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Article by DailyStocks_admin    (03-24-08 03:42 AM)

The Daily Magic Formula Stock for 03/24/2008 is USA Mobility Inc. According to the Magic Formula Investing Web Site, the ebit yield is 29% and the EBIT ROIC is >100%.

Dailystocks.com only deals with facts, not biased journalism. What is a better way than to go to the SEC Filings? It's not exciting reading, but it makes you money. We cut and paste the important information from SEC filings for you to get started on your research on a specific company.


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BUSINESS OVERVIEW

General

USA Mobility, Inc. (“USA Mobility” or the “Company”) is a comprehensive provider of reliable and affordable wireless communications solutions to the healthcare, government, large enterprise and emergency response sectors. As a single-source provider, USA Mobility’s focus is on the business-to-business marketplace. The Company operates nationwide networks for both one-way paging and advanced two-way messaging services. In addition, USA Mobility offers mobile voice and data services through Sprint Nextel Corporation, including BlackBerry ® devices and global positioning system (“GPS”) location applications. The Company’s product offerings include customized wireless connectivity systems and emergency/mass notification services for healthcare, government and other campus environments. USA Mobility also offers M2M (machine to machine) telemetry solutions for numerous applications that include asset tracking, utility meter reading and other remote device monitoring applications on a national scale.

The Company’s principal office is located at 6677 Richmond Highway, Alexandria, Virginia 22306, and its telephone number is 866-662-3049. USA Mobility’s Internet address is http://www.usamobility.com/ . The Company makes available free of charge through its web site its annual, quarterly and current reports, and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as soon as reasonably practicable after such reports are filed or furnished to the U.S. Securities and Exchange Commission (“SEC”). The information on the web site is not incorporated by reference into this Annual Report on Form 10-K and should not be considered a part of this report.

Merger of Arch Wireless, Inc. and Metrocall Holdings, Inc.

USA Mobility is a holding company that was formed on March 5, 2004 to effect the merger of Arch Wireless, Inc. and subsidiaries (“Arch”) and Metrocall Holdings, Inc. and subsidiaries (“Metrocall”), which occurred on November 16, 2004. Prior to the merger, USA Mobility had conducted no operations other than those incidental to its formation. Upon consummation of the merger exchange, former Arch and Metrocall common stockholders held approximately 72.5% and 27.5%, respectively, of USA Mobility’s common stock on a diluted basis.

The merger was accounted for under the purchase method of accounting pursuant to Statement of Financial Accounting Standards (“SFAS”) No. 141, Business Combinations , (“SFAS No. 141”). Arch was deemed to be the accounting acquirer of Metrocall. Accordingly, Arch’s assets and liabilities as of the acquisition date are reflected in the consolidated balance sheet of USA Mobility at their historical basis. Amounts allocated to Metrocall’s assets and liabilities were based upon the total purchase price and the estimated fair values of such assets and liabilities. Since Arch was deemed the acquiring entity, Arch’s historical financial results prior to the merger are presented throughout this Form 10-K.

Industry Overview

The mobile wireless telecommunications industry consists of multiple voice and data providers that compete among one another, both directly and indirectly, for subscribers. Messaging carriers like USA Mobility provide customers with services such as numeric and alphanumeric messaging. Customers receive these messaging services through a small, handheld device. The device, often referred to as a pager, signals a subscriber when a message is received through a tone and/or vibration and displays the incoming message on a small screen. With numeric messaging services, the device displays numeric messages, such as a telephone number. With alphanumeric messaging services, the device displays numeric and/or text messages.

Some messaging carriers also provide two-way messaging services using devices that enable subscribers to respond to messages or create and send wireless e-mail messages to other messaging devices, including pagers, personal digital assistants (“PDAs”) and personal computers. These two-way messaging devices, often referred to as two-way pagers, are similar to one-way devices except that they have a small keyboard that enables subscribers to type messages which are sent to other devices as noted above. USA Mobility provides two-way messaging and other short messaging-based services and applications using its narrowband personal communication services networks.

Mobile telephone service companies, such as cellular and broadband personal communication services (“PCS”) carriers, provide telephone voice services as well as wireless messaging services that compete with USA Mobility’s one-way and two-way messaging services. Customers subscribing to cellular, broadband PCS or other mobile phone services utilize a wireless handset through which they can make and receive voice telephone calls. These handsets are commonly referred to as cellular or PCS telephones or personal data devices and are generally also capable of receiving numeric, alphanumeric and e-mail messages as well as information services, such as stock quotes, news, weather and sports updates, voice mail, personalized greetings and message storage and retrieval.

Technological improvements in PCS telephones and PDAs, including their interoperability with the users’ electronic mail systems, declining prices, and the degree of similarity in messaging devices, coverage and battery life, have resulted in competitive messaging services continuing to attract subscribers away from USA Mobility’s paging subscriber base.

Although the U.S. traditional paging industry has several licensed paging companies, the overall number of one-way and two-way messaging subscribers has been declining as the industry faces intense competition from “broadband”/voice wireless services and other forms of wireless message delivery. As a result, demand for USA Mobility’s one-way and two-way messaging services has declined over the past several years, and the Company believes that it will continue to decline for the foreseeable future. The decline in demand for messaging services has largely been attributable to competition from cellular and broadband PCS carriers.

2008 Business Strategy

USA Mobility believes that paging, both one-way and two-way, is a cost-effective, reliable means of delivering messages and a variety of other information rapidly over a wide geographic area directly to a mobile person. Paging provides communication capabilities at lower cost than cellular and PCS telephones. For example, the messaging equipment and airtime required to transmit an average message costs less than the equipment and airtime for cellular and PCS telephones. Furthermore, paging devices operate for longer periods due to superior battery life, often exceeding one month on a single battery. Numeric and alphanumeric subscribers generally pay a flat monthly service fee. In addition, these messaging devices are unobtrusive and mobile.

During 2008 USA Mobility will continue to focus on serving the wireless communications needs of the Company’s customers with a variety of communications solutions and new product offerings, while operating an efficient, profitable and free cash flow-based business strategy. USA Mobility’s principal operating objectives and priorities for 2008 include the following:


• Drive free cash flow by supporting a low-cost operating platform;

• Preserve revenue per unit;

• Reduce paging subscriber erosion; and

• Maximize revenue opportunities around the Company’s core subscriber and revenue segments, particularly healthcare.

Drive free cash flow by supporting a low-cost operating platform — Throughout 2008 USA Mobility expects to continue to reduce its underlying cost structure. These reductions will come from all areas of operations but most significantly from the Company’s continuing network rationalization efforts that impact its site rent and telecommunications expenses. These reductions in operating expenses are necessary in light of the Company’s declining revenue base.

Preserve revenue per unit — The Company’s customer base continues to become more concentrated around larger customers, who are characterized by a large number of units in service per account, but due to volume discounting have lower revenue per unit as compared to smaller accounts, those with fewer units in service, which are leaving at a faster rate. This concentration has over the past several years had the effect of reducing the Company’s overall average revenue per unit. During 2008, USA Mobility intends to reinforce the valuable attributes of paging to the Company’s customers in order to minimize the effects of the Company’s changing mix on revenue through targeting pricing increases and holding firm to pricing on value-added features.

Reduce paging subscriber erosion — USA Mobility will continue the Company’s focus on loyalty programs and other customer care programs in 2008 to mitigate the rate of subscriber disconnections. At the same time USA Mobility will continue the Company’s focus on sales and marketing to produce high levels of sales productivity and gross unit placements to also mitigate the impact of subscriber disconnections.

Maximize revenue opportunities around the Company’s core subscriber and revenue segments, particularly healthcare — Healthcare customers are the most stable and loyal paging customers, and represent about 40% of the Company’s paging revenue and subscribers as of December 31, 2007. USA Mobility offers a comprehensive and robust suite of wireless messaging products and services focused on healthcare and “campus” type environments. The Company will use these advantages to target additional sales opportunities in the healthcare, government and large enterprise segments in 2008.

Paging and Messaging Services, Products and Operations

USA Mobility provides one-way and two-way wireless messaging services including information services throughout the United States and Puerto Rico. These services are offered on a local, regional and nationwide basis employing digital networks.

The Company’s customers include businesses with employees who need to be accessible to their offices or customers, first responders who need to be accessible in emergencies, and third parties, such as other telecommunications carriers and resellers that pay the Company to use its networks. Customers include businesses, professionals, management personnel, medical personnel, field sales personnel and service forces, members of the construction industry and construction trades, real estate brokers and developers, sales and service organizations, specialty trade organizations, manufacturing organizations and government agencies.

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 companies in the Fortune 1000, healthcare and related businesses and Federal, state and local 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 December 31, 2007, USA Mobility sales personnel were located in approximately 60 offices in 32 states throughout the United States. In addition, the Company maintains several corporate sales groups focused on medical sales; Federal government accounts; large enterprises; advanced wireless services; systems sales applications; emergency/mass notification services and other product offerings.

Indirect. Within the indirect channel the Company contracts with and invoices an intermediary for airtime services (which includes telemetry 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 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.

Customers may subscribe to one-way 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-way 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 demand for one-way and two-way messaging services declined during each of the three years ended December 31, 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 Company’s networks.

Messaging Networks and Licenses

USA Mobility holds licenses to operate on various frequencies in the 150 MHz, 450 MHz and 900 MHz bands. The Company is licensed by the Federal Communications Commission (the “FCC”) to operate Commercial Mobile Radio Services (“CMRS”). These licenses are required to provide one-way and two-way messaging services over the Company’s networks.

USA Mobility operates local, regional and nationwide one-way networks, which enable subscribers to receive messages over a desired geographic area. The majority of the messaging traffic that is transmitted on the Company’s 150 MHz and 450 MHz frequency bands utilize the Post Office Code Standardization Advisory Group (“POCSAG”) messaging protocol. This technology is an older and less efficient air interface protocol due to slower transmission speeds and minimal error correction. One-way networks operating in 900 MHz frequency bands predominantly utilize the FLEX tm protocol developed by Motorola, Inc.; some legacy POCSAG traffic also is broadcast in the 900 MHz frequency band. The FLEX tm protocol is a newer technology having the advantages of functioning at higher network speeds (which increases the volume of messages that can be transmitted over the network) and of having more robust error correction (which facilitates message delivery to a device with fewer transmission errors).

The Company’s two-way networks utilize the ReFLEX 25 tm protocol, also developed by Motorola, Inc. ReFLEX 25 tm promotes spectrum efficiency and high network capacity by dividing coverage areas into zones and sub-zones. Messages are directed to the zone or sub-zone where the subscriber is located allowing the same frequency to be reused to carry different traffic in other zones or sub-zones. As a result, the ReFLEX 25 tm protocol allows the two-way network to transmit substantially more messages than a one-way network using either the POCSAG or FLEX tm protocols. The two-way network also provides for assured message delivery. The network stores messages that could not be delivered to a device that is out of coverage for any reason, and when the unit returns to service, those messages are delivered. The two-way paging network operates under a set of licenses called narrowband PCS, which uses 900 MHz frequencies. These licenses require certain minimum five and ten-year build-out commitments established by the FCC, which have been satisfied.

Although the capacities of the Company’s networks vary by market, USA Mobility has a significant amount of excess capacity. The Company has implemented a plan to manage network capacity and to improve overall network efficiency by consolidating subscribers onto fewer, higher capacity networks with increased transmission speeds. This plan is referred to as network rationalization. Network rationalization will result in fewer networks and therefore fewer transmitter locations, which the Company believes will result in lower operating expenses.

Sources of Equipment

USA Mobility does not manufacture the messaging devices its customers need to take advantage of its services or the network equipment it uses to provide messaging services. The Company has relationships with several vendors for new messaging devices. Used messaging devices are available in the secondary market from various sources. The Company believes existing inventory, returns of devices from customers that cancel service, and purchases from other available sources of new and reconditioned devices will be sufficient to meet expected messaging device requirements for the foreseeable future.

The Company currently has network equipment that it believes will be sufficient to meet equipment requirements for the foreseeable future.

Competition

The wireless messaging industry is highly competitive. Companies compete on the basis of price, coverage area, services offered, transmission quality, network reliability and customer service.

USA Mobility competes by maintaining competitive pricing for its products and services, by providing broad coverage options through high-quality, reliable messaging networks and by providing quality customer service. Direct competitors for USA Mobility’s messaging services include American Messaging Service, LLC, Skytel Corporation (a division of Bell Industries, Inc.) and a variety of other regional and local providers. The products and services offered by the Company also compete with a broad array of wireless messaging services provided by mobile telephone companies, including AT&T Mobility LLC, Sprint Nextel Corporation, T-Mobile USA, Inc., and Verizon Wireless, Inc. This competition has intensified as prices for the services of mobile telephone companies have declined and as those companies have incorporated messaging capabilities into their mobile phone devices. Many of these companies possess financial, technical and other resources greater than those of USA Mobility.

While cellular, PCS and other mobile telephone services are, on average, more expensive than the one-way and two-way messaging services the Company provides, such mobile telephone service providers typically provide one-way and two-way messaging service as an element of their basic service package. Most PCS and other mobile phone devices currently sold in the U.S. are capable of sending and receiving one-way and two-way messages. Most subscribers that purchase these services no longer need to subscribe to a separate messaging service. As a result, many one-way and two-way messaging subscribers can readily switch to cellular, PCS and other mobile telephone services. The decrease in prices and increase in capacity and functionality for cellular, PCS and other mobile telephone services have led many subscribers to select combined voice and messaging services from mobile telephone companies as an alternative to stand alone messaging services.

CEO BACKGROUND

Royce Yudkoff , age 51, became a director and chairman of the Board in November 2004. He is a member of the Audit Committee of the Board. Prior to the merger of Metrocall Holdings, Inc. (“Metrocall”) and Arch Wireless, Inc. (“Arch”) in November 2004, Mr. Yudkoff had been a director of Metrocall since April 1997, and had served as its chairman since February 2003. Mr. Yudkoff is the Managing Partner of ABRY Partners, LLC, a private equity investment firm, which focuses exclusively on the media and communications sector. Prior to co-founding ABRY in 1989, Mr. Yudkoff was a partner at Bain & Company (“Bain”), an international management consultancy firm where he shared responsibility for Bain’s media practice. Mr. Yudkoff currently serves on the Board of Directors of ABRY Partners, LLC, Muzak LLC, Talent Partners and Nexstar Broadcasting Group. Mr. Yudkoff was a director of Metrocall at the time of its filing in June of 2002 of a petition under Chapter 11 of the Bankruptcy Code.

Vincent D. Kelly , age 47, became a director, President and Chief Executive Officer (“CEO”) of the Company in November 2004 when USA Mobility was formed through the merger of Metrocall and Arch. Prior to the merger of Metrocall and Arch, Mr. Kelly was President and CEO of Metrocall since February 2003. Prior to this appointment, he had also served at various times as the Chief Operating Officer, Chief Financial Officer, and Executive Vice President of Metrocall. He served as the Treasurer of Metrocall from August 1995 to February 2003, and served as a director of Metrocall from 1990 to 1996 and from May 2003 to November 2004. Mr. Kelly was an executive officer of Metrocall at the time of its filing of a petition under Chapter 11 of the Bankruptcy Code. Mr. Kelly currently serves on the Board of Directors of Global Technical Engineering Solutions, LLC (“GTES”), where he is a member of the Compensation Committee. GTES is a majority-owned subsidiary of USA Mobility.

David Abrams , age 45, became a director of the Company in November 2004. He is a member of the Compensation Committee of the Board. Since November 1998, Mr. Abrams has been a managing member of Abrams Capital, LLC, an investment firm whose affiliates were stockholders of Arch prior to its merger with Metrocall. Abrams Capital, LLC and its affiliates owned in excess of 10% of Global Signal, Inc. (formerly Pinnacle Holdings, Inc.) as of December 31, 2006, where Mr. Abrams became a director in October 2002. Global Signal, Inc. is a landlord of a substantial percentage of transmission tower sites used by the Company. In January 2007, Global Signal, Inc. merged with Crown Castle International Corp., and Mr. Abrams was appointed as a director of Crown Castle International Corp. As a result of the merger of Global Signal, Inc. and Crown Castle International Corp., Mr. Abrams and Abrams Capital LLC and its affiliates own less than 3% of the outstanding common shares of Crown Castle International Corp. Due to his relationships, Mr. Abrams has and will continue to recuse himself from any decision by the Company’s Board on matters relating to Global Signal, Inc. and Crown Castle International Corp. (since the merger with Global Signal, Inc.).

James V. Continenza , age 44, became a director of the Company in November 2004, and is the chairman of the Compensation Committee and a member of the Nominating and Governance Committee. Prior to the merger of Metrocall and Arch, Mr. Continenza had been a director of Arch since 2002. He is currently a director of MAXIM Crane Works, Inc., where he serves as chairman of the Compensation Committee and as a member of the Governance Committee; of Rural Cellular Corp., Inc., where he serves as chairman of the Compensation Committee and as a member of the Governance Committee; and of Anchor Glass Container Corp., Inc., where he serves as chairman of the Compensation Committee and as a member of the Audit and Governance Committee, and where he also served as an interim CEO from October 2006 to December 2006. He is also a director of BIG Marine Ventures, LLC. Mr. Continenza was a director of Microcell Telecommunications, Inc. from May 2003 to November 2004, where he served on the Compensation Committee. From September 2002 to June 2004, Mr. Continenza was a director, President and CEO of Teligent, Inc., a provider of fixed-wireless broadband services that filed for bankruptcy protection in May 2001. He was a director and COO of Teligent, Inc. from May 2001 to August 2002, and its senior vice president of strategic operations from September 2000 to May 2001. Mr. Continenza is an investor in Reaction Biology Corp. where Mr. Oristano is chairman of the Board of Directors.

Nicholas A. Gallopo , age 74, became a director of the Company in November 2004. He is chairman of the Audit Committee of the Board, and is also a member of the Nominating and Governance Committee. Prior to the merger of Metrocall and Arch, Mr. Gallopo had been a director of Metrocall since October 2002. Mr. Gallopo is a consultant and Certified Public Accountant. He retired as a partner of Arthur Andersen LLP in 1995 after 31 years with the firm. He had also served as a director of Newman Drug Company from 1995 to 1998, a director of Wyatt Corporation, formerly Hosposable Products, Inc., from 1995 to 2001 where he also served as chairman of the Audit Committee, and a director of Bridge Information Systems, Inc. from 2000 to 2002.

Brian O’Reilly , age 47, became a director of the Company in November 2004. He is chairman of the Nominating and Governance Committee, and a member of the Compensation Committee. Prior to the merger of Metrocall and Arch, Mr. O’Reilly had been a director of Metrocall since October 2002. He was with Toronto Dominion for 16 years beginning in 1986. During his time there, Mr. O’Reilly served as a Managing Director of Toronto Dominion’s Loan Syndication Group, focused on the underwriting of media and telecom loans. From 1996 to 2002, he served as the Managing Director of the Media, Telecom and Technology Group with primary responsibility for investment banking in the wireless and emerging telecom sectors.

Matthew Oristano , age 50, became a director of the Company in November 2004 and is a member of the Company’s Audit Committee. Prior to the merger of Metrocall and Arch, Mr. Oristano had been a director of Arch since 2002. Mr. Oristano has been the President and CEO of Alda Inc., an investment management company, since 1995. He has served as chairman of the Board and CEO of Reaction Biology Corp., a contract biomedical research firm since March 2004, and is a member of the Boards of The Oristano Foundation and Crystalplex Inc. He was the chairman of the Board and CEO of People’s Choice TV Corp. from April 1993 to September 1999.

Samme L. Thompson , age 61, became a director of the Company in November 2004 and is a member of the Nominating and Governance Committee. Prior to the merger of Metrocall and Arch, Mr. Thompson had been a director of Arch since 2002. Mr. Thompson is the owner and president of Telit Associates, Inc., a financial and strategic consulting firm. He joined Motorola Corporation as Vice President of Corporate Strategy in July 1999 and retired from Motorola as Senior Vice President of Global Corporate Strategy and Corporate Business Development in March 2002. From June 2004 until August 2005, Mr. Thompson was a member of the Board of SpectraSite, Inc., which was the landlord of a small percentage of transmission tower sites used by the Company. Since August 2005, he has been a member of the Board of American Tower Corporation (which merged with SpectraSite, Inc.), a landlord of a substantial percentage of transmission tower sites used by the Company. Due to his relationships with SpectraSite, Inc. and American Tower Corporation, Mr. Thompson has recused himself from any decision by the Company’s Board on matters relating to SpectraSite, Inc., and has and will continue to recuse himself from any decision by the Company’s Board on matters relating to American Tower Corporation (since the merger with SpectraSite, Inc.).

COMPENSATION

Prior to May 3, 2006, the non-management directors were paid annual retainers of $55,000 (payable quarterly) for service on the Board as well as any standing committees of the Board on which they serve, and the chairman of the Audit Committee was paid an additional $10,000 per year (payable quarterly). These sums were payable, at the election of the director, in the form of cash, shares of common stock, or any combination thereof. On May 3, 2006, the Board granted the non-management directors restricted stock units (“RSUs”) in addition to cash compensation for service on the Board as well as any standing committees of the Board on which they serve. All non-management directors are paid annual retainers of $80,000, of which $40,000 is paid in the form of RSUs and the remaining $40,000 is paid, at the election of the director, in the form of cash, shares of common stock, or any combination thereof. The chairman of the Audit Committee is paid an additional annual retainer of $20,000, of which $10,000 is paid in the form of RSUs and the remaining $10,000 is paid, at the election of the director, in the form of cash, shares of common stock, or any combination thereof. In 2006, the chairman of the Audit Committee received an additional $10,000 in cash fees for his services related to the restatement of the 2002 — 2004 financial statements. RSUs are granted quarterly under the Equity Plan pursuant to the Restricted Stock Unit Agreement, based upon the closing prices per share of the Company’s common stock (i) at the end of each quarter for service performed and (ii) on the respective declaration date for cash distributions declared. As of December 31, 2006, the Company awarded 11,667 RSUs to the Company’s non-management directors, of which 878 RSUs represent distributions on previously granted RSUs. These RSUs are fully vested on the date of grant. No shares of common stock are issued for the RSUs until the earlier of (i) the date the participant is no longer an eligible director, or (ii) 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.

Effective August 31, 2005, all directors are required to own and hold a minimum of 1,500 shares of USA Mobility’s common stock for a period of 18 months. These shares could be shares that were already owned, shares that were acquired by the director, or shares that were paid to the director in lieu of the annual cash retainer.

The non-management directors are reimbursed for any reasonable out-of-pocket Board related expenses incurred. There are no other annual fees paid to these directors. The remaining director, Mr. Kelly, is employed by the Company as President and CEO and is not separately compensated for his service as a director.

No change in director compensation has been planned for 2007.

(a) As of December 31, 2006, Mr. Gallopo held 2,013 RSUs, of which 152 RSUs represent distributions on previously granted RSUs valued at the closing prices per share of the Company’s common stock on the various cash distribution declaration dates and 1,861 RSUs valued at the closing prices per share of the Company’s common stock at the end of each quarter. In 2006, Mr. Gallopo received an additional $10,000 in cash fees for his services relating to the restatement of the Company’s 2002 — 2004 financial statements.

(b) As of December 31, 2006, Messrs. Oristano, Yudkoff, Thompson, O’Reilly, Continenza and Abrams each held 1,609 RSUs, of which 121 RSUs represent distributions on previously granted RSUs valued at the closing prices per share of the Company’s common stock on the various cash distribution declaration dates and 1,488 RSUs valued at the closing prices per share of the Company’s common stock at the end of each quarter.

(c) Mr. Oristano elected to receive 482 shares of the Company’s common stock in lieu of cash payment of $13,750 for services performed during the first quarter of 2006. The number of shares of common stock that he received was based upon the closing prices per share of the Company’s common stock at March 31, 2006 ($28.48). The value of these shares of the Company’s common stock has been included in the column “Fees Earned in Cash”.

(d) Mr. Abrams elected to receive shares of the Company’s common stock in lieu of the cash retainer of $43,750 for services performed in 2006. As of December 31, 2006, the aggregate number of shares of common stock that he received based upon the closing prices per share of the Company’s common stock at the end of each quarter was 1,968 shares. The value of these shares of the Company’s common stock has been included in the column “Fees Earned in Cash”.

MANAGEMENT DISCUSSION FROM LATEST 10K

Merger of Arch and Metrocall

USA Mobility is a holding company that was formed to effect the merger of Arch and Metrocall, which occurred on November 16, 2004. Prior to the merger, USA Mobility had conducted no operations other than those incidental to its formation. For financial reporting purposes, Arch was deemed to be the accounting acquirer of Metrocall. The historical information for USA Mobility includes the historical financial information of Arch for 2003 and 2004 through November 15, 2004 and the acquired operations of Metrocall from November 16, 2004. Accordingly, the statements of operations reflect increases in revenues and costs due to the inclusion of Metrocall during the year ended December 31, 2005, as compared to the year ended December 31, 2004, which included the results of Metrocall only from November 16, 2004 to December 31, 2004.

USA Mobility believes that the combination of Arch and Metrocall provided the Company with stronger operating and financial results than either company could have achieved separately, by reducing overall costs while the Company’s revenues continued to decline sequentially.

Since the merger on November 16, 2004, the Company has undertaken significant integration and consolidation activities. These activities have included management and staff reductions and reorganizations, network rationalization and consolidation and changes in operational systems, processes and procedures. Such changes are described below.

Overview

Revenue

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 companies in the Fortune 1000, healthcare and related businesses and Federal, state and local 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 December 31, 2007, USA Mobility sales personnel were located in approximately 60 offices in 32 states throughout the United States. In addition, the Company maintains several corporate sales groups focused on medical sales; Federal government accounts; large enterprises; advanced wireless services; systems sales applications; emergency/mass notification services and other product offerings.

Indirect. Within the indirect channel the Company contracts with and invoices an intermediary for airtime services (which includes telemetry 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 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.

Customers may subscribe to one-way 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-way 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 demand for one-way and two-way messaging services declined during each of the three years ended December 31, 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 Company’s networks.

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 Company’s success at retaining subscribers, which is important in order to maintain recurring revenues and to control operating expenses.

During 2005, units in service decreased 1,316,000. During the conversion of the Metrocall billing system to the Arch billing system, which was completed in early July 2005, the Company became aware of errors in the Metrocall units in service counts and differences in the definition of units in service between Metrocall and Arch. As a result, as of June 30, 2005, the Company reduced its units in service by 235,000 units to correct the errors and to conform to the Arch billing system standard unit definition. The remaining decrease of 1,081,000 units resulted from 2005 operations. During 2006 and 2007, units in service decreased 781,000 and 620,000, respectively.

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 subscriber’s service, extent of geographic coverage, whether the subscriber leases or owns the messaging device and the number of units the customer has in the 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 charges for similar services and distribution channels are increasing or decreasing. ARPU by distribution channel and messaging service are monitored regularly.

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 Company’s services. Gross revenues decreased year over year, and the Company expects future sequential annual revenues to decline in line with recent trends. Consolidated ARPU decreased $0.31 and $0.05 in 2006 and 2007, respectively. The decreases were due primarily to the change in composition of the Company’s customer base as the percentage of units in service attributable to larger customers continues to increase. The change in ARPU in the direct distribution channel is the most significant indicator of rate-related changes in the Company’s revenues. One-time price increases that were implemented for smaller customers in certain channels and improvements in the rate of service credits positively impacted ARPU in 2007. Going forward without further price adjustments ARPU would continue to trend lower for both the direct and indirect distribution channels.

Results of Operations

Comparison of the Results of Operations for the Years Ended December 31, 2006 and 2007

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 Company’s wireless services. USA Mobility’s total revenues were $497.7 million and $424.6 million for the years ended December 31, 2006 and 2007, respectively.

Operating Expenses

Cost of Products Sold. Cost of products sold consists primarily of the cost basis of devices sold to or lost by USA Mobility’s customers and costs associated with system sales. The $2.4 million increase in 2007 was due primarily to an increase in sales of management systems to customers.

As illustrated in the table above, service, rental and maintenance expenses decreased $25.2 million or 14.2% from 2006. The percentage of expense to revenue increased, primarily due to additional payroll and related costs to perform repair of paging devices by Company employees. The significant variances are as follows:


• Site rent — The decrease of $14.9 million in site rent expenses is primarily due to the rationalization of the Company’s networks which has decreased the number of transmitters required to provide service to the Company’s customers. 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 Company’s ability to reduce site rent expense both in total dollars and as a percentage of revenue.

• Telecommunications — The decrease of $6.8 million in telecommunications expenses is due to the consolidation of the Company’s networks and reflects a net one-time reduction 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 Company’s networks continue to be consolidated throughout 2008.

• 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 of $0.6 million and the increase in payroll and related expenses as a percentage of revenue reflects the use of Company’s 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 options issued under the 2003 Arch Long-Term Incentive Plan (“2003 Arch LTIP”). The decrease of $0.2 million is due primarily to the lower amortization of compensation expense related to the 2005 Grant.

• Other — The decrease of $3.9 million in other expenses consist primarily of a reduction in repairs and maintenance and other expenses, net of $5.4 million due to lower contractor costs as repairs are now performed by Company employees, partially offset by an increase in outside services of approximately $1.5 million for third party services used in negotiating site lease reductions.

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 $4.4 million or 15.3% from 2006. While total FTEs declined by 143 from 421 FTEs at December 31, 2006 to 278 FTEs at December 31, 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 Company’s paging products and services on a nationwide basis as well as reselling other wireless products and services such as cellular phones and e-mail devices under authorized agent agreements. These expenses support the Company’s efforts to maintain gross placements of units in service which mitigate the impact of disconnects on the Company’s revenue base.

As illustrated in the table above, general and administrative expenses decreased $31.2 million or 24.4% from 2006 due primarily to headcount reductions, lower bad debt expense, office closures, lower outside services costs and reduction in 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. Payroll and related expenses decreased $5.4 million due primarily to a reduction in headcount during 2007. Total FTEs decreased by 75 from 464 at December 31, 2006 to 389 FTEs at December 31, 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 in 2008 although not at the levels experienced in 2006 and 2007.

• Stock based compensation — Stock based compensation expenses consist primarily of amortization of compensation expense associated with restricted stock issued to certain members of management and non-executive members of the Board of Directors under the Equity Plan and the compensation cost associated with options issued under the 2003 Arch LTIP. The decrease of $0.8 million 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 of restricted stock (“2006 Grant”) in 2007.

• Bad debt — The decrease of $3.2 million in bad debt expenses reflects the Company’s improved bad debt experience and change in the composition of the Company’s customer base to accounts with a large number of units in service.

• Facility rent — The decrease of $4.1 million in facility rent expenses is primarily due to the closure of office facilities as part of the Company’s continued rationalization of its operating requirements to meet lower revenue and customer demand.

• Telecommunications — The decrease of $1.7 million in telecommunications expenses reflect continued office and staffing reductions as the Company continues to streamline its operations and reduce its telecommunication requirements.

• 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 $4.6 million in outside services expenses was due primarily to a reduction in professional service fees for integration-related activities incurred in 2006, partially 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 $3.1 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 Company’s operations.

• Other — The decrease of $8.2 million in other expenses consist primarily of a decrease of $2.5 million due to lower pager shipping costs, $0.5 million in lower repairs and maintenance expenses, $0.5 million in lower insurance expenses and various refunds and other lower expenses netting $4.7 million; all of which result from continued site and office reductions.

Depreciation, Amortization and Accretion. Depreciation, amortization and accretion expenses decreased from $73.3 million for the year ended December 31, 2006 to $48.7 million for the year ended December 31, 2007. The decrease was primarily due to $15.1 million in lower depreciation in 2007 from fully depreciated paging infrastructure and other assets, $2.9 million in lower depreciation expense on paging devices resulting from fewer purchases of paging devices and from fully depreciated paging devices, $4.8 million in lower amortization expense and $1.8 million in lower accretion expense.

Severance and Restructuring. Severance and restructuring costs were $4.6 million and $6.4 million for the years ended December 31, 2006 and 2007, respectively. These costs primarily consist of severance charges of $4.2 million and $5.5 million for 2006 and 2007, respectively, resulting from staff reductions as the Company continues to match its employee levels to operational requirements.

Restructuring charges of $0.4 million and $0.9 million for 2006 and 2007, respectively, relate to lease termination penalty expenses for certain lease agreements associated with transmitter locations.

Interest Income, Net. Net interest income decreased from $3.9 million for the year ended December 31, 2006 compared to $3.4 million for the year ended December 31, 2007. This decrease was primarily due to less interest income earned on investment of available cash in short-term interest bearing accounts for the year ended December 31, 2007.

Income Tax Expense. Income tax expense for the years ended December 31, 2006 and 2007 were $31.6 million and $86.6 million, respectively. The 2007 income tax expense reflects an increase of $54.3 million due to an increase in the valuation allowance for deferred income tax assets, and a reduction of $2.5 million due to the resolution of uncertain tax positions due to the expiration of the statute of limitations. Excluding these two adjustments, income tax expense for the year ended December 31, 2007 would have been $35.0 million or an effective tax rate of 42.9%, which is a reduction from the 2006 effective tax rate of 44.0%.

The establishment of a valuation allowance on deferred income tax assets is required under SFAS No. 109, Accounting for Income Taxes, as amended (“SFAS No. 109”) if it is more likely than not (a likelihood of more than 50%) that all or a portion of the deferred income tax asset will not be realized. During the fourth quarter, management has concluded that a valuation allowance for a portion of the deferred income tax assets is necessary based on its current forecast of future taxable income using actual results, expected trends, the reversal patterns of existing deferred income tax assets, and other available evidence.

The reduction in the tax provision of $2.5 million is required under Financial Interpretation No. 48, Accounting for Uncertainty in Income Taxes, (“FIN 48”). As discussed more fully in Note 6 of the Notes to Consolidated Financial Statements, the statute of limitations expired on the 2003 Federal income tax returns and resulted in a reduction of a $20.7 million in income tax liability with a reduction of income tax expense of $2.5 million.

On February 13, 2008 the President of the United States signed the Economic Stimulus Act of 2008 (“Stimulus Act”). The Stimulus Act (among other items) provides for bonus depreciation on certain defined property placed in service after December 31, 2007 and before January 1, 2009. The Company is currently assessing the impact that the Stimulus Act will have on its deferred income tax asset valuation allowance. As required by SFAS No. 109 the impact of the Stimulus Act will be reflected in the period of enactment, in this case 2008.

MANAGEMENT DISCUSSION FOR LATEST QUARTER


Results of Operations

Comparison of the Results of Operations for the Three Months Ended September 30, 2006 and 2007

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 Company’s wireless services. USA Mobility’s total revenues were $119.6 million and $105.4 million for the three months ended September 30, 2006 and 2007, respectively.

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.

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 Mobility’s customers and costs associated with system sales.

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 Company’s networks which has decreased the number of transmitters required to provide service to the Company’s customers. This has resulted in a reduction of the number of sites required to support the Company’s transmitter base.

• Telecommunications and related — The decrease of $2.1 million in telecommunications and related expenses is due to the consolidation of the Company’s 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 Company’s 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.

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 Company’s 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.

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.

• 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 Company’s improved bad debt experience and change in the composition of the Company’s 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 Company’s 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 Company’s 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 Company’s charitable contributions carry forward estimated to expire prior to use.

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