UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-Q
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(Mark One)
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þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended
September 30, 2007
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or
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the transition period
from to
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Commission File Number 0-51027
USA
MOBILITY, INC.
(Exact name of Registrant as
specified in its Charter)
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DELAWARE
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16-1694797
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(State of
incorporation)
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(I.R.S. Employer Identification
No.)
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6677 Richmond Highway
Alexandria, Virginia
(Address of principal
executive offices)
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22306
(Zip Code)
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(866) 662-3049
(Registrants 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
þ
No
o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, or a non-accelerated
filer. See definition of accelerated filer and large
accelerated filer in
Rule 12b-2
of the Exchange Act.
Large accelerated
filer
o
Accelerated
filer
þ
Non-accelerated
filer
o
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). Yes
o
No
þ
Indicate by check mark whether the registrant has filed all
documents and reports required to be filed by Sections 12,
13 or 15(d) of the Securities Exchange Act of 1934 subsequent to
the distribution of securities under a plan confirmed by a
court. Yes
þ
No
o
Indicate the number of shares outstanding of each of the
issuers classes of common stock, as of the latest
practicable date: 27,309,551 shares of the
Registrants Common Stock ($0.0001 par value per
share) were outstanding as of October 26, 2007.
USA
MOBILITY, INC.
QUARTERLY
REPORT ON
FORM 10-Q
Index
1
PART I.
FINANCIAL INFORMATION
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Item 1.
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Financial
Statements
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USA
MOBILITY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
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December 31,
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September 30,
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2006
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2007
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(Dollars in thousands)
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(Unaudited)
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ASSETS
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Current assets:
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Cash and cash equivalents
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$
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66,507
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$
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63,532
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Accounts receivable, net
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26,364
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27,683
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Prepaid expenses and other
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12,294
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8,147
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Deferred income tax assets
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18,399
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13,799
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Total current assets
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123,564
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113,161
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Property and equipment, net
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91,562
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76,030
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Goodwill
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159,438
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188,170
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Intangible assets, net
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26,339
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19,281
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Deferred income tax assets
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180,244
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148,396
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Other assets
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7,067
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7,280
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TOTAL ASSETS
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$
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588,214
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$
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552,318
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LIABILITIES AND STOCKHOLDERS EQUITY
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Current liabilities:
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Accounts payable and accrued liabilities
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$
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63,979
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$
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51,980
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Distributions payable
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435
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127
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Customer deposits
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2,250
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1,750
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Deferred revenue
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16,194
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13,392
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Total current liabilities
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82,858
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67,249
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Other long-term liabilities
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29,384
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47,287
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TOTAL LIABILITIES
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112,242
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114,536
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Stockholders equity:
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Preferred stock
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Common stock
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3
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3
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Additional paid-in capital
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475,969
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432,837
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Retained earnings
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4,942
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TOTAL STOCKHOLDERS EQUITY
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475,972
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437,782
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TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
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$
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588,214
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$
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552,318
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The accompanying notes are an integral part of these
unaudited condensed consolidated financial statements.
2
USA
MOBILITY, INC.
CONDENSED CONSOLIDATED INCOME STATEMENTS
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For the Three Months Ended
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September 30,
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For the Nine Months Ended September 30,
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2006
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2007
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2006
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2007
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(Dollars in thousands, except share and per share amounts)
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(Unaudited)
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Revenue:
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Service, rental and maintenance, net of service credits
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$
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114,702
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$
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98,573
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$
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365,488
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$
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307,850
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Product sales
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4,851
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6,851
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16,162
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16,586
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Total revenue
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119,553
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105,424
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381,650
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324,436
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Operating expenses:
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Cost of products sold
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1,184
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2,435
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3,139
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4,630
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Service, rental and maintenance
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42,489
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36,746
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135,350
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115,135
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Selling and marketing
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10,929
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9,891
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33,106
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30,108
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General and administrative
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30,994
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23,606
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99,344
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73,351
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Depreciation, amortization and accretion
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18,361
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12,048
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56,055
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37,816
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Severance and restructuring
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682
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1,177
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1,173
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1,194
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Total operating expenses
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104,639
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85,903
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328,167
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262,234
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Operating income
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14,914
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19,521
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53,483
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62,202
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Interest income, net
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717
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856
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2,289
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2,739
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Other income, net
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103
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1,038
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1,153
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1,348
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Income before income tax expense
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15,734
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21,415
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56,925
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66,289
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Income tax expense
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7,075
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1,109
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25,049
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19,991
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Net income
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$
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8,659
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$
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20,306
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$
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31,876
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$
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46,298
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Basic net income per common share
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$
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0.32
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$
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0.74
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$
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1.16
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$
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1.69
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Diluted net income per common share
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$
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0.31
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$
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0.74
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$
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1.16
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$
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1.68
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Basic weighted average common shares outstanding
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27,400,853
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27,445,028
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27,399,244
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27,439,885
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Diluted weighted average common shares outstanding
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27,575,039
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27,595,905
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27,563,662
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27,598,881
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The accompanying notes are an integral part of these
unaudited condensed consolidated financial statements.
3
USA
MOBILITY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
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For the Nine Months Ended
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September 30,
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2006
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2007
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(Dollars in thousands
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and unaudited)
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Cash flows from operating activities:
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Net income
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$
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31,876
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$
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46,298
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Adjustments to reconcile net income to net cash provided by
operating activities:
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Depreciation, amortization and accretion
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56,055
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37,816
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Deferred income tax expense
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12,836
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24,231
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Amortization of stock based compensation
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2,133
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1,155
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Provisions for doubtful accounts and service credits
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12,640
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7,238
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Non-cash tax accrual adjustments
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(2,385
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)
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(6,130
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)
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Loss/(Gain) on disposals of property and equipment
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389
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(92
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)
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Changes in assets and liabilities:
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Accounts receivable
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(4,690
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)
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(8,557
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)
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Prepaid expenses and other
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2,247
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3,341
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Intangibles and other long-term assets
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360
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(212
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)
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Accounts payable and accrued liabilities
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(1,692
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)
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(9,320
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)
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Customer deposits and deferred revenue
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(2,166
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)
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(3,302
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)
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Other long-term liabilities
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7,309
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(1,927
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)
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Net cash provided by operating activities
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114,912
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90,539
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Cash flows from investing activities:
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|
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Purchases of property and equipment
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(14,171
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)
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|
(13,139
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)
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Proceeds from disposals of property and equipment
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|
115
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|
155
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Receipts from long-term note receivable
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1,707
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|
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|
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Net cash used in investing activities
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(12,349
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)
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(12,984
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)
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|
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Cash flows from financing activities:
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|
|
|
|
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Repayment of long-term debt
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(13
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)
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|
|
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Cash distributions to stockholders
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|
(81,396
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)
|
|
|
(80,530
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)
|
|
|
|
|
|
|
|
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Net cash used in financing activities
|
|
|
(81,409
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)
|
|
|
(80,530
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)
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|
|
|
|
|
|
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Net increase (decrease) in cash and cash equivalents
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|
21,154
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|
|
|
(2,975
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)
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Cash and cash equivalents, beginning of period
|
|
|
37,547
|
|
|
|
66,507
|
|
|
|
|
|
|
|
|
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|
Cash and cash equivalents, end of period
|
|
$
|
58,701
|
|
|
$
|
63,532
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure:
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|
|
|
|
|
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Interest paid
|
|
$
|
34
|
|
|
$
|
11
|
|
|
|
|
|
|
|
|
|
|
Income taxes paid (state and local)
|
|
$
|
380
|
|
|
$
|
404
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
unaudited condensed consolidated financial statements.
4
UNAUDITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(1)
Preparation of Interim Financial
Statements
The condensed consolidated
financial statements of USA Mobility, Inc. (USA
Mobility or the Company) have been prepared in
accordance with the rules and regulations of the
U.S. Securities and Exchange Commission (SEC).
Amounts shown on the condensed consolidated income statements
within the Operating Expense categories of cost of products
sold; service, rental and maintenance; selling and marketing;
and general and administrative are recorded exclusive of
depreciation, amortization and accretion, and severance and
restructuring. These items are shown separately on the condensed
consolidated income statements within Operating Expenses.
The financial information included herein, other than the
condensed consolidated balance sheet as of December 31,
2006, has been prepared without audit. The condensed
consolidated balance sheet at December 31, 2006 has been
derived from, but does not include all the disclosures contained
in, the audited consolidated financial statements for the year
ended December 31, 2006. In the opinion of management,
these unaudited statements include all adjustments and accruals
that are necessary for a fair presentation of the results of all
interim periods reported herein. All adjustments are of a normal
recurring nature.
These condensed consolidated financial statements should be read
in conjunction with the consolidated financial statements and
accompanying notes included in USA Mobilitys Annual Report
on
Form 10-K
for the year ended December 31, 2006. The results of
operations for the interim periods presented are not necessarily
indicative of the results that may be expected for a full year.
(2)
Business
USA Mobility is a
leading provider of wireless messaging in the United States.
Currently, USA Mobility provides one-way and two-way messaging
services. One-way messaging consists of numeric and alphanumeric
messaging services. Numeric messaging services enable
subscribers to receive messages that are composed entirely of
numbers, such as a phone number, while alphanumeric messages may
include numbers and letters, which enable subscribers to receive
text messages. Two-way messaging services enable subscribers to
send and receive messages to and from other wireless messaging
devices, including pagers, personal digital assistants and
personal computers. USA Mobility also offers voice mail,
personalized greeting, message storage and retrieval and
equipment loss
and/or
maintenance protection to both one-way and two-way messaging
subscribers. These services are commonly referred to as wireless
messaging and information services.
(3)
Risks and Other Important
Factors
See Item 1A. Risk
Factors of Part II of this quarterly report, which
describes key risks associated with USA Mobilitys
operations and industry.
Based on current and anticipated levels of operations, USA
Mobilitys management believes that the Companys net
cash provided by operating activities, together with cash on
hand, should be adequate to meet its cash requirements for the
foreseeable future.
In the event that net cash provided by operating activities and
cash on hand are not sufficient to meet future cash
requirements, USA Mobility may be required to reduce planned
capital expenditures, reduce or eliminate its cash distributions
to stockholders, sell assets or seek additional financing. USA
Mobility can provide no assurance that reductions in planned
capital expenditures or proceeds from asset sales would be
sufficient to cover shortfalls in available cash or that
additional financing would be available or, if available,
offered on acceptable terms.
USA Mobility believes that future fluctuations in its revenues
and operating results may occur due to many factors,
particularly the decreased demand for its messaging services. If
the rate of decline for the Companys messaging services
exceeds the Companys expectations, revenues may be
negatively impacted, and such impact could be material. USA
Mobilitys plan to consolidate its networks may also
negatively impact revenues as customers experience a reduction
in, and possible disruptions of, service in certain areas. Under
these circumstances, USA Mobility may be unable to adjust
spending in a timely manner to compensate for any future revenue
shortfalls. It is possible that, due to these fluctuations, USA
Mobilitys revenue or operating results may not meet the
expectations of investors, which could reduce the value of USA
Mobilitys common stock and impact the Companys
ability to pay future cash distributions.
5
USA
MOBILITY, INC.
UNAUDITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(4)
New Accounting Pronouncements
In June 2006, the Financial Accounting Standards Board
(FASB) issued Financial Interpretation No. 48,
Accounting for Uncertainty in Income Taxes
,
(FIN 48), an interpretation of Statement of
Financial Accounting Standards (SFAS)
No. 109
, Accounting for Income Taxes,
(SFAS No. 109). In May 2007, FASB
Staff Position
48-1
amended
FIN 48. The disclosure requirements and cumulative effect
of adoption of FIN 48, as amended, are presented in
Note 14.
In September 2006, the FASB issued SFAS No. 157,
Fair Value Measurements,
(SFAS No. 157). SFAS No. 157
establishes a formal framework for measuring fair value under
generally accepted accounting principles. Although
SFAS No. 157 applies (amends) the provisions of
existing FASB and other accounting pronouncements, it does not
require any new fair value measurements nor does it establish
valuation standards. SFAS No. 157 is effective for
fiscal years beginning after November 15, 2007. Management
is currently evaluating the impact that SFAS No. 157
will have on the Companys consolidated financial position
or results of operations.
In February 2007, the FASB issued SFAS No. 159,
The
Fair Value Option for Financial Assets and Financial
Liabilities,
(SFAS No. 159), which
provides companies with an option to report selected financial
assets and liabilities at fair value. SFAS No. 159
also establishes presentation and disclosure requirements
designed to facilitate comparisons between companies that choose
different measurement attributes for similar types of assets and
liabilities. SFAS No. 159 is effective as of the first
fiscal year beginning after November 15, 2007.
SFAS No. 159 is not anticipated to have a material
impact on the Companys consolidated financial position or
results of operations.
Other new pronouncements issued during the first nine months of
2007 are not applicable to the Company and are not anticipated
to have an effect on the Companys consolidated financial
position or results of operations.
(5)
Goodwill and Other Intangible
Assets
Goodwill of $188.2 million at
September 30, 2007 resulted from the purchase accounting of
the November 2004 merger of Arch Wireless, Inc. and subsidiaries
(Arch) and Metrocall Holdings, Inc. and subsidiaries
(Metrocall). Based on the requirements of Emerging
Issues Task Force (EITF) Issue
No. 93-7,
Uncertainties Related to Income Taxes in a Purchase Business
Combination
, (EITF
No. 93-7),
goodwill increased by $10.0 million during the fourth
quarter of 2006 due to a change in managements estimate of
the ultimate tax basis of the deferred income tax assets
acquired in the purchase of Metrocall.
The Company adopted the provisions of FIN 48 on
January 1, 2007. As a result of the implementation of
FIN 48, the Company recognized an increase to goodwill of
$40.3 million for uncertain tax positions directly related
to the merger of Arch and Metrocall. During the three months
ended September 30, 2007, the Company reduced goodwill by
$11.6 million due to the resolution of certain tax
positions as required by EITF
No. 93-7
and FIN 48. (See Note 14).
Goodwill is not amortized. The Company is required to evaluate
goodwill of a reporting unit for impairment at least annually
and between annual tests if an event occurs or circumstances
change that would more likely than not reduce the fair value of
the reporting unit below its carrying amount. For this
determination, the Company as a whole is considered the
reporting unit. If the fair value of the reporting unit is less
than its carrying value, an impairment loss is required to be
recorded to the extent that the implied value of goodwill within
the reporting unit is less than the carrying value. The fair
value of the reporting unit is determined based on discounted
cash flows, market multiples or appraised values as appropriate.
Declines in the Companys stock price
and/or
other
prevailing circumstances that would reduce the fair value of the
reporting unit could indicate that a potential impairment has
occurred. Such a decline could require evaluation of impairment
more frequently than annually.
Other intangible assets were recorded at fair value at the date
of acquisition and amortized over periods generally ranging from
one to five years. Aggregate amortization expense for intangible
assets was $3.4 million and $2.2 million for the three
months ended September 30, 2006 and 2007, respectively; and
$11.4 million and $7.5 million for the nine months
ended September 30, 2006 and 2007, respectively.
6
USA
MOBILITY, INC.
UNAUDITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Company did not record any impairment of long-lived assets,
intangible assets or goodwill in the first, second and third
quarters of 2006 or 2007, respectively.
Amortizable intangible assets are comprised of the following at
September 30, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Useful Life
|
|
|
Gross Carrying
|
|
|
Accumulated
|
|
|
|
|
|
|
(in years)
|
|
|
Amount
|
|
|
Amortization
|
|
|
Net Balance
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
Purchased subscriber lists
|
|
|
5
|
|
|
$
|
66,263
|
|
|
$
|
(47,698
|
)
|
|
$
|
18,565
|
|
Purchased Federal Communications Commission licenses
|
|
|
5
|
|
|
|
2,689
|
|
|
|
(2,087
|
)
|
|
|
602
|
|
Other
|
|
|
1
|
|
|
|
168
|
|
|
|
(54
|
)
|
|
|
114
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total intangible assets, net
|
|
|
|
|
|
$
|
69,120
|
|
|
$
|
(49,839
|
)
|
|
$
|
19,281
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6)
Depreciation, Amortization and
Accretion
The components of depreciation,
amortization and accretion expenses for the three and nine
months ended September 30, 2006 and 2007, respectively, are
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months
|
|
|
For the Nine Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
Depreciation
|
|
$
|
14,155
|
|
|
$
|
9,482
|
|
|
$
|
42,237
|
|
|
$
|
29,333
|
|
Amortization
|
|
|
3,416
|
|
|
|
2,227
|
|
|
|
11,447
|
|
|
|
7,476
|
|
Accretion
|
|
|
790
|
|
|
|
339
|
|
|
|
2,371
|
|
|
|
1,007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total depreciation, amortization and accretion
|
|
$
|
18,361
|
|
|
$
|
12,048
|
|
|
$
|
56,055
|
|
|
$
|
37,816
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7)
Accounts Payable and Accrued
Liabilities
Accounts payable and accrued
liabilities consist of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
September 30,
|
|
|
|
2006
|
|
|
2007
|
|
|
|
(Dollars in thousands)
|
|
|
Accounts payable
|
|
$
|
3,634
|
|
|
$
|
2,079
|
|
Accrued compensation and benefits
|
|
|
13,533
|
|
|
|
13,182
|
|
Accrued network costs
|
|
|
3,966
|
|
|
|
2,037
|
|
Accrued taxes
|
|
|
27,493
|
|
|
|
20,034
|
|
Asset retirement obligations short-term
|
|
|
4,569
|
|
|
|
5,224
|
|
Accrued severance and restructuring
|
|
|
2,744
|
|
|
|
2,252
|
|
Accrued other
|
|
|
8,040
|
|
|
|
7,172
|
|
|
|
|
|
|
|
|
|
|
Total accounts payable and accrued liabilities
|
|
$
|
63,979
|
|
|
$
|
51,980
|
|
|
|
|
|
|
|
|
|
|
Accrued taxes are based on the Companys estimate of
outstanding state and local taxes. This balance may be adjusted
in the future as the Company settles with various taxing
jurisdictions.
7
USA
MOBILITY, INC.
UNAUDITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(8)
Accrued Severance and
Restructuring
Accrued severance and
restructuring consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
|
2006
|
|
|
Charges
|
|
|
Cash Paid
|
|
|
2007
|
|
|
|
(Dollars in thousands)
|
|
|
Severance costs
|
|
$
|
2,744
|
|
|
$
|
541
|
|
|
$
|
(1,197
|
)
|
|
$
|
2,088
|
|
Restructuring costs
|
|
|
|
|
|
|
653
|
|
|
|
(653
|
)
|
|
|
|
|
Reclassifications
|
|
|
|
|
|
|
|
|
|
|
164
|
|
|
|
164
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total accrued severance and restructuring
|
|
$
|
2,744
|
|
|
$
|
1,194
|
|
|
$
|
(1,686
|
)
|
|
$
|
2,252
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The balance above was included with accounts payable and accrued
liabilities at September 30, 2007 and will be paid during
2007.
(9)
Asset Retirement Obligations
The Company adopted the provisions of SFAS No. 143,
Accounting for Asset Retirement Obligations
,
(SFAS No. 143), in 2002.
SFAS No. 143 requires the recognition of liabilities
and corresponding assets for future obligations associated with
the retirement of assets. USA Mobility has network assets,
principally transmitters that are located on leased locations.
The underlying leases generally require the removal of equipment
at the end of the lease term; therefore, a future obligation
exists.
The Company had recognized cumulative asset retirement costs of
$17.4 million at both December 31, 2006 and
March 31, 2007. In the second quarter 2007, the Company
recorded an additional $0.4 million. During the third
quarter 2007 $17.4 million of fully depreciated asset
retirement costs were written off, resulting in a cumulative
asset retirement costs of $3.3 million at
September 30, 2007. Network assets have been increased to
reflect these costs and depreciation is being recognized over
their estimated lives, which range between one and nine years.
The asset retirement costs, and the corresponding liabilities,
that have been recorded to date generally relate to either
current plans to consolidate networks or to the removal of
assets at an estimated future terminal date.
The components of the changes in the asset retirement obligation
balances for the nine months ended September 30, 2007 were
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
Long-Term
|
|
|
|
|
|
|
Portion
|
|
|
Portion
|
|
|
Total
|
|
|
|
(Dollars in thousands)
|
|
|
Balance at December 31, 2006
|
|
$
|
4,569
|
|
|
$
|
8,955
|
|
|
$
|
13,524
|
|
Accretion
|
|
|
71
|
|
|
|
936
|
|
|
|
1,007
|
|
Amounts paid
|
|
|
(2,080
|
)
|
|
|
|
|
|
|
(2,080
|
)
|
Additional amounts recorded
|
|
|
|
|
|
|
414
|
|
|
|
414
|
|
Reclassifications
|
|
|
2,664
|
|
|
|
(2,664
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2007
|
|
$
|
5,224
|
|
|
$
|
7,641
|
|
|
$
|
12,865
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The balances above were included with accounts payable and
accrued liabilities and other long-term liabilities,
respectively, at September 30, 2007.
8
USA
MOBILITY, INC.
UNAUDITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(10)
Other Long-Term Liabilities
Other long-term liabilities consist of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
September 30,
|
|
|
|
2006
|
|
|
2007
|
|
|
|
(Dollars in thousands)
|
|
|
Income taxes
|
|
$
|
17,723
|
|
|
$
|
34,487
|
|
Asset retirement obligations long-term
|
|
|
8,955
|
|
|
|
7,641
|
|
Escheat liability long-term
|
|
|
625
|
|
|
|
1,583
|
|
Distributions payable
|
|
|
466
|
|
|
|
853
|
|
Other long-term liabilities
|
|
|
1,615
|
|
|
|
2,723
|
|
|
|
|
|
|
|
|
|
|
Total other long-term liabilities
|
|
$
|
29,384
|
|
|
$
|
47,287
|
|
|
|
|
|
|
|
|
|
|
(11)
Stockholders Equity
The authorized capital stock of the Company consists of
75 million shares of common stock and 25 million
shares of preferred stock, par value $0.0001 per share.
|
|
|
|
|
Changes in Stockholders Equity
Changes
in stockholders equity for the nine months ended
September 30, 2007 consisted of:
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
Balance at December 31, 2006
|
|
$
|
475,972
|
|
Net income for nine months ended September 30, 2007
|
|
|
46,298
|
|
Cash distributions declared
|
|
|
(80,591
|
)
|
Recognition of uncertain tax positions and other
|
|
|
(4,417
|
)
|
Purchased and retired common stock, net
|
|
|
(739
|
)
|
Amortization of stock based compensation
|
|
|
1,155
|
|
Issuance of common stock under Equity Plan
|
|
|
338
|
|
Restricted stock forfeitures
|
|
|
(234
|
)
|
|
|
|
|
|
Balance at September 30, 2007
|
|
$
|
437,782
|
|
|
|
|
|
|
|
|
|
|
|
General
At December 31, 2006 and
September 30, 2007, there were 27,340,033 and
27,306,710 shares of common stock outstanding and no shares
of preferred stock outstanding, respectively. In addition, there
were 269,139 shares of common stock reserved for issuance
from time to time to satisfy general unsecured claims under the
Arch plan of reorganization. During the third quarter 2007, the
Company issued 460 shares of common stock under the Arch
plan of reorganization. At September 30, 2007,
268,679 shares of common stock remained in the reserve for
the Arch plan of reorganization. For financial reporting
purposes, the number of shares reserved for issuance under the
Arch plan of reorganization has been included in the
Companys reported outstanding share balance.
|
On January 1, 2006, the Company implemented the provisions
of SFAS No. 123R,
Share-Based Payment
,
(SFAS No. 123R). The implementation of
SFAS No. 123R, including the cumulative effect of
changes in expense attribution, did not have a material impact
on the Companys financial position or results of
operations. The Company followed the modified prospective
transition election.
At September 30, 2007, the Company has no stock options
outstanding.
In connection with and prior to the November 2004 merger, the
Company established the USA Mobility, Inc. Equity Incentive Plan
(Equity Plan). Under the Equity Plan, the Company
has the ability to issue up to 1,878,976 shares of its
common stock to eligible employees and non-employee members of
its Board of Directors in the form of common stock, stock
options, restricted shares of common stock (restricted
stock), stock grants or units. Restricted stock awarded
under the Equity Plan entitles the stockholder to all rights of
common stock ownership except that the shares may not be sold,
transferred, exchanged, or otherwise disposed of during the
9
USA
MOBILITY, INC.
UNAUDITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
restriction period, which will be determined by the Compensation
Committee of the Board of Directors of the Company.
The following table summarizes the activities under the Equity
Plan from inception through September 30, 2007:
|
|
|
|
|
|
|
Activity
|
|
|
Securities approved under Equity Plan
|
|
|
1,878,976
|
|
Less: Restricted stock issued to management
|
|
|
|
|
2005 Grant
|
|
|
(103,937
|
)
|
2006 Grant
|
|
|
(132,572
|
)
|
Restricted stock units issued to Board of Directors(a)
|
|
|
(19,605
|
)
|
Common stock issued to Board of Directors(b)
|
|
|
(7,800
|
)
|
Add: Restricted stock forfeited by management
|
|
|
|
|
2005 Grant
|
|
|
22,100
|
|
2006 Grant
|
|
|
15,135
|
|
|
|
|
|
|
Total available at September 30, 2007
|
|
|
1,652,297
|
|
|
|
|
|
|
|
|
|
(a)
|
|
Restricted stock units issued to the members of the Board of
Directors for services performed (which include 2,466 restricted
stock units for cash distributions).
|
|
(b)
|
|
Shares of common stock issued in lieu of cash payments to
members of the Board of Directors for services performed.
|
Restricted Stock.
For the 2005 grant of
restricted stock (2005 Grant), the Company used the
fair-value based method of accounting for the award and will
ratably amortize the $2.2 million to expense over the
31 months vesting period. A total of $1.1 million and
$0.2 million was included in stock based compensation for
the nine months ended September 30, 2006 and 2007,
respectively, in relation to these shares.
On January 1, 2007, 55,616 shares of restricted stock
from the 2005 Grant vested, of which 22,403 shares were
sold back to the Company in payment of required tax withholdings
at a price per share of $22.37, the Companys closing stock
price on December 29, 2006. On April 2, 2007,
6,708 shares of vested restricted stock were issued, of
which 2,165 shares were sold back to the Company in payment
of required tax withholdings at a price per share of $19.93, the
Companys closing stock price on March 30, 2007. On
July 2, 2007, 6,708 shares of vested restricted stock
were issued, of which 2,144 shares were sold back to the
Company in payment of required tax withholdings at a price per
share of $26.76, the Companys closing stock price on
June 29, 2007. On October 1, 2007, 6,400 shares
of vested restricted stock were issued, of which
2,050 shares were sold back to the Company in payment of
required tax withholdings at a price per share of $16.87, the
Companys closing stock price on September 28, 2007.
The shares purchased by the Company were retired and will not be
reissued. Also during the third quarter 2007, 650 shares of
restricted stock were forfeited resulting in a cumulative
forfeiture total of 22,100 shares of restricted stock as of
September 30, 2007. The remaining 6,405 shares from
the 2005 Grant are scheduled to vest ratably during the fourth
quarter 2007, such that all shares awarded are scheduled to
fully vest by December 31, 2007.
For the 2006 grant of restricted stock (2006 Grant),
the Company used the fair-value based method of accounting for
the award and will ratably amortize the $3.3 million to
expense over the 36 months vesting period. A total of
$0.8 million was included in stock based compensation for
the nine months ended September 30, 2006 and 2007,
respectively, in relation to these shares.
During the third quarter 2007, 7,742 shares were forfeited
resulting in a cumulative forfeiture total of 15,135 shares
of restricted stock. As of September 30, 2007, there were
117,437 shares scheduled to fully vest by January 1,
2009.
10
USA
MOBILITY, INC.
UNAUDITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Cash Award.
Also on February 1, 2006, the
Company provided long-term cash performance awards to the same
certain eligible employees. The vesting date for these long-term
cash performance awards is January 1, 2009 and payment will
be made after the vesting date. The Company will ratably
amortize the $3.4 million to expense over the
36 months vesting period.
A total of $0.8 million and $1.0 million was included
in payroll and related expenses for the nine months ended
September 30, 2006 and 2007, respectively, for these
long-term cash performance awards. Any unvested long-term cash
performance awards are forfeited if the participant terminates
employment with USA Mobility. During the third quarter 2007 the
Company recorded $0.2 million in expenses relating to the
forfeitures which are included in the payroll and related
expenses mentioned above.
Board of Directors Equity Compensation.
On
May 3, 2006, the Board of Directors granted the
non-executive directors restricted stock units
(RSUs) in addition to cash compensation for service
on the Board of Directors as well as any standing committees of
the Board of Directors on which they serve. On April 2,
2007, the Company issued 4,030 RSUs to the Companys
non-executive directors for service performed in the first
quarter 2007 (which include 391 RSUs for distributions on
previously granted RSUs). On July 2, 2007, the Company
issued 3,908 RSUs to the Companys non-executive directors
for service performed in the second quarter 2007 (which include
1,197 RSUs for distributions on previously granted RSUs). These
RSUs are fully vested on the date of grant.
No shares of common stock were to be issued for the RSUs until
the earlier of (1) the date the participant is no longer an
eligible director, or (2) immediately prior to a change in
the ownership of the Company. Prior to the issuance of shares of
common stock underlying the RSUs, the RSUs represent unsecured
obligations of the Company. USA Mobility used the fair-value
based method of accounting for the award.
On August 1, 2007 the Board of Directors approved an
acceleration in the conversion date for existing RSUs. Existing
RSUs will be converted into shares of common stock on the
earlier of: (1) a directors departure from the Board
of Directors; (2) a change in control of the Company (as
defined in the Equity Plan); or (3) the second trading day
following the day that the Company files its 2007 Annual Report
on
Form 10-K
with the SEC. At September 30, 2007 there were 19,605 RSUs
awarded and outstanding.
The Board of Directors also approved that future cash
distributions on the existing RSUs will be set aside and paid in
cash to each non-executive director when the RSUs are converted
into shares of common stock. On September 6, 2007, the
Company set aside approximately $13,000 for cash distributions
on existing RSUs for the cash distribution declared on
August 1, 2007.
Finally, on August 1, 2007 with an effective date of
July 1, 2007 the Board of Directors approved that, in lieu
of RSUs, each non-executive director will be granted in arrears
on the first business day following the quarter of service
restricted stock in addition to cash compensation for service on
the Board of Directors as well as standing committees of the
Board of Directors on which they serve. The restricted stock
will vest on the earlier of a change in control of the Company
(as defined in the Equity Plan) or one year from the date of
grant provided the non-executive director maintains continuous
service on the Board of Directors. Future cash distributions on
restricted stock will be set aside and paid in cash to each
non-executive director as the restricted stock vests.
On October 1, 2007, the Company issued 4,299 shares of
restricted stock to the Companys non-executive directors
for service performed in the third quarter 2007 based on the
Companys closing stock price of $16.87 per share on
September 28, 2007. These shares of restricted stock will
reduce the number of shares eligible for issuance under the
Equity Plan. A total of $0.1 million and $0.2 million
was included in stock based compensation for the nine months
ended September 30, 2006 and 2007, respectively, in
relation to the RSUs and restricted stock.
Board of Directors Common Stock.
In lieu of
cash payments of $30,000 for directors fees earned since
October 1, 2006 through June 30, 2007, one director
elected to receive a cumulative total of 1,321 shares of
common stock in January, April and July 2007, based upon the
fair market value of a share of common stock at the date of
11
USA
MOBILITY, INC.
UNAUDITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
award. A total of 592 shares of common stock will be issued
in October 2007 for fees of $10,000 earned in the third quarter
2007.
Cash Distributions to Stockholders.
On
February 7, 2007, the Board of Directors declared the
regular quarterly cash distribution of $0.65 per share, with a
record date of February 22, 2007, and a payment date of
March 15, 2007. This cash distribution of approximately
$17.8 million was paid from available cash on hand.
On May 2, 2007, the Board of Directors declared the regular
quarterly cash distribution of $0.65 per share and also declared
an additional special one-time cash distribution to stockholders
of $1.00 per share. Both distributions had a record date of
May 17, 2007 and a payment date of June 7, 2007. The
total cash distribution of approximately $45.0 million was
paid from available cash on hand.
On August 1, 2007, the Board of Directors declared the
regular quarterly cash distribution of $0.65 per share, with a
record date of August 16, 2007, and a payment date of
September 6, 2007. This cash distribution of approximately
$17.7 million was paid from available cash on hand.
Cash distributions paid as disclosed in the statement of cash
flows for the nine months ended September 30, 2007 include
previously declared cash distributions on shares of vested
restricted stock issued in January, April and July 2007 due to
the 2005 Grant.
Future Cash Distributions to Stockholders.
On
October 30, 2007, the Board of Directors declared the
regular quarterly cash distribution of $0.65 per share, with a
record date of November 8, 2007 and a payment date of
November 29, 2007. This cash distribution of approximately
$17.8 million is expected to be paid from available cash on
hand.
Additional Paid-in Capital.
For the nine
months ended September 30, 2007, additional paid-in capital
decreased by $43.1 million due to the recognition of
uncertain tax positions, the correction of the deferred income
tax assets established in 2003, cash distributions to
stockholders, and the vesting and repurchases of shares of
restricted stock under the 2005 Grant. This was offset by the
issuance of RSUs, distributions and common stock to the
non-executive directors discussed above.
Net Income per Common Share.
Basic net income
per common share is computed on the basis of the weighted
average common shares outstanding. Diluted net income per common
share is computed on the basis of the weighted average common
shares outstanding plus the effect of outstanding stock options
and outstanding restricted stock using the treasury
stock method plus the effect of outstanding RSUs, which
are treated as contingently issuable shares. As noted above, the
Company acquired a cumulative total of 26,712 shares of the
Companys common stock from the Companys executives
in payment of required tax withholdings in the first, second and
third quarters of 2007. The shares of common stock acquired were
retired and excluded from the
12
USA
MOBILITY, INC.
UNAUDITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Companys reported outstanding share balance as of
September 30, 2007. The components of basic and diluted net
income per common share were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the
|
|
|
|
|
|
|
Three Months Ended
|
|
|
For the
|
|
|
|
September 30,
|
|
|
Nine Months Ended September 30,
|
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
|
(Dollars in thousands, except share and per share amounts)
|
|
|
Net income
|
|
$
|
8,659
|
|
|
$
|
20,306
|
|
|
$
|
31,876
|
|
|
$
|
46,298
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares of common stock outstanding
|
|
|
27,400,853
|
|
|
|
27,445,028
|
|
|
|
27,399,244
|
|
|
|
27,439,885
|
|
Dilutive effect of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options to purchase common stock, restricted stock and RSUs
|
|
|
174,186
|
|
|
|
150,877
|
|
|
|
164,418
|
|
|
|
158,996
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares of common stock and common stock
equivalents
|
|
|
27,575,039
|
|
|
|
27,595,905
|
|
|
|
27,563,662
|
|
|
|
27,598,881
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per common share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.32
|
|
|
$
|
0.74
|
|
|
$
|
1.16
|
|
|
$
|
1.69
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
0.31
|
|
|
$
|
0.74
|
|
|
$
|
1.16
|
|
|
$
|
1.68
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12)
Stock Based Compensation
Compensation expense associated with stock
options and restricted stock was recognized in accordance with
the fair-value provisions of SFAS No. 123R, over the
instruments vesting period. The following table reflects
the income statement line items for stock based compensation
expense for the three and nine months ended September 30,
2006 and 2007, respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the
|
|
|
|
For the
|
|
|
Nine Months
|
|
|
|
Three Months Ended
|
|
|
Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
|
(Dollars in thousands)
|
|
|
Service, rental and maintenance expense
|
|
$
|
78
|
|
|
$
|
26
|
|
|
$
|
242
|
|
|
$
|
87
|
|
Selling and marketing expense
|
|
|
178
|
|
|
|
67
|
|
|
|
515
|
|
|
|
251
|
|
General and administrative expense
|
|
|
484
|
|
|
|
214
|
|
|
|
1,376
|
|
|
|
817
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stock based compensation expense
|
|
$
|
740
|
|
|
$
|
307
|
|
|
$
|
2,133
|
|
|
$
|
1,155
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(13)
Severance and Restructuring
Severance and restructuring expenses incurred in 2007 primarily
relate to staff reductions as the Company continues to match its
employee levels with operational requirements and terminations
of certain lease agreements for transmitter locations.
(14)
Income Taxes
USA Mobility
adopted the provisions of FIN 48 on January 1, 2007.
As a result of the implementation of FIN 48, the Company
recognized an additional liability of approximately
$32.8 million for uncertain tax positions. This increase in
the liability was reflected as a corresponding increase to
goodwill of $40.3 million for uncertain tax positions
directly related to the merger of Arch and Metrocall, a decrease
to long-term deferred income tax assets of $10.5 million
with the remaining $3.0 million accounted for as a
reduction to additional paid-in capital. In addition, the
Company recognized a $1.4 million reduction in its deferred
income tax assets that was primarily accounted for as reduction
in the January 1, 2007 balance of additional paid-in
capital due to the correction of the deferred income tax assets
established in 2003.
13
USA
MOBILITY, INC.
UNAUDITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The total unrecognized income tax benefits as of January 1,
2007 were $372.4 million. A portion of these unrecognized
income tax benefits were reflected as a liability for uncertain
tax positions of approximately $52.2 million including
accrued interest (net of federal and state tax benefit) as of
January 1, 2007. The remainder is reflected as an
unrecorded net deferred income tax asset, of which approximately
$213.0 million could be subject to the Internal Revenue
Code Section 382 limitation, which could limit the
Companys ability to fully recognize such benefit.
Due to the expiration of assessment statutes during the third
quarter of 2007, the Company reduced its income tax liability
for uncertain tax positions by $20.7 million. Of this
reduction, approximately $7.4 million was recorded as a
reduction to income tax expense, approximately
$11.6 million reduced goodwill and approximately
$1.7 million reduced long-term deferred income tax assets.
The total unrecognized income tax benefits as of
September 30, 2007 is approximately $350.0 million, of
which $34.5 million is currently reflected as a liability
on the Companys balance sheet for uncertain tax positions.
The Company recognized additional accrued interest expense of
approximately $0.4 million related to uncertain tax
positions for the quarter ended September 30, 2007. For the
nine months ended September 30, 2007, the Company accrued
approximately $1.5 million of tax-related interest.
Included in the above $20.7 million reduction in uncertain
tax positions, the Company reduced previously accrued interest
expense by approximately $2.8 million, of which
approximately $2.5 million was recorded as a reduction of
income tax expense with the remainder reducing goodwill. The
total accrued tax-related interest at September 30, 2007 of
$1.7 million is included as part of the $34.5 million
discussed above.
The Company files its tax returns as prescribed by the tax laws
of the jurisdictions in which it operates. The Companys
predecessor entity, Metrocall, is currently under examination by
the Internal Revenue Service (IRS) related to its
income tax return for the short period ending November 16,
2004 (date of merger). The Company will make adjustments, if
any, to its previously filed income tax returns as required by
the IRS. The Companys 2004 through 2006 tax years are
still subject to examination by the IRS. Various state
jurisdiction tax years remain open to examination.
The Company evaluates the recoverability of its deferred income
tax assets on an ongoing basis. The assessment is required to
determine whether, based on all available evidence, it is more
likely than not that all of USA Mobilitys net deferred
income tax assets will be realized in future periods.
The evaluation of the recoverability of the deferred income tax
assets is based on historical and continued evidence of
profitability since emerging from bankruptcy and the
Companys projections of increased profitability as a
result of anticipated cost synergies made available through the
November 2004 merger. To the extent that these anticipated cost
synergies may not be realized in the future, or the Company is
unable to generate sufficient revenue and projections of future
revenue are adjusted downward, a partial or full valuation
allowance against the deferred income tax assets may be required.
The Company has established a valuation allowance account
against deferred income tax assets of approximately
$0.6 million related to its charitable contribution carry
forwards. The Company expects that these carry forwards will
expire prior to utilization.
The anticipated effective income tax rate is expected to
continue to differ from the federal statutory rate of 35%
primarily due to the effect of state income taxes, permanent
differences between book and taxable income and interest on the
Companys accrual for uncertain income tax positions.
(15)
Related Party Transactions
Effective November 16, 2004, two members of the
Companys Board of Directors also serve as directors for
entities that lease transmission tower sites to the Company. For
the nine months ended September 30, 2006 and 2007, the
Company paid $13.8 million and $13.1 million, and
$11.3 million and $9.9 million, respectively, to these
two landlords for site rent expenses that are included in
service, rental and maintenance expenses.
14
USA
MOBILITY, INC.
UNAUDITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(16)
Segment Reporting
USA
Mobility believes it currently has two operating segments:
domestic operations and international operations, but no
reportable segments, as international operations are immaterial
to the consolidated entity.
(17)
Commitments and
Contingencies
During the second quarter
2007, the Company contracted with a managed service-hosting
provider for certain computer support services in order to
eliminate a data center and to migrate its customer
billing/provisioning system. The commitment is estimated to be
approximately $7.5 million over the five-year contract term.
During the third quarter 2007, the Company entered into an
agreement with a current vendor to modify the power source for
an existing two-way pager. After final testing and approval by
the Company, the vendor will manufacture and supply the pagers
exclusively to the Company. The agreement requires a purchase
commitment of approximately $5.6 million over an
eighteen-month period.
USA Mobility, from time to time, is involved in lawsuits arising
in the normal course of business. USA Mobility believes that its
pending lawsuits will not have a material adverse effect on its
reported results of operations, cash flows or financial position.
15
|
|
Item 2.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
|
Forward-Looking
Statements
This quarterly report contains forward-looking statements and
information relating to USA Mobility, Inc. and its subsidiaries
(USA Mobility or the Company) that are
based on managements beliefs as well as assumptions made
by and information currently available to management. These
statements are made pursuant to the safe harbor provisions of
the Private Securities Litigation Reform Act of 1995. Statements
that are predictive in nature, that depend upon or refer to
future events or conditions, or that include words such as
anticipate, believe,
estimate, expect, intend and
similar expressions, as they relate to USA Mobility and its
subsidiaries or its management are forward-looking statements.
Although these statements are based upon assumptions management
considers reasonable, they are subject to certain risks,
uncertainties and assumptions, including but not limited to
those factors set forth below and under the captions
Business, Managements Discussion and
Analysis of Financial Condition and Results of Operations
(MD&A), and Item 1A. Risk
Factors in the Companys 2006 Annual Report on
Form 10-K.
Should one or more of these risks or uncertainties materialize,
or should underlying assumptions prove incorrect, actual results
or outcomes may vary materially from those described herein as
anticipated, believed, estimated, expected or intended.
Investors are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of their
respective dates. The Company undertakes no obligation to update
or revise any forward-looking statements. All subsequent written
or oral forward-looking statements attributable to USA Mobility,
Inc. and its subsidiaries or persons acting on their behalf are
expressly qualified in their entirety by the discussion under
Item 1A. Risk Factors section.
Overview
The following discussion and analysis should be read in
conjunction with USA Mobilitys condensed consolidated
financial statements and related notes and Item 1A.
Risk Factors, which describe key risks associated with the
Companys operations and industry, and the following
subsections of the Managements Discussion and
Analysis of Financial Condition and Results of Operations
section of the Companys Annual Report on
Form 10-K
for the fiscal year ended December 31, 2006:
Overview, Results of Operations,
Liquidity and Capital Resources,
Inflation, and Application of Critical
Accounting Policies.
Sales
and Marketing
USA Mobility markets and distributes its services through a
direct sales force and a small indirect sales force.
Direct.
The direct sales force rents or sells
products and messaging services directly to customers ranging
from small and medium-sized businesses to Fortune
1000 companies, healthcare and related businesses and
government agencies. USA Mobility intends to continue to market
to commercial enterprises utilizing its direct sales force as
these commercial enterprises have typically disconnected service
at a lower rate than individual consumers. As of
September 30, 2007, USA Mobility sales personnel were
located in approximately 69 offices in 34 states throughout
the United States. In addition, the Company maintains several
corporate sales groups focused on medical sales; federal
government accounts; large enterprise; advanced wireless
services; systems sales applications; telemetry and other
product offerings.
Indirect.
Within the indirect channel the
Company contracts with and invoices an intermediary for airtime
services. The intermediary or reseller in turn
markets, sells, and provides customer service to the end user.
Generally, there is no contractual relationship that exists
between USA Mobility and the end subscriber. Therefore,
operating costs per unit to provide these services are lower
than those required in the direct distribution channel. Indirect
units in service typically have lower average monthly revenue
per unit than direct units in service. The rate at which
subscribers disconnect service in the indirect distribution
channel has been higher than the rate experienced with direct
customers, and USA Mobility expects this to continue in the
foreseeable future.
16
The following table sets forth units in service associated with
the Companys channels of distribution:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
As of
|
|
|
As of
|
|
|
|
September 30,
|
|
|
June 30,
|
|
|
September 30,
|
|
|
|
2006
|
|
|
2007
|
|
|
2007
|
|
|
|
Units
|
|
|
% of Total
|
|
|
Units
|
|
|
% of Total
|
|
|
Units
|
|
|
% of Total
|
|
|
|
(Units in thousands)
|
|
|
Direct
|
|
|
3,721
|
|
|
|
87.4
|
%
|
|
|
3,316
|
|
|
|
88.3
|
%
|
|
|
3,193
|
|
|
|
88.2
|
%
|
Indirect
|
|
|
538
|
|
|
|
12.6
|
|
|
|
441
|
|
|
|
11.7
|
|
|
|
427
|
|
|
|
11.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
4,259
|
|
|
|
100.0
|
%
|
|
|
3,757
|
|
|
|
100.0
|
%
|
|
|
3,620
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customers may subscribe to one or two-way messaging services for
a periodic (monthly, quarterly or annual) service fee which is
generally based upon the type of service provided, the
geographic area covered, the number of devices provided to the
customer and the period of commitment. Voice mail, personalized
greeting and equipment loss
and/or
maintenance protection may be added to either one or two-way
messaging services, as applicable, for an additional monthly
fee. Equipment loss protection allows subscribers who lease
devices to limit their cost of replacement upon loss or
destruction of a messaging device. Maintenance services are
offered to subscribers who own their device.
A subscriber to one-way messaging services may select coverage
on a local, regional or nationwide basis to best meet their
messaging needs. Local coverage generally allows the subscriber
to receive messages within a small geographic area, such as a
city. Regional coverage allows a subscriber to receive messages
in a larger area, which may include a large portion of a state
or sometimes groups of states. Nationwide coverage allows a
subscriber to receive messages in major markets throughout the
United States. The monthly fee generally increases with coverage
area. Two-way messaging is generally offered on a nationwide
basis.
The following table summarizes the breakdown of the
Companys one-way and two-way units in service at specified
dates:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
As of
|
|
|
As of
|
|
|
|
September 30,
|
|
|
June 30,
|
|
|
September 30,
|
|
|
|
2006
|
|
|
2007
|
|
|
2007
|
|
|
|
Units
|
|
|
% of Total
|
|
|
Units
|
|
|
% of Total
|
|
|
Units
|
|
|
% of Total
|
|
|
|
(Units in thousands)
|
|
|
One-way messaging
|
|
|
3,878
|
|
|
|
91.1
|
%
|
|
|
3,417
|
|
|
|
91.0
|
%
|
|
|
3,291
|
|
|
|
90.9
|
%
|
Two-way messaging
|
|
|
381
|
|
|
|
8.9
|
|
|
|
340
|
|
|
|
9.0
|
|
|
|
329
|
|
|
|
9.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
4,259
|
|
|
|
100.0
|
%
|
|
|
3,757
|
|
|
|
100.0
|
%
|
|
|
3,620
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The demand for one-way and two-way messaging services declined
during the three and nine months ended September 30, 2007,
and USA Mobility believes demand will continue to decline for
the foreseeable future.
USA Mobility provides wireless messaging services to subscribers
for a periodic fee, as described above. In addition, subscribers
either lease a messaging device from the Company for an
additional fixed monthly fee or they own a device, having
purchased it either from the Company or from another vendor. USA
Mobility also sells devices to resellers who lease or resell
devices to their subscribers and then sell messaging services
utilizing the Companys networks.
17
The following table summarizes the number of units in service
owned by the Company, its subscribers and indirect customers at
specified dates:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
As of
|
|
|
As of
|
|
|
|
September 30,
|
|
|
June 30,
|
|
|
September 30,
|
|
|
|
2006
|
|
|
2007
|
|
|
2007
|
|
|
|
Units
|
|
|
% of Total
|
|
|
Units
|
|
|
% of Total
|
|
|
Units
|
|
|
% of Total
|
|
|
|
(Units in thousands)
|
|
|
Owned and leased
|
|
|
3,405
|
|
|
|
80.0
|
%
|
|
|
3,078
|
|
|
|
81.9
|
%
|
|
|
2,966
|
|
|
|
81.9
|
%
|
Owned by subscribers
|
|
|
316
|
|
|
|
7.4
|
|
|
|
238
|
|
|
|
6.4
|
|
|
|
227
|
|
|
|
6.3
|
|
Owned by indirect customers or their subscribers
|
|
|
538
|
|
|
|
12.6
|
|
|
|
441
|
|
|
|
11.7
|
|
|
|
427
|
|
|
|
11.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
4,259
|
|
|
|
100.0
|
%
|
|
|
3,757
|
|
|
|
100.0
|
%
|
|
|
3,620
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
USA Mobility derives the majority of its revenues from fixed
monthly or other periodic fees charged to subscribers for
wireless messaging services. Such fees are not generally
dependent on usage. As long as a subscriber maintains service,
operating results benefit from recurring payment of these fees.
Revenues are generally based upon the number of units in service
and the monthly charge per unit. The number of units in service
changes based on subscribers added, referred to as gross
placements, less subscriber cancellations, or disconnects. The
net of gross placements and disconnects is commonly referred to
as net gains or losses of units in service. The absolute number
of gross placements as well as the number of gross placements
relative to average units in service in a period, referred to as
the gross placement rate, is monitored on a monthly basis.
Disconnects are also monitored on a monthly basis. The ratio of
units disconnected in a period to average units in service for
the same period, called the disconnect rate, is an indicator of
the Companys success at retaining subscribers, which is
important in order to maintain recurring revenues and to control
operating expenses.
The following table sets forth the Companys gross
placements and disconnects for the periods stated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
|
|
|
|
September 30, 2006
|
|
|
June 30, 2007
|
|
|
September 30, 2007
|
|
|
|
Gross
|
|
|
|
|
|
Gross
|
|
|
|
|
|
Gross
|
|
|
|
|
|
|
Placements
|
|
|
Disconnects
|
|
|
Placements
|
|
|
Disconnects
|
|
|
Placements
|
|
|
Disconnects
|
|
|
|
(Units in thousands)
|
|
|
Direct
|
|
|
135
|
|
|
|
268
|
|
|
|
126
|
|
|
|
252
|
|
|
|
120
|
|
|
|
243
|
|
Indirect
|
|
|
29
|
|
|
|
68
|
|
|
|
33
|
|
|
|
62
|
|
|
|
42
|
|
|
|
56
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
164
|
|
|
|
336
|
|
|
|
159
|
|
|
|
314
|
|
|
|
162
|
|
|
|
299
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table sets forth information on the Companys
direct units in service by account size for the period stated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended September 30,
|
|
|
Increase/
|
|
|
|
2006
|
|
|
% of Total
|
|
|
2007
|
|
|
% of Total
|
|
|
(Decrease)
|
|
|
|
(Units in thousands)
|
|
|
1 to 3 Units
|
|
|
300
|
|
|
|
8.1
|
%
|
|
|
216
|
|
|
|
6.8
|
%
|
|
|
(84
|
)
|
4 to 10 Units
|
|
|
175
|
|
|
|
4.7
|
|
|
|
129
|
|
|
|
4.0
|
|
|
|
(46
|
)
|
11 to 50 Units
|
|
|
426
|
|
|
|
11.4
|
|
|
|
319
|
|
|
|
10.0
|
|
|
|
(107
|
)
|
51 to 100 Units
|
|
|
238
|
|
|
|
6.4
|
|
|
|
189
|
|
|
|
5.9
|
|
|
|
(49
|
)
|
101 to 1000 Units
|
|
|
999
|
|
|
|
26.9
|
|
|
|
856
|
|
|
|
26.8
|
|
|
|
(143
|
)
|
> 1000 Units
|
|
|
1,583
|
|
|
|
42.5
|
|
|
|
1,484
|
|
|
|
46.5
|
|
|
|
(99
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total direct units in service
|
|
|
3,721
|
|
|
|
100.0
|
%
|
|
|
3,193
|
|
|
|
100.0
|
%
|
|
|
(528
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18
The following table sets forth information on the percentage of
account size net unit loss for the Companys direct
customers for the period stated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the
|
|
|
|
|
|
|
Three Months
|
|
|
|
|
|
|
Ended September 30,
|
|
|
Favorable/
|
|
|
|
2006
|
|
|
2007
|
|
|
(Unfavorable)
|
|
|
1 to 3 Units
|
|
|
(8.0
|
)%
|
|
|
(6.6
|
)%
|
|
|
1.4
|
%
|
4 to 10 Units
|
|
|
(6.9
|
)
|
|
|
(7.0
|
)
|
|
|
(0.1
|
)
|
11 to 50 Units
|
|
|
(6.5
|
)
|
|
|
(7.3
|
)
|
|
|
(0.8
|
)
|
51 to 100 Units
|
|
|
(4.2
|
)
|
|
|
(5.7
|
)
|
|
|
(1.5
|
)
|
101 to 1000 Units
|
|
|
(2.7
|
)
|
|
|
(4.7
|
)
|
|
|
(2.0
|
)
|
> 1000 Units
|
|
|
(1.6
|
)
|
|
|
(1.3
|
)
|
|
|
0.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total direct net unit loss%
|
|
|
(3.5
|
)%
|
|
|
(3.7
|
)%
|
|
|
(0.2
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The other factor that contributes to revenue, in addition to the
number of units in service, is the monthly charge per unit. As
previously discussed, the monthly charge per unit is dependent
on the subscribers service, extent of geographic coverage,
whether the subscriber leases or owns the messaging device and
the number of units the customer has on his or her account. The
ratio of revenues for a period to the average units in service
for the same period, commonly referred to as average revenue per
unit (ARPU), is a key revenue measurement as it
indicates whether monthly charges for similar services and
distribution channels are increasing or decreasing. ARPU by
distribution channel and messaging service are monitored
regularly. The following table sets forth ARPU by distribution
channel for the periods stated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
|
|
|
|
September 30,
|
|
|
June 30,
|
|
|
September 30,
|
|
|
|
2006
|
|
|
2007
|
|
|
2007
|
|
|
Direct
|
|
$
|
9.16
|
|
|
$
|
9.08
|
|
|
$
|
9.16
|
|
Indirect
|
|
$
|
4.82
|
|
|
$
|
4.53
|
|
|
$
|
4.56
|
|
Consolidated
|
|
$
|
8.60
|
|
|
$
|
8.54
|
|
|
$
|
8.62
|
|
While ARPU for similar services and distribution channels is
indicative of changes in monthly charges and the revenue rate
applicable to new subscribers, this measurement on a
consolidated basis is affected by several factors, including the
mix of units in service and the pricing of the various
components of the Companys services. Gross revenues
decreased year over year, and the Company expects future
sequential quarterly revenues to decline in line with recent
trends. The change in ARPU in the direct distribution channel is
the most significant indicator of rate-related changes in the
Companys revenues. The increase in consolidated ARPU for
the quarter ended September 30, 2007 compared to the
quarter ended June 30, 2007 and September 30, 2006,
respectively, was directly related to one-time price increases
that were implemented for smaller customers in certain channels
and improvements in the rate of service credits. Going forward
without further price adjustments ARPU would continue to trend
lower for both the direct and indirect distribution channels.
19
The following table sets forth information on direct ARPU by
account size for the period stated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the
|
|
|
|
|
|
|
Three Months
|
|
|
|
|
|
|
Ended
|
|
|
|
|
|
|
September 30,
|
|
|
Increase/
|
|
|
|
2006
|
|
|
2007
|
|
|
(Decrease)
|
|
|
1 to 3 Units
|
|
$
|
14.07
|
|
|
$
|
14.90
|
|
|
$
|
0.83
|
|
4 to 10 Units
|
|
|
12.99
|
|
|
|
13.68
|
|
|
|
0.69
|
|
11 to 50 Units
|
|
|
10.72
|
|
|
|
11.15
|
|
|
|
0.43
|
|
51 to 100 Units
|
|
|
9.39
|
|
|
|
9.74
|
|
|
|
0.35
|
|
101 to 1000 Units
|
|
|
8.21
|
|
|
|
8.35
|
|
|
|
0.14
|
|
> 1000 Units
|
|
|
7.89
|
|
|
|
7.86
|
|
|
|
(0.03
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total direct ARPU
|
|
$
|
9.16
|
|
|
$
|
9.16
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operations
USA Mobilitys operating expenses are presented in
functional categories. Certain of the Companys functional
categories are especially important to overall expense control;
these operating expenses are categorized as follows:
|
|
|
|
|
Service, rental and maintenance.
These are
expenses associated with the operation of the Companys
networks and the provision of messaging services. Expenses
consist largely of telecommunications expenses to deliver
messages over the Companys networks, site rent expenses
for transmitter locations and payroll and related expenses for
the Companys engineering and pager repair functions.
|
|
|
|
Selling and marketing.
These are expenses
associated with the Companys direct and indirect sales
forces and marketing expenses in support of the sales force.
This classification consists primarily of salaries, commissions,
and other payroll related expenses.
|
|
|
|
General and administrative.
These are expenses
associated with customer service, inventory management, billing,
collections, bad debt and other administrative functions.
|
USA Mobility reviews the percentages of these operating expenses
to revenues on a regular basis. Even though the operating
expenses are classified as described above, expense controls are
also performed by expense category. For the quarter ended
September 30, 2007, approximately 70% of the operating
expenses referred to above were incurred in three expense
categories: payroll and related expenses, site rent expenses,
and telecommunications expenses.
Payroll and related expenses include wages, incentives, employee
benefits and related taxes. USA Mobility reviews the number of
employees in major functional categories such as direct sales,
engineering and technical staff, customer service, collections
and inventory on a monthly basis. The Company also reviews the
design and physical locations of functional groups to
continuously improve efficiency, to simplify organizational
structures and to minimize the number of physical locations.
Since the merger on November 16, 2004, the Company has
reduced its employee base by 60% from 2,844 full time equivalent
employees (FTEs) at the time of the merger to 1,133
FTEs at September 30, 2007. The Company anticipates
continued staffing reductions during 2007; however the most
significant reductions occurred throughout 2006.
Site rent expenses for transmitter locations are largely
dependent on the Companys messaging networks. USA Mobility
operates local, regional and nationwide one-way and two-way
messaging networks. These networks each require locations on
which to place transmitters, receivers and antennae. Generally,
site rent expenses are incurred for each transmitter location.
Therefore, site rent expenses for transmitter locations are
highly dependent on the number of transmitters, which, in turn,
is dependent on the number of networks. In addition, these
expenses generally do not vary directly with the number of
subscribers or units in service, which is detrimental to the
Companys operating margin as revenues decline. In order to
reduce these expenses, USA Mobility has an active
20
program to consolidate the number of networks and thus
transmitter locations, which the Company refers to as network
rationalization.
Telecommunications expenses are incurred to interconnect USA
Mobilitys messaging networks and to provide telephone
numbers for customer use, points of contact for customer service
and connectivity among the Companys offices. These
expenses are dependent on the number of units in service and the
number of office and network locations the Company maintains.
The dependence on units in service is related to the number of
telephone numbers provided to customers and the number of
telephone calls made to the Companys call centers, though
this is not always a direct dependency. For example, the number
or duration of telephone calls to call centers may vary from
period to period based on factors other than the number of units
in service, which could cause telecommunications expenses to
vary regardless of the number of units in service. In addition,
certain phone numbers USA Mobility provides to its customers may
have a usage component based on the number and duration of calls
to the subscribers messaging device. Telecommunications
expenses do not necessarily vary in direct relationship to units
in service. Therefore, based on the factors discussed above,
efforts are underway to review and reduce telephone circuit
inventories and capacities and to reduce the number of
transmitter and office locations from which the Company operates.
USA Mobility did experience limited damage to transmission
equipment located in the Gulf of Mexico region of the United
States from Hurricanes Katrina and Rita in the third quarter of
2005. Expenses resulting from storm-related recovery efforts and
loss of damaged assets were immaterial and were recorded in 2005
and 2006. The Company received $0.7 million in May 2007 as
settlement of related insurance claims. The settlement was
included in other income, net in the second quarter 2007.
The total of USA Mobilitys cost of products sold; service,
rental and maintenance; selling and marketing; and general and
administrative expenses was $85.6 million and
$72.7 million for the three months ended September 30,
2006 and 2007, respectively; and $270.9 million and
$223.2 million for the nine months ended September 30,
2006 and 2007, respectively. Since the Company believes the
demand for, and the Companys revenues from, one-way and
two-way messaging will continue to decline in future quarters,
expense reductions will continue to be necessary in order for
USA Mobility to mitigate the financial impact of such revenue
declines on its cash from operating activities. However, there
can be no assurance that the Company will be able to maintain
margins or generate continuing net cash from operating
activities.
Results
of Operations
Comparison
of the Results of Operations for the Three Months Ended
September 30, 2006 and 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended September 30,
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2007
|
|
|
Change Between
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
2006 and 2007
|
|
|
|
Amount
|
|
|
Revenue
|
|
|
Amount
|
|
|
Revenue
|
|
|
Amount
|
|
|
%
|
|
|
|
(Dollars in thousands)
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service, rental and maintenance, net
|
|
$
|
114,702
|
|
|
|
95.9
|
%
|
|
$
|
98,573
|
|
|
|
93.5
|
%
|
|
$
|
(16,129
|
)
|
|
|
(14.1
|
)%
|
Product sales
|
|
|
4,851
|
|
|
|
4.1
|
|
|
|
6,851
|
|
|
|
6.5
|
|
|
|
2,000
|
|
|
|
41.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
119,553
|
|
|
|
100.0
|
%
|
|
$
|
105,424
|
|
|
|
100.0
|
%
|
|
$
|
(14,129
|
)
|
|
|
(11.8
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of products sold
|
|
$
|
1,184
|
|
|
|
1.0
|
%
|
|
$
|
2,435
|
|
|
|
2.3
|
%
|
|
$
|
1,251
|
|
|
|
105.7
|
%
|
Service, rental and maintenance
|
|
|
42,489
|
|
|
|
35.5
|
|
|
|
36,746
|
|
|
|
34.9
|
|
|
|
(5,743
|
)
|
|
|
(13.5
|
)
|
Selling and marketing
|
|
|
10,929
|
|
|
|
9.1
|
|
|
|
9,891
|
|
|
|
9.4
|
|
|
|
(1,038
|
)
|
|
|
(9.5
|
)
|
General and administrative
|
|
|
30,994
|
|
|
|
25.9
|
|
|
|
23,606
|
|
|
|
22.4
|
|
|
|
(7,388
|
)
|
|
|
(23.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
85,596
|
|
|
|
71.5
|
%
|
|
$
|
72,678
|
|
|
|
69.0
|
%
|
|
$
|
(12,918
|
)
|
|
|
(15.1
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21
Revenues
Service, rental and maintenance revenues consist primarily of
recurring fees associated with the provision of messaging
services and rental of leased units and is net of service
credits. Product sales consist primarily of revenues associated
with the sale of devices and charges for leased devices that are
not returned. The decrease in revenues reflects the decrease in
demand for the Companys wireless services. USA
Mobilitys total revenues were $119.6 million and
$105.4 million for the three months ended
September 30, 2006 and 2007, respectively.
|
|
|
|
|
|
|
|
|
|
|
For the
|
|
|
|
Three Months Ended September 30,
|
|
|
|
2006
|
|
|
2007
|
|
|
|
(Dollars in thousands)
|
|
|
Service, rental and maintenance revenues, net:
|
|
|
|
|
|
|
|
|
Paging:
|
|
|
|
|
|
|
|
|
Direct:
|
|
|
|
|
|
|
|
|
One-way messaging
|
|
$
|
83,160
|
|
|
$
|
72,207
|
|
Two-way messaging
|
|
|
20,908
|
|
|
|
17,252
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
104,068
|
|
|
$
|
89,459
|
|
|
|
|
|
|
|
|
|
|
Indirect:
|
|
|
|
|
|
|
|
|
One-way messaging
|
|
$
|
6,267
|
|
|
$
|
4,409
|
|
Two-way messaging
|
|
|
1,793
|
|
|
|
1,525
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
8,060
|
|
|
$
|
5,934
|
|
|
|
|
|
|
|
|
|
|
Total paging:
|
|
|
|
|
|
|
|
|
One-way messaging
|
|
$
|
89,427
|
|
|
$
|
76,616
|
|
Two-way messaging
|
|
|
22,701
|
|
|
|
18,777
|
|
|
|
|
|
|
|
|
|
|
Total paging revenue
|
|
$
|
112,128
|
|
|
$
|
95,393
|
|
|
|
|
|
|
|
|
|
|
Non-paging revenue
|
|
|
2,574
|
|
|
|
3,180
|
|
|
|
|
|
|
|
|
|
|
Total service, rental and maintenance revenues, net
|
|
$
|
114,702
|
|
|
$
|
98,573
|
|
|
|
|
|
|
|
|
|
|
The table below sets forth units in service and service
revenues, the changes in each between the three months ended
September 30, 2006 and 2007 and the changes in revenue
associated with differences in ARPU and the number of units in
service.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Units in Service
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
As of September 30,
|
|
|
For the Three Months Ended September 30,
|
|
|
Change Due to:
|
|
|
|
2006
|
|
|
2007
|
|
|
Change
|
|
|
2006(a)
|
|
|
2007(a)
|
|
|
Change
|
|
|
ARPU
|
|
|
Units
|
|
|
|
(Units in thousands)
|
|
|
(Dollars in thousands)
|
|
|
One-way messaging
|
|
|
3,878
|
|
|
|
3,291
|
|
|
|
(587
|
)
|
|
$
|
89,427
|
|
|
$
|
76,616
|
|
|
$
|
(12,811
|
)
|
|
$
|
750
|
|
|
$
|
(13,561
|
)
|
Two-way messaging
|
|
|
381
|
|
|
|
329
|
|
|
|
(52
|
)
|
|
|
22,701
|
|
|
|
18,777
|
|
|
|
(3,924
|
)
|
|
|
(604
|
)
|
|
|
(3,320
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
4,259
|
|
|
|
3,620
|
|
|
|
(639
|
)
|
|
$
|
112,128
|
|
|
$
|
95,393
|
|
|
$
|
(16,735
|
)
|
|
$
|
146
|
|
|
$
|
(16,881
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
Amounts shown exclude non-paging and product sales revenues.
|
As previously discussed, demand for messaging services has
declined over the past several years and the Company anticipates
that it will continue to decline for the foreseeable future,
which would result in reductions in service, rental and
maintenance revenues due to the lower number of subscribers and
related units in service.
Operating
Expenses
Cost of Products Sold.
Cost of products sold
consists primarily of the cost basis of devices sold to or lost
by USA Mobilitys customers and costs associated with
system sales.
22
Service, Rental and Maintenance.
Service,
rental and maintenance expenses consist primarily of the
following significant items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended September 30,
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2007
|
|
|
Change Between
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
2006 and 2007
|
|
|
|
Amount
|
|
|
Revenue
|
|
|
Amount
|
|
|
Revenue
|
|
|
Amount
|
|
|
%
|
|
|
|
(Dollars in thousands)
|
|
|
Site rent
|
|
$
|
24,314
|
|
|
|
20.3
|
%
|
|
$
|
20,705
|
|
|
|
19.7
|
%
|
|
$
|
(3,609
|
)
|
|
|
(14.8
|
)%
|
Telecommunications and related
|
|
|
7,343
|
|
|
|
6.1
|
|
|
|
5,289
|
|
|
|
5.0
|
|
|
|
(2,054
|
)
|
|
|
(28.0
|
)
|
Payroll and related
|
|
|
6,517
|
|
|
|
5.5
|
|
|
|
6,871
|
|
|
|
6.5
|
|
|
|
354
|
|
|
|
5.4
|
|
Stock based compensation
|
|
|
78
|
|
|
|
0.1
|
|
|
|
26
|
|
|
|
0.0
|
|
|
|
(52
|
)
|
|
|
(66.7
|
)
|
Other
|
|
|
4,237
|
|
|
|
3.5
|
|
|
|
3,855
|
|
|
|
3.7
|
|
|
|
(382
|
)
|
|
|
(9.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total service, rental and maintenance
|
|
$
|
42,489
|
|
|
|
35.5
|
%
|
|
$
|
36,746
|
|
|
|
34.9
|
%
|
|
$
|
(5,743
|
)
|
|
|
(13.5
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FTEs
|
|
|
351
|
|
|
|
|
|
|
|
363
|
|
|
|
|
|
|
|
12
|
|
|
|
3.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As illustrated in the table above, service, rental and
maintenance expenses decreased $5.7 million or 13.5% from
2006. The percentage of expense to revenue decreased, primarily
due to the following:
|
|
|
|
|
Site rent
The decrease of $3.6 million
in site rent expenses is primarily due to the rationalization of
the Companys networks which has decreased the number of
transmitters required to provide service to the Companys
customers. This has resulted in a reduction of the number of
sites required to support the Companys transmitter base.
|
|
|
|
Telecommunications and related
The decrease
of $2.1 million in telecommunications and related expenses
is due to the consolidation of the Companys networks. In
addition, during the third quarter the Company reduced
telecommunications expenses by a net $1.1 million. This
reduction primarily reflects the reversal of previously accrued
underutilization fees that are no longer payable due to a third
quarter 2007 contract amendment. Continued reductions in these
expenses should occur as the Companys networks continue to
be consolidated throughout 2007.
|
|
|
|
Payroll and related
Payroll and related
expenses are incurred largely for field technicians, their
managers and in-house repair personnel. The field technical
staff does not vary as closely to direct units in service as
other work groups since these individuals are a function of the
number of networks the Company operates rather than the number
of units in service on its networks. The increase in payroll and
related expenses was due primarily to an increase in employee
repair personnel with total FTEs increasing by 12 from 351 FTEs
at September 30, 2006 to 363 FTEs at September 30,
2007. The Company believes it is cost beneficial to perform
these repair functions in-house.
|
|
|
|
Stock based compensation
Stock based
compensation expenses consist primarily of amortization of
compensation expense associated with restricted stock issued to
certain members of management under the Equity Plan. The
decrease for the three months ended September 30, 2007 is
due primarily to the lower amortization of compensation expense
associated with the 2005 Grant.
|
|
|
|
Other
The decrease of $0.4 million in
other expenses consists primarily of decreases in repairs and
maintenance expenses of $0.9 million due to lower
contractor costs as repairs are now performed by Company
employees, partially offset by an increase in outside services
expenses of $0.5 million for third party services used in
negotiating site lease reductions.
|
23
Selling and Marketing.
Selling and marketing
expenses consist of the following major items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended September 30,
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2007
|
|
|
Change Between
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
2006 and 2007
|
|
|
|
Amount
|
|
|
Revenue
|
|
|
Amount
|
|
|
Revenue
|
|
|
Amount
|
|
|
%
|
|
|
|
(Dollars in thousands)
|
|
|
Payroll and related
|
|
$
|
6,996
|
|
|
|
5.9
|
%
|
|
$
|
5,984
|
|
|
|
5.7
|
%
|
|
$
|
(1,012
|
)
|
|
|
(14.5
|
)%
|
Commissions
|
|
|
2,407
|
|
|
|
2.0
|
|
|
|
2,140
|
|
|
|
2.0
|
|
|
|
(267
|
)
|
|
|
(11.1
|
)
|
Stock based compensation
|
|
|
178
|
|
|
|
0.1
|
|
|
|
67
|
|
|
|
0.1
|
|
|
|
(111
|
)
|
|
|
(62.4
|
)
|
Other
|
|
|
1,348
|
|
|
|
1.1
|
|
|
|
1,700
|
|
|
|
1.6
|
|
|
|
352
|
|
|
|
26.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total selling and marketing
|
|
$
|
10,929
|
|
|
|
9.1
|
%
|
|
$
|
9,891
|
|
|
|
9.4
|
%
|
|
$
|
(1,038
|
)
|
|
|
(9.5
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FTEs
|
|
|
437
|
|
|
|
|
|
|
|
349
|
|
|
|
|
|
|
|
(88
|
)
|
|
|
(20.1
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As indicated in the table above, selling and marketing expenses
consist primarily of payroll and related expenses. Selling and
marketing payroll and related expenses decreased
$1.0 million or 14.5% over 2006. While total FTEs declined
by 88 from 437 FTEs at September 30, 2006 to 349 FTEs at
September 30, 2007, the Company has continued a major
initiative to reposition the Company and refocus its marketing
goals. This initiative has resulted in selling and marketing
expenses increasing as a percentage of revenue. The sales and
marketing staff are all involved in selling the Companys
paging products and services on a nationwide basis as well as
reselling other wireless products and services such as cellular
phones and email devices under authorized agent agreements.
General and Administrative.
General and
administrative expenses consist of the following significant
components:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended September 30,
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2007
|
|
|
Change Between
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
2006 and 2007
|
|
|
|
Amount
|
|
|
Revenue
|
|
|
Amount
|
|
|
Revenue
|
|
|
Amount
|
|
|
%
|
|
|
|
(Dollars in thousands)
|
|
|
Payroll and related
|
|
$
|
9,517
|
|
|
|
8.0
|
%
|
|
$
|
9,487
|
|
|
|
9.0
|
%
|
|
$
|
(30
|
)
|
|
|
(0.3
|
)%
|
Stock based compensation
|
|
|
484
|
|
|
|
0.4
|
|
|
|
214
|
|
|
|
0.2
|
|
|
|
(270
|
)
|
|
|
(55.8
|
)
|
Bad debt
|
|
|
2,035
|
|
|
|
1.7
|
|
|
|
854
|
|
|
|
0.8
|
|
|
|
(1,181
|
)
|
|
|
(58.0
|
)
|
Facility rent
|
|
|
3,468
|
|
|
|
2.9
|
|
|
|
2,614
|
|
|
|
2.5
|
|
|
|
(854
|
)
|
|
|
(24.6
|
)
|
Telecommunications
|
|
|
1,858
|
|
|
|
1.5
|
|
|
|
1,402
|
|
|
|
1.3
|
|
|
|
(456
|
)
|
|
|
(24.5
|
)
|
Outside services
|
|
|
6,162
|
|
|
|
5.2
|
|
|
|
5,136
|
|
|
|
4.9
|
|
|
|
(1,026
|
)
|
|
|
(16.7
|
)
|
Taxes, licenses and permits
|
|
|
3,036
|
|
|
|
2.5
|
|
|
|
1,815
|
|
|
|
1.7
|
|
|
|
(1,221
|
)
|
|
|
(40.2
|
)
|
Other
|
|
|
4,434
|
|
|
|
3.7
|
|
|
|
2,084
|
|
|
|
2.0
|
|
|
|
(2,350
|
)
|
|
|
(53.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total general and administrative
|
|
$
|
30,994
|
|
|
|
25.9
|
%
|
|
$
|
23,606
|
|
|
|
22.4
|
%
|
|
$
|
(7,388
|
)
|
|
|
(23.8
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FTEs
|
|
|
491
|
|
|
|
|
|
|
|
421
|
|
|
|
|
|
|
|
(70
|
)
|
|
|
(14.3
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As illustrated in the table above, general and administrative
expenses decreased $7.4 million or 23.8% from 2006 due
primarily to lower bad debt expense, office closures, reduction
in outside services costs and reduced taxes, licenses and
permits expenses. The percentage of expense to revenue also
decreased, primarily due to the following:
|
|
|
|
|
Payroll and related
Payroll and related
expenses are incurred mainly for employees in customer service,
inventory, collections, finance and other support functions as
well as executive management. The decrease in payroll and
related expenses was due primarily to a reduction in headcount
since November 2004 offset by additional expenses of
$0.3 million recorded in the third quarter 2007 for both
the short-term and long-term performance cash awards. Total
general and administration FTEs decreased by 70 from 491 at
September 30, 2006 to 421 FTEs at September 30, 2007.
USA Mobility anticipates continued staffing reductions during
2007; however the most significant reductions occurred
throughout 2006.
|
24
|
|
|
|
|
Stock based compensation
Stock based
compensation expenses consist primarily of amortization of
compensation expense associated with restricted stock and
options issued to certain members of management and the Board of
Directors under the Equity Plan. The decrease for the three
months ended September 30, 2007 is due primarily to the
lower amortization of compensation expense associated with the
2005 Grant.
|
|
|
|
Bad debt
The decrease of $1.2 million in
bad debt expenses reflect the Companys improved bad debt
experience and change in the composition of the Companys
customer base.
|
|
|
|
Facility rent
The decrease of
$0.9 million in facility rent expenses is primarily due to
the closure of office facilities as part of the Companys
continued rationalization of its operating requirements to meet
lower revenue and customer demand.
|
|
|
|
Telecommunications
The decrease of
$0.5 million in telecommunications expenses reflects
continued office and staffing reductions as USA Mobility
continues to streamline its operations.
|
|
|
|
Outside services
Outside services expenses
consist primarily of costs associated with printing and mailing
invoices, outsourced customer service, temporary help and
various professional fees. The decrease of $1.0 million in
outside services expenses was due primarily to a reduction in
professional service fees for integration-related activities
incurred in 2006, offset by increased outsourced customer
service costs in 2007 resulting from the 2006 sale of an
internally managed call center to an outside provider.
|
|
|
|
Taxes, licenses and permits
Taxes, licenses
and permits expenses consist of property, franchise, gross
receipts and transactional taxes. The decrease in taxes,
licenses and permits expenses of $1.2 million is mainly due
to lower gross receipts taxes, transactional and property taxes
and settlement of various state and local tax audits at amounts
lower than the originally estimated liability. These taxes are
based on the lower revenue and property base resulting from the
Companys operations.
|
|
|
|
Other
The decrease of $2.4 million in
other expenses consist primarily of a decrease to pager shipping
costs of $0.8 million related to the shipping and receipt
of messaging devices and reductions in various expenses netting
$1.6 million.
|
Depreciation, Amortization and
Accretion.
Depreciation, amortization and
accretion expenses decreased from $18.4 million for the
three months ended September 30, 2006 to $12.0 million
for the three months ended September 30, 2007. The decrease
was primarily due to $3.8 million in lower depreciation in
2007 from fully depreciated paging infrastructure and other
assets, $0.9 million in lower depreciation expense on
paging devices resulting from fewer purchases of paging devices
and from fully depreciated paging devices, $1.2 million in
lower amortization expense and $0.5 million in lower
accretion expense.
Severance and Restructuring.
Severance and
restructuring costs were $0.7 million and $1.2 million
for the three months ended September 30, 2006 and 2007,
respectively, and consist of charges resulting from staff
reductions as the Company continues to match its employee levels
to operational requirements and terminations of certain lease
agreements for transmitter locations.
Interest Income.
Net interest income for the
three months ended September 30, 2006 and 2007 were
$0.7 million and $0.9 million, respectively.
Income Tax Expense.
Income tax expense for the
three months ended September 30, 2006 and 2007 were
$7.1 million and $1.1 million, respectively. Income
tax expense for the third quarter 2007 includes a reversal of
$7.4 million due to the resolution of uncertain tax
positions as required by FIN 48. Excluding this adjustment,
income tax expense would have been $8.5 million or an
effective tax rate of 39.6%. The decrease in the effective tax
rate from 45.0% in the third quarter 2006 to 39.6% in the third
quarter 2007 reflects two charges recorded in the third quarter
2006 totaling $1.0 million for income tax law changes
primarily in Michigan and establishment of a valuation allowance
against a portion of the Companys charitable contributions
carry forward estimated to expire prior to use.
25
Comparison
of the Results of Operations for the Nine Months Ended
September 30, 2006 and 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Nine Months Ended September 30,
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2007
|
|
|
Change Between
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
2006 and 2007
|
|
|
|
Amount
|
|
|
Revenue
|
|
|
Amount
|
|
|
Revenue
|
|
|
Amount
|
|
|
%
|
|
|
|
(Dollars in thousands)
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service, rental and maintenance, net
|
|
$
|
365,488
|
|
|
|
95.8
|
%
|
|
$
|
307,850
|
|
|
|
94.9
|
%
|
|
$
|
(57,638
|
)
|
|
|
(15.8
|
)%
|
Product sales
|
|
|
16,162
|
|
|
|
4.2
|
|
|
|
16,586
|
|
|
|
5.1
|
|
|
|
424
|
|
|
|
2.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
381,650
|
|
|
|
100.0
|
%
|
|
$
|
324,436
|
|
|
|
100.0
|
%
|
|
$
|
(57,214
|
)
|
|
|
(15.0
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of products sold
|
|
$
|
3,139
|
|
|
|
0.8
|
%
|
|
$
|
4,630
|
|
|
|
1.4
|
%
|
|
$
|
1,491
|
|
|
|
47.5
|
%
|
Service, rental and maintenance
|
|
|
135,350
|
|
|
|
35.5
|
|
|
|
115,135
|
|
|
|
35.5
|
|
|
|
(20,215
|
)
|
|
|
(14.9
|
)
|
Selling and marketing
|
|
|
33,106
|
|
|
|
8.7
|
|
|
|
30,108
|
|
|
|
9.3
|
|
|
|
(2,998
|
)
|
|
|
(9.1
|
)
|
General and administrative
|
|
|
99,344
|
|
|
|
26.0
|
|
|
|
73,351
|
|
|
|
22.6
|
|
|
|
(25,993
|
)
|
|
|
(26.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
270,939
|
|
|
|
71.0
|
%
|
|
$
|
223,224
|
|
|
|
68.8
|
%
|
|
$
|
(47,715
|
)
|
|
|
(17.6
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
Service, rental and maintenance revenues consist primarily of
recurring fees associated with the provision of messaging
services and rental of leased units and is net of service
credits. Product sales consist primarily of revenues associated
with the sale of devices and charges for leased devices that are
not returned. The decrease in revenues reflects the decrease in
demand for the Companys wireless services. USA
Mobilitys total revenues were $381.7 million and
$324.4 million for the nine months ended September 30,
2006 and 2007, respectively.
|
|
|
|
|
|
|
|
|
|
|
For the Nine Months Ended September 30,
|
|
|
|
2006
|
|
|
2007
|
|
|
|
(Dollars in thousands)
|
|
|
Service, rental and maintenance revenues, net:
|
|
|
|
|
|
|
|
|
Paging:
|
|
|
|
|
|
|
|
|
Direct:
|
|
|
|
|
|
|
|
|
One-way messaging
|
|
$
|
262,652
|
|
|
$
|
223,547
|
|
Two-way messaging
|
|
|
67,182
|
|
|
|
54,942
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
329,834
|
|
|
$
|
278,489
|
|
|
|
|
|
|
|
|
|
|
Indirect:
|
|
|
|
|
|
|
|
|
One-way messaging
|
|
$
|
21,017
|
|
|
$
|
14,182
|
|
Two-way messaging
|
|
|
5,822
|
|
|
|
4,973
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
26,839
|
|
|
$
|
19,155
|
|
|
|
|
|
|
|
|
|
|
Total paging:
|
|
|
|
|
|
|
|
|
One-way messaging
|
|
$
|
283,669
|
|
|
$
|
237,729
|
|
Two-way messaging
|
|
|
73,004
|
|
|
|
59,915
|
|
|
|
|
|
|
|
|
|
|
Total paging revenue
|
|
$
|
356,673
|
|
|
$
|
297,644
|
|
|
|
|
|
|
|
|
|
|
Non-paging revenue
|
|
|
8,815
|
|
|
|
10,206
|
|
|
|
|
|
|
|
|
|
|
Total service, rental and maintenance revenues, net
|
|
$
|
365,488
|
|
|
$
|
307,850
|
|
|
|
|
|
|
|
|
|
|
26
The table below sets forth units in service and service
revenues, the changes in each between the nine months ended
September 30, 2006 and 2007 and the changes in revenue
associated with differences in ARPU and the number of units
in service.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Units in Service
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
As of September 30,
|
|
|
For the Nine Months Ended September 30,
|
|
|
Change Due to:
|
|
|
|
2006
|
|
|
2007
|
|
|
Change
|
|
|
2006(a)
|
|
|
2007(a)
|
|
|
Change
|
|
|
ARPU
|
|
|
Units
|
|
|
|
(Units in thousands)
|
|
|
(Dollars in thousands)
|
|
|
One-way messaging
|
|
|
3,878
|
|
|
|
3,291
|
|
|
|
(587
|
)
|
|
$
|
283,669
|
|
|
$
|
237,729
|
|
|
$
|
(45,940
|
)
|
|
$
|
(1,952
|
)
|
|
$
|
(43,988
|
)
|
Two-way messaging
|
|
|
381
|
|
|
|
329
|
|
|
|
(52
|
)
|
|
|
73,004
|
|
|
|
59,915
|
|
|
|
(13,089
|
)
|
|
|
(1,552
|
)
|
|
|
(11,537
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
4,259
|
|
|
|
3,620
|
|
|
|
(639
|
)
|
|
$
|
356,673
|
|
|
$
|
297,644
|
|
|
$
|
(59,029
|
)
|
|
$
|
(3,504
|
)
|
|
$
|
(55,525
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
Amounts shown exclude non-paging and product sales revenues.
|
As previously discussed, demand for messaging services has
declined over the past several years and the Company anticipates
that it will continue to decline for the foreseeable future,
which would result in reductions in service, rental and
maintenance revenues due to the lower number of subscribers and
related units in service.
Operating
Expenses
Cost of Products Sold.
Cost of products sold
consists primarily of the cost basis of devices sold to or lost
by USA Mobilitys customers and costs associated with
system sales.
Service, Rental and Maintenance.
Service,
rental and maintenance expenses consist primarily of the
following significant items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Nine Months Ended September 30,
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2007
|
|
|
Change Between
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
2006 and 2007
|
|
|
|
Amount
|
|
|
Revenue
|
|
|
Amount
|
|
|
Revenue
|
|
|
Amount
|
|
|
%
|
|
|
|
(Dollars in thousands)
|
|
|
Site rent
|
|
$
|
75,434
|
|
|
|
19.8
|
%
|
|
$
|
65,104
|
|
|
|
20.1
|
%
|
|
$
|
(10,330
|
)
|
|
|
(13.7
|
)%
|
Telecommunications and related
|
|
|
24,922
|
|
|
|
6.5
|
|
|
|
18,969
|
|
|
|
5.8
|
|
|
|
(5,953
|
)
|
|
|
(23.9
|
)
|
Payroll and related
|
|
|
20,141
|
|
|
|
5.3
|
|
|
|
20,016
|
|
|
|
6.2
|
|
|
|
(125
|
)
|
|
|
(0.6
|
)
|
Stock based compensation
|
|
|
242
|
|
|
|
0.1
|
|
|
|
87
|
|
|
|
0.0
|
|
|
|
(155
|
)
|
|
|
(64.0
|
)
|
Other
|
|
|
14,611
|
|
|
|
3.8
|
|
|
|
10,959
|
|
|
|
3.4
|
|
|
|
(3,652
|
)
|
|
|
(25.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total service, rental and maintenance
|
|
$
|
135,350
|
|
|
|
35.5
|
%
|
|
$
|
115,135
|
|
|
|
35.5
|
%
|
|
$
|
(20,215
|
)
|
|
|
(14.9
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FTEs
|
|
|
351
|
|
|
|
|
|
|
|
363
|
|
|
|
|
|
|
|
12
|
|
|
|
3.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As illustrated in the table above, service, rental and
maintenance expenses decreased $20.2 million or 14.9% from
2006. The percentage of expense to revenue remained constant,
primarily due to the following:
|
|
|
|
|
Site rent
The decrease of $10.3 million
in site rent expenses is primarily due to the rationalization of
the Companys networks which has decreased the number of
transmitters required to provide service to the Companys
customers. The increase as a percentage of revenue reflects the
time lag in reducing site rent expenses as network
rationalization reduces the number of networks and transmitter
locations. The Company has not achieved the utilization of its
master lease agreements (MLAs) that was anticipated.
These MLAs allow for the addition of transmitter locations at a
minimal cost. As network rationalization has occurred, the
Company has been required to rely on transmitter locations not
covered by the MLAs to ensure network coverage. This reliance on
sites not covered by MLAs has impacted the Companys
ability to reduce site rent expense.
|
|
|
|
Telecommunications and related
The decrease
of $6.0 million in telecommunications and related expenses
is due to the consolidation of the Companys networks and
reflects a net one-time reduction
|
27
|
|
|
|
|
of $1.1 million recorded in the third quarter 2007. This
$1.1 million reduction primarily reflects the reversal of
previously accrued underutilization fees that are no longer
payable due to a third quarter 2007 contract amendment.
Continued reductions in these expenses should occur as the
Companys networks continue to be consolidated throughout
2007.
|
|
|
|
|
|
Payroll and related
Payroll and related
expenses are incurred largely for field technicians, their
managers and in-house repair personnel. The field technical
staff does not vary as closely to direct units in service as
other work groups since these individuals are a function of the
number of networks the Company operates rather than the number
of units in service on its networks. Payroll and related
expenses decreased $0.1 million due primarily to lower
payroll benefits expenses incurred by the Company which more
than offset the increase in payroll and related expenses
resulting from the increase in FTEs in 2007. Total FTEs
increased by 12 from 351 FTEs at September 30, 2006 to 363
FTEs at September 30, 2007. The increase in payroll and
related expenses as a percentage of revenue reflects the use of
Companys employees to repair paging devices as opposed to
use of a third party vendor. The Company believes it is cost
beneficial to perform these repair functions in-house.
|
|
|
|
Stock based compensation
Stock based
compensation expenses consist primarily of amortization of
compensation expense associated with restricted stock issued to
certain members of management under the Equity Plan and the
compensation cost associated with the 2003 Arch Long-Term
Incentive Plan (2003 Arch LTIP). The decrease for
the nine months ended September 30, 2007 is due primarily
to the lower amortization of compensation expense related to the
2005 Grant.
|
|
|
|
Other
The decrease of $3.7 million in
other expenses consist primarily of a reduction in repairs and
maintenance expenses of $4.9 million due to lower
contractor costs as repairs are now performed by Company
employees, partially offset by an increase in outside services
expenses of approximately $1.2 million for third party
services used in negotiating site lease reductions.
|
Selling and Marketing.
Selling and marketing
expenses consist of the following major items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Nine Months Ended September 30,
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2007
|
|
|
Change Between
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
2006 and 2007
|
|
|
|
Amount
|
|
|
Revenue
|
|
|
Amount
|
|
|
Revenue
|
|
|
Amount
|
|
|
%
|
|
|
|
(Dollars in thousands)
|
|
|
Payroll and related
|
|
$
|
22,022
|
|
|
|
5.8
|
%
|
|
$
|
18,983
|
|
|
|
5.9
|
%
|
|
$
|
(3,039
|
)
|
|
|
(13.8
|
)%
|
Commissions
|
|
|
7,006
|
|
|
|
1.9
|
|
|
|
6,696
|
|
|
|
2.0
|
|
|
|
(310
|
)
|
|
|
(4.4
|
)
|
Stock based compensation
|
|
|
515
|
|
|
|
0.1
|
|
|
|
251
|
|
|
|
0.1
|
|
|
|
(264
|
)
|
|
|
(51.3
|
)
|
Other
|
|
|
3,563
|
|
|
|
0.9
|
|
|
|
4,178
|
|
|
|
1.3
|
|
|
|
615
|
|
|
|
17.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total selling and marketing
|
|
$
|
33,106
|
|
|
|
8.7
|
%
|
|
$
|
30,108
|
|
|
|
9.3
|
%
|
|
$
|
(2,998
|
)
|
|
|
(9.1
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FTEs
|
|
|
437
|
|
|
|
|
|
|
|
349
|
|
|
|
|
|
|
|
(88
|
)
|
|
|
(20.1
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As indicated in the table above, selling and marketing expenses
consist primarily of payroll and related expenses. Selling and
marketing payroll and related expenses decreased
$3.0 million or 13.8% over 2006. While total FTEs declined
by 88 from 437 FTEs at September 30, 2006 to 349 FTEs at
September 30, 2007, the Company has continued a major
initiative to reposition the Company and refocus its marketing
goals. This initiative has resulted in selling and marketing
expenses increasing as a percentage of revenue. The sales and
marketing staff are all involved in selling the Companys
paging products and services on a nationwide basis as well as
reselling other wireless products and services such as cellular
phones and email devices under authorized agent agreements.
28
General and Administrative.
General and
administrative expenses consist of the following significant
components:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Nine Months Ended September 30,
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2007
|
|
|
Change Between
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
2006 and 2007
|
|
|
|
Amount
|
|
|
Revenue
|
|
|
Amount
|
|
|
Revenue
|
|
|
Amount
|
|
|
%
|
|
|
|
(Dollars in thousands)
|
|
|
Payroll and related
|
|
$
|
33,259
|
|
|
|
8.7
|
%
|
|
$
|
28,390
|
|
|
|
8.7
|
%
|
|
$
|
(4,869
|
)
|
|
|
(14.6
|
)%
|
Stock based compensation
|
|
|
1,376
|
|
|
|
0.4
|
|
|
|
817
|
|
|
|
0.3
|
|
|
|
(559
|
)
|
|
|
(40.6
|
)
|
Bad debt
|
|
|
5,530
|
|
|
|
1.4
|
|
|
|
3,331
|
|
|
|
1.0
|
|
|
|
(2,199
|
)
|
|
|
(39.8
|
)
|
Facility rent
|
|
|
11,545
|
|
|
|
3.0
|
|
|
|
8,627
|
|
|
|
2.7
|
|
|
|
(2,918
|
)
|
|
|
(25.3
|
)
|
Telecommunications
|
|
|
6,088
|
|
|
|
1.6
|
|
|
|
4,692
|
|
|
|
1.4
|
|
|
|
(1,396
|
)
|
|
|
(22.9
|
)
|
Outside services
|
|
|
18,212
|
|
|
|
4.8
|
|
|
|
15,862
|
|
|
|
4.9
|
|
|
|
(2,350
|
)
|
|
|
(12.9
|
)
|
Taxes, licenses and permits
|
|
|
9,893
|
|
|
|
2.6
|
|
|
|
4,111
|
|
|
|
1.3
|
|
|
|
(5,782
|
)
|
|
|
(58.4
|
)
|
Other
|
|
|
13,441
|
|
|
|
3.5
|
|
|
|
7,521
|
|
|
|
2.3
|
|
|
|
(5,920
|
)
|
|
|
(44.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total general and administrative
|
|
$
|
99,344
|
|
|
|
26.0
|
%
|
|
$
|
73,351
|
|
|
|
22.6
|
%
|
|
$
|
(25,993
|
)
|
|
|
(26.2
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FTEs
|
|
|
491
|
|
|
|
|
|
|
|
421
|
|
|
|
|
|
|
|
(70
|
)
|
|
|
(14.3
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As illustrated in the table above, general and administrative
expenses decreased $26.0 million or 26.2% from 2006 due
primarily to headcount reductions, lower bad debt expense,
office closures, lower outside services costs and reduced taxes,
licenses and permits expenses. The percentage of expense to
revenue also decreased, primarily due to the following:
|
|
|
|
|
Payroll and related
Payroll and related
expenses incurred mainly for employees in customer service,
inventory, collections, finance and other support functions as
well as executive management. Payroll and related expenses
decreased $4.9 million due primarily to a reduction in
headcount since November 2004. Total general and administration
FTEs decreased by 70 from 491 at September 30, 2006 to 421
FTEs at September 30, 2007. In June 2006, the Company sold
an internally managed and staffed call center to an outside
provider, which resulted in a reduction of 203 FTEs. The Company
has engaged this third party to provide outsourced customer
service. USA Mobility anticipates continued staffing reductions
during 2007; however the most significant reductions occurred
throughout 2006.
|
|
|
|
Stock based compensation
Stock based
compensation expenses consist primarily of amortization of
compensation expense associated with restricted stock and
options issued to certain members of management and the Board of
Directors under the Equity Plan and the compensation cost
associated with the 2003 Arch LTIP. The decrease for the nine
months ended September 30, 2007 is due primarily to the
lower amortization of compensation expense associated with the
2005 Grant in 2007. In addition, the 2003 Arch LTIP was fully
amortized in the first quarter 2006. This was partially offset
by slightly higher amortization of compensation expense for the
2006 Grant in 2007.
|
|
|
|
Bad debt
The decrease of $2.2 million in
bad debt expenses reflects the Companys improved bad debt
experience and change in the composition of the Companys
customer base.
|
|
|
|
Facility rent
The decrease of
$2.9 million in facility expenses is primarily due to the
closure of office facilities as part of the Companys
continued rationalization of its operating requirements to meet
lower revenue and customer demand.
|
|
|
|
Telecommunications
The decrease of
$1.4 million in telecommunications expenses reflect
continued office and staffing reductions as the Company
continues to streamline its operations.
|
|
|
|
Outside services
Outside services expenses
consist primarily of costs associated with printing and mailing
invoices, outsourced customer service, temporary help and
various professional fees. The decrease of $2.4 million in
outside services expenses was due primarily to a reduction in
professional service fees for
|
29
|
|
|
|
|
integration-related activities incurred in 2006, offset by
increased outsourced customer service costs in 2007 resulting
from the 2006 sale of an internally managed call center to an
outside provider.
|
|
|
|
|
|
Taxes, licenses and permits
Taxes, licenses
and permits expenses consist of property, franchise, gross
receipts and transactional taxes. The decrease in taxes,
licenses and permits expenses of $5.8 million is mainly due
to lower gross receipts taxes, transactional and property taxes
and settlement of various state and local tax audits at amounts
lower than the originally estimated liability. These taxes are
based on the lower revenue and property base resulting from the
Companys operations.
|
|
|
|
Other
The decrease of $5.9 million in
other expenses consist primarily of a decrease of
$1.6 million due to lower pager shipping costs,
$0.4 million in repairs and maintenance expenses,
$0.3 million in insurance expenses and various refunds and
other lower expenses netting $3.6 million; all of which
result from continued site and office reductions.
|
Depreciation, Amortization and
Accretion.
Depreciation, amortization and
accretion expenses decreased from $56.1 million for the
nine months ended September 30, 2006 to $37.8 million
for the nine months ended September 30, 2007. The decrease
was primarily due to $9.0 million in lower depreciation in
2007 from fully depreciated paging infrastructure and other
assets, $3.9 million in lower depreciation expense on
paging devices resulting from fewer purchases of paging devices
and from fully depreciated paging devices, $4.0 million in
lower amortization expense and $1.4 million in lower
accretion expense.
Severance and Restructuring.
Severance and
restructuring costs were $1.2 million for the nine months
ended September 30, 2006 and 2007, respectively, and
consist of charges resulting from staff reductions as the
Company continues to match its employee levels to operational
requirements and terminations of certain lease agreements for
transmitter locations.
Interest Income.
Net interest income increased
from $2.3 million for the nine months ended
September 30, 2006 compared to $2.7 million for the
nine months ended September 30, 2007. This increase was
primarily due to the investment of available cash in short-term
interest bearing accounts for the nine months ended
September 30, 2007.
Income Tax Expense.
Income tax expense for the
nine months ended September 30, 2006 and 2007 were
$25.0 million and $20.0 million respectively. The
income tax expense in 2007 reflects a reduction of
$7.4 million due to the resolution of uncertain tax
positions as required by FIN 48. Excluding this adjustment,
income tax expense would have been $27.4 million or an
effective tax rate of 41.3%. The decrease in the effective tax
rate from 44.0% in 2006 to 41.3% in 2007 is primarily due to
$1.9 million of additional income tax expense recognized in
2006 for Texas and Kentucky tax law changes.
Liquidity
and Capital Resources
Overview
Based on current and anticipated levels of operations, USA
Mobility anticipates net cash provided by operating activities,
together with the available cash on hand at September 30,
2007, should be adequate to meet anticipated cash requirements
for the foreseeable future.
In the event that net cash provided by operating activities and
cash on hand are not sufficient to meet future cash
requirements, the Company may be required to reduce planned
capital expenditures, reduce or eliminate its cash distributions
to stockholders, sell assets or seek additional financing. USA
Mobility can provide no assurance that reductions in planned
capital expenditures or proceeds from asset sales would be
sufficient to cover shortfalls in
30
available cash or that additional financing would be available
on acceptable terms. The Companys net cash flows from
operating, investing, and financing activities for the periods
indicated in the table below were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
|
Increase/
|
|
|
|
2006
|
|
|
2007
|
|
|
(Decrease)
|
|
|
|
(Dollars in thousands)
|
|
|
Net cash provided by operating activities
|
|
$
|
114,912
|
|
|
$
|
90,539
|
|
|
$
|
(24,373
|
)
|
Net cash used in investing activities
|
|
$
|
(12,349
|
)
|
|
$
|
(12,984
|
)
|
|
$
|
635
|
|
Net cash used in financing activities
|
|
$
|
(81,409
|
)
|
|
$
|
(80,530
|
)
|
|
$
|
(879
|
)
|
Net Cash Provided by Operating Activities.
As
discussed above, USA Mobility is dependent on cash flows from
operating activities to meet its cash requirements. Cash from
operations varies depending on changes in various working
capital items including deferred revenues, accounts payable,
accounts receivable, prepaid expenses and various accrued
expenses. The following table includes the significant cash
receipt and expenditure components of the Companys cash
flows from operating activities for the periods indicated, and
sets forth the change between the indicated periods:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
|
Increase/
|
|
|
|
2006
|
|
|
2007
|
|
|
(Decrease)
|
|
|
|
(Dollars in thousands)
|
|
|
Cash received from customers
|
|
$
|
386,575
|
|
|
$
|
318,608
|
|
|
$
|
(67,967
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for
|
|
|
|
|
|
|
|
|
|
|
|
|
Payroll and related expenses
|
|
|
84,122
|
|
|
|
75,568
|
|
|
|
(8,554
|
)
|
Site rent expenses
|
|
|
79,758
|
|
|
|
66,716
|
|
|
|
(13,042
|
)
|
Telecommunications expenses
|
|
|
28,828
|
|
|
|
22,288
|
|
|
|
(6,540
|
)
|
Other operating expenses
|
|
|
78,955
|
|
|
|
63,497
|
|
|
|
(15,458
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
271,663
|
|
|
|
228,069
|
|
|
|
(43,594
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
$
|
114,912
|
|
|
$
|
90,539
|
|
|
$
|
(24,373
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities decreased
$24.4 million from the nine months ended September 30,
2006 compared to the nine months ended September 30, 2007
due primarily to the following:
|
|
|
|
|
Cash received from customers decreased $68.0 million from
the nine months ended September 30, 2006 compared to the
same period in 2007. This measure consists of revenues and
direct taxes billed to customers adjusted for changes in
accounts receivable, deferred revenue and tax withholding
amounts. The decrease was due primarily to a revenue decrease of
$57.2 million and a net change in the accounts receivable
balance of $11.0 million from 2006 to 2007 offset by other
items of $0.2 million.
|
|
|
|
Cash payments for payroll and related expenses decreased
$8.6 million due primarily to a reduction in headcount. The
lower payroll and related expenses resulted from the
Companys consolidation and expense reduction activities.
|
|
|
|
Cash payments for site rent expenses decreased
$13.0 million. This decrease was due primarily to lower
site rent expenses for leased locations as the Company
rationalized its network and negotiated lower payments under its
MLAs.
|
|
|
|
Cash payments for telecommunications expenses decreased
$6.5 million. This decrease was due primarily to the
consolidation of the Companys networks and reflects
continued office and staffing reduction to support its smaller
customer base.
|
|
|
|
Cash payments for other operating expenses primarily consist of
taxes, licenses and permits, repairs and maintenance, facility
rent and office expenses. The decrease in these payments was
primarily due to lower taxes, licenses and permits of
$5.8 million, repairs and maintenance of $5.3 million,
facility rent of
|
31
|
|
|
|
|
$2.9 million, and office expenses of $1.6 million
offset by an increase in various other expenses of
$0.1 million. Overall, the Company has reduced costs to
match its declining subscriber and revenue base.
|
Net Cash Used In Investing Activities.
Net
cash used in investing activities increased $0.6 million
from the nine months ended September 30, 2006 compared to
the same period in 2007 primarily due to lower capital
expenditures in 2007 that did not offset the one-time cash
receipt from a note receivable in 2006. USA Mobilitys
business requires funds to finance capital expenditures, which
primarily include the purchase of messaging devices, system and
transmission equipment and information systems. Capital
expenditures for the nine months ended September 30, 2007
consisted primarily of the purchase of messaging devices and
other equipment, offset by the net proceeds from the sale of
assets. The amount of capital USA Mobility will require in the
future will depend on a number of factors, including the number
of existing subscriber devices to be replaced, the number of
gross placements, technological developments, total competitive
conditions and the nature and timing of the Companys
strategy to integrate and consolidate its networks. USA Mobility
anticipates its total capital expenditures for 2007 to be
between $18.0 and $20.0 million, and expects to fund such
requirements from net cash provided by operating activities.
Net Cash Used In Financing Activities.
Net
cash used in financing activities decreased $0.9 million
from the nine months ended September 30, 2006 compared to
the same period in 2007 due to lower cash distributions to
stockholders in 2007.
Cash Distributions to Stockholders.
On
February 7, 2007, the Board of Directors declared the
regular quarterly cash distribution of $0.65 per share, with a
record date of February 22, 2007, and a payment date of
March 15, 2007. This cash distribution of approximately
$17.8 million was paid from available cash on hand.
On May 2, 2007, the Board of Directors declared the regular
quarterly cash distribution of $0.65 per share and also declared
an additional special one-time cash distribution to stockholders
of $1.00 per share. Both distributions had a record date of
May 17, 2007 and a payment date of June 7, 2007. The
total cash distribution of approximately $45.0 million was
paid from available cash on hand.
On August 1, 2007, the Board of Directors declared the
regular quarterly cash distribution of $0.65 per share, with a
record date of August 16, 2007, and a payment date of
September 6, 2007. This cash distribution of approximately
$17.7 million was paid from available cash on hand.
Cash distributions paid as disclosed in the statement of cash
flows for the nine months ended September 30, 2007 include
previously declared cash distributions on shares of vested
restricted stock issued in January, April and July 2007 due to
the 2005 Grant.
Future Cash Distributions to Stockholders.
On
October 30, 2007, the Board of Directors declared the
regular quarterly cash distribution of $0.65 per share, with a
record date of November 8, 2007 and a payment date of
November 29, 2007. This cash distribution of approximately
$17.8 million is expected to be paid from available cash on
hand.
Borrowings.
At September 30, 2007, the
Company had no borrowings or associated debt service
requirements.
Commitments
and Contingencies
Operating Leases.
USA Mobility has operating
leases for office and transmitter locations. Substantially all
of these leases have lease terms ranging from one month to five
years. USA Mobility is rationalizing its office and transmitter
locations, and intends to replace, reduce or consolidate leases,
where possible. Total rent expense under operating leases for
the nine months ended September 30, 2007 was approximately
$71.5 million.
Other Commitments.
USA Mobility also has
various Letters of Credit (LOCs) outstanding with
multiple state agencies. The LOCs typically have three-year
contract requirements but are renewed annually. The deposits
related to these LOCs are classified within other assets in the
balance sheet.
During the second quarter 2007, the Company contracted with a
managed service-hosting provider for certain computer support
services in order to eliminate a data center and to migrate its
customer billing/provisioning system. The commitment is
estimated to be approximately $7.5 million over the
five-year contract term.
32
During the third quarter 2007, the Company entered into an
agreement with a current vendor to modify the power source for
an existing two-way pager. After final testing and approval by
the Company, the vendor will manufacture and supply the pagers
exclusively to the Company. The agreement requires a purchase
commitment of approximately $5.6 million over an
eighteen-month period.
Off-Balance Sheet Arrangements.
USA Mobility
does not have any relationships with unconsolidated entities or
financial partnerships, such as entities often referred to as
structured finance or special purpose entities, which would have
been established for the purpose of facilitating off-balance
sheet arrangements or other contractually narrow or limited
purposes. As such, the Company is not exposed to any financing,
liquidity, market or credit risk that could arise if it had
engaged in such relationships.
Contingencies.
USA Mobility, from time to
time, is involved in lawsuits arising in the normal course of
business. USA Mobility believes that its pending lawsuits will
not have a material adverse effects on its financial position,
results of operations, or cash flows.
Pending Regulatory Action.
On June 8,
2007, the Federal Communications Commission (FCC)
issued an order in response to recommendations by an independent
panel established to review the impact of Hurricane Katrina on
Communications Networks. Among other requirements, the FCC
mandated that all commercial mobile radio service
(CMRS) providers with at least 500,000 subscribers
maintain an emergency backup power supply at all cell sites to
enable operation for a minimum of eight hours in the event of a
loss of AC commercial power. The Company is regulated as a CMRS
carrier under the FCCs rules, but various aspects of this
initial order suggested that this mandate might not apply to
paging carriers. In an Order on Reconsideration
(Order) issued October 4, 2007, however, the
FCC clarified that paging carriers serving at least 500,000
subscribers (such as the Company) would in fact be subject to
this new backup power requirement.
While the initial FCC mandate would have been effective almost
immediately, the FCC stayed that ruling and made the new rule
effective one year following approval by the Office of
Management and Budget (which has yet to occur). The Order
established exemptions where compliance is precluded due to
(1) risk to safety, life, or health; (2) private legal
obligations (such as lease agreements); or (3) Federal,
state, or tribal law. Six months before the effective date of
the rule, all covered entities will be required to submit a
comprehensive inventory of all transmitter sites and other
network facilities subject to the backup power requirement,
indicating which facilities will qualify for these exemptions.
The Order also provided that a CMRS carrier need not deploy
backup power at a given transmitter site if it can ensure that
backup power is available for 100 percent of the area
covered by that site through alternative means.
Wireless voice providers sought judicial review of the
FCCs initial order imposing a backup power mandate, and
further appeals are expected regarding the Order. The Company is
currently evaluating the legal options. The Company believes
that the mandate should not apply to paging carriers for a
variety of reasons, including the fact that the Companys
simulcast capabilities and satellite-controlled network already
ensure continuing operation in many cases when a single
transmitter loses power. The Company is also evaluating the
potential burdens of complying with the Order, in the event it
is not vacated or modified. Although those burdens are uncertain
at this early stage, the Company expects that compliance with
the Order would entail significant capital investment and
related expenses, and that such costs could have a material
impact on the Companys operations.
Related
Party Transactions
Effective November 16, 2004, two members of the
Companys Board of Directors also serve as directors for
entities that lease transmission tower sites to the Company. For
the nine months ended September 30, 2006 and 2007, the
Company paid $13.8 million and $13.1 million, and
$11.3 million and $9.9 million, respectively, to these
two landlords for site rent expenses that are included in
service, rental and maintenance expenses.
Application
of Critical Accounting Policies
The preceding discussion and analysis of financial condition and
results of operations are based on USA Mobilitys
consolidated financial statements, which have been prepared in
conformity with accounting principles generally accepted in the
United States. The preparation of these financial statements
requires management to make estimates and judgments that affect
the reported amounts of assets, liabilities, revenues, expenses
and related disclosures. On an on-going basis, the Company
evaluates estimates and assumptions, including but not limited
to
33
those related to the impairment of long-lived assets, allowances
for doubtful accounts and service credits, revenue recognition,
asset retirement obligations, severance and restructuring,
accrued liabilities and income taxes. Management bases their
estimates on historical experience and various other assumptions
that are believed to be reasonable under the circumstances, the
results of which form the basis for making judgments about the
carrying values of assets and liabilities. Actual results may
differ from these estimates under different assumptions or
conditions.
|
|
Item 3.
|
Quantitative
and Qualitative Disclosures about Market Risk
|
At September 30, 2007, the Company has no outstanding debt
financing.
|
|
Item 4.
|
Controls
and Procedures
|
Evaluation
of Disclosure Controls and Procedures
Under the supervision and with the participation of the
Companys management, including the Chief Executive Officer
(CEO) and Chief Operating Officer and Chief
Financial Officer (COO/CFO), the Company conducted
an evaluation of the effectiveness of the Companys
disclosure controls and procedures, as such term is defined
under
Rule 13a-15(e)
promulgated under the Securities Exchange Act of 1934, as
amended. Based on this evaluation, the CEO and COO/CFO concluded
that the Companys disclosure controls and procedures were
effective as of September 30, 2007. There have been no
significant changes in the Companys internal controls or
in other factors that could significantly affect the internal
controls subsequent to the date the Company completed the
evaluation.
Changes
in Internal Control Over Financial Reporting
During the third quarter ended September 30, 2007, there
have been no changes in the Companys internal control over
financial reporting that have materially affected, or are
reasonably likely to materially affect, the Companys
internal control over financial reporting.
34
PART II.
OTHER INFORMATION
|
|
Item 1.
|
Legal
Proceedings
|
USA Mobility, from time to time is involved in lawsuits arising
in the normal course of business. USA Mobility believes that its
pending lawsuits will not have a material adverse effect on its
reported results of operations, cash flows or financial position.
The risk factors included in the Companys Annual Report on
Form 10-K
for the fiscal year ended December 31, 2006 have not
materially changed. See Item 1A. Risk Factors
of Part I of the Companys Annual Report on
Form 10-K
for the fiscal year ended December 31, 2006 for these risk
factors.
|
|
Item 2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
None.
|
|
Item 3.
|
Defaults
upon Senior Securities
|
None.
|
|
Item 4.
|
Submission
of Matters to a Vote of Security Holders
|
None.
|
|
Item 5.
|
Other
Information
|
None.
The exhibits listed in the accompanying Exhibit Index are
filed as part of this Quarterly Report on
Form 10-Q
and such Exhibit Index is incorporated herein by reference.
35
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
USA MOBILITY, INC.
Thomas L. Schilling
Chief Operating Officer and
Chief Financial Officer
Dated: November 1, 2007
36
EXHIBIT INDEX
|
|
|
|
|
Exhibit No.
|
|
Description
|
|
|
10
|
.17
|
|
USA Mobility, Inc. Severance Pay Plan and Summary Plan
Description (For certain C-Level, not including CEO)(1)
|
|
10
|
.18
|
|
USA Mobility, Inc. Equity Incentive Plan Restricted Stock
Agreement (For Board of Directors)(2)
|
|
31
|
.1
|
|
Certification of Chief Executive Officer pursuant to
Rule 13a-14(a)/Rule 15d-14(a)
of the Securities Exchange Act of 1934, as amended, dated
November 1, 2007(2)
|
|
31
|
.2
|
|
Certification of Chief Operating Officer and Chief Financial
Officer pursuant to
Rule 13a-14(a)/Rule 15d-14(a)
of the Securities Exchange Act of 1934, as amended, dated
November 1, 2007(2)
|
|
32
|
.1
|
|
Certification of Chief Executive Officer pursuant to
18 U.S.C. Section 1350 dated November 1, 2007(2)
|
|
32
|
.2
|
|
Certification of Chief Operating Officer and Chief Financial
Officer pursuant to 18 U.S.C. Section 1350 dated
November 1, 2007(2)
|
|
|
|
(1)
|
|
Incorporated by reference to USA Mobilitys Current Report
on
Form 8-K
filed on April 18, 2007.
|
|
(2)
|
|
Filed herewith.
|
37