<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
March 21, 1997
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Date of Report (Date of earliest event reported)
Heartland Wireless Communications, Inc.
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(Exact Name of registrant as specified in its charter)
Delaware 0-23695 73-1435149
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(State or Other Jurisdiction (Commission File Number) (I.R.S. Employer
of Incorporation) Identification No.)
200 Chisholm Place, Suite 200, Plano, Texas 75075
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(Address of Principal Executive Offices) (Zip Code)
(972) 423-9494
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(Registrant's Telephone Number, Including Area Code)
N/A
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(Former Name, Former Address and Former Fiscal Year, if Changed Since Last
Report)
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<PAGE> 2
ITEM 5. OTHER EVENTS
As permitted by General Instruction F to Form 8-K promulgated under
the Securities Exchange Act of 1934, as amended, Heartland Wireless
Communications, Inc., a Delaware corporation (the "Registrant") is filing as an
exhibit to this Current Report on Form 8-K those press releases issued by and
on behalf of the Registrant on March 19, 1997 and March 20, 1997, which such
press releases are specifically incorporated herein by reference.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(a) Exhibits.
Exhibit No. Document Description
----------- --------------------
99.1 Press release issued by the Registrant on March 19, 1997
Press release issued by the Registrant on March 20, 1997
2
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this Current Report to be signed on its behalf
by the undersigned hereunto duly authorized.
HEARTLAND WIRELESS COMMUNICATIONS, INC.
Dated: March 21, 1997 By: /s/ J. Curtis Henderson
-----------------------------------------
J. Curtis Henderson
Vice President and General Counsel
3
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INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
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<S> <C>
99.1 Press release issued by the Registrant on March 19, 1997
Press release issued by the Registrant on March 20, 1997
</TABLE>
<PAGE> 1
FOR IMMEDIATE RELEASE
For further information contact:
Russell J. Iorio
Director of Investor Communications
972/633-4042
HEARTLAND EXTENDS 14% SENIOR NOTE EXCHANGE OFFER
Dallas, Texas - March 19, 1997 - Heartland Wireless Communications, Inc.
(Nasdaq NMS -- HART) America's largest wireless cable television company, today
announced that is has extended the expiration date for its offer to exchange up
to $125 million of its 14% Series B Senior Notes due 2004 for any and all of
its outstanding 14% Senior Notes due 2004 from March 21, 1997 to 5:00 P.M., EST
on April 10, 1997, unless further extended.
**********
Pro-forma for previously disclosed acquisitions and divestitures, Heartland
Wireless Communications, Inc. currently holds wireless cable channel rights in
95 small to mid-size markets located in the central United States, representing
approximately 10.3 million households, approximately 9.2 million of which can
be served by line-of-sight transmissions. Furthermore, Heartland estimates
that within these markets approximately 3.7 million households are currently
unpassed by traditional hard-wire cable systems. In addition, Heartland owns a
20% equity interest in Wireless One, Inc. (Nasdaq NMS--WIRL) and owns a 37%
pro-forma equity interest in CS Wireless Systems, Inc.
###
<PAGE> 2
FOR IMMEDIATE RELEASE
For further information contact:
Russell J. Iorio
Director of Investor Communications
972/633-4042
HEARTLAND ANNOUNCES PRELIMINARY FINANCIAL RESULTS FOR
THE FOURTH QUARTER AND YEAR ENDED DECEMBER 31, 1996
Dallas, Texas - March 20, 1997 - Heartland Wireless Communications, Inc.
(Nasdaq NMS -- HART), America's largest wireless cable television company,
today announced preliminary results for the fourth quarter and year ended
December 31, 1996. For the fourth quarter ended December 31, 1996, revenues
totaled $17.1 million, versus $6.0 million for the fourth quarter ended
December 31, 1995 and $15.7 million for the third quarter ended September 30,
1996.
Consolidated earnings before interest, taxes, depreciation and amortization
(EBITDA) were negative $9.6 million for the fourth quarter of 1996, versus
negative $0.4 million for the fourth quarter of 1995 and positive $1.3 million
for the third quarter of 1996. On February 28, 1997, Heartland announced that
fourth quarter EBITDA would be negative.
Negatively impacting fourth quarter EBITDA were a number of charges, totaling
$9.1 million. The largest of these charges was bad debt expense and a reserve
for uncollectible accounts receivable totaling $5.2 million. These charges
relate to approximately 33,000 subscribers with past due balances who the
Company has disconnected or intends to disconnect during the first quarter of
1997. Additional fourth quarter charges included changes in estimated
programming expense totaling $2.5 million and other miscellaneous expenses,
including a severance reserve and increased service call expense, totaling $1.4
million.
Also contributing to the negative EBITDA was the launch of six systems during
the fourth quarter of 1996, compared to three systems launched during the third
quarter. EBITDA losses in newly launched systems were $0.4 million during the
fourth quarter compared to $0.1 million in the third quarter. Newly launched
systems typically experience negative EBITDA during their initial start-up
phase. In addition, Heartland incurred advertising expense of $2.5 million
during the fourth quarter, an increase of $1.0 million from the third quarter.
As previously mentioned, Heartland has identified approximately 33,000
subscribers with delinquent balances to whom it does not expect to provide
service in the future. Of these subscribers, approximately 20,700 were "soft
disconnect" subscribers who, as of year-end, had past due account balances.
Soft disconnect subscribers, common in the industry, are subscribers who are
past due on their bills and are not receiving service; however, their equipment
has not been recovered. The remaining 12,300 subscribers were active
subscribers at December 31, 1996 that the Company has disconnected or intends
to disconnect during the first quarter of 1997. Heartland has written off all
33,000 subscribers and accounts receivable related to such subscribers as of
December 31, 1996 and does not intend to record any revenue related to these
subscribers during the first quarter of 1997 or thereafter.
Separately, effective December 31, 1996, Heartland has changed its methodology
for reporting subscribers in multiple dwelling units (MDUs). MDU subscribers
who receive bills directly from the Company, who previously had been reported
using an equivalent basic unit (EBU) rate of $9.05, have been reclassified as
individually-billed units, similar to single family unit (SFU) subscribers. In
addition, under the new methodology, MDU subscribers who are billed in bulk to
the MDU owner have been converted to SFU
<PAGE> 3
subscribers using an EBU rate of $17.95, as opposed to $9.05 under the old
methodology. These methodology changes resulted in an additional reduction to
Heartland's reported subscriber base at December 31, 1996 of approximately
26,300 subscribers. As adjusted, during the fourth quarter of 1996, Heartland's
direct-billed MDU subscriber base generated average monthly revenue per
subscriber of $27.31 and Heartland's bulk-billed MDU subscribers generated
average monthly revenue per subscriber of $17.95, versus $9.05 during the third
quarter of 1996 for both direct and bulk-billed MDU subscribers.
As a result of the subscriber write-off and MDU methodology change, Heartland
had approximately 181,400 subscribers at December 31, 1996.
Including the year-end subscriber write offs and the change in methodology for
reporting MDU subscribers, Heartland's average monthly churn rate was 9.6% and
4.1% for the fourth quarter and year ended December 31, 1996, versus 2.0% for
the third quarter ended September 30, 1996. Excluding the subscriber write-off
and methodology change for reporting MDU subscribers, and on a comparable basis
with prior periods, Heartland's average monthly churn rate was 3.0% and 2.2%
for the fourth quarter and year ended December 31, 1996, versus 1.7% for the
third quarter ended September 30, 1996.
During the fourth quarter, revenue was negatively affected by a one-time charge
totaling $0.9 million. This charge is due to a change in the Company's method
for recognizing revenue for subscribers related to certain premium programming
channels.
Excluding the one-time fourth quarter revenue adjustment and soft disconnect
subscribers and adjusted for the change in methodology for reporting MDU
subscribers, average revenue per subscriber for the fourth quarter of 1996 was
$28.70 versus $29.27 during the third quarter. The decline in average revenue
per subscriber from the third to the fourth quarter was primarily due to an
increase in the proportion of bulk-billed MDU subscribers to total subscribers
which, adjusted for the change in methodology for reporting MDU subscribers,
represented 5.7% of Heartland's base at December 31, 1996, versus 5.0% at
September 30, 1996.
On a comparable basis with the methodology for reporting MDU subscribers used
during the third quarter, average revenue per subscriber was $27.14 during the
fourth quarter, compared to $28.08 in the third quarter. The decrease in
average revenue per subscriber between the third and fourth quarters was
primarily due to an increase in the number of soft disconnect subscribers
during the fourth quarter and an increase in the proportion of MDU subscribers
to total subscribers. Using Heartland's prior methodology for reporting MDU
subscribers, MDU subscribers represented 18.5% of Heartland's base at December
31, 1996, versus 16.8% at September 30, 1996.
At February 28, 1997, Heartland had cash-on-hand totaling $58.5 million, net of
cash escrowed for interest payments totaling $32.7 million. In addition,
Heartland had subscriber equipment in inventory and equipment expected to be
recovered from disconnected subscribers sufficient to add approximately 70,000
new subscribers. Due to the significant amount of subscriber equipment in
inventory and various restructuring measures discussed later in this release,
Heartland currently expects that cash used in operations for inventory and
subscriber equipment purchases will be significantly reduced and that its
existing cash resources will be sufficient at least through the first quarter
of 1998.
At December 31, 1996, pro-forma for the acquisition of two operating systems
consummated during January 1997, Heartland had 56 systems in operation. On a
comparable basis, pro-forma for the acquisition and subscriber adjustments
discussed above, Heartland's subscriber base increased 15.2% during the fourth
quarter, from 157,400 subscribers at September 30, 1996 to 181,400 at December
31, 1996.
<PAGE> 4
For the year ended December 31, 1996, revenues totaled $56.0 million, versus
$15.3 million for the year ended December 31, 1995, an increase of 266%.
Consolidated EBITDA during 1996 was negative $7.7 million, versus negative $1.5
million in 1995.
The Company has recently completed the initial stages of its management and
operational restructuring. On January 22, 1997, David E. Webb resigned as
President and Chief Executive Officer of Heartland. On an interim basis, Mr.
Webb was initially replaced by L. Allen Wheeler, who was eventually succeeded
by John A. Fanning as interim President and Chief Executive Officer.
Heartland is continuing its search for a permanent President and Chief
Executive Officer. This search is expected to be completed by the end of April
1997. On March 17, 1997, Heartland announced that three Senior Vice Presidents
left the Company as part of the operational restructuring. In addition, three
other members of management have left the Company. Additional staff and
expense reductions are anticipated.
Mr. Fanning commented, "With the first phase of the management restructuring
complete, Heartland is focused on achieving profitable subscriber growth. We
will manage our business to conserve cash and to rebuild trust with our
subscribers, investors, employees and vendors. We strongly believe that our
business model is sound.
"Our current results are encouraging. First quarter 1997 subscriber growth is
estimated to be approximately 17,000, representing an increase of 8.3% over our
subscriber base at December 31, 1996. We expect this to be achieved in spite
of (i) organizational disruption due to the recent restructuring, (ii) the
first quarter historically being the slowest quarter in terms of subscriber
additions, (iii) a significant reduction in advertising expense and (iv) a
shift of the focus of the installation department from new subscriber
installations to the recovery of subscriber equipment related to the year-end
subscriber write offs. In addition, average monthly revenue per subscriber is
expected to be $30.00 through February 1997, compared to $28.70 for the fourth
quarter. Furthermore, January consolidated EBITDA is expected to be positive
$250,000 and we expect year-to-date average monthly churn to be approximately
2.0%.
"We expect the above results to be achieved without the benefits of
restructuring initiatives. The initiatives currently underway include changing
our corporate culture, building sound business processes and systems, improving
our marketing efforts and improving relations with customers and employees. We
are making significant progress in the upgrade of our systems, including having
engaged Arthur Andersen and others to help us redesign our business processes
and management information systems. We plan to continue cutting expenses
everywhere. For example, Heartland currently has approximately 1,390
employees, a reduction of 15% from year-end. Our goal is to build a business
model that allows us to attract and retain subscribers while generating an
attractive rate of return. We are cautiously optimistic about the first
quarter and very positive about the longer term upon full implementation of the
restructuring measures.
"In the short term, we must prudently utilize our cash resources until we have
fully executed our restructuring plan and have restored investor confidence.
More specifically, we currently plan no new market launches during the next
three to six months. This will allow us to focus our resources in areas which
most directly improve cash flow and profitability. Furthermore, we are cutting
back the number of markets in which we aggressively pursue subscriber growth.
Over the next few weeks, we plan to identify 15 to 20 markets for aggressive
marketing based on their prospects for profitable subscriber growth. Our
initial focus in these markets is to provide us the opportunity to demonstrate
that we can achieve high penetration rates, low churn and profitability. We
intend to maximize cash flow in our remaining markets and expect near-term
subscriber additions in these markets to be sufficient to replace churn.
"We plan to continue to significantly improve our infrastructure, corporate
culture, and processes and systems while increasing cash flow. We must put the
customer first, lower costs wherever possible, evaluate outsourcing, reduce bad
debt and churn and increase our marketing effectiveness. We expect to finalize
our
<PAGE> 5
1997 plans for subscriber growth, EBITDA, new system launches and capital
expenditures by the end of April. We believe that focusing on a limited
roll-out and improving productivity will prove that Heartland's business
strategy of providing affordable cable television service to households in
rural areas remains an attractive, profitable business that can grow within
available cash resources. Once we have demonstrated consistent performance on
a limited scale, we anticipate addressing our remaining markets as well as
launching new systems."
Investors are invited to participate in a conference call with management to
discuss the fourth quarter and year-end results which is scheduled to begin at
5:00 P.M. (EST). Investors can participate by calling (800) 788-9726, pass
code 3982#. An alternate line also has been established in the event that the
primary number is busy. The alternate number is (800) 844-8666, pass code
3982#. A rebroadcast of the conference call will be available for 24 hours
beginning at 7:00 P.M. (EST). To listen to the recording, call (800) 788-9726,
pass code 4049#.
**************************
Heartland Wireless Communications, Inc. is America's largest wireless cable
television company. Pro-forma for previously disclosed acquisitions and
divestitures, Heartland currently holds wireless cable channel rights in 95
small to mid-size markets located in the central United States, representing
approximately 10.3 million households, approximately 9.2 million of which can
be served by line-of-sight transmissions. Furthermore, Heartland estimates
that within these markets approximately 3.7 million households are currently
unpassed by traditional hard-wire cable systems. In addition, Heartland owns a
20% equity interest in Wireless One, Inc. (Nasdaq NMS--WIRL), the largest rural
wireless cable television operator in the southeastern United States, and owns
a 37% pro-forma equity interest in CS Wireless Systems, Inc., one of the
largest wireless cable television companies in the United States in terms of
subscribers and line-of-sight households.
<PAGE> 6
HEARTLAND WIRELESS COMMUNICATIONS, INC.
OPERATING STATISTICS FOR THE
QUARTER ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
SFU MDU (1) Total
--- ---- -----
<S> <C> <C> <C>
Subscribers at September 30, 1996 (2) 151,342 6,081 157,423
Net Subscriber Additions During the Quarter
Ended December 31, 1996 19,754 4,196 23,950
------ ----- ------
Subscribers at December 31, 1996 171,096 10,277 181,373
======= ====== =======
Average Revenue per Subscriber (3) $ 29.28 $ 17.95 $ 28.70
</TABLE>
<TABLE>
<CAPTION>
December 31, September 30, December 31,
1995 1996 (4) 1996 (4)
---- ---- -----
<S> <C> <C> <C>
Total Markets 76 95 95
Total Households (Millions) 7.7 10.3 10.3
Total Line-Of-Sight Households (Millions) 6.4 9.2 9.2
Total Built Line-Of-Sight Households (Millions) (5) 2.6 4.9 5.5
</TABLE>
(1) Excludes MDU subscribers that have been reclassified as SFU subscribers due
to the methodology change at December 31, 1996.
(2) September 30, 1996 subscriber information is pro-forma for the write-off of
approximately 33,000 subscribers and the change in methodology for
reporting MDU subscribers as if such events occurred as of September 30,
1996.
(3) Average revenue per subscriber excludes the fourth quarter revenue
adjustment discussed elsewhere in this release and reflects the write-off
of soft disconnect subscribers and the change in methodology for reporting
MDU subscribers.
(4) Market, household and line-of-sight household information is pro-forma for
certain previously disclosed pending acquisitions which the Company
believes will be consummated before May 31, 1997. There can be no
assurance that such acquisitions will be consummated.
(5) Represents line-of-sight households within the coverage area of the
Company's operating systems.
EBITDA in this release represents earnings before interest, taxes, depreciation
and amortization. EBITDA is presented in this release because it is a widely
accepted financial indicator of a company's ability to service and/or incur
indebtedness. However, EBITDA is not a financial measure determined under
generally accepted accounting principles and should not be considered as an
alternative to net income as a measure of operating results or to cash flows as
a measure of funds available for discretionary or other liquidity purposes.
This release contains forward-looking statements based on current expectations.
Such statements are based on an assessment of a variety of factors,
contingencies and uncertainties deemed relevant by management, including, (i)
business conditions and subscriber growth in the Company's existing markets,
(ii) the successful launch of systems in new and existing markets, (iii) the
Company's existing indebtedness and the need for additional financing to fund
subscriber growth and system development, (iv) the successful integration of
new systems processes (including subscriber qualification and retention
efforts) and management personnel, (v) regulatory and interference issues, (vi)
competitive products and services 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 release are cautioned not to place undue reliance on the forward looking
statements made in this release or in the Company's other securities filings.
###
