UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED SEPTEMBER 30, 1999
Commission file number: 0-26836
WIRELESS ONE, INC.
(Exact name of registrant specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
72-1300837
(I.R.S. Employer Identification No.)
2506 Lakeland Drive, Suite 600
Jackson, Mississippi
(Address of principal executive office)
39208
(Zip code)
(601) 936-1515
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
------- ---------
Number of shares of Common Stock outstanding as of October 31, 1999:
16,958,479
INDEX
PART I. FINANCIAL INFORMATION Page No.
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of September 30,
1999 and December 31, 1998 (unaudited)....................... 2
Condensed Consolidated Statements of Operations for the three
months ended September 30, 1999 and 1998, and the nine months
ended September 30, 1999 and 1998 (unaudited)................ 3
Condensed Consolidated Statements of Cash Flows for the nine
months ended September 30, 1999 and 1998 (unaudited)......... 4
Notes to Condensed Consolidated Financial
Statements (unaudited)....................................... 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations....................................13
Item 3. Quantitative and Qualitative Disclosures about Market
Risks........................................................20
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K............................ 21
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
WIRELESS ONE, INC.
(Debtor-In-Possession)
Condensed Consolidated Balance Sheets
(unaudited)
<TABLE>
<CAPTION>
Assets September 30, December 31,
1999 1998
--------------- ---------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,444,535 $ 1,163,716
Marketable investment securities 9,059,922 -
Subscriber receivables, net 1,209,695 1,344,803
Accrued interest and other receivables 839,157 1,022,409
Prepaid expenses 782,728 1,113,086
--------------- ---------------
Total current assets 13,336,037 4,644,014
Property and equipment, net 67,033,915 85,429,662
License and leased license investment, net 114,482,575 121,764,630
Other assets 15,083,282 15,355,282
--------------- ---------------
Total assets $ 209,935,809 $ 227,193,588
=============== ===============
Liabilities and Stockholders' Equity
Liabilities not subject to compromise:
Current liabilities:
Accounts payable $ 1,352,618 $ 1,646,290
Accrued expenses 8,115,186 5,872,849
Accrued interest 1,045,297 4,935,903
Deferred revenue 2,953,806 659,695
Current maturities of long-term debt 2,280,062 2,542,956
Senior Secured Notes payable - 12,500,000
--------------- ---------------
Total current liabilities 15,746,969 28,157,693
Long-term debt, less current portion 54,119,896 336,287,418
Liabilities subject to compromise 323,510,784 -
Stockholders' equity (deficit):
Preferred stock, $.01 par value, 10,000,000 shares
authorized, no shares issued or outstanding - -
Common stock, $.01 par value, 50,000,000 shares
authorized; issued and outstanding 16,958,479 and
16,910,064 shares, respectively 169,585 169,101
Additional paid-in capital 119,783,607 119,772,011
Accumulated deficit (303,395,032) (257,192,635)
--------------- ---------------
Total stockholders' equity (deficit) (183,441,840) (137,251,523)
--------------- ---------------
Total liabilities and stockholders' equity $ 209,935,809 $ 227,193,588
=============== ===============
</TABLE>
See accompanying notes to condensed consolidated financial statements
<PAGE>
WIRELESS ONE, INC.
(Debtor-In-Possession)
Condensed Consolidated Statements of Operations
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues $ 8,870,668 $ 9,243,816 $ 27,471,864 $ 29,749,021
------------- ------------- -------------- --------------
Operating expenses:
Systems operations 4,726,985 6,214,170 15,522,109 18,439,981
Selling, general, and administrative 6,151,550 6,602,049 17,612,153 17,940,018
Depreciation and amortization 9,171,094 11,371,460 27,619,511 31,321,578
------------- ------------- -------------- --------------
Total operating expenses 20,049,629 24,187,679 60,753,773 67,701,577
------------- ------------- -------------- --------------
Loss from operations (11,178,961) (14,943,863) (33,281,909) (37,952,556)
------------- ------------- -------------- --------------
Other income (expense):
Interest expense (1,534,646) (11,492,031) (10,321,016) (33,312,588)
Interest income 13,565 129,921 39,855 1,013,010
Equity in losses of affiliate (130,681) (155,045) (399,413) (423,956)
Gain on sale of investment - - - 1,000,000
Other - (209,410) - (229,772)
------------- ------------- -------------- --------------
Total other income (expense) (1,651,762) (11,726,565) (10,680,574) (31,953,306)
------------- ------------- -------------- --------------
Loss before reorganization items
and income taxes (12,830,723) (26,670,428) (43,962,483) (69,905,862)
------------- ------------- -------------- --------------
Reorganization items:
Professional fees (774,867) - (3,355,220) -
Gain (loss) on sale or disposition of assets (129,974) - 925,389 -
Interest income 150,694 - 189,917 -
------------- ------------- -------------- --------------
Total reorganization items (754,147) - (2,239,914) -
------------- ------------- -------------- --------------
Loss before income taxes (13,584,870) (26,670,428) (46,202,397) (69,905,862)
Income tax benefit - 1,300,000 - 3,900,000
------------- ------------- -------------- --------------
Net loss (13,584,870) (25,370,428) (46,202,397) (66,005,862)
============= ============= ============== ==============
Basic and diluted loss per common share $ (0.80) $ (1.50) $ (2.73) $ (3.90)
============= ============= ============== ==============
Basic and diluted weighted average common
shares outstanding 16,958,479 16,910,064 16,948,401 16,910,064
============= ============= ============== ==============
</TABLE>
See accompanying notes to condensed consolidated financial statements
<PAGE>
WIRELESS ONE, INC.
(Debtor-In-Possession)
Condensed Consolidated Statements of Cash Flows
(unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1999 1998
------------- --------------
<S> <C> <C>
Cash flows used in operating activities:
Net loss $ (46,202,397) $ (66,005,862)
Adjustments to reconcile net loss to net cash
used in operating activities:
Bad debt expense 1,070,682 1,354,859
Depreciation and amortization 27,619,511 31,321,578
Amortization of debt discount 4,066,654 16,778,448
Accretion of interest income - (432,926)
Deferred income tax benefit - (3,900,000)
Equity in losses of affiliate 399,413 423,956
Gain on sale or disposition of assets (925,389) (1,000,000)
Changes in assets and liabilities:
Receivables (765,603) (613,755)
Prepaid expenses 330,358 49,925
Deposits 25,411 (94,787)
Accounts payable and accrued expenses 7,263,430 3,318,308
Deferred revenue 1,918,322 -
------------- --------------
Net cash used in operating activities (5,199,608) (18,800,256)
------------- --------------
Cash flows used in investing activities:
Purchase of investments and other assets (359,000) (410,000)
Capital expenditures (5,072,988) (7,334,164)
Acquisition of license intangibles (10,782) (384,804)
Proceeds from sale of assets 1,476,533 2,500,000
Purchase of marketable investment securities (10,061,875) -
Proceeds from maturities of marketable investment
securities 1,001,953 9,411,000
------------- --------------
Net cash (used in) provided by investing activities (13,026,159) 3,782,032
------------- --------------
Cash flows from financing activities:
Principal payments on long-term debt (1,672,903) (278,647)
Proceeds from issuance of notes payable 20,149,752 12,500,000
Proceeds from exercise of stock options 29,737 -
Debt issuance costs - (1,767,546)
------------- --------------
Net cash provided by (used in) financing activities 18,506,586 10,453,807
------------- --------------
Net increase (decrease) in cash and cash equivalents 280,819 (4,564,417)
Cash and cash equivalents at beginning of period 1,163,716 15,528,215
------------- --------------
Cash and cash equivalents at end of period $ 1,444,535 $ 10,963,798
============= ==============
Supplementary information:
Significant non-cash investing and financing activities:
Long-term debt incurred to repay postpetition financing,
related accrued interest and other accrued expenses $ 20,539,748 -
============== ==============
Long-term debt incurred to finance debt issue costs $ 360,500 -
-------------- --------------
</TABLE>
<PAGE>
WIRELESS ONE, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) PROCEEDINGS UNDER CHAPTER 11 AND NATURE OF OPERATIONS
On February 11, 1999, Wireless One, Inc. filed a voluntary case (the
"Bankruptcy Case") with the United States Bankruptcy Court for the
District of Delaware (the "Bankruptcy Court") under Chapter 11 of
Title 11 of the United States Code (the "Bankruptcy Code.") The
Company is operating its business as a debtor-in-possession, subject
to the approval of the Bankruptcy Court for certain of its proposed
actions subsequent to filing the Bankruptcy Case.
The consolidated financial statements are prepared in accordance
with Statement of Position (SOP) 90-7, "Financial Reporting by
Entities in Reorganization Under the Bankruptcy Code." This SOP
provides guidance on financial reporting by entities that have filed
petitions with the Bankruptcy Court and expect to reorganize as
going concerns under Chapter 11 of title 11 of the United States
Code.
The Company is engaged in the business of developing, owning, and
operating wireless cable television systems and high-speed, two-way
Internet access and data transmission systems, primarily in select
southern and southeastern United States markets.
(b) CONSOLIDATION POLICY
The consolidated financial statements include the accounts of the
Company and its majority-owned subsidiaries. All significant
intercompany balances and transactions are eliminated in
consolidation.
(c) INTERIM FINANCIAL INFORMATION
The condensed consolidated financial statements are unaudited and
reflect all adjustments (consisting only of normal recurring
adjustments) which are, in the opinion of management, necessary for
a fair presentation of the financial position and operating results
for the interim periods. The condensed consolidated financial
statements should be read in conjunction with the consolidated
financial statements and notes thereto, contained in the Company's
Annual Report on Form 10-K for the fiscal year ended December 31,
1998. The results of operations for the interim periods are not
necessarily indicative of the results for the entire fiscal year
ending December 31, 1999.
<PAGE>
WIRELESS ONE, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
(d) EARNINGS PER SHARE
Earnings per share are computed in accordance with Statement of
Financial Accounting Standards (SFAS) No. 128, "Earnings Per Share."
The calculation of basic earnings per share excludes any dilutive
effect of potential issuances of common stock, while diluted
earnings per share includes the dilutive effect of such potential
issuances. Shares issuable upon exercise of the Company's stock
options and warrants are anti-dilutive and have been excluded
from the calculation of diluted earnings per share. Anti-dilutive
shares of 69,373 and 831,556 for the three month period ended
September 30, 1998 and 1999, respectively, and 90,328 and 752,076
for the nine month period ended September 30 , 1998 and 1999,
respectively, have been excluded from the calculation of diluted
earnings per share.
(e) USE OF ESTIMATES
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. The significant
estimates impacting the preparation of the Company's consolidated
financial statements include the estimates of undiscounted future
cash flows and fair values used in evaluating the carrying value of
long-lived assets, the allowance for doubtful accounts on subscriber
receivables, the valuation allowances on deferred tax assets and
estimated useful lives of property and equipment and intangible
assets. Actual results could differ from those estimates.
(f) RECLASSIFICATIONS
Certain amounts in the prior year consolidated financial statements
have been reclassified to conform to the current year presentation.
These reclassifications had no effect on previously reported net
loss.
(2) LIQUIDITY, PROCEEDINGS UNDER CHAPTER 11 AND GOING CONCERN
The Company has incurred significant operating and net losses since
inception, and has been unable to generate sufficient cash flow from
operating activities to meet projected debt service and other obligations
as they become due. The Company's business requires substantial amounts of
capital and liquidity, principally for the acquisition and installation of
equipment, the development and launch of new products and markets, debt
service and working capital requirements.
<PAGE>
WIRELESS ONE, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
In March 1998, the Company retained BT Alex. Brown as financial advisors
to review its business operations. With BT Alex. Brown and other
professionals, the Company began a number of initiatives to improve cash
flow and liquidity, including the curtailing or delaying of its plans to
expand into new markets. In September 1998, the Company issued secured
notes totaling $12.5 million pursuant to a $20 million Senior Secured
Discretionary Note Facility (the "Senior Facility") with Merrill Lynch
Global Allocation Fund, Inc. ("MLGAF") to fund ongoing operations. During
the fourth quarter of 1998 MLGAF informed the Company of its decision to
withhold the remaining $7.5 million under the Senior Facility. During the
fourth quarter of 1998, management concluded that it was unlikely that the
Company would be able to continue to execute its then existing business
plan, including continued development of new markets.
In January 1999, the Company began negotiations with several of the
largest holders (the "Unofficial Noteholders' Committee") of the $150
million aggregate principal amount of notes due 2003 (the "1995 Senior
Notes") and the $239 million aggregate principal amount of senior discount
notes (the "1996 Senior Discount Notes") and collectively with the 1995
Senior Notes (the "Old Senior Notes") regarding restructuring such
indebtedness through a prenegotiated plan of reorganization. After
extensive negotiations with the Unofficial Noteholders' Committee and
other holders of Old Senior Notes, the parties reached an agreement (the
"Bondholders' Agreement") on the material terms of a restructuring of the
Company. Pursuant to these negotiations, on February 11, 1999, the
Company filed the Bankruptcy Case. Following commencement of the
Bankruptcy Case, the Company has continued to operate its business as a
debtor-in-possession under the protection and supervision of the
Bankruptcy Court.
On February 12, 1999, the Company entered into a financing facility with
MLGAF (the "Original Postpetition Financing") providing the Company with
an aggregate principal amount of financing of approximately $18.9 million.
The Original Postpetition Financing included (i) $13.5 million,
representing the outstanding principal amount under the Senior Facility
(the Company had issued an additional $1.0 million note pursuant to the
Senior Facility on February 3, 1999), (ii) accrued interest under the
Senior Facility, (iii) a facility fee of $625,000 due to MLGAF in
connection with the Senior Facility and (iv) $4.0 million in additional
financing for working capital needs. Amounts outstanding under the
Original Postpetition Financing bore interest at 15% per annum, and the
Original Postpetition Financing was to have terminated on the earliest to
occur of (i) August 12, 1999 (the date which is the six-month anniversary
of the date of the entry of an interim order), (ii) the date the Original
Postpetition Financing note has become or is declared to be immediately
due and payable as a result of an Event of Default (as defined in the
Original Postpetition Financing), (iii) the date of the redemption of the
Original Postpetition Financing note by the Company or (iv) the effective
date of the Company's Original Plan of Reorganization under the Bankruptcy
Code (the "Plan").
<PAGE>
WIRELESS ONE, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
On March 15, 1999, the Company filed a plan of reorganization (the
"Original Plan") and a proposed disclosure statement, which reflected the
terms of the Bondholders Agreement. Pursuant to the Original Plan, on the
effective date of the Original Plan (the "Effective Date"), the Old Senior
Notes and equity interests of stockholders and others, such as option and
warrant holders would be cancelled and on the Effective Date, or as soon
as practicable thereafter, holders of common stock on a record date to be
determined (the "Record Date") would receive their pro-rata share of
approximately 4% of (i) 9,950,000 of the 10,000,000 shares of the common
stock of the Company (as it was expected to be reorganized as of the
Effective Date, hereinafter "Reorganized Wireless") to be issued and
outstanding as of the Effective Date (the "New Common Stock"), and (ii)
the "New Warrants", which are 5-year warrants to purchase an aggregate of
1,235,000 shares of New Common Stock at an exercise price of $29.57 per
share, subject to adjustment under certain circumstances. All other
equity interests would be cancelled and the holders thereof would not
receive any distribution in respect thereof. The remaining approximately
96% of the New Common Stock would be distributed to holders of Old Senior
Notes (9,552,000 shares) and to BT Alex. Brown (50,000 shares).
Accordingly, under the Original Plan, holders of common stock would
receive one share of New Common Stock for every 42.56 original shares of
common stock held on the Record Date and a New Warrant to purchase one
share of New Common Stock for every 13.72 shares of common stock held on
the Record Date. Upon the Effective Date, Reorganized Wireless would be
authorized under the Original Plan to issue incentive options to
management of Reorganized Wireless to purchase 444,000 shares of New
Common Stock at an exercise price of $13.51 per share pursuant to a newly
adopted Stock Option Plan (the "New Stock Option Plan"). New additional
incentive options to purchase 666,000 shares of New Common Stock at a yet-
to-be-determined exercise price would also be available for issuance to
management pursuant to the New Stock Option Plan.
In April 1999, MLGAF assigned its interest in the Original Postpetition
Financing to MCI Worldcom, Inc. ("MCI Worldcom"). As noted below, in July
1999 MCI Worldcom agreed to provide the Company with new postpetition
financing on terms more favorable to the Company than the Original
Postpetition Financing (the "New Postpetition Financing"). The New
Postpetition Financing replaces and supersedes the Original Postpetition
Financing, as noted below.
In May 1999, the Company sold or transferred certain assets which are not
a part of its core business or are no longer necessary to the operation of
its business, including a hardwire cable system in Huntsville, Alabama.
In addition, pursuant to certain limited liability company organizational
documents and other agreements, Wireless One of North Carolina, LLC
("WONC"), a limited liability company in which the Company holds 50% of
the membership interests, received from the Company certain FCC licenses
and has taken on certain debt obligations associated therewith.
<PAGE>
WIRELESS ONE, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
During June 1999, the Company began actively soliciting proposals from
alternate lenders to provide financing on terms more favorable than those
contained in the Original Postpetition Financing described above. In
particular, the Company sought additional funds for the conduct of its
business from a facility that would continue to be available after the
confirmation of a plan of reorganization. As a result of this search, in
July 1999, the Company received the New Postpetition Financing from MCI
Worldcom. Under the terms of the New Postpetition Financing, MCI Worldcom
provided to the Company a term loan in the aggregate principal amount of
$36.05 million, which will convert to an exit facility upon the
consummation of the Debtor's plan of reorganization. This principal
amount includes (i) approximately $20.5 million of indebtedness under the
Original Postpetition Financing, and (ii) a commitment fee of $360,500
(equivalent to 1% of the aggregate amount of the New Postpetition
Financing) due to MCI Worldcom in connection with the New Postpetition
Financing. Claims and liens of MCI Worldcom to secure the indebtedness
under the New Postpetition Facility shall be afforded the same priority
status as those claims under the Original Postpetition Financing. The
terms and conditions of the New Postpetition Financing are substantially
similar to those of the Original Postpetition Financing, except as
detailed below.
The New Postpetition Financing will terminate on the earliest to occur of
(i) July 23, 2001; or (ii) the date of substantial consummation of a plan
of reorganization for the Company which has not been approved by MCI
Worldcom. As more fully described below, the Company filed on August 5,
1999 an Amended Plan of reorganization in which the Company would become a
wholly owned subsidiary of MCI Worldcom.
Amounts outstanding under the New Postpetition Financing will bear
interest at 10% per annum, which shall be payable quarterly in arrears
beginning September 30, 1999. Alternatively, the Company has the option
to pay interest in kind in which event the interest will accrue at the end
of each month to the principal balance of the New Postpetition Financing.
The New Postpetition Financing contains similar affirmative and negative
covenants as those required by the Original Postpetition Financing. In
addition, the New Postpetition Financing provides for certain other
requirements customary for an exit financing facility, such as financial
covenants related to minimum gross revenue and earnings before interest,
taxes, depreciation and amortization ("EBITDA"), tested both quarterly and
cumulatively, as well as certain other bankruptcy related defaults, such
as (i) the granting of any other superpriority claim or lien which is
senior to or pari passu with those granted with respect to the New
Postpetition Financing; (ii) the order approving the New Postpetition
Financing is stayed, modified, reversed or vacated; (iii) the Bankruptcy
Court enters an order granting relief from the automatic stay so as to
allow the holder of a security interest to proceed against any asset of
the Company having a book value equal to or exceeding $100,000 in the
aggregate; (iv) a plan of reorganization is confirmed that does not
provide for the full payment in cash of the Company's obligations under
the New Post petition Financing on the maturity Date; (v) an order shall
be entered which dismisses the Bankruptcy Case and does not provide for
payment in full in cash of the Company's obligations
<PAGE>
WIRELESS ONE, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
under the New Postpetition Facility; and (vi) the Company shall take any
action, including the filing of an application in support of any of the
foregoing, or any person other than the Company shall do so and such
application is not contested in good faith by the Company and the relief
requested is granted in an order that is not stayed pending appeal.
Since the filing of the Original Plan, there have been announcements by
MCI Worldcom and Sprint Corporation of several acquisitions of other
companies in the wireless cable industry which appear to indicate
substantially higher enterprise valuations than the $160 million valuation
which formed the basis for the Original Plan. More specifically, MCI
Worldcom informed the Company that it had purchased over two thirds of
the Company's Old Senior Notes. In light of these developments, the
Company reviewed the appropriateness of the provisions of the Original
Plan. Under the Bondholders Agreement, the parties (including the
Company, subject to its fiduciary duties) agreed to support the Original
Plan and not to support any other plan of reorganization. Accordingly,
the Company, with assistance from its financial advisor, held extensive
negotiations with MCI Worldcom to address the appropriateness of the
Original Plan. As a result of those negotiations with MCI Worldcom, the
Company agreed to amend the Original Plan as described below.
On August 5, 1999, the Company filed an amended plan of reorganization
(the "Amended Plan") and an amended disclosure statement in which the
Company would become a wholly owned subsidiary of MCI Worldcom. Consistent
with the Original Plan, creditor claims, other than certain officer and
director indemnity claims and the claims of holders of the Old Senior
Notes, will be unimpaired. Pursuant to the Amended Plan, on the effective
date of the Amended Plan, the Old Senior Notes and equity interests of
stockholders, and others, such as option and warrant holders, will be
cancelled and on the Effective Date or as soon as practicable thereafter,
(1) holders other than MCI Worldcom of Old Senior Notes shall be paid in
full, in cash, the amount of outstanding principal and unpaid interest
owed in respect thereon on the Effective Date, or accreted value as of the
Effective Date, as applicable, (2) MCI Worldcom shall receive 100% of the
equity in Reorganized Wireless, and (3) holders of common stock and
certain options and warrants on a record date to be determined (the
"Record Date") will receive their ratable proportion of $22,611,100,
estimated to be $1.32 per share (less the exercise price in the case of
certain options and warrants).
On October 28, 1999, the Bankruptcy Court entered an order confirming the
Amended Plan. The Company expects to consummate the Amended Plan and
thereupon emerge from bankruptcy as a wholly-owned subsidiary of MCI
Worldcom during the fourth quarter of 1999. See the Company's Form 8-K
Current Report dated October 28, 1999 for a summary of the material
features of the Amended Plan and for a copy of the Amended Plan attached
as an exhibit thereto.
Upon consummation of the Amended Plan the liquidity needs of the Company
are expected to be provided by MCI Worldcom.
<PAGE>
WIRELESS ONE, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
The Company is expected to continue to generate operating and net losses
for at least the foreseeable future. There can be no assurance that the
Company will be able to achieve or sustain positive net income in the
future. Operating cash flow from more mature systems is expected to be
partially or completely offset by negative operating cash flow from less
developed systems and from development costs associated with establishing
its new products and its Operating Systems in new markets. This trend is
expected to continue until the Company has a sufficiently large subscriber
base to absorb operating and development costs of recently launched
systems. The Company's ability to further launch Internet access and data
transmission products and improve its video penetration rates and
subscriber levels is dependent on numerous factors, including the
Company's ability to finance new launches and expansion of existing
systems, the success of its cooperative marketing agreements with DirecTV,
Inc., and its distributors (collectively, "DTV"), the acceptance and
performance of WarpOne{SM} (the Company's initial Broadband Wireless
Access product), the ability of the Company to achieve the necessary
regulatory approvals for Internet product launches in a timely manner, and
general economic and competitive factors with respect to the wireless
cable business, many of which are beyond the Company's control. There can
be no assurance that the Company will be able to achieve the necessary
subscriber or revenue levels to attain such operating cash flow levels at
any time.
There can be no assurance that the Company will emerge from the Bankruptcy
Case, that the Company will be able to obtain any necessary additional
financing upon such emergence from bankruptcy, or that the Company will
generate positive operating cash flow upon such emergence from bankruptcy.
These factors raise substantial doubt about the Company's ability to
continue as a going concern. If the Company is unable to continue as a
going concern and is forced to liquidate assets to meet its obligations,
the Company may not be able to recover the recorded amount of such assets.
The Company's consolidated financial statements do not include any
adjustments that might result from the outcome of these uncertainties.
Upon emergence from bankruptcy, under SOP 90-7 "Financial Reporting by
Entities in Reorganization Under the Bankruptcy Code" the Company will
adjust the carrying value of its assets and liabilities based upon the
final determination of its reorganization value (a fair value concept) by
a third party. The amount of such adjustment is not currently estimable.
(3) INCOME TAXES
The Company had previously recorded a net deferred tax liability in
conjunction with its acquisition of TruVision Wireless, Inc. in 1996. The
liability principally related to differences in the basis of the
underlying assets and liabilities in excess of net operating loss
carryforwards. The Company recognized $3.9 million of deferred income tax
benefit for the nine months ended September 30, 1998, representing the tax
effect of the portion of net operating loss carryforwards generated in
that period, which the Company utilized to reduce the deferred tax
liability.
<PAGE>
WIRELESS ONE, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
The Company expects to consummate the Amended Plan and thereupon emerge
from bankruptcy as a wholly owned subsidiary of MCI Worldcom during the
fourth quarter of 1999. The Company could potentially have a reduction of
net operating loss carryforwards and a reduction in the tax basis of
certain assets due to potential cancellation of indebtedness income.
Also, due to the potential change of control of the Company, existing net
operating loss carryforwards could be significantly limited. The impact
of these matters, which will potentially impact deferred income taxes,
will be analyzed by the Company upon consummation of the Amended Plan and
emergence from bankruptcy.
(4) LIABILITIES SUBJECT TO COMPROMISE
As more fully discussed in Note 2, under the Amended Plan, holders of the
Old Senior Notes other than MCI Worldcom shall be paid in full as of the
Effective Date in exchange for cancellation of their debt. MCI Worldcom
shall receive equity in Reorganized Wireless in exchange for cancellation
of their Old Senior Notes. These amounts are considered eligible for
compromise under the Original and Amended Plan and have been reclassified
as Liabilities subject to compromise on the Company's Condensed
Consolidated Balance Sheet at September 30, 1999.
Liabilities subject to compromise are comprised of the following:
<TABLE>
<CAPTION>
<S> <C> <C>
1995 Senior Notes: Principal Balance $ 150,000,000
Accrued Interest 6,375,305
Unamortized Discount (1,118,051)
1996 Senior Discount Notes: Principal Balance 239,252,000
Unamortized Discount (70,998,470)
-----------------
$ 323,510,784
=================
</TABLE>
Additionally, under SOP 90-7, interest accruing on these compromised
liabilities ceased as of the date of the filing of the Plan. If not for
the filing, additional contractual interest expense would have been
$11,232,229 and $28,145,015, respectively, for the three and nine month
periods ended September 30, 1999.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results of
Operations contains certain "forward looking statements" within the meaning of
Section 27A of the Securities Act of 1933 (the "Securities Act") and Section
21E of the Securities Exchange Act of 1934 (the "Exchange Act"), which reflect
management's best judgment based on factors currently known. Actual results
could differ materially from those anticipated in these "forward looking
statements" as a result of a number of factors, including but not limited to
those discussed below, in particular under the heading "Cautionary
Statements." "Forward looking statements" provided by the Company pursuant to
the safe harbor established by the federal securities laws should be evaluated
in the context of these factors.
This discussion and analysis should be read in conjunction with the
Company's condensed consolidated financial statements and notes thereto.
RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1999,
COMPARED TO THE SAME PERIODS ENDED SEPTEMBER 30, 1998.
OVERVIEW
Since its inception, the Company has significantly increased its
subscription video operating markets ("Operating Markets") and number of
subscribers. This controlled growth has been achieved from internal expansion
and through acquisitions and mergers. The Company has sustained substantial
net losses, primarily due to fixed operating costs associated with the
development of its systems and products, interest expense and charges for
depreciation and amortization.
Historically, the Company's principal business has been the operation of
wireless cable systems which provide, as of September 30, 1999, television
programming service to video subscribers in 37 Operating Markets. These
markets have an average of 27 cable television programming channels, including
local broadcast programming. The Company also offers up to 185 channels of
Direct Broadcast Satellite ("DBS") programming from DirecTV, Inc. in many of
its Operating Markets under cooperative marketing agreements with DirecTV,
Inc. and its distributors (collectively, "DTV"). As of September 30, 1999,
the Company had approximately 93,600 wireless and DBS video subscribers.
While the Company is continuing its business as a wireless cable operator
and will continue to exploit its DTV agreements, the Company redirected its
primary long-term business strategy during 1998 to expand the use of its
spectrum through the delivery of Broadband Wireless Access ("BWA") services
such as two-way high-speed Internet access, data transmission and IP telephony
services, and the Company has devoted substantial resources in 1997 and 1998
to the development of these services and products. The Company's initial BWA
product, developed and engineered over the past approximately two and one-half
years, is a high-speed, two-way Internet access and data transmission product
which it is marketing under the name "WarpOne{SM}". In 1998, the Company
introduced WarpOne{SM} in Jackson, Mississippi, Baton Rouge, Louisiana, and
Memphis, Tennessee as test markets.
In March 1998, the Company retained BT Alex. Brown as financial advisors
to review its business operations, including its immediate working capital
needs. With the assistance of BT Alex. Brown and other professionals, the
Company began a number of initiatives to improve cash flow and liquidity,
including curtailing or delaying its plans to expand into new non-operating
markets, instead concentrating on the maintenance of its existing 39 video and
data Operating Markets.
In September 1998, the Company entered into the Senior Facility with MLGAF
to fund ongoing operations. As of February 11, 1999, the Company had borrowed
$13.5 million in aggregate principal amount under the Senior Facility.
<PAGE>
In January 1999 the Company began negotiations with the Unofficial
Noteholders Committee regarding restructuring the Old Senior Notes through a
prenegotiated plan of reorganization. After extensive negotiations with the
Unofficial Noteholders Committee and other holders of the Old Senior Notes,
the parties entered into the Bondholders Agreement, which provided for the
material terms of a restructuring of the Company. Pursuant to these
negotiations, on February 11, 1999 the Company filed the Bankruptcy Case with
the Bankruptcy Court.
Following commencement of the Bankruptcy Case, the Company has continued
to operate its business as a debtor-in-possession with the protection and
supervision of the Bankruptcy Court in a manner intended to minimize the
impact of the Bankruptcy Case on the Company's day-to-day activities. See "-
Liquidity and Capital Resources" for a description of certain financings
obtained by the Company since the filing of the Bankruptcy Case and a summary
of the terms of the Original Plan and the Amended Plan in which the Company
would become a wholly owned subsidiary of MCI Worldcom, and other recent
developments.
The Company does not anticipate being able to generate net income for the
foreseeable future and there can be no assurance that other factors, such as,
but not limited to, general economic conditions and economic conditions
prevailing in the Company's industry, its inability to raise additional
financing or disruptions in its operations, will not result in further delays
in operating on a profitable basis. Net losses are expected to continue as
the Company focuses its resources on the marketing of its DTV products,
development of its Internet access product and as additional systems are
commenced or acquired. See "- Liquidity and Capital Resources."
RESULTS OF OPERATIONS
Revenues - The Company's revenues consist of monthly fees paid by
subscribers for the basic programming package and for premium programming
services. The Company's subscription revenues for the three months ended
September 30, 1999 were $8.9 million as compared to $9.2 million for the same
period of 1998, a decrease of 3%. The Company's subscription revenues for the
nine months ended September 30, 1999 were $27.5 million as compared to $29.7
million for the same period of 1998, a decrease of 7%. The decrease in
revenue over the comparable prior year periods was primarily due to a 22%
decline in MMDS video subscribers. The addition of 10,300 DBS subscribers and
a $3 increase in monthly basic MMDS video service rates, effected March 1,
1999, partially offset the decline in MMDS video subscribers.
Systems Operations Expenses - Systems operations expense includes
programming costs, channel lease payments, tower and transmitter site rentals,
cost of program guides, certain repairs and maintenance expenditures, vehicle
expenses and other direct operating and labor expenses. Programming costs,
cost of program guides, channel lease payments (with the exception of minimum
payments) and certain labor expenses are variable expenses that fluctuate as
the number of subscribers changes. Systems operations expenses for the three
months ended September 30, 1999 were $4.7 million as compared to $6.2 million
for the same period of 1998, a decrease of 24%. Systems operations expenses
for the nine months ended September 30, 1999 were $15.5 million as compared to
$18.4 million for the same period of 1998, a decrease of 16%. The decrease
over both periods was largely attributable to retrenchment in the wireless
video markets and continued reductions in the workforce.
Selling, General and Administrative - SG&A expenses for the three months
ended September 30, 1999 were $6.2 million, compared to $6.6 million from the
same period in 1998, a decrease of 6%. SG&A expenses for the nine months
ended September 30, 1999 were $17.6 million compared to $17.9 million for the
same period of 1998, a decrease of 2%. The decrease in SG&A expenses over the
comparable prior year periods is attributable to attrition of the workforce
subsequent to the Company's bankruptcy filing and the consolidation of system
administrative offices.
<PAGE>
Depreciation and Amortization Expense - Depreciation and amortization
expense for the quarter ended September 30, 1999 was $9.2 million versus $11.4
million for the same period of 1998, a decrease of $2.2 million. Depreciation
and amortization expense for the nine months ended September 30, 1999 was
$27.6 million as compared to $31.3 million for the same period of 1998, a
decrease of $3.7 million. The decrease in depreciation and amortization
expense during both periods was due to reduced capital spending during 1998
and 1999, the effect of an impairment write-down in the fourth quarter of 1998
and the shift in emphasis to DTV.
Interest Expense - Interest expense for the quarter ended September 30,
1999 was $1.5 million versus $11.5 million for the same period of 1998, a
decrease of $10.0 million. Interest expense for the nine months ended
September 30, 1999 was $10.3 million as compared to $33.3 million for the same
period of 1998, a decrease of $23.0 million. This decrease in interest expense
was due to the interest on the Old Senior Notes ceasing with the bankruptcy
filing on February 11, 1999. If the contractual interest had been calculated
on the Notes through September 30, 1999, interest expense for the current
quarter would have increased $11.2 million to $12.7 million, and year-to-date
interest expense would have increased $28.1 million to $38.4 million.
Interest Income - Interest income for the quarter and year-to-date
periods ended September 30, 1999 was negligible, versus $.1 million and $1.0
million for the respective periods in 1998. This decrease in interest income
was due to a decrease in the amount of funds available for investment that
resulted from the continued utilization of cash balances to further operate
and develop the Company's Operating Systems.
Reorganization Items - Under SOP 90-7 items of income, expense, gain, or
loss that are realized or incurred by an entity in reorganization are to be
classified as Reorganization Items. The Company has further segregated
professional fees, gain (loss) on sale or disposition of assets and interest
income within this category. Professional fees are comprised of legal,
accounting, consulting and additional administrative costs that relate
specifically to the Bankruptcy Case. Included in the gain (loss) on sale or
disposition of assets are the sale of a hardwire cable system, the transfer of
certain assets and liabilities to a limited liability company in which the
Company holds a 50% interest and disposal costs related to the closing of
system offices. Interest income results from investment balances from funding
made available to the Company through the Postpetition Financing Facility.
LIQUIDITY AND CAPITAL RESOURCES
The wireless cable television and Internet access and data transmission
businesses are capital intensive. The Company's operations require
substantial amounts of capital for (i) the installation of equipment at
subscribers' premises, (ii) the construction of transmission and headend
facilities and related equipment purchases, (iii) the funding of start-up
losses and other working capital requirements, (iv) the acquisition of
wireless cable channel rights and systems, (v) investments in vehicles and
administrative offices, and (vi) the development, testing and launch of new
products, such as WarpOne{SM}, the Company's initial BWA product. Since
inception, the Company has expended funds to lease or otherwise acquire
channel rights in various markets, to construct or acquire its Operating
Markets, to commence construction of Operating Markets in different areas and
to finance initial operating losses.
For the nine months ended September 30, 1999, cash used in operating
activities was $5.2 million. Adjustments to the net loss of $46.2 million to
arrive at cash used in operating activities included a $0.9 million gain
offset by depreciation and amortization of $27.6 million, amortization of
debt discount of $4.1 million, a net decrease in current assets and
liabilities of $8.8 million and other non-cash expenses of $1.4 million. For
the nine months ended September 30, 1999, cash used in investing activities
was $13.0 million, consisting of net purchases of marketable securities of
$9.1 million, capital and other long-term asset expenditures of $5.4 million
offset by proceeds from the sale of assets of $1.5 million. Cash flows from
financing activities for the nine months ended September 30,
<PAGE>
1999 were $18.5 million consisting primarily of proceeds from debt of $20.2
million less principal payments on long-term debt of $1.7 million.
For the nine months ended September 30, 1998, cash used in operating
activities was $18.8 million consisting of a net loss of $66.0 million, less
non-cash depreciation and amortization of $31.3 million, amortization of debt
discount of $16.8 million, a net change in current assets and liabilities of
$2.6 million, and bad debt expense of $1.4 million, plus non-cash deferred
income tax benefit of $3.9 million and a gain on sale of assets of $1.0
million. For the nine months ended September 30, 1998, cash provided by
investing activities was $3.8 million, consisting primarily of proceeds from
the maturities of securities of $9.4 million, net proceeds from the sale of
its investment in Telecorp of $2.5 million, partially offset by capital
expenditures, payments for licenses and the purchase of other assets and
investments of $8.1 million. For the nine months ended September 30, 1998,
cash flows provided by financing activities were $10.5 million. This cash
flow consisted of $12.5 million from the issuance of notes pursuant to the
Senior Facility, less $1.8 million for debt issue costs and $0.3 million for
the repayment of debt.
As described above (see "Overview"), on February 11, 1999, the Company
announced that it had reached an agreement with the Unofficial Noteholders
Committee and other holders of the Old Senior Notes regarding the financial
reorganization of the Company. Pursuant to the Bondholders Agreement, the
Company filed the Bankruptcy Case on February 11, 1999. Following
commencement of the Bankruptcy Case, the Company has continued to operate its
business as a debtor-in-possession under the protection and supervision of the
Bankruptcy Court in a manner intended to minimize the impact of the Bankruptcy
Case on the Company's day-to-day activities. An immediate effect of the filing
of the Bankruptcy Case was the imposition of the automatic stay under the
Bankruptcy Code which, with limited exceptions, enjoins the commencement or
continuation of all litigation against the Company during pendency of the
Bankruptcy Case.
On February 12, 1999, the Company entered into a financing facility (the
"Original Postpetition Financing") with MLGAF providing the Company with an
aggregate principal amount of financing of approximately $18.9 million. The
Original Postpetition Financing included (i) $13.5 million, representing the
outstanding principal amount under the Senior Facility, (ii) accrued interest
under the Senior Facility, (iii) a facility fee of $625,000 due to MLGAF in
connection with the Senior Facility and (iv) $4 million in additional
financing provided by MLGAF for working capital requirements. Amounts
outstanding under the Original Postpetition Financing bore interest at 15% per
annum, and the Original Postpetition Financing was to have terminated on the
earliest to occur of (i) August 12, 1999, (ii) the date the Original
Postpetition Financing note has become or is declared to be immediately due
and payable as a result of an Event of Default (as defined in the Original
Postpetition Financing), (iii) the date of the redemption of the Original
Postpetition Financing note by the Company or (iv) the effective date of the
Original Plan (the "Effective Date"),
On March 15, 1999, the Company filed a plan of reorganization (the
"Original Plan") and a proposed disclosure statement, which reflect the terms
of the Bondholders Agreement. Pursuant to the Original Plan, on the Effective
Date the Old Senior Notes and equity interests of stockholders, and others,
such as option and warrant holders, would be cancelled and on the Effective
Date or as soon as practicable thereafter, holders of common stock on a record
date to be determined (the "Record Date") would receive their pro-rata share
of approximately 4% of (i) 9,950,000 of the 10,000,000 shares of the common
stock of the Company (as it was expected to be reorganized as of the Effective
Date, hereinafter "Reorganized Wireless") to be issued and outstanding as of
the Effective Date (the "New Common Stock"), and (ii) the "New Warrants",
which are 5-year warrants to purchase an aggregate of 1,235,000 shares of New
Common Stock at an exercise price of $29.57 per share, subject to adjustment
under certain circumstances. All other equity interests would be cancelled
and the holders thereof would not receive any distribution in respect thereof.
The remaining approximately 96% of the New Common Stock would be distributed
to holders of Old Senior Notes (9,552,000 shares) and to BT Alex. Brown
(50,000 shares). Accordingly, under the Original Plan holders of common stock
would receive one share of New Common Stock for every 42.56 original shares of
common stock held on the Record
<PAGE>
Date and a New Warrant to purchase one share of New Common Stock for every
13.72 shares of common stock held on the Record Date. Upon the Effective Date,
Reorganized Wireless would be authorized under the Original Plan to issue
incentive options to management of Reorganized Wireless to purchase 444,000
shares of New Common Stock at an exercise price of $13.51 per share pursuant
to a newly adopted Stock Option Plan (the "New Stock Option Plan"). New
additional incentive options to purchase 666,000 shares of New Common Stock at
a yet-to-be-determined exercise price would also be available for issuance to
management pursuant to the New Stock Option Plan.
In April 1999, MLGAF assigned its interest in the Original Postpetition
Financing to MCI Worldcom. As noted below, in July 1999, MCI Worldcom agreed
to provide the Company with new postpetition financing on terms more favorable
to the Company than the Original Postpetition Financing (the "New Postpetition
Financing"). The New Postpetition Financing replaces and supersedes the
Original Postpetition Financing, as noted below.
In May 1999, the Company sold or transferred certain assets which are
not a part of its core business or are no longer necessary to the operation of
its business, including a hardwire cable system in Huntsville, Alabama. In
addition, pursuant to certain limited liability company organizational
documents and other agreements, Wireless One of North Carolina, LLC ("WONC"),
a limited liability company in which the Company holds 50% of the membership
interests, received from the Company certain FCC licenses and has taken on
certain debt obligations associated therewith.
During June 1999 the Company began actively soliciting proposals from
alternate lenders to provide financing on terms more favorable than those
contained in the Original Postpetition Financing described above. In
particular, the Company sought additional funds for the conduct of its
business from a facility that would continue to be available after the
confirmation of a plan of reorganization. As a result of this search, in July
1999, the Company received the New Postpetition Financing from MCI Worldcom.
Under the terms of the New Postpetition Financing, MCI Worldcom provided to
the Company a term loan in the aggregate principal amount of $36.05 million,
which will convert to an exit facility upon the consummation of the Debtor's
plan of reorganization. This principal amount includes (i) approximately
$20.5 million of indebtedness under the Original Postpetition Financing, and
(ii) a commitment fee of $360,500 (equivalent to 1% of the aggregate amount of
the New Postpetition Financing) due to MCI Worldcom in connection with the New
Postpetition Financing. Claims and liens of MCI Worldcom to secure the
indebtedness under the New Postpetition Facility shall be afforded the same
priority status as those claims under the Original Postpetition Financing.
The terms and conditions of the New Postpetition Financing are substantially
similar to those of the Original Postpetition Financing, except as detailed
below.
The New Postpetition Financing will terminate on the earliest to occur
of (i) July 23, 2001; or (ii) the date of substantial consummation of a plan
of reorganization for the Company which has not been approved by MCI Worldcom.
As more fully described below, the Company filed on August 5, 1999 an Amended
Plan of Reorganization in which the Company would become a wholly owned
subsidiary of MCI Worldcom.
Amounts outstanding under the New Postpetition Financing will bear
interest at 10% per annum, which shall be payable quarterly in arrears,
beginning September 30, 1999. Alternatively, the Company has the option to
pay interest in kind in which event the interest will accrue at the end of
each month to the principal balance of the New Postpetition Financing.
The New Postpetition Financing contains similar affirmative and negative
covenants as those required by the Original Postpetition Financing. In
addition, the New Postpetition Financing provides for certain other
requirements customary for an exit financing facility, such as financial
covenants related to minimum gross revenue and EBITDA, tested both quarterly
and cumulatively, as well as certain other bankruptcy related defaults, such
as (i) the granting of any other superpriority claim or lien which is senior
to or pari passu with those granted with respect to the New Postpetition
Financing; (ii) the order approving the New Postpetition Financing is stayed,
modified, reversed or vacated; (iii) the Bankruptcy Court enters an order
granting relief from the automatic stay so as to allow the holder of a
<PAGE>
security interest to proceed against any asset of the Company having a book
value equal to or exceeding $100,000 in the aggregate; (iv) a plan of
reorganization is confirmed that does not provide for the full payment in cash
of the Company's obligations under the New Postpetition Financing on the
Maturity Date; (v) an order shall be entered which dismisses the Bankruptcy
Case and does not provide for payment in full in cash of the Company's
obligations under the New Postpetition Facility; and (vi) the Company shall
take any action, including the filing of an application in support of any of
the foregoing, or any person other than the Company shall do so and such
application is not contested in good faith by the Company and the relief
requested is granted in an order that is not stayed pending appeal.
Since the filing of the Original Plan, there have been announcements by
MCI Worldcom and Sprint Corporation of several acquisitions of other companies
in the wireless cable industry which appear to indicate substantially higher
enterprise valuations than the $160 million valuation which formed the basis
for the Original Plan. More specifically, MCI Worldcom informed the Company
that it had purchased more than two thirds of the Company's Old Senior Notes.
In light of these developments, the Company reviewed the appropriateness of
the provisions of the Original Plan. Under the Bondholders Agreement, the
parties (including the Company, subject to its fiduciary duties) agreed to
support the Original Plan and not to support any other plan of reorganization.
Accordingly, the Company, with assistance from its financial advisor, held
extensive negotiations with MCI Worldcom to address possible amendments to the
Original Plan. As a result of those negotiations with MCI Worldcom, the
Company agreed to amend the Original Plan as described below.
On August 5, 1999, the Company filed an amended plan of reorganization
(the "Amended Plan") and proposed disclosure statement in which the Company
would become a wholly owned subsidiary of MCI Worldcom and consistent with the
Original Plan, creditor claims, other than certain officer and director
indemnity claims and the claims of holders of the Old Senior Notes, will be
unimpaired. Pursuant to the Amended Plan, on the effective date of the
Amended Plan, the Old Senior Notes and equity interests of stockholders, and
others, such as option and warrant holders, will be cancelled and on the
Effective Date or as soon as practicable thereafter, (1) holders other than
MCI Worldcom of Old Senior Notes shall be paid in full, in cash, the amount of
outstanding principal and unpaid interest owed in respect thereof on the
Effective Date, or accreted value, as applicable, (2) MCI Worldcom shall
receive 100% of the equity in Reorganized Wireless, and (3) holders of common
stock on a record date to be determined (the "Record Date") will receive their
ratable proportion of $22,611,100, estimated to be $1.32 per share (less the
exercise price in the case of certain options and warrants).
On October 28, 1999, the Bankruptcy Court entered an order confirming the
Amended Plan. The Company expects to consummate the Amended Plan and
thereupon emerge from bankruptcy as a wholly-owned subsidiary of MCI Worldcom
during the fourth quarter of 1999. See the Company's Form 8-K Current Report
dated October 28, 1999 for a summary of the material features of the Amended
Plan and for a copy of the Amended Plan attached as an exhibit thereto.
Upon consummation of the Amended Plan the liquidity needs of the Company
are expected to be provided by MCI Worldcom.
The Company is expected to continue to generate operating and net losses
for at least the foreseeable future. There can be no assurance that the
Company will be able to achieve or sustain positive net income in the future.
Operating cash flow from more mature systems is expected to be partially or
completely offset by negative operating cash flow from less developed systems
and from development costs associated with establishing its new products and
its Operating Systems in new markets. This trend is expected to continue
until the Company has a sufficiently large subscriber base to absorb operating
and development costs of recently launched systems. The Company's ability to
further launch Internet access and data transmission products and improve its
video penetration rates and subscriber levels is dependent on numerous
factors, including the Company's ability to finance new launches and expansion
of existing systems, its experience with its DTV product, the acceptance and
performance of WarpOne{SM} (the Company's initial BWA product), the ability
of the Company to
<PAGE>
achieve the necessary regulatory approvals for Internet product launches in a
timely manner, and general economic and competitive factors with respect to
the wireless cable business, many of which are beyond the Company's control.
There can be no assurance that the Company will be able to achieve the
necessary subscriber or revenue levels to attain such operating cash flow
levels at any time.
There can be no assurance that the Company will emerge from the
Bankruptcy Case, that the Company will be able to obtain any necessary
additional financing upon such emergence from bankruptcy, or that the Company
will generate positive operating cash flow upon such emergence from
bankruptcy. These factors raise substantial doubt about the Company's ability
to continue as a going concern. If the Company is unable to continue as a
going concern and is forced to liquidate assets to meet its obligations, the
Company may not be able to recover the recorded amount of such assets. The
Company's consolidated financial statements do not include any adjustments
that might result from the outcome of these uncertainties.
Upon emergence from bankruptcy, under SOP 90-7 "Financial Reporting by
Entities in Reorganization Under the Bankruptcy Code" the Company will adjust
the carrying value of its assets and liabilities based upon the final
determination of its reorganization value (a fair value concept) by a third
party. The amount of such adjustment is not currently estimable.
CAUTIONARY STATEMENTS
Management's Discussion and Analysis of Financial Condition and Results of
Operations and the notes to the financial statements contained herein contain
"forward-looking statements". Such statements include, without limitation,
statements regarding future liquidity, cash needs and alternatives to address
capital needs, and the Company's expectations regarding positive operating
cash flow, net losses, subscriber and revenue levels, profitability and SG&A
costs, the expected results of the Company's business strategy, and other
plans and objectives of management of the Company for future operations and
activities and are indicated by words or phrases such as "anticipate",
"estimate", "plans", "projects", "continuing", "ongoing", " expects",
"management believes", "the Company believes", " the Company intends", " we
believe", "we intend", and similar words or phrases.
Important factors that could cause actual results to differ materially from
the Company's expectations include those risk factors set forth in the
Company's First Amended Disclosure Statement ("Amended Disclosure Statement")
filed with the Bankruptcy Court on August 5, 1999 and filed as an exhibit to
the Company's Form 8-K Current Report filed with the Securities and Exchange
Commission on August 11, 1999, as well as, without limitation, any other
needed approvals and consummation of the Amended Plan, which are beyond the
control of the Company. Further information regarding these and other factors
that might cause future results to differ from those projected in the forward-
looking statements is described in more detail under the heading "Factors That
May Affect Future Results of the Company" in the Company's Form 10-K for the
year ended December 31, 1998, under the heading "Cautionary Statements" in the
Company's Form 10-Q for the quarter ended March 31, 1999 and under the heading
"Certain Risk Factors to be Considered" in the Amended Disclosure Statement.
YEAR 2000 COMPLIANCE
The Year 2000 computer issue concerns the ability of computer systems and
other equipment containing embedded microchip technology to distinguish the
year 2000 from the year 1900. Many experts fear that this programming problem
could render computer systems and such other equipment around the globe
inoperable. The potential Year 2000 risks to the Company include disruptions
or failures within the Company's operations and products, as well as within
the operations and products of its suppliers and other key business partners.
Because of the indirect effect of third parties, an accurate assessment and
prediction of the impact of the Year 2000 issue on the Company is difficult.
<PAGE>
The Company is currently implementing plans to address both the internal
and external Year 2000 issues. Internally, these plans encompass an
assessment of all major computer systems in use by the Company. The Company
has already completed a significant upgrade to Year 2000 compliant software
and hardware in conjunction with its 1996 merger. The Company has assessed
all critical areas of its own operations and anticipates the completion of
internal corrections by November 19, 1999. It will internally certify the
readiness of these critical areas by November 30, 1999. The Company's risk
assessment processes associated with critical suppliers and other key business
partners, included analyzing responses to questionnaires previously solicited
and, if necessary, performing onsite interviews. The Company is dependent
upon the internal self-assessments of key business partners regarding their
own Year 2000 issues. The Company intends to develop contingency plans based
primarily on these assessment results. Despite the Company's efforts to
identify and remedy its own internal Year 2000 problems as well as those of
critical third parties, no assurance can be given that all such problems will
be identified or adequately remedied, or that Year 2000 problems within its
own systems and products or within those of third parties will not have a
material adverse effect on the financial condition and results of operations
of the Company.
The following table is an estimate of timing for assessment and correction of
Year 2000 issues:
<TABLE>
<CAPTION>
EST.COMPLETION DATE EST. CERTIFICATION DATE
<S> <C> <C>
Internal Assessment Completed N/A
Internal Corrections November 19, 1999 November 30, 1999
External Assessment Completed Completed
</TABLE>
Costs incurred to date in addressing Year 2000 issues are approximately
$0.2 million. Based on current correction projects the Company expects to
spend approximately $0.3 million in both incremental spending and re-deployed
resources to resolve Year 2000 issues. As the Company's assessment and
correction of Year 2000 issues continues these costs may change. This
estimate relates to internal issues and does not include potential costs from
claims resulting from the Company's failure to effect timely implementation of
corrective action on Year 2000 issues. The Company's estimate is irrespective
of the impact on operations that may result from third party deficiencies.
The Company does not expect any significant disruption to its operations
as a result of Year 2000 issues. The Company is taking actions it believes
are necessary and appropriate to identify and resolve any, and all of these
issues. Because of the complexity of Year 2000 issues, and our reliance on
performance by third parties, the Company is not able to guarantee that all
issues will be assessed, identified or corrected in a timely or successful
manner.
The foregoing statements regarding the Company's Year 2000 plans and
related estimates of costs are forward-looking statements and actual results
will vary. The Company's success in addressing Year 2000 issues could be
impacted by the severity of the problems to be resolved within the Company, by
problems affecting its suppliers and other key business partners, and by the
associated costs.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
The Company is not exposed to material future earnings or cash flow
fluctuations from changes in interest rates on long-term debt. The majority
of the Company's long-term debt bears fixed interest rates. To date, the
Company has not entered into any derivative financial instruments to manage
interest rate risk and is currently not evaluating the future use of any such
financial statements.
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits: See Exhibit Index on page E-1
(b) Reports on Form 8-K
On July 20, 1999, the Company filed a Current Report on Form 8-K dated
July 20, 1999 stating under "Item 5. Other Events" that the Company issued a
news release stating that it will amend its Plan of Reorganization and
Disclosure Statement in accordance with a term sheet negotiated with MCI
Worldcom, Inc. and that the Company will become a wholly-owned subsidiary of
MCI Worldcom, Inc. pursuant to the amended plan or reorganization, subject to
Bankruptcy Court and other necessary approvals.
On August 5, 1999, the Company filed a Current Report on Form 8-K dated
August 5, 1999 stating under "Item 5. Other Events" that the Company filed a
First Amended Plan of Reorganization and a First Amended Disclosure Statement
and certain other related documents with the Bankruptcy Court. These
documents amend the initial Plan of Reorganization and Disclosure Statement
filed with the Bankruptcy Court on March 15, 1999, and remain subject to
further revision and amendment as well as approval by the Bankruptcy Court.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WIRELESS ONE, INC.
Date: November 15, 1999 /S/ Henry M. Burkhalter
____________________________________
Henry M. Burkhalter
President and Chief Executive Officer
Date: November 15, 1999 /S/ Henry G. Schopfer, III
___________________________________
Henry G. Schopfer, III
Executive Vice President and
Chief Financial Officer
Date: November 15 , 1999 /S/ William D. Gray
__________________________________
William D. Gray
Controller
(Chief Accounting Officer)
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION OF EXHIBIT
2.1 Debtor's First Amended Plan of Reorganization under Chapter 11 of the
Bankruptcy Code dated August 5, 1999(1)
2.2 Debtor's First Amended Disclosure Statement pursuant to Section 1125 of
the Bankruptcy Code dated August 5, 1999(1)
3.1 (i) Amended and Restated Certificate of Incorporation of the
Registrant(2)
3.1 (ii) Bylaws of the Registrant(2)
4.1 Indenture between the Registrant and United States Trust Company of New
York, as Trustee, dated October 24, 1995(3)
4.2 Warrant Agreement between Registrant and United States Trust Company
of New York, as Warrant Agent, dated October 24, 1995(3)
4.3 Escrow and Disbursement Agreement between the Registrant and Bankers
Trust Corporation, Escrow Agent, dated October 24, 1995(3)
4.4 Supplemental Indenture between the Registrant and United States
Trust Company of New York, as trustee, dated July 26, 1996(4)
4.5 Indenture between the Registrant and United States Trust Company of New
York as Trustee, dated August 12, 1996(4)
4.6 Warrant Agreement between the Registrant and United States Trust
Company of New York, as Warrant Agent, dated August 12, 1996(5)
4.7 Second Supplemental Indenture between the Registrant and the United
States Trust Company of New York, as trustee, dated August 24, 1998,
pertaining to the Registrant's 13% Senior Discount Notes due October
15, 2003(6)
4.8 First Supplemental Indenture between the Registrant and the United
States Trust Company of New York, as trustee, dated August 24, 1998,
pertaining to the Registrant's 13 1/2% Senior Discount Notes due August
1, 2006(6)
10.1 Discretionary Note Purchase Agreement between the Company and the
Purchasers listed in Schedule I thereto, dated as of September 4, 1998
(see table of contents for list of omitted exhibits and schedules)(7)
10.2 Form of 13.00% Senior Secured Discretionary Note(7)
10.3 Warrant Agreement between the Company and First Chicago Trust Company
of New York, as warrant agent, dated as of September 4, 1998(7)
10.4 Form of Warrant Certificate(7)
10.5 Paying Agency Agreement between the Company, Merrill Lynch Global
Allocation Fund and PriceWaterhouseCoopers LLP, as paying agent and
collateral agent, dated as of September 4, 1998(7)
27.1 Financial Data Schedules(8)
<PAGE>
FOOTNOTES
1) Incorporated herein by reference to the Registrant's Form 8-K dated
August 5, 1999.
2) Incorporated herein by reference from the Registrant's Registration
Statement on Form S-1(Registration Number 333-05109) as declared
effective by the Commission on August 7, 1996.
3) Incorporated herein by reference from the Registrant's Registration
Statement on Form S-1 (Registration Number 33-94942) as declared
effective by the commission on October 18, 1995.
4) Incorporated herein by reference from the Registrant's Quarterly
Report on Form 10-Q for the fiscal quarter ended September 30, 1995.
5) Incorporated herein by reference to the Registrant's Registration
Statement on Form S-1 (Registration Number 333-12449) as declared
effective on October 18, 1996.
6) Incorporated herein by reference to the Registrant's Form 8-K dated
August 25, 1998.
7) Incorporated herein by reference to the Registrant's Form 8-K dated
September 4, 1998.
8) Filed herewith.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM WIRELESS
ONE, INC.'S CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-1-1999
<PERIOD-END> SEP-30-1999
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<SECURITIES> 9,059,922
<RECEIVABLES> 2,654,256
<ALLOWANCES> 1,444,561
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<CURRENT-ASSETS> 13,336,037
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<LOSS-PROVISION> 1,070,682
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