<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 1996 __
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-23694
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Heartland Wireless Communications, Inc.
(Exact Name of Registrant as Specified in Its Charter)
<TABLE>
<S> <C>
Delaware 73-1435149
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(State or Other Jurisdiction of Incorporation or Organization) (I.R.S. Employer Identification No.)
903 North Bowser, Suite 140, Richardson, Texas 75081
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(Address of Principal Executive Offices) (Zip Code)
</TABLE>
Registrant's Telephone Number, Including Area Code (214) 479-9244
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Former Name, Former Address and Former Fiscal Year, if Changed Since Last
Report.
Indicate by check [X] whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the Registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
<TABLE>
<CAPTION>
Shares Outstanding
Class as of May 9, 1995
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<S> <C>
Common Stock, $.001 par value 19,407,021
</TABLE>
Page 1 of 14 Pages
<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
HEARTLAND WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
---- ----
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . $ 54,389 $ 23,143
Restricted assets - investment in debt securities . . . . . . . . . 13,738 12,324
Subscriber receivables, net of allowance for doubtful accounts of
$1,491 in 1996 and $961 in 1995 . . . . . . . . . . . . . . . 3,806 2,544
Prepaid expenses and other . . . . . . . . . . . . . . . . . . . . 1,532 1,583
Assets held for sale . . . . . . . . . . . . . . . . . . . . . . . 3,900 2,200
----- -----
Total current assets . . . . . . . . . . . . . . . . . . 77,365 41,794
------ ------
Investments in affiliates, at equity . . . . . . . . . . . . . . . . . . 72,544 14,077
Systems and equipment, net . . . . . . . . . . . . . . . . . . . . . . . 85,265 60,649
License and leased license investment, net of accumulated amortization of
$1,675 in 1996 and $1,095 in 1995 . . . . . . . . . . . . . . . . . 117,630 60,421
Excess of cost over fair value of net assets acquired, net of accumulated
amortization of $448 in 1996 and $283 in 1995 . . . . . . . . . . . 38,716 4,411
Restricted assets - investment in debt securities . . . . . . . . . . . . 7,172 6,415
Note receivable from affiliate . . . . . . . . . . . . . . . . . . . . . 15,000 --
Assets held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . 9,200 --
Other assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,275 17,638
------ ------
$ 435,167 $ 205,405
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,959 $ 6,863
Accrued expenses and other liabilities . . . . . . . . . . . . . . 11,814 3,345
Current portion of long-term debt . . . . . . . . . . . . . . . . . 1,222 765
----- ---
Total current liabilities . . . . . . . . . . . . . . . 17,995 10,973
------ ------
Long-term debt, less current portion . . . . . . . . . . . . . . . . . . 156,836 140,887
Deferred income taxes and other long-term liabilities . . . . . . . . . . 36,198 1,628
Minority interests in subsidiaries . . . . . . . . . . . . . . . . . . . 229 229
Stockholders' equity:
Common stock, $.001 par value; authorized 50,000,000 shares, issued
19,359,021 shares in 1996 and 12,611,131 shares in 1995 . . . . . 19 13
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . 251,898 71,165
Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . . . (27,734) (19,490)
Treasury stock, 10,252 shares in 1996, at cost . . . . . . . . . . (274) --
----- --
Total stockholders' equity . . . . . . . . . . . . . . . 223,909 51,688
------- ------
Commitments and contingencies
$ 435,167 $ 205,405
======= =======
</TABLE>
See accompanying notes to consolidated condensed financial statements.
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<PAGE> 3
HEARTLAND WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1996 1995
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(UNAUDITED)
<S> <C> <C>
Revenues . . . . . . . . . . . . . . . . . $ 9,512 $ 2,121
----- -----
Operating expenses:
Systems operations . . . . . . . . . 3,423 664
Selling, general and administrative . 5,945 2,040
Depreciation and amortization . . . . 3,554 841
----- ---
Total operating expenses . . . . . 12,922 3,545
------ -----
Operating loss . . . . . . . . . . (3,410) (1,424)
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Other income (expense):
Interest income . . . . . . . . . . . 708 135
Interest expense . . . . . . . . . . (4,692) (926)
Equity in losses of affiliates . . . (2,401) (129)
Other expense, net . . . . . . . . . -- (6)
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Total other income (expense) . . . (6,385) (926)
------- ------
Loss before income taxes . . . . . (9,795) (2,350)
Income tax benefit . . . . . . . . . . . . 1,551 869
----- ---
Net loss . . . . . . . . . $ (8,244) $ (1,481)
======= =======
Net loss per common share . . . . . . . . . $ (.54) $ (.13)
===== =====
</TABLE>
See accompanying notes to consolidated condensed financial statements.
- 3 -
<PAGE> 4
HEARTLAND WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1996 1995
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(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (8,244) $ (1,481)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . 3,554 664
Deferred income tax benefit . . . . . . . . . . . . . . . . . . . . (1,551) (869)
Debt accretion and debt issuance cost amortization . . . . . . . . 1,544 903
Equity in losses of affiliates . . . . . . . . . . . . . . . . . . 2,401 129
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (18) --
Changes in assets and liabilities:
Subscriber receivables . . . . . . . . . . . . . . . . . (1,033) (386)
Prepaid expenses and other . . . . . . . . . . . . . . . 583 (148)
Accounts payable, accrued expenses and other liabilities (908) (381)
----- -----
Net cash used in operating activities . . . . . . (3,672) (1,569)
------- -------
Cash flows from investing activities:
Investment in affiliate . . . . . . . . . . . . . . . . . . . . . . . -- (5,427)
Proceeds from affiliate . . . . . . . . . . . . . . . . . . . . . . . 53,340 --
Proceeds from assets held for sale . . . . . . . . . . . . . . . . . 2,254 --
Purchases of systems and equipment . . . . . . . . . . . . . . . . . (11,962) (4,975)
Expenditures for license and lease license investment . . . . . . . . (1,571) (412)
Purchases of debt securities . . . . . . . . . . . . . . . . . . . . (2,170) --
Acquisitions, net of cash acquired . . . . . . . . . . . . . . . . . (8,793) --
------- --
Net cash provided by (used in) investing activities 31,098 (10,814)
------ --------
Cash flows from financing activities:
Proceeds from long-term debt . . . . . . . . . . . . . . . . . . . . 16,350 --
Payments on long-term debt . . . . . . . . . . . . . . . . . . . . . (11,125) --
Payment of debt issuance costs . . . . . . . . . . . . . . . . . . . (491) --
Proceeds from short-term borrowings and notes payable . . . . . . . . -- 2,077
Payments on short-term borrowings and notes payable . . . . . . . . . (914) (8)
----- ---
Net cash provided by financing activities . . . . 3,820 2,069
----- -----
Net increase (decrease) in cash and cash equivalents . . . . . . . . . . . 31,246 (10,314)
Cash and cash equivalents at beginning of period . . . . . . . . . . . . . 23,143 11,986
------ ------
Cash and cash equivalents at end of period . . . . . . . . . . . . . . . . $ 54,389 $ 1,672
====== =====
</TABLE>
See accompanying notes to consolidated condensed financial statements.
- 4 -
<PAGE> 5
HEARTLAND WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 1996
(1) General
(a) Description of Business
Heartland Wireless Communications, Inc. (the "Company")
develops, owns and operates wireless cable television systems.
The Company holds wireless cable channel rights primarily in
small to mid-size markets located in the central United
States. The Company had systems in operation in 39 markets at
March 31, 1996. Systems in other markets are currently under
construction and development by the Company.
(b) Principles of Consolidation
The consolidated condensed financial statements include the
accounts of the Company and its majority- owned subsidiaries.
Significant intercompany balances and transactions between the
entities have been eliminated in consolidation.
(c) Interim Financial Information
In the opinion of management, the accompanying unaudited
consolidated condensed financial information of the Company
contains all adjustments, consisting only of those of a
recurring nature, necessary to present fairly the Company's
financial position as of March 31, 1996, the results of
operations for the three months ended March 31, 1996 and 1995
and cash flows for the three months ended March 31, 1996 and
1995. These results are not necessarily indicative of the
results to be expected for the full fiscal year. The
accompanying financial statements are for interim periods and
should be read in conjunction with the audited consolidated
financial statements of the Company for the year ended
December 31, 1995, included in the Company's Annual Report to
Stockholders for the year ended December 31, 1995.
(d) Net Loss Per Common Share
Net loss per common share is based on the net loss applicable
to the weighted average number of common shares outstanding of
approximately 15,354,000 and 11,163,000 for the three-month
periods ended March 31, 1996 and 1995, respectively.
Shares issuable upon exercise or conversion of outstanding
convertible debt, stock options and warrants are antidilutive
and have been excluded from the calculation. Fully-diluted
loss per common share is not presented as it would not
materially differ from primary loss per common share.
(e) Accounting Changes
In the third quarter of 1995, the Company changed, effective
January 1, 1995, its method of accounting for the direct costs
and installation fees related to subscriber installations to
achieve a better matching of its revenues and expenses. The
Company has revised its results of operations for the three
months ended January 31, 1995 to reflect such accounting
change.
The Company adopted the provisions of SFAS No. 121, Accounting
for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of, on January 1, 1996. The adoption of
this statement did not have a material effect on the Company's
financial position or results of its operations.
- 5 -
<PAGE> 6
HEARTLAND WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements (Unaudited)
(Continued)
(2) Exchange Offer of Senior Notes
Pursuant to a prospectus dated February 12, 1996, forming part of a
Registration Statement on Form S-4 declared effective by the
Commission on February 12, 1996, the Company offered to exchange
$1,000 principal amount of exchange notes (the "Exchange Notes") which
have terms identical in all material respects to the 13% Senior Notes
due 2003 (the "Senior Notes"), except that the Exchange Notes do not
contain terms with respect to transfer restrictions, for each $1,000
principal amount of Senior Notes outstanding (the "Exchange Offer").
The Exchange Offer expired on March 13, 1996 with 100% of the Senior
Notes being exchanged for Exchange Notes. Since the Company did not
comply with its registration obligations with respect to the Senior
Notes in a timely manner, it was required to pay additional interest
(in addition to the scheduled payment of interest) during the first 90
day period of such default in an amount equal to 0.50% per annum at
the end of such 90-day period and additional interest of 1% per annum
during the subsequent period ending February 12, 1996.
(3) Series C Senior Note Offering
On March 28, 1996, the Company consummated a private placement of
$15.9 million aggregate principal amount of 13% Series C Senior Notes
due 2003 (the "Series C Senior Notes"). The Company placed
approximately $1.9 million of the $15.9 million net proceeds from the
sale of the Series C Senior Notes into an escrow account, representing
funds sufficient to pay interest on the Series C Senior Notes from
April 15, 1996 through April 14, 1997. In connection with the
issuance of the Series C Senior Notes, the Company agreed, among other
things, to file within 180 days of the issue date a registration
statement with the Commission with respect to an offer to exchange new
notes registered under the Securities Act of 1933 for the Series C
Senior Notes, which new notes will be identical in all respects to the
Series C Senior Notes, except that the new notes will not contain
terms with respect to transfer restrictions and to cause such
registration statement to become effective within 270 days of the
issue date.
(4) CableMaxx, AWS and Technivision Acquisitions
Effective February 23, 1996, the Company, directly or through one or
more subsidiaries, acquired all the assets and liabilities and
succeeded to the businesses of American Wireless Systems, Inc. ("AWS")
and CableMaxx, Inc. ("CableMaxx") and acquired substantially all of
the assets and certain of the liabilities and succeeded to all of the
businesses of Fort Worth Wireless Cable T.V. Associates (the "FTW
Partnership"), Wireless Cable TV Associates #38 (the "Minneapolis
Partnership") and Three Sixty Corp. ("TSC"), the successor to
Technivision, Inc. ("Technivision"), (the aforementioned five
transactions collectively referred to herein as the "CableMaxx, AWS
and Technivision Acquisitions"). The CableMaxx, AWS and Technivision
Acquisitions are discussed below:
The AWS Merger. On February 23, 1996, the Company consummated the
merger of Heartland Merger Sub., Inc., a wholly owned subsidiary of
the Company ("Merger Sub"), with and into AWS pursuant to the Amended
and Restated Agreement and Plan of Merger dated as of September 11,
1995 ("AWS Merger Agreement") by and among the Company, Merger Sub and
AWS. Pursuant to the terms of the AWS Merger Agreement, Merger Sub
was merged with and into AWS whereupon AWS became a wholly owned
subsidiary of the Company. Under the terms of the AWS Merger
Agreement, stockholders of AWS are entitled to receive, in the
aggregate, approximately 1,310,000 shares of the Company's Common
Stock having an aggregate value as of February 23, 1996 of
approximately $35.0 million, of which approximately 125,000 shares
having an aggregate value of approximately $3.3 million are being held
in an escrow
- 6 -
<PAGE> 7
HEARTLAND WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements (Unaudited)
(Continued)
established pursuant to the AWS Merger Agreement to satisfy certain
indemnification obligations of AWS to the Company. As of March 31,
1996 options and warrants to purchase approximately 574,566 shares of
AWS Common Stock were outstanding that convert by their terms into the
right to purchase shares of the Company's Common Stock, subject to
certain adjustments. The assets previously held by AWS included
minority interests in the wireless cable television systems of
Minneapolis, Minnesota and Fort Worth, Texas (the remaining interests
being held by the FTW Partnership and Minneapolis Partnership,
respectively) and certain additional rights and properties held in
connection with wireless cable television markets located in Dallas,
Texas, Los Angeles, California and Memphis, Tennessee (collectively,
the "AWS Assets"). The Company will seek to sell directly to a third
party the Los Angeles, California market. The Company sold the
Memphis, Tennessee market to TruVision Wireless, Inc. ("TruVision") on
May 6, 1996. See "Note 8 of Notes to Consolidated Condensed Financial
Statements -- Subsequent Events." The Dallas, Texas market, and AWS'
interest in the Fort Worth, Texas and Minneapolis, Minnesota markets
were contributed by the Company to CS Wireless Systems, Inc. ("CS
Wireless") pursuant to the terms of a Participation Agreement dated
December 12, 1995, as amended by Amendment No. 1 to Participation
Agreement dated February 22, 1996, by and among the Company, CAI
Wireless Systems, Inc. ("CAI") and CS Wireless (the "CS Wireless
Participation Agreement"). See "Note 4 of Notes to Consolidated
Condensed Financial Statements -- CS Wireless Transaction."
The FTW Transaction. On February 23, 1996, the Company consummated
the acquisition of substantially all of the assets of the FTW
Partnership pursuant to the Amended and Restated Asset Purchase
Agreement dated as of October 4, 1995 ("FTW Agreement") by and between
the Company and FTW Partnership. Pursuant to the terms of the FTW
Agreement, the Company acquired from the FTW Partnership substantially
all of the assets of the FTW Partnership, consisting of an approximate
80.0% interest in a joint venture that owned and operating the
wireless cable television system in Fort Worth, Texas (the "FTW
Venture Interest"). Under the terms of the FTW Agreement, the Company
issued approximately 580,000 shares of the Company's Common Stock
having an aggregate value as of February 23, 1996 of approximately
$15.5 million to the FTW Partnership. As the owner of the FTW Venture
Interest, the Company caused the contribution, together with AWS, of
the Fort Worth, Texas market to CS Wireless pursuant to the terms of
the CS Wireless Participation Agreement. See "Note 5 of Notes to
Consolidated Condensed Financial Statements -- CS Wireless
Transaction."
The Minneapolis Transaction. On February 23, 1996, the Company
consummated the acquisition of substantially all of the assets of the
Minneapolis Partnership pursuant to the Amended and Restated Asset
Purchase Agreement dated as of October 4, 1995 ("Minneapolis
Agreement") by and between the Company and Minneapolis Partnership.
Pursuant to the terms of the Minneapolis Agreement, the Company
acquired from the Minneapolis Partnership substantially all of the
assets of the Minneapolis Partnership, consisting of a 75.0%
membership interest in and to American Wireless Systems of
Minneapolis, L.L.C., a limited liability company that owned and
operated the wireless cable television system in Minneapolis,
Minnesota (the "LLC Interest"). Under the terms of the Minneapolis
Agreement, the Company issued approximately 810,000 shares of the
Company's Common Stock having an aggregate value as of February 23,
1996 of approximately $21.7 million to the Minneapolis Partnership.
As the owner of the LLC Interest, the Company caused the contribution,
together with AWS, of the Minneapolis, Minnesota market to CS Wireless
pursuant to the terms of the CS Wireless Participation Agreement. See
"Note 5 of Notes to Consolidated Condensed Financial Statements -- CS
Wireless Transaction." 7,496 shares of the Company's Common Stock
issued to the FTW Partnership and 2,756 shares of the Company's Common
Stock issued to the Minneapolis Partnership are expected to be
distributed to AWS in its capacity as a partner in each of the
aforementioned Partnerships. Accordingly, the Company has classified
those shares of the Company's Common Stock as treasury shares.
- 7 -
<PAGE> 8
HEARTLAND WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements (Unaudited)
(Continued)
The CableMaxx Merger. On February 23, 1996, the Company consummated
the merger of Heartland Merger Sub 2, Inc., a wholly owned subsidiary
of the Company ("Merger Sub 2") with and into CableMaxx pursuant to
the Amended and Restated Agreement and Plan of Merger dated as of
September 11, 1995 ("CableMaxx Merger Agreement") by and among the
Company, Merger Sub 2 and CableMaxx. Pursuant to the terms of the
CableMaxx Merger Agreement, Merger Sub 2 was merged with and into
CableMaxx whereupon CableMaxx became a wholly owned subsidiary of the
Company. Under the terms of the CableMaxx Merger Agreement, the
stockholders of CableMaxx are entitled to receive, in the aggregate,
approximately 2,880,000 shares of the Company's Common Stock having an
aggregate value as of February 23, 1996 of approximately $77.0
million. The assets previously held by CableMaxx included certain
rights and properties held in connection with certain wireless cable
television markets throughout Texas and in Salt Lake City, Utah
(collectively, the "CableMaxx Assets"). With the exception of the San
Antonio, Texas and the Salt Lake City, Utah markets, which the Company
contributed to CS Wireless pursuant to the terms of the CS Wireless
Participation Agreement (See "Note 5 of Notes to Consolidated
Condensed Financial Statements -- CS Wireless Transaction"), the
CableMaxx Assets will continue to be used and operated by the Company
in connection with its wireless cable television business.
The TSC Transaction. On February 23, 1996, the Company consummated
the acquisition of certain assets of TSC pursuant to the Amended and
Restated Asset Purchase Agreement dated as of October 19, 1995 ("TSC
Agreement") by and among the Company, TSC and Technivision, Inc.,
formerly a subsidiary of TSC that has been merged with and into TSC
("Technivision"). Pursuant to the terms of the TSC Agreement, the
Company acquired certain assets from TSC representing substantially
all of the assets formerly held by Technivision. Under the terms of
the TSC Agreement, the Company issued to TSC approximately 1,180,000
shares of the Company's Common Stock having an aggregate value as of
February 23, 1996 of approximately $31.5 million, of which
approximately 189,000 shares having an aggregate value as of February
23, 1996 of $5.1 million are being held in escrow established pursuant
to the terms of the TSC Agreement to satisfy certain indemnification
obligations and secure certain post- closing covenants of TSC to the
Company. The assets previously held by TSC included certain rights
and properties held in connection with wireless cable television
markets in El Paso, Texas, Corpus Christi, Texas and Dayton, Ohio
(collectively, the "TSC Assets"). With the exception of the Dayton,
Ohio market, which the Company contributed to CS Wireless pursuant to
the terms of the CS Wireless Participation Agreement (See "Note 5 of
Notes to Consolidated Condensed Financial Statements -- CS Wireless
Transaction"), the TSC Assets will continue to be used and operated by
the Company in connection with its wireless cable television business.
The CableMaxx, AWS and Technivision Acquisitions were accounted for as
a purchase. The aggregate purchase price of approximately $190
million has been allocated to the net assets acquired on a preliminary
basis based on management's estimates of the fair values of assets
acquired and liabilities assumed. Excess purchase price over the fair
value of net assets acquired will be amortized on a straight-line
basis over a 20-year period.
The net result of the CableMaxx, AWS and Technivision Acquisitions,
the CS Wireless Transaction (as hereinafter defined) the sale of the
Memphis, Tennessee market to TruVision and the planned disposition of
the Los Angeles, California market, is that the Company acquired (i)
operating wireless cable television systems in Austin, Corpus Christi,
Temple/Killeen and Waco, Texas, (ii) the wireless cable television
markets of El Paso and Sherman/Denison, Texas and (iii) wireless cable
channel rights in Amarillo, Corsicana/Athens and Lubbock, Texas for
total net consideration of approximately $58.0 million.
- 8 -
<PAGE> 9
HEARTLAND WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements (Unaudited)
(Continued)
(5) CS Wireless Transaction
Effective February 23, 1996, immediately following the closing of the
CableMaxx, AWS and Technivision Acquisitions, the Company, CAI and CS
Wireless consummated the CS Wireless Participation Agreement pursuant
to which the Company (or certain of its subsidiaries) contributed or
sold to CS Wireless the wireless cable assets and all related
liabilities of the following wireless cable television markets (the
"Heartland Contributed Assets"):
(1) Maysville, Missouri
(2) Sweet Springs, Missouri
(3) Grand Rapids/Moline, Michigan
(4) Bloom Center/Napoleon, Indiana
(5) Dallas, Texas
(6) Fort Worth, Texas
(7) San Antonio, Texas
(8) Dayton, Ohio
(9) Salt Lake City, Utah
(10) Minneapolis, Minnesota
Simultaneously with the contribution and sale of the Heartland
Contributed Assets to CS Wireless, CAI (or certain of its subsidiaries)
contributed to CS Wireless (directly or by contribution of stock of
subsidiaries) the wireless cable television assets associated with the
following markets (the "CAI Contributed Assets"):
(1) Stockton/Modesto, California
(2) Bakersfield, California
(3) Cleveland, Ohio
(4) Charlotte, North Carolina
In connection with the CS Wireless Transaction, the Company (or its
contributing subsidiaries) received (i) shares of CS Wireless common
stock (the "CS Wireless Common Stock") constituting approximately 40.0%
of the outstanding shares of CS Wireless Common Stock (35.4% following
dilution for certain additional stock issuances), (ii) approximately
$28.3 million in cash paid at the closing, (iii) a promissory note in
the principal sum of $25.0 million payable on or before nine months
from the closing and secured by proceeds of a contemplated issuance by
CS Wireless of senior discount notes (which note has been prepaid) and
(iv) a promissory note in the sum of $15.0 million payable 10 years
from closing and prepayable from asset sales and certain other events.
CAI and the Company are in the process of completing certain
post-closing net working capital calculations. Components of such
calculations include the relative accounts payable, accounts receivable
and related working capital assets of the contributed systems, the
number of granted channels represented and actually contributed to CS
Wireless for each market, increase or decrease in the number of
subscribers in each contributed system from the number of subscribers
stated in the CS Wireless Participation Agreement and related factors.
Following the completion of these calculations, payments will be made
to or by the parties, depending upon such calculations. Any such
payments will result in an increase or decrease to the Company's
investment in affiliates.
(6) Other Acquisitions and Divestitures
On January 16, 1996, the Company acquired an operating wireless cable
television system in Champaign, Illinois for approximately $2.1
million in cash (the "Champaign Acquisition").
- 9 -
<PAGE> 10
HEARTLAND WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements (Unaudited)
(Continued)
On January 16, 1996, the Company sold two non-operating wireless cable
markets for approximately $2.2 million in cash.
Summarized below is the unaudited pro forma information for the three
months ended March 31, 1996 and 1995 as if the CableMaxx, AWS and
Technivision Acquisitions, the CS Wireless Transaction and the
Champaign Acquisition had been consummated as of the beginning of 1996
and 1995. The pro forma information does not purport to represent
what the Company's results of operations actually would have been had
such transactions or events occurred on the dates specified, or to
project the Company's results of operations for any future PERIOD.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
1996 1995
---- ----
(UNAUDITED)
<S> <C> <C>
Revenues $ 11,980 $ 5,774
Net loss (10,144) (3,300)
Net loss per common share $ (0.52) $ (0.18)
</TABLE>
(7) BTA Auction
On November 13, 1995, the Federal Communications Commission (the
"FCC") commenced auctions for the award of initial commercial wireless
cable licenses for "Basic Trading Areas" or "BTAs" (as defined by Rand
McNally) which concluded on March 28, 1996 (the "BTA Auction"). The
Company was the winning bidder in 93 BTAs at a total cost of
approximately $19.8 million. The Company filed a long-form
application (FCC Form 304) or a Statement of Intention with the FCC on
May 10, 1996 for each of the 93 BTAs for which it was the winning
bidder. Under the terms of the BTA Auction, the Company remitted a
$1.0 million deposit at the commencement of the BTA Auction and
remitted 10% of the total committed amount (less the $1.0 million
deposit), or approximately $1.0 million, on April 4, 1996. In
addition, the Company will be required to pay an additional 10% of the
total committed amount, approximately $2.0 million, immediately
preceding BTA authorization by the FCC. The remaining 80% of the
committed amount, or approximately $15.8 million, will be repaid over
a 10-year period commencing on the date that the BTA is authorized by
the FCC. The Company will be required to make quarterly interest-only
payments for the first two years and quarterly payments of principal
and interest over the remaining eight years. The interest rate
related to this installment plan is equal to the 10-year U.S.
Treasury rate at the time of the BTA authorization plus 2.5%.
Pursuant to the CS Wireless Participation Agreement, CS Wireless will
reimburse the Company for all amounts paid in the BTA Auction relating
to 12 BTAs awarded to the Company at a total cost of approximately
$5.3 million. To date, CS Wireless has reimbursed the Company
approximately $0.5 million, representing CS Wireless' share of the
$1.0 million deposit and the approximate $1.0 million payment made on
April 4, 1996. The net result of the Company's acquisition of 93
BTAs in the BTA Auction and CS Wireless reimbursing the Company for
all amounts paid in the BTA Auction relating to 12 BTAs, is that the
Company acquired 81 BTAs in the BTA Auction for a net cost of
approximately $14.5 million.
- 10 -
<PAGE> 11
HEARTLAND WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements (Unaudited)
(Continued)
(8) Subsequent Events
On April 26, 1996, the Company acquired a minority interest in one of
the Company's subsidiaries for 48,000 unregistered shares of the
Company's Common Stock.
On May 6, 1996, the Company consummated the sale of the Memphis and
Flippin, Tennessee wireless cable markets to TruVision for
approximately $5.4 million in cash. Upon consummation of the sale of
the Memphis and Flippin, Tennessee markets to TruVision, TruVision
dismissed a lawsuit against the Company and AWS without prejudice and
each party entered into a Settlement Agreement and Release.
On May 9, 1996, the Company and CS Wireless jointly announced an
agreement in principle for the Company to sell the Adairsville, Powers
Crossroads and Rutledge, Georgia wireless cable markets to CS Wireless
for total consideration of approximately $7.2 million, comprised of
cash and notes. Consummation of the transaction is subject to
customary closing conditions, including the execution of a definitive
agreement.
(9) Contingencies
The Company is a party to legal proceedings incidental to its business
which, in the opinion of management, are not expected to have a
material adverse effect on the Company's consolidated financial
position or operating results.
- 11 -
<PAGE> 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This discussion and analysis should be read in conjunction with the
consolidated condensed financial statements and notes thereto of Heartland
Wireless Communications, Inc.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1996 COMPARED TO THE
THREE MONTHS ENDED MARCH 31, 1995
Management believes that period-to-period comparisons of the Company's
consolidated financial results to date are not necessarily meaningful and
should not be relied upon as an indication of future performance due to the
Company's historically high growth rate, system launches and acquisitions
during the periods presented.
Revenues. The Company's revenues consist of monthly fees paid by subscribers
for basic programming, premium programming and equipment rental and, to a
lesser extent, sales of receive-site equipment to certain subscribers and
service income. The Company's revenues were $9.5 million for the first quarter
of 1996 versus $2.1 million for the first quarter of 1995, an increase of 352%.
The increase in revenues from the first quarter of 1995 to the first quarter of
1996 was primarily due to average subscribers increasing from approximately
25,100 for the first quarter of 1995 to approximately 109,100 for the first
quarter of 1996. Average monthly revenues per subscriber was $29.01 for the
first quarter of 1996 compared to $28.83 for the first quarter of 1995. The
increase in average monthly revenues per subscriber was primarily due to
increased premium channel penetration. At March 31, 1996, the Company had
142,190 subscribers versus 31,130 subscribers at March 31, 1995. Approximately
29% of the subscriber increase from March 31, 1995 to March 31, 1996 was
attributable to same-system growth (net subscriber additions in the Company's
systems in operation at March 31, 1995), 29% was attributable to 19 new systems
launched from March 31, 1995 to March 31, 1996 and 42% was attributable to nine
operating systems acquired, less five operating systems divested, during the
period from March 31, 1995 to March 31, 1996. The Company had 39 systems in
operation at March 31, 1996 compared to 16 systems in operation at March 31,
1995. During the first quarter of 1996, the Company acquired the Champaign,
Illinois and the Austin, Corpus Christi, Temple/Killeen and Waco, Texas
operating systems. The Company's acquisition of the aforementioned operating
systems during the first quarter of 1996 contributed $1.8 million to first
quarter 1996 revenues.
Systems Operations. Systems operations include programming costs, channel
lease payments, transmitter site and tower rentals, cost of program guides and
certain repairs and maintenance expenditures. Programming costs (with the
exception of minimum payments), cost of program guides and channel lease
payments (with the exception of certain fixed payments) are variable expenses
which increase as the number of subscribers increase. Systems operations
expense was $3.4 million for the first quarter of 1996 versus $0.7 million for
the first quarter of 1995. As a percentage of revenues, systems operations
expense was 35.6% for the first quarter of 1996 compared to 30.0% for the first
quarter of 1995. The increase in systems operations expense as a percentage of
revenues was due to increased channel lease expense.
Selling, General and Administrative. The Company has experienced increasing
selling, general and administrative expenses ("SG&A") since its inception as a
result of its increasing wireless cable activities and associated
administrative costs, including costs related to opening and maintaining
additional offices, additional accounting and support costs and additional
compensation expense. SG&A was $5.9 million for the first quarter of 1996 and
$2.0 million for the first quarter of 1995. The increase in SG&A from the
first quarter of 1995 to the first quarter of 1996 is principally due to an
increase in the Company's corporate and executive staff to support the
Company's overall growth, increased advertising costs to support the Company's
subscriber growth and, to a lesser extent, increased costs associated with
property and casualty insurance, group health insurance and property taxes.
Depreciation and Amortization. Depreciation and amortization expense includes
depreciation of systems and equipment and amortization of license and leased
license investment and the excess of cost over fair value of net assets
acquired. Depreciation and amortization expense was $3.6 million for the first
quarter of 1996 compared to $0.8 million for the first quarter of 1995. The
increase in depreciation and amortization expense from the first quarter of
1995 to the first quarter of 1996 was due to additional systems and equipment
in connection with the launch of 19
- 12 -
<PAGE> 13
systems during the period from March 31, 1995 to March 31, 1996 and increased
amortization expense on license and leased license investment of systems in
operation and excess of cost over fair value of net assets acquired related to
the acquisition of wireless cable channel rights, the acquisition of minority
interests in certain subsidiaries of the Company and the acquisition of
CableMaxx, Inc. and American Wireless Systems, Inc., together with
substantially all of the assets of Fort Worth Wireless Cable T.V. Associates,
Wireless Cable TV Associates #38 and certain of the wireless cable television
assets of Three Sixty Corp., formerly Technivision, Inc. during the first
quarter of 1996.
Operating Loss. The Company generated operating losses of $3.4 million for the
first quarter of 1996 and $1.4 million for the first quarter of 1995.
Consolidated earnings before interest, taxes, depreciation and amortization
("EBITDA") was positive $0.1 million for the first quarter of 1996 versus
negative $0.6 million for the first quarter of 1995. System-level EBITDA
(earnings before interest, taxes, depreciation and amortization and corporate
general and administrative expense was $2.6 million for the first quarter of
1996 compared to $0.8 million for the first quarter of 1995, an increase of
225%. The increase in system-level EBITDA from the first quarter of 1995 to
the first quarter of 1996 was principally due to the Company having 30
EBITDA-positive systems for the quarter ending March 31, 1996 versus 10
EBITDA-positive systems for the quarter ending March 31, 1995, partially offset
by initial operating losses associated with the launch of four systems during
the first quarter of 1996 versus one system during the first quarter of 1995.
The increase in consolidated EBITDA from the first quarter of 1995 to the first
quarter of 1996 was primary attributable to the increase in system-level
EBITDA, partly due to the increase in the number of EBITDA positive systems,
partially offset by increases in SG&A. The increase in the Company's operating
loss from the first quarter of 1995 to the first quarter of 1996 was primarily
due to increased depreciation and amortization expense, partially offset by
increases in revenues.
Interest Income. Interest income was $0.7 million for the first quarter of
1996 and $0.1 million for the first quarter of 1995. The increased interest
income from the first quarter of 1995 to the first quarter of 1996 was due to
higher average cash equivalents primarily resulting from the private placement
of $100 million of Senior Notes in April 1995 and $53.3 million of cash
received from CS Wireless Systems, Inc. ("CS Wireless") related to the
Company's contribution of wireless cable assets to CS Wireless.
Interest Expense. The Company incurred interest expense of $4.7 million during
the first quarter of 1996 and $0.9 million during the first quarter of 1995.
Interest expense during the first quarter of 1996 included non-cash interest of
$1.0 million related to interest on the Company's 9% Convertible Subordinated
Discount Notes and interest expense on the Company's Senior Notes. Interest
expense during the first quarter of 1995 principally consisted of non-cash
interest of $0.9 million related to interest on the Company's 9% Convertible
Subordinated Discount Notes.
Equity in Losses of Affiliates. The Company had equity in losses of affiliates
of $2.4 million for the first quarter of 1996 and $0.1 million for the first
quarter of 1995. Equity in losses of affiliates for the first quarter of 1996
represent losses from Wireless One, Inc., in which the Company's holds an
approximate 26% interest, and CS Wireless, in which the Company holds an
approximate 35% interest. The Company acquired its equity interest in CS
Wireless on February 23, 1996. Equity in losses of affiliates for the first
quarter of 1995 represent losses from RuralVision Joint Venture in which the
Company had a 50% interest. The Company ceased to be a joint venturer in
RuralVision Joint Venture during May 1995.
Other Expenses. Other expenses are comprised of minority interests in the net
earnings of subsidiaries, dividends on preferred stock of certain subsidiaries
and other non-operating expenses offset by other non-operating income. The
Company did not incur a material amount of other expenses during the first
quarter of 1996 or the first quarter of 1995.
Income Tax Benefit. The Company recognized income tax benefits related to the
Company's net losses of $1.6 million for the first quarter of 1996 and $0.9
million for the first quarter of 1995. The Company recognizes income tax
benefits to the extent of future reversals of existing taxable temporary
differences.
- 13 -
<PAGE> 14
Net Loss. The Company has recorded net losses since inception. The Company
incurred net losses of $8.2 million, or $0.54 per share, during the first
quarter of 1996 and $1.5 million, or $0.13 per share, during the first quarter
of 1995. Although the Company's total revenues increased 352% and system-level
EBITDA increased 333% from the first quarter of 1995 to the first quarter of
1996, due to increased SG&A, increased depreciation and amortization expense,
increased equity in losses of affiliates and increased interest expense, the
Company's net losses have increased from the first quarter of 1995 to the first
quarter of 1996. The Company expects to continue to incur net losses
throughout 1996 and beyond.
LIQUIDITY AND CAPITAL RESOURCES
The wireless cable television business in a capital intensive business. Since
inception, the Company has expended funds to lease or otherwise acquire channel
rights in various markets and systems in operation, to construct operating
systems and to finance initial system operating losses. To date, the primary
sources of capital for the Company have been from the sale of the Company's
common stock, debt financings and the sale of wireless cable channel rights
that are not part of the Company's strategic plan. The Company intends to
expend its 39 existing systems, continue to launch additional wireless cable
systems and lease or otherwise acquire channel rights in various markets.
The Company estimates that a launch of a wireless cable system in a typical
market (assuming an initial programming package of 12 channels) will involve
the initial expenditure of approximately $0.7 million to $0.9 million for
wireless cable system transmission equipment and tower construction and
incremental installation costs of approximately $395 to $435 per subscriber for
equipment, labor, overhead charges and direct commission. Other launch costs
include the cost of securing adequate space for marketing and warehouse
facilities, as well as costs related to employees. As a result of these costs,
operating losses are likely to be incurred by a system during the start-up
period. Subsequent additions of transmission equipment to enhance the channel
offering of the system will approximate $0.4 million, but may vary depending
upon the power of the transmission equipment.
Net cash used in operating activities during the first quarter of 1996 was $3.7
million versus $1.6 million during the first quarter of 1995. The increase in
cash consumed by operations from the first quarter of 1995 to the first quarter
of 1996 was primarily due to initial operating losses associated with the
launch of four systems during the first quarter of 1996, versus one system in
the first quarter of 1995, and increased SG&A. These uses of cash were
partially offset by a 352% increase in revenues from the first quarter of 1995
to the first quarter of 1996.
Net cash provided by investing activities was $31.1 million during the first
quarter of 1996 versus net cash used in investing activities of $10.8 million
during the first quarter of 1995. Cash used in investing activities
principally relates to the construction of additional operating systems, the
acquisition and installation of subscriber receive-site equipment, the upgrade
of transmission equipment in certain markets and the acquisition of certain
wireless cable channel rights. In addition, cash provided by and used in
investing activities includes purchases and sales of debt securities which
represent proceeds from the sale of 13% Senior Notes due 2003 and 13% Series C
Senior Notes due 2003 placed in escrow for the semi-annual payment of interest.
During the first quarter of 1996, cash used in investing activities also
included the Company's acquisition of the Champaign, Illinois operating system
and out-of-pocket expenses related to the acquisition CableMaxx, Inc. and
American Wireless Systems, Inc., together with substantially all of the assets
of Fort Worth Wireless Cable T.V. Associates, Wireless Cable TV Associates #38
and certain of the wireless cable television assets of Three Sixty Corp.,
formerly Technivision, Inc.(collectively the "CableMaxx, AWS and Technivision
Acquisitions"). These uses of cash in the aforementioned acquisitions were
partially offset by the Company's contribution of wireless cable assets to CS
Wireless, in which the Company received $53.3 million in cash, and the sale of
two non-operating wireless cable markets for $2.2 million in cash. During the
first quarter of 1995, cash used in investing activities also included the
Company's additional investment in RuralVision Joint Venture.
- 14 -
<PAGE> 15
Net cash provided by financing activities was $3.8 million for the first
quarter of 1996 and $2.1 million for the first quarter of 1995. Cash provided
by financing activities during the first quarter of 1996 primarily represents
the Company's sale of 13% Series C Senior Notes due 2003, partially offset by
payments on long-term debt assumed in the Company's acquisition of CableMaxx,
Inc. and American Wireless Systems, Inc., together with substantially all of
the assets of Fort Worth Wireless Cable T.V. Associates, Wireless Cable TV
Associates #38 and certain of the wireless cable television assets of Three
Sixty Corp., formerly Technivision, Inc. Cash provided by financing activities
during the first quarter of 1995 principally represents short-term borrowings
and notes payable.
Due to the above-discussed factors, at March 31, 1996, the Company had $54.4
million of cash-on-hand, compared to $23.1 million at December 31, 1995. In
addition, the Company recently announced the sale of its Memphis and Flippin,
Tennessee wireless cable markets for approximately $5.4 million in cash and the
proposed sale of three wireless cable markets surrounding Atlanta, Georgia for
$7.2 million in cash and notes. Under its current plans, the Company expects
that it will incur capital expenditures of approximately $60 million during the
remainder of 1996 for system construction, development, launch and expansion
activities. The Company currently expects to launch an aggregate of
approximately 20 to 25 systems during the remainder of 1996. In addition,
during 1996, the Company will be required to pay an additional $2.0 million,
less a $0.5 million reimbursement from CS Wireless, related to the Federal
Communications Commission's "Basic Trading Area" auction. Notwithstanding
potential acquisitions, the Company does not anticipate any other material
capital requirements during 1996 and the Company believes that its cash-on-hand
and cash flow from operations will be adequate to fund its operations through
the end of 1996.
The Company expects to continue to incur significant capital expenditures in
1997 and beyond in connection with its system construction, development, launch
and expansion activities. These activities may be financed in whole or in part
directly by the Company and/or by its existing or future subsidiaries, through
debt or equity financings, joint ventures or other arrangements. As in the
past, the Company may also finance its system construction, development, launch
and expansion activities or the acquisition of additional markets through the
sale and/or exchange of its existing portfolio of wireless cable channel
rights. Although the Company believes that cash provided by operating
activities, the sale of wireless cable channel rights that are not a part of
the Company's current strategic plan and proceeds from additional public or
private debt or equity offerings will be sufficient for the Company to complete
its planned system construction, development, launch and expansion activities
in 1997 and beyond, there can be no assurance that the Company will achieve
positive cash flow from operations, that the Company will consummate the sale
of certain wireless cable channel rights or that sufficient debt or equity
financing will be available on satisfactory terms and conditions, if at all.
Failure to obtain such additional funds could adversely affect the growth and
cash flow of the Company.
FUTURE OPERATING RESULTS; FORWARD LOOKING STATEMENTS
The Company's future revenues and profitability are difficult to predict due to
a variety of risks and uncertainties, including (i) business conditions and
growth in the Company's existing markets, (ii) the successful launch of systems
in new markets, (iii) the Company's existing indebtedness and the need for
additional financing to fund subscriber growth and system development, (iv)
government regulation, including Federal Communications Commission regulations,
(v) the Company's dependence on channel leases, (vi) the successful integration
of future acquisitions and (vii) numerous competitive factors, including
alternative methods of distributing and receiving television transmissions.
The Company expects to continue its subscriber growth and launch additional
systems. Increases in revenues and subscribers are anticipated for the
remainder of 1996; however, the rate of increase cannot be estimated with
precision or certainty. Heartland believes that SG&A and depreciation and
amortization expense will continue to increase to support overall growth.
Because of the foregoing uncertainties affecting the Company's future operating
results, past performance should not be considered to be a reliable indicator
of future performance, and investors should not use historical trends to
anticipate results or trends in future periods. In addition, the Company's
participation in a highly dynamic industry often results in significant
volatility in the price of the Company's common stock.
- 15 -
<PAGE> 16
In addition to the matters noted above, certain other statements made in this
report are forward looking. Such statements are based on an assessment of a
variety of factors, contingencies and uncertainties deemed relevant by
management, including, technological changes, competitive products and
services, management issues as well as those matters discussed specifically
elsewhere herein. As a result, the actual results realized by the Company
could differ materially from the statements made herein. Readers of this
report are cautioned not to place undue reliance on the forward looking
statements made in this REPORT.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Prior to February 23, 1996, a predecessor of AWS, through an affiliate,
participated in the offer and sale of approximately $29.0 million of general
partnership interests in three general partnerships, including the FTW
Partnership and the Minneapolis Partnership, without registration under any
federal or state securities laws. Following an investigation by the
Commission, AWS, Steven G. Johnson, a director and officer of AWS, Jeffrey D.
Howes, formerly a director and officer of AWS, and Dexter S. Cohen and Kevin C.
King, each of whom own greater than 5% of AWS common stock, without admitting
or denying any wrongdoing, consented to a Commission order to cease and desist
from committing or causing any violation and any future violations of the
securities registration provisions of the Securities Act of 1933, as amended,
and the broker-dealer registration provisions of the Securities Exchange Act of
1934, as amended. In addition, securities administrators in 22 states have
also investigated or are presently investigating the activities related to the
unregistered sale of the general partnership interests described above. The
actions taken by the various state securities administrators range from no
action taken to the issuance of 15 cease and desist orders and consent orders
pursuant to which AWS, the issuing general partnerships and Messrs. Johnson and
Howes, as officers of AWS, were required to cease selling general partnership
interests without registration, to offer recision to individuals who purchased
general partnership interests and, in certain cases, to pay administrative
penalties. In certain cases, such parties have entered into consent decrees
with state regulatory authorities, including an order in Arizona requiring AWS
to offer to purchase such general partnership interests sold to residents of
Arizona or to pay the Arizona Corporation Commission an amount equal to the
amount of the investment made by all general partners who are Arizona
residents, or approximately $566,000, plus interest from the time of the
investment. AWS has advised the Arizona Corporation Commission that it does
not intend to make such offer to purchase.
On September 29, 1995, AWS and the Pittsburgh Partnership jointly sold their
respective interest in the joint venture operating the wireless cable
television system in Pittsburgh, Pennsylvania to CAI. The Pittsburgh Partners
executed and delivered written consents to such sale, each of which included a
release of AWS and certain related parties from certain contingent claims
including claims arising from the offer and sale of the general partnership
interests to the Pittsburgh Partners. General partners holding in excess of
88% and 78%, respectively, of the partnership interests in the Minneapolis
Partnership and the FTW Partnership executed and delivered written consents to
the Minneapolis Transaction and the FTW Transaction, respectively, each of
which included a release of AWS and certain related parties from certain
contingent claims including claims arising from the offer and sale of the
general partnership interests to such partners. There can be no assurance that
the Minneapolis Partners and the FTW Partners who did not vote in favor of the
Minneapolis Transaction or the FTW Transaction, respectively, or the Pittsburgh
Partners who did not vote in favor of the Pittsburgh Sale, or any governmental
agency will not institute proceedings against AWS or the Company, as the
successor to AWS, based on a failure to register the general partnership
interests in connection with a public offering or for damages based on alleged
omissions or misrepresentations of material information in connection with the
sale of such interests. No assurance can be given that a successful claim
against the predecessors of AWS could not be asserted against the Company based
on a number of theories involving successor liability. The institution of
legal action against the Company arising out of the offer and sale of general
partnership interests by AWS's predecessors could result in substantial defense
costs to the Company and the diversion of efforts by the Company's management,
and the imposition of liabilities against the Company could have an adverse
effect on the Company.
- 16 -
<PAGE> 17
AWS is also the subject of two threatened lawsuits. American Telecasting, Inc.
("ATI") has sent letters to AWS claiming AWS breached a term sheet and
requesting payment of $1.8 million as the alleged termination fee owed to ATI
under the term sheet, plus expenses. AWS has responded to ATI and disputes all
of ATI's claims.
By letter dated January 31, 1995, Laidlaw Holdings, Inc. ("Laidlaw"), the
underwriter of AWS' proposed public offering, claimed that AWS owes Laidlaw
$182,166 as accountable expenses under a Letter Agreement between the parties
dated November 20, 1994. A follow-up letter was sent to AWS on July 13, 1995.
By letter dated February 3, 1995 from AWS to Laidlaw, AWS asserted that Laidlaw
terminated the Letter Agreement. AWS believes that if a claim is filed by
Laidlaw, AWS has adequate grounds to successfully defend the claim.
The Company is a party, from time to time, to routine litigation or employment
litigation incidental to its business. No provision has been reflected in the
Company's financial statements for any litigation. It is the opinion of
management that no pending litigation matter will have a material adverse
effect on the Company's financial condition, results of operations or
properties.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On February 22, 1996, stockholders of the Company, at a Special Meeting,
approved a proposal of the Board of Directors of the Company to approve the
CableMaxx, AWS and Technivision Acquisitions and the related issuance of up to
10,721,302 shares of the Company's Common Stock in connection therewith. At
this meeting, 9,587,169 shares voted for the proposal, 850 shares voted against
the proposal, 266,450 shares abstained from voting and there were 266,450
broker non-votes.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
10.1 Amendment No. 1 to Participation Agreement dated as of December 12,
1995, by and among the Registrant, CAI Wireless Systems, Inc. and CS
Wireless Systems, Inc. (filed as Exhibit 2.7 to the Form 8-K Current
Report dated as of December 12, 1995, and incorporated herein by
reference)
* 27 Financial Data Schedule
(B) REPORTS ON FORM 8-K
On March 11, 1996, Company filed a Current Report on Form 8-K dated February
23, 1996, with respect to the Company's acquisition of CableMaxx, Inc. and
American Wireless Systems, Inc., together with substantially all of the assets
of Fort Worth Wireless Cable T.V. Associates, Wireless Cable TV Associates #38
and certain of the wireless cable television assets of Three Sixty Corp.,
formerly Technivision, Inc., and the contribution by the Company of certain
wireless cable television assets and associated liabilities to CS Wireless
Systems, Inc.
- 17 -
<PAGE> 18
SIGNATURE
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.
<TABLE>
<S> <C>
Dated: May 15, 1996 HEARTLAND WIRELESS COMMUNICATIONS, INC.
By /s/ John R. Bailey
-----------------------------------------------------
John R. Bailey
Senior Vice President-Finance, Chief Financial
Officer, Treasurer and Secretary
(Principal Financial Officer)
</TABLE>
- 18 -
<PAGE> 19
EXHIBIT
INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S FORM 10-Q FOR THE PERIOD ENDED MARCH 31, 1996, AND IS QUALIFIED IN
ITS ENTIREY BY REFERENCE TO SUCH THE REGISTRANT'S QUARTERLY REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTER
ENDED MARCH 31, 1996.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 54,389
<SECURITIES> 13,738
<RECEIVABLES> 3,806
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 77,365
<PP&E> 85,265
<DEPRECIATION> 0
<TOTAL-ASSETS> 435,167
<CURRENT-LIABILITIES> 17,995
<BONDS> 156,836
<COMMON> 19
0
0
<OTHER-SE> 223,890
<TOTAL-LIABILITY-AND-EQUITY> 435,167
<SALES> 9,512
<TOTAL-REVENUES> 9,512
<CGS> 0
<TOTAL-COSTS> 12,922
<OTHER-EXPENSES> (1,693)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,692
<INCOME-PRETAX> (9,795)
<INCOME-TAX> (1,551)
<INCOME-CONTINUING> (8,244)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (8,244)
<EPS-PRIMARY> (0.54)
<EPS-DILUTED> (0.54)
</TABLE>
