeting
As set forth in the Company's Proxy Statement for its 1999 Annual Meeting of
Stockholders, stockholder proposals submitted pursuant to Rule 14a-8 under the
Exchange Act for inclusion in the Company's proxy materials for its 2000 Annual
Meeting of Stockholders must be received by the Secretary of the Company at the
principal offices of the Company no later than December 17, 1999.
17
<PAGE>
In addition, the Company's By-laws require that the Company be given advance
notice of stockholder nominations for election to the Company's Board of
Directors and of other matters which stockholders wish to present for action at
an annual meeting of stockholders (other than matters included in the Company's
proxy statement in accordance with Rule 14a-8). The required notice must be made
in writing and delivered or mailed to the Secretary of the Company at the
principal offices of the Company, and received not less than 80 days prior to
the 2000 Annual Meeting; provided, however, that if less than 90 days' notice or
prior public disclosure of the date of the meeting is given or made to
stockholders, such nomination shall have been mailed or delivered to the
Secretary not later than the close of business on the 10th day following the
date on which the notice of the meeting was mailed or such public disclosure was
made, whichever occurs first. The 2000 Annual Meeting is currently expected to
be held on May 16, 2000. Assuming that this date does not change, in order to
comply with the time periods set forth in the Company's By-Laws, appropriate
notice would need to be provided no later than February 25, 2000.
Item 6. Exhibits and Reports on Form 8-K
(a) The exhibits listed on the accompanying index to exhibits are filed
as part of this Quarterly Report on Form 10-Q.
(b) The following reports on Form 8-K was filed for the quarter for
which this report is filed:
Current Report on Form 8-K dated March 2, 1999 (reporting the
status of the pending MobileMedia Acquisition) filed on March 3,
1999.
Current Report on Form 8-K dated April 28, 1999 (reporting the
distribution of supplements to Arch's prospectus dated January 5,
1999 and proxy statement/prospectus dated December 18, 1998) filed
on April 29, 1999.
18
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report on Form 10-Q for the quarter ended March
31, 1999, to be signed on its behalf by the undersigned thereunto duly
authorized.
ARCH COMMUNICATIONS GROUP, INC.
Dated: May 13, 1999 By: /s/ J. Roy Pottle
-------------------------------
J. Roy Pottle
Executive Vice President and
Chief Financial Officer
19
<PAGE>
INDEX TO EXHIBITS
Exhibit Description
------- -----------
27.1* Financial Data Schedule.
* Filed herewith
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000915390
<NAME> Arch Communications Group, Inc.
<MULTIPLIER> 1,000
<CURRENCY> USD
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> Dec-31-1999
<PERIOD-START> Jan-01-1999
<PERIOD-END> Mar-31-1999
<EXCHANGE-RATE> 1
<CASH> 12,102
<SECURITIES> 0
<RECEIVABLES> 30,757
<ALLOWANCES> 0
<INVENTORY> 9,803
<CURRENT-ASSETS> 62,010
<PP&E> 439,563
<DEPRECIATION> 220,955
<TOTAL-ASSETS> 883,432
<CURRENT-LIABILITIES> 82,734
<BONDS> 1,036,441
0
3
<COMMON> 212
<OTHER-SE> (262,802)
<TOTAL-LIABILITY-AND-EQUITY> 883,432
<SALES> 10,359
<TOTAL-REVENUES> 100,888
<CGS> 6,926
<TOTAL-COSTS> 6,926
<OTHER-EXPENSES> 20,293
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 26,477
<INCOME-PRETAX> (45,763)
<INCOME-TAX> 0
<INCOME-CONTINUING> (45,763)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> (3,361)
<NET-INCOME> (49,124)
<EPS-PRIMARY> (2.34)
<EPS-DILUTED> (2.34)
</TABLE>
